Preface

Acknowledgments/Note

Chapter 1. Introduction

• Report Purpose

• Report Structure

Chapter 2. Fair Housing: A Basis for Greater Opportunity and Choice

• Federal Fair Housing Requirements

• Fair Housing Planning Requirements for States

• State Analysis of Impediments to Fair Housing Choice

Chapter 3. State Case Studies

• South Carolina

• Maryland

• New Jersey

Chapter 4. Conclusion

PREFACE

The Council of State Community Development Agencies (COSCDA) is a membership organization for cabinet-level state agencies which administer federal and state resources for housing, homelessness, and community and economic development, including the Community Development Block Grant (CDBG) Program and (in about half of the states) the HOME Investment Partnerships (HOME) Program. COSCDA members work extensively with local governments, as well as with nonprofit organizations and the private business community. COSCDA provides its members with technical assistance, training and advocacy in program and policy development and practice.

This guidebook is one in a series that COSCDA will prepare under a cooperative technical assistance grant funded by the U.S. Department of Housing and Urban Development (HUD). The grant is administered through the National Affordable Housing Training Institute (NAHTI), a nonprofit organization composed of eight public interest groups, including COSCDA. NAHTI provides technical assistance and training assistance support to city, county and state governments in the areas of affordable housing and community development.

Under its cooperative agreement through NAHTI, COSCDA is holding workshops, issuing a quarterly newsletter, conducting on-site consultations, and preparing a number of reports to help the 50 state program administering agencies use the HOME program in an effective, innovative, accountable manner. HOME is a federally-funded housing program which allocates funds directly to States and local governments on a formula basis (40 percent to States; 60 percent to local governments) for the development of rental and ownership housing. Created in 1990, under the National Affordable Housing Act, the HOME program has in the past five years generated nearly 220,000 units of affordable housing and assisted over 28,000 low-income families with tenant-based assistance.

HOME is currently the single most flexible form of housing assistance provided directly to states and local governments. While the program was developed in part both in recognition of the increasing state role in affordable housing development, and to prompt additional and continuing efforts by states and local governments, the program also strongly emphasized the role of community-based nonprofit organizations -- formally designated as community housing development organizations (CHDOs) -- in the housing delivery system.

HOME funds may be used to support a range of activities necessary to produce decent, affordable rental and homeownership housing, as well as transitional or permanent housing for people who are homeless. Program activities may include new construction, rehabilitation and acquisition of affordable housing, as well as tenant-based assistance (for an initial period of 24 months, which may be renewed) and security deposits. Funds also may be used to support project predevelopment or organizational operating support for community housing development organizations (CHDOs).

ACKNOWLEDGMENTS

Several people contributed their time and knowledge to the formation of this guidebook. Without their efforts, information for the guidebook would not have been obtained. Primary thanks goes to staff from the three states profiled within this guidebook -- South Carolina, New Jersey and Maryland. Specifically, the author would like to thank the following individuals within these three states:

South Carolina State Housing Finance and Development Authority

Valarie Murray Williams, Director, Housing Initiatives Division
Dora McGrew, Director, Homeownership Division

New Jersey Department of Community Affairs

Anthony Cancro, Director, Division of Housing and Community Resources
Sheri Malnak, HOME Program
Paula Howard, HOME Program

Maryland Department of Housing and Community Development

Tonna Phelps, HOME Program
Jim McAteer, Rental Housing Programs
Bob Goodman, Director, Office of Research

Chapter One. Introduction

Report Purpose

This program guide, based primarily on three state case studies, provides guidance on using the HOME program to broadly promote the ideal of fair housing through providing housing choice and opportunity.

Each state case study reflects a different angle on this theme of "housing choice and opportunity." The first state case study examines South Carolina's effort to provide housing choice and opportunity to its Section 8 residents through a newly launched homeownership program. The second state case study examines Maryland's use of HOME funds to fund innovative projects and to fund the Governor's "Smart Growth" initiative which will use future housing and community development funds, including HOME funds, to revitalize targeted growth areas within the state. Finally, the third state case study examines New Jersey's efforts to distribute a portion of its HOME dollars to targeted distressed neighborhoods to provide a better quality of life to the residents who live in those areas. Both Maryland's and New Jersey's approach also encompasses the theme of coordinated or collaborative community developing -- providing not only greater housing opportunity to residents, but enlisting additional federal, state and local resources to meet other needs of the communities, including education, economic and social opportunities.

All of these case studies reflect the unique flexibility of the HOME program to be used singularly or in concert with other funding sources and state initiatives to provide greater housing choice and opportunity for low-income people.

Report Structure

The second chapter of the guidebook provides a brief historical context of federal fair housing laws and also examines the fair housing requirements of state grantees that receive funding through HUD's four CPD programs -- HOME, CDBG, ESG and HOPWA. Along with this examination, the chapter provides a brief analysis of the completed state "analyses of impediments" to fair housing choice, looking at such factors as the fair housing impediments identified by states, strategies developed to overcome the impediments and methodologies used to define the impediments.

The third chapter focuses on the three state case studies, discussed above. The fourth and final chapter, provides a conclusion to the guidebook and interwines themes from the two previous chapters into a final context.

This guidebook does not attempt to fully examine the deeper issues of fair housing, namely racial segregation or poverty segregation (income segregation) -- concentration of minorities and the poor -- and how states can develop affordable housing and community development policies and programs aimed at deconcentrating these areas through policies that promote mobility. In some aspect this issue is dealt with by the three states that are profiled within this guidebook. South Carolina's "Stepping HOME" program does provide mobility to its program participants throught homeownership choice statewide, Maryland's HOME Innovations Fund provides mobility through assisting first-time homebuyers purchase their first home, and therefore, choose where they want to live, and New Jersey's HOME TBRA set-aside provides mobility to the homeless in the same manner. New Jersey also targets HOME dollars to neighborhoods with high concentrations of poverty to provide a better quality of life to the poor.

In the context of this guidebook, "housing choice and opportunity" is defined as the right or power to choose where to live, whether it be anywhere within a state, as provided by South Carolina's homeownership example, or whether it be more of a variety of housing choices within one's own neighborhood or area, as provided by Maryland's and New Jersey's neighborhood revitalization efforts. "Opportunity" can be further defined to mean a greater chance for decent, safe, sanitary and affordable housing, improvement in one's quality of life and even a greater chance for self-sufficiency, as provided by all three examples, in one form or another. Both Maryland and New Jersey, in some instances, couple greater housing opportunity with other components, such as new schools, better transportation, new community businesses and jobs, to create total neighborhood revitalization to provide even more opportunity to the residents.

Chapter Two. Fair Housing : A Basis for Greater Housing Opportunity and Choice 

Federal Requirements for Fair Housing

Title VI of the Civil Rights Act of 1964 provided protection from discrimination on the basis of race, color and national origin. Title VIII, enacted in 1968, expanded Title VI to include two new categories of fair housing protection, religion and sex. Title VIII (the Fair Housing Act) was further amended in 1988 to include protection from discrimination on the basis of disability and familial status. Besides these two very important categories of protection, the amendment also established new administrative enforcement mechanisms which granted the U.S. Department of Housing and Urban Development the power to bring actions on behalf of victims of housing discrimination and revised and expanded Justice Department jurisdiction to bring suit on behalf of victims. In connection with the Act's prohibitions on discrimination against the disabled, design and construction requirements ("accessibility guidelines") have been established for certain new multifamily dwellings developed for first occupancy on or after March 13, 1991. Grantees of federal funding are required to adhere to these accessibility standards.

HUD has had a lead role in the enforcement of the Fair Housing Act since its adoption in 1968. Section 808(e)(5) of the Fair Housing Act requires HUD to administer its programs in a manner to affirmatively further fair housing (AFFH). This requirement transcends to HUD's grantees. Grantees are required to AFFH as part of the obligations assumed when they accept HUD program funds.

Fair Housing Planning Requirement for States

The extent of the AFFH obligation has never been defined statutorily. However, HUD defines it as requiring a grantee to:

HUD interprets those broad objectives to mean: (1) analyze and eliminate housing discrimination in the jurisdiction; (2) promote fair housing choice for all persons; (3) provide opportunities for racially and ethnically inclusive patterns of housing occupancy; (4) promote housing that is physically accessible to, and usable by, all persons, particularly persons with disabilities; and (5) foster compliance with the nondiscrimination provisions of the Fair Housing Act.

The CHAS statute, enacted in 1990, requires a certification by the jurisdiction that it will AFFH as part of the CHAS. In 1995, HUD published a rule consolidating the CHAS, the community development plan (required for the CDBG program), and the submission and reporting requirements for the four community development formula grant programs (CDBG, HOME, ESG and HOPWA) into a single plan -- the Consolidated Plan. As part of the Consolidated Plan, grantees will submit an AFFH certification which, as stated previously, requires them to undertake: (1) the completion of an AI; (2) actions to eliminate any identified impediments; and (3) maintenance of AFFH records.

In 1995, the U.S. Department of Housing and Urban Development, through its Office of Fair Housing and Equal Opportunity, completed the Fair Housing Planning Guide. The Guide provides information or "guidance" to states and entitlement jurisdictions that receive HOME, CDBG, ESG and HOPWA on fulfilling the fair housing requirements of the Consolidated Plan. According to the Guide, impediments to fair housing choice include actions or omissions in the State that: (1) constitute violations, or potential violations, of the Fair Housing Act; (2) are counterproductive to fair housing choice, such as NIMBYism; and (3) have the effect of restricting housing opportunities on the basis of race, color, religion, sex, disability, familial status, or national origin.

Besides the completion of an AI, HUD's housing and community development program regulations, handbooks, and notices interpret the statutory requirement in specific standards that State and Entitlement jurisdictions and HUD-assisted/insured housing providers must meet or actions they must take. Depending on the HUD housing or community development program, HUD interpretations include: (1) site and neighborhood standards; (2) Affirmative fair housing marketing requirements; (3) The equal housing opportunity component of the Administrative Plan in the Section 8 Certificate and Housing Voucher Program; (4) Tenant selection and assignment criteria (including criteria relating to the operation of preferences); and (5) Fair housing advertising.

The HOME Program

In accordance with the certification made within the Consolidated Plan, the HOME Investment Partnerships Program requires each participating jurisdiction to certify that they will affirmatively further fair housing. Each participating jurisdiction must adopt affirmative marketing procedures and requirements for HOME-assisted housing containing 5 or more housing units. The PJ must annually assess the affirmative marketing program to determine the success of the affirmative marketing actions and any necessary corrective actions.

In addition to the affirmative marketing requirements, participting jurisdictions must follow the site and neighborhood standards of the HOME program, which disallow the siting of HOME-funded projects within areas of minority concentration.

State Analyses of Impediments to Fair Housing Choice

As mentioned previously, state grantees are required to complete an AI as part of their consolidated plan development. To date, COSCDA has received 29 state analyses of impediments to fair housing choice. Tom Pippin, consultant with BBC Research and Consulting in Denver, Colorado, analyzed each of the 29 AIs collected by COSCDA for the following information: most common methodologies used to develop the state AIs; most commonly identified impediments to fair housing choice; most common strategies to overcome the impediments; and states that are using HOME funds as part of the identified strategy.

In terms of methodology, 84 discrete methodologies were used in the 29 state AIs. The average state used approximately 2.9 separate research techniques. Using state Human Rights Commission and HMDA data tied for the most frequently used methodology (20% or 17 of 84 total methodologies). In addition, some states used unique data sources. For example, the state of West Virginia used state police "hate crime" data to help describe the prevailing level of tolerance. Rhode Island, using mortgage lending data, actually constructed a regression model of lending patterns.

In terms of state identified impediments, 129 impediments were identified within the 29 AIs. The average state identified 6 barriers to fair housing choice. The "general lack of affordable housing" was the most frequently cited impediment. "Blatant discrimination in renting/selling" and "local planning and zoning inflexibility" tied for the second most commonly cited impediments. Blatant discrimination refers to documented cases of refusal to rent or sell based on primarily the presence of children, and to a lesser extent race, ethnicity, and English-speaking status. Planning and zoning inflexibility refers to the difficulty of developing affordable housing in certain jurisdictions and/or neighborhoods. Siting group homes for the developmentally disabled, domestic violence shelters and subsidized multi-family complexes appear to be the three most problematic types of housing impediments.

In terms of the most common strategies to promote fair housing, states identified "increasing public education/outreach" as the number one strategy. "Improving interagency coordination" was a close second.

Several states identified the use of HOME funds in assisting in the identified strategies. Using HOME administrative funds to assist in fair housing was the most commonly identified use.

Chapter Three. State Case Studied

South Carolina: Providing Housing Opportunity and Choice Through Homeownership

State Spotlight

HOME PROGRAM

The South Carolina State Housing Finance and Development Authority is the designated state agency responsible for administering the HOME Investment Partnerships Program. The state of South Carolina received a HOME allocation of approximately $10,000,000 in 1996. SCSHFDA distributed the allocation as follows:

FY96 HOME DISTRIBUTION

The state has received over $48 million in HOME funding to date. The Authority uses the South Carolina Housing Trust Fund as its main source of HOME match. HOME funds are used in conjunction with both the Housing Trust Fund and Housing Credits.

The Authority operates a decentralized system for administration of the HOME program. The state uses its HOME allocation to address the needs of very low-income and low-income persons, under served rural areas, special needs populations, economically distressed areas as well as those areas with limited housing. In an attempt to distribute funds geographically across the entire state, bonus points are given to those counties that have not received at least $300,000 in HOME funding through previous allocations. The Authority encourages the effective use of HOME funds through three main eligible activities: (1) owner-occupied rehabilitation; (2) project specific rental; and (3) home buyer/home ownership assistance.

The Dream of Homeowership

Many South Carolinians have incomes that hinder their ability to obtain decent, affordable housing, not to mention the prospect of owning a home. According to South Carolina's Consolidated Plan, in 1990 there were 517,793 persons in the state living below the poverty level. Of this figure, almost half of the persons were considered very poor (income below half of the poverty level). These households currently cannot purchase a home because they lack funds for downpayment and/or cannot find a home in their price range.

According to the Consolidated Plan, "...low and moderate income minority, rural and disabled South Carolinians experience disproportionate difficulty achieving homeownership due to...lower per capita income and household incomes, negative credit, inaccessible banking services, lending discrimination, and restricted housing choice."

Homeownership is considered vital to strengthening families and stabilizing neighborhoods. Promotion of homeownership opportunities is a high priority housing strategy for the state of South Carolina. With low interest rates, assistance with downpayment and closing costs, and soft second mortgage loans, SCSHFDA has enabled some of South Carolina's lowest income citizens to become homeowners.

"Stepping" into Homeownership

In 1996, the Authority set aside one million dollars of its HOME allocation for a new pilot homeownership program. Known as Stepping HOME, the program is designed to provide first-time homeownership opportunities to the Authority's Section 8 residents. The Authority administers 298 Section 8 certificates and 210 Section 8 vouchers for 22 primarily rural counties in the state. There are approximately 5,000 - 6,000 persons on the Authority's Section 8 waiting list at any time. Many of these families desire to move out of assisted housing and into homeownership. This transition would also make available certificates and vouchers for people currently on the waiting list. The Stepping HOME program provides low interest (3%) first mortgage loans with down payment and closing cost assistance for approximately 20 families currently participating in the Authority's Section 8 program.

The Stepping HOME program was an idea that blossomed into a program. The program was a creation of Authority staff who got the idea from local housing authorities who were already administering similar programs around the state; liked the concept and thought it might work at the state level.

Various divisions within SCSHFDA (Housing Initiatives Division, Rental Assistance Division and the Homeownership Division) met to discuss the idea and to develop the program. Once staff had developed an outline of how they envisioned the program would operate, they took the idea one step further, inviting local lenders to meet with them to iron out final kinks in the mortgage financing side of the program. SCSHFDA found it to be a useful tool for the final development of the program.

The primary objective of Stepping HOME is to help eligible families make the transition from subsidized housing to owning their own home. To date, eleven loans have been purchased and another two loans reserved.

Program Specifications

Resident Selection

Staff identified 37 families that currently pay $250 or more toward their rent and have incomes of less than $20,000. Each of the 37 families were selected through a lottery drawing and assigned a number in the order they were drawn. The first 20 families have been contacted by the Authority to participate in the program. If for any reason any of the first 20 families are not interested in the program, the Authority will continue with the remainder of the identified families to find people interested in participating in the program. All of the 20 families, so far, have been interested in participating in the program.

Participants understand that if they fail in the program they do not get preference for Section 8 assistance. They can get back on the waiting list, but they are not moved to the top of the list.

Process

Most of the current potential buyers in the program are single females with children. The program offers great housing choice to its participants by allowing potential buyers to purchase homes statewide. Potential buyers are restricted to purchasing single-family homes, which can include manufactured housing. Buyers can locate a home on their own or utilize the assistance of a realtor.

Once a unit is located, Authority staff perform an inspection of the unit, noting any repairs that do not meet state HQS, and forwards the inspection checklist to the lender. The lender then orders an appraisal (if the house meets HQS or owner is willing to bring house up to HQS). Currenty, three lenders, with office locations statewide, are participating in the program. To date, the homes that have been purchased have required minimal or no repairs.

The Authority acts as loan servicer. The Authority has chosen to service the loans, primarily for two reasons (1) high fees associated with outside service agencies; and (2) most servicers do not like to service FmHA loans (the mortgage loans provided through the Stepping HOME program are underwritten based on FmHA guidelines).

Financing Structure

Buyers are provided with a 100% financed loan, provided solely with HOME funds. The downpayment, upfront soft costs (appraisal, credit report, title search, etc), closing costs and mortgage amount are all financed in one loan amount at a fixed interest rate of 3%. The program provides varying mortgage terms including 15, 20, 25, and 30 year terms. All of the purchasers to date have been financed using a 30 year term. The loans under the program are not assumable. The property must be the principal residence of the borrower at all times.

Rehabilitation

In terms of rehabilitation of prospective units, the current owner of the property has to agree to complete any agreed upon rehabilitation needs prior to the participant's purchase of the property. This is a negotiated process between the owner, buyer, realtor and Authority. All units must meet state housing quality standards, which are more stringent than the federal housing quality standards. There is no established maximum repair amount. For the most part, prospective buyers and their realtors have located units that have needed relatively minor repairs. The owner has to complete all rehabilitation on the unit before the home is sold.

Homeownership Counseling

Potential buyers are required to go through homeownership counseling prior to the purchase of the home. The counseling is provided by the participating lender with no cost to the Authority or the purchaser. The counseling is designed and taught solely by the lender with counseling sessions being held after working hours or on the weekend to accommodate the buyers. The following core items are focused upon in the homeownership counseling seminars: credit counseling, contract of sale, settlement procedures, budgeting and maintenance. No other services, besides the counseling, are provided to the buyers.

The Role of the Lender

Besides the very important task of providing homeownership counseling to the potential buyers, the lender is responsible for underwriting the loans and ensuring borrower compliance with the program. The lenders involved in the program take the time and expense to provide homeownership counseling to the participants and also time and care in underwriting the loans and working with the potential buyers through credit problems. For all of their time and expense, they receive a 1% origination fee.

Risks to the Authority

The one identifiable, possible risk to the Authority is the chance of foreclosure on the properties and costs associated with property foreclosure (time, insurance costs and other fees). Currently, all of the program participants are current on their mortgage payments. In the case any were to fall behind in their payments,

Authority staff from the Servicing Division would provide financial counseling to the homeowner.

STATE SPOTLIGHT

HOME PROGRAM

The Community Development Administration (CDA), a division of the Maryland Department of Housing and Community Development, administers the state HOME program. Maryland will use the majority of its HOME funds in conjunction with ongoing state programs to fill gaps in state funding, make projects feasible and increase the number of low-income persons able to be served in state-funded projects. HOME funds will be used in conjunction with projects utilizing any combination of state appropriated and bond isssued funds, or low-income housing tax credits administered by CDA.

FY96 HOME DISTRIBUTION

The State will administer HOME funds allocated to state programs by directly funding projects which receive State resources and by competitively allocating funds directly to projects or programs proposed by local governments, nonprofit organizations, and housing sponsors and developers. Funds are awarded to five separate areas: housing development, homeownership, special loan programs, operating assistance to CHDOs, and an Innovations Fund.

Maryland expects primarily to invest HOME funds in projects through grants and non-interest bearing loans. Depending on the circumstances of each project, the state may use other forms of subsidies including equity investments, interest-bearing loans or advances, non-interest bearing loans or advances, and deferred payment loans with interest. The state will meet the 25 percent match requirement for the HOME program through the use of State appropriations. Specifically, through the State's Rental Allowance Program.

DHCD administers a centralized HOME program. The state targets households at or below 30 percent of the median income for the area or non-metro area, whichever is greater for rental developments, and 55 percent of state median income for homeownership developments.

HOME funds may be used to finance the construction, acquisition, and rehabilitation of rental housing, owner-occupied housing and special needs housing such as group homes. For HOME funds used in conjunction with other CDA programs, projects must meet the eligibility criteria of the CDA program. Generally, HOME funds will be provided as zero interest deferred loans and under certain limited circumstances may be provided as grants. All loans will require equity sharing with CDA in the event the project is sold or no longer provides low-income housing. Loan terms range from 20 to 30 years depending upon the type of housing financed. The maximum amount of assistance to a single project or activity generally will not exceed the lesser of $300,000 or the amount needed to make the project viable and to comply with any federal HOME requirements. Low-income occupancy requirements will be enforced by deed restrictions for periods ranging from 5 to 20 years.

HCD has a staff of underwriters who are responsible for underwriting housing and community development projects financed through the agency. The HOME staff work with the underwriters to ensure that HOME regulations are met. HOME staff are responsible for the environmental review process and ensuring program compliance.

CDA's Housing Management staff assists during loan underwriting by reviewing elements of the prospective loan related to property management, presides over loan payoffs, assumptions, transfers or other such activity and negotiates work-out agreements with owners of residential rental properties, and monitor loan servicers' performances.

REVITALIZATION OF NEIGHBORHOODS

Promoting "Smart Growth"

Maryland, like many fast growth states, faces an ever increasing problem of "suburban sprawl;" marked by declining populations in older, existing neighborhoods and development of scarce farmland and open space. The state estimates that if left unchecked, development will consume as much land in the next 25 years in central Maryland as occurred in the last 300 years since the state was first settled. To counter this threat of loss of natural resources and to encourage population of existing neighborhoods, the state legislature passed "Smart Growth" legislation.

Maryland's "smart growth" initiative involves the targeting of state resources, including housing resources, to priority funding areas to support efficient and economical growth of established and existing neighborhoods -- encouraging the use of existing or planned development infrastructure, rather than growth that fosters sprawl, loss of farmland and loss of neighborhoods. Through the local zoning and capital planning process, local jurisdictions will determine which areas will qualify as Priority Funding Areas. State funds for roads and highways, business development financing and economic development, and most housing programs would all be targeted in Smart Growth Areas.

HOME funds would be used to rehabilitate substandard housing and finance the new construction of homeowner and rental projects in the targeted areas.

Live Near Your Work

The Maryland Department of Housing and Community Development, in coordination with other public and private agencies, is in the process of developing a Live Near Your Work (LNYW) Program to encourage employees of Maryland=s businesses and institutions to buy homes near their workplace. Besides providing resources to this intiative, the state would also participate as an employer -- encouraging its employees to live near their jobs. No other state currently provides housing assistance in partnership with employers as proposed for LNYW.

The primary purpose of LNYW is to stimulate homeownership in targeted revitalization areas by offering a minimum of a $3,000 grant as an incentive for people to live near their work, leveraging state funds with employee, employer, and local government dollars. The program is intended to stabilize older neighborhoods surrounding the state's businesses and institutions; offer workers the opportunity to own their own homes and reduce transportation costs related to long commutes; and will hopefully benefit employers through reduced turnover, training and recruitment costs.

Maryland has launched the initiative in two locations: Baltimore City -- an urban center; and Salisbury -- a more rural municipality located on Maryland's Eastern Shore. John Hopkins University Hospital is the primary employer participating in the Baltimore City initiative in hopes of rebuilding its surrounding declining inner city community. A nonprofit organization is spearheading the effort in rural Salisbury.

The $3,000 grant is to be used towards purchasing a home -- downpayment assistance and closing costs. The state, employer and locality each provide $1,000. Possible future program enhancements to LNYW include: coordinating public and private transit services, providing before and after school services, community crime prevention activities, developing a funding mechanism for acquisition and rehab, negotiate group mortgage discounts with lenders, provide homeownership counseling and negotiate reductions in settlement costs. HOME funds have not been targeted to this initiative yet; however, it is possible state HOME funds will be used in this endeavor in the future.

Innovations Fund

Approximately $600,000 from state HOME funds was made available in FY96 for this set aside. HOME funds will be used where possible to stimulate new ideas and projects which meet the needs identified in the Consolidated Plan, and test innovations the state is not legally able to fund under existing state programs or is unwilling to invest state funds at necessary rates and terms. These funds would be used for innovations and ideas worth testing, modest pilot programs and projects and activities not permitted within regular state programs or for which there is no state funding. Funds for innovation projects will be allocated in competitions with a round of awards generally made every four months. Awards will be made on a priority ranking system using criteria, including:

The beneficiaries to be served by the HOME Innovations Fund are very low-income renters, homeless persons, persons with special needs, low-income renters, very low-income homeowners, and low-income homeowners.

Eligible projects for the HOME Innovations Fund must be projects which are ineligible for or do not need CDA program funds, or for programs, projects, activities which CDA has elected, as a matter of policy, not to fund under its existing programs.

Since its inception, DHCD has awarded funds through this unique endeavor to provide homeownership activities through downpayment and closing cost assistance to persons with special needs: developmentally disabled and persons with mental illnesses. The fund has also been used to provide funding for homeownership counseling for very low income persons.

Applicants for Innovations Fund dollars may be made by local governments, nonprofit organizations, developers, other state agencies and CDA. Projects or programs which are approved for Innovations Fund awards must serve persons at 30% of area median income. Applications must meet the following threshold requirements: (1) the project or program must meet all federal requirements and state income limits; (2) project or program must not duplicate or be used in conjunction with any of the existing CDA programs; (3) the project or program must be ready to proceed within 6 months of the HOME award; (4) the project or program must be feasible and viable; (5) the HOME amount applied for must not exceed $300,000; (5) the applicant must demonstrate the capacity to meet all HOME federal administrative requirements, particularly the monitoring and reporting requirements.

In terms of rating and ranking, applications are rated and ranked on: (1) innovation and unmet need - up to 40 points; (2) preference for nonprofit organizations -- up to 20 points; (3) preference for lowest income households and longest term for low-income occupancy -- up to 10 points -- highest points will be awarded to projects and programs serving the lowest income househods and that provide for low-income occupancy beyond the federal requirements which range from five to 20 years depending on the type of activity proposed; (4) geographic distribution among eligible jurisdictions -- 10 points -- points wil be awarded to give preference to HOME non-entitement jurisdictions or regions of the state underserved by HOME funds; (5) lowest cost per unit -- 10 points; (6) matching contributions -- 25 points -- points will be awarded to give preference to programs or projects which raise local matching dollars and also provide a contribution from the local jurisdiction.

Examples of projects funded through the Innovations Fund include:

• Downpayment and closing cost assistance for first-time homebuyers participating in a homeownership counseling program. DHCD provided $15,000 - $20,000 in FY95 HOME Innovation Fund monies in the form of deferred second trust loans at 0% to assist five low-income, first-time homebuyers purchase their first home.

• $5,000 grants to elderly and disabled persons for handicap accessibility improvements, roof and heating repairs to allow these persons to remain in their homes.

• For FY96, DHCD plans to allocate $70,000 in HOME Innovations Fund monies to a local trade school in western Maryland. The funds will be used by the students to construct a home for a low-income family. The proceeds from the sale of the home will be used to purchase future buiding materials for a another home, and so forth. A total of 12 homes are scheduled to be constructed.

• For FY96, DHCD is working with the state mental health agency to provide $60,000 in HOME Innovation Fund dollars to assist persons with mental illness to purchase their first home. The $60,000 award will be used to assist three families; providing $20,000 to each family for downpayment and closing cost assistance. In turn, the state mental health agency will establish a contingency fund to assist the families with Amissed@ mortgage payments if they have to temporarily return to the hospital.

Besides the Innovations Fund, DHCD has used it HOME funding through its housing development component to provide assistance to nonprofits to acquire and rehabilitate transitional housing for the homeless.

HOME PROGRAM MONITORING

All projects receiving HOME funds from the State of Maryland are reviewed and reported annually to CDA. The CDA monitoring system includes a system to: (1) monitor rents and tenant incomes; (2) inspect properties for compliance with Section 8 Housing Quality Standards and (3) ensure compliance with fair housing and affirmative marketing provisions.

Various divisions have responsiblity for conducting various aspects of the monitoring. CDA's Rental Service Programs staff conducts an annual review for compliance with the income restrictions of the HOME program. CDA's Housing Management annually inspects HOME units for compliance with Section 8 HQS. CDA's Housing Development Programs receives and reviews Affirmative Marketing Plans and Minority and Women's Business Enterprise Plans from owners of projects financed with HOME funds. These plans are received and reviewed by CDA's Housing Development Programs in coordination with the Economic Opportunity Officer of the Department. In addition, owners submit to CDA's Rental Services Program staff annually certification of their affirmative marketing activities and fair housing practices. These forms are prepared and reviewed by the EO officer.

NEW JERSEY: BRINGING HOUSING OPPORTUNITY AND CHOICE TO URBAN NEIGHBORHOODS

STATE SPOTLIGHT

Information for this profile was obtained from New Jersey's FY96 Consolidated Annual Plan

HOME PROGRAM

HOME funds in New Jersey are used to support rehabilitation, new construction, tenant-based rental and homeless assistance projects. As listed within New Jersey's FY96 Annual Consolidated Plan, the number one state priority is to support and encourage revitalization, economic integration and stabilization of a neighborhood through a strategic plan. Priority set asides within the HOME program will be made to targeted neighborhoods for revitalization purposes.

FY96 HOME DISTRIBUTION

The New Jersey Department of Community Affairs (DCA) has allocated over $6 million in FY96 HOME funds to rehabilitate substandard housing, create new affordable housing, provide rental assistance to low- and very low-income residents and expand services for the homeless and other special needs groups. Over the past year, the state has begun to target funds to designated areas of the state to stabilize distressed communities by addressing their housing, community development, and economic development needs. Projects supporting state approved revitalization plans in municipalities designated as one of the following will receive priority for state HOME funds: (1) Governor's Urban Strategy; (2) DCA's Strategic Neighborhood Assistance Program; and (3) Designated as a planning center by the State Planning Commission and the Office of State Planning. New Jersey state agencies are generally guided in their land use policies and decision making with regard to public investments by the State Development and Redevelopment Plan. This plan has six goals, two of which are urban revitalization and economic development.

REVITALIZING NEIGHBORHOODS

The Governor's Urban Strategy

In keeping with the Governor's commitment to cities to approach redevelopment neighborhood-by-neighborhood, the state will enter into partnerships with interested communities to organize and implement strategic revitalization plans. The Governor has established an Urban Coordinating Council (UCC), comprised of representatives from every state department, the Economic Development Authority, the Casino Reinvestment Development Authority, the State Planning Commission, and the Housing and Mortgage Finance Agency. Originally part of the Governor's office, the UCC now has a permanent home within DCA and is staffed by DCA. The UCC works with communities to devise flexible, neighborhood-based, community-driven strategies that will permit the development of locally defined solutions to local problems. Through this body, state agencies will focus attention on urban needs in a single coordinating entity. The UCC will serve as a point of entry for local governments and community groups to access state resources in implementing neighborhood revitalization plans. The UCC will seek to support projects that result in safe and economically viable communities, especially projects that promote the ability of individuals and families to meet their full potential for learning, employment, housing, good health and civic pride.

In light of the Governor's urban initiative, and the continuing housing need seen in the urban areas, the state will allocate a significant percentage of available federal and state resources to urban areas. These areas will include the Governor's four urban target cities (Asbury Park, Trenton, Camden, and Elizabeth) and the three Strategic Neighborhood Assistance Plan cities (Dover, Jersey City and Vineland) which were selected, in part, based on housing need, poverty level and minority concentration. One of these cities, Elizabeth, is a designated Empowerment Zone. To date, a total of ten neighborhoods within these cities have been targeted for revitalization. Neighborhood Revitalization Plans must focus on neighborhood restoration including: infrastructure improvement, rehabilitation and construction of affordable housing, increased public safety, public facilities, economic development, environmental clean-up, employment and training, greater educational opportunities, and social services.

Strategic Neighborhood Assistance Program (SNAP)

The Strategic Neighborhood Assistance Program, like the Governor's Urban Strategy, is a neighborhood-based program that encourages partnerships among community, civic, educational and religious organizations, businesses, government and residents to develop and implement a comprehensive plan to address community needs. The one difference between the Governor's Urban Strategy and the SNAP is that SNAP focuses resources on "threatened, but viable" neighborhoods. Municipalities participating in SNAP receive multi-year funding commitments to address housing, social and economic issues in target neighborhoods.

DCA and the Housing Mortgage Finance Agency will focus their combined resources to support the planning and implementation of activities to achieve defined objectives in SNAP neighborhoods. The New Jersey Housing and Mortgage Finance Agency's 1996 Tax Credit Allocation Plan has prioritized tax credit allocations to projects in the designated Empowerment Zones and Enterprise Communities and in municipalities with an approved Strategic Revitalization Plan. Coordinating tax credits with affordable housing development in targeted areas will allow the State to efficiently allocate limited resources to achieve the greatest impact.

SNAP Neighborhood Selection

The success of SNAP and the most visible and effective use of its resources will be determined by the social, physical and economic character and needs of the neighborhood. As such, neighborhoods must be "threatened but viable;" that is, a neighborhood that is experiencing deterioration and decline yet with clear potential for renewal and growth. The neighborhood should be of manageable size so that visible impact and a positive effect can be made within a three to five year period. The target areas should be those in which available resources match the problems to be addressed, assuring evidence of accomplishments. The municipality must apply for funding and if awarded funds, must actively treat SNAP as a priority by providing fiscal and administrative support.

Neighborhood Planning

The planning effort will be assisted by a resource team from DCA's Division of Housing and Community Resources by providing technical assistance to the SNAP Manager and the Planning Committee in data gathering, analysis, work plan development, communications skills, neighborhood organization and program administration. The final plan must be jointly agreed to by DCA and the municipality.

THE USE OF HOME FUNDS IN URBAN NEIGHBORHOODS

HOME Neighborhood Preservation Program funds will be used to provide deferred loans to property owners for the rehabilitation of substandard housing units, including the abatement of code violations, lead-based paint abatement and improvements for handicapped accessibility. Very low-income homeowners with rehab costs which exceed $6,500 will receive priority for funding. Approximately $800,000 in state HOME funds will be allocated to this neighborhood preservation set aside. In addition, HOME program resources from the Production Investment fund and the CHDO Organization Production Fund will be used to provide financing for the construction or rehabilitation of affordable for-sale housing in these neighborhoods. Approximately $400,000 was made available in FY96. HOME Production Investment Fund and CHDO Organization Production Fund, along with HOME Neighborhood Rehabilitation Improvement Program funds, will be provided to these targeted areas to provide resources to construct, substantially rehabilitate and moderately rehabilitate housing units for low- and moderate-income families. The HOME Neighborhood Rehabilitation Improvement Program provides HOME funds in the form of deferred payment loans to property owners (including nonprofits) for the rehabilitation of substandard, rental housing units. The HOME Production Investment Fund provides non-interest bearing, interest bearing and deferred loans, grants and/or interest subsidies to for-profit and nonprofit developers for the purpose of creating affordable housing. Approximately $2.6 million will be made available from these three HOME program set asides for this purpose.

In addition to state HOME funds, other resources will be used to revitalize Urban Strategy and SNAP communities. The New Jersey Housing and Mortgage Finance Agency's Urban Homeownership Recovery Program was created to provide construction financing, permanent financing and a subsidy pool to develop mixed-income homeownership opportunities in urban areas. Approximately $30 million of subsidy and $75 million for new construction is available for this urban initiative. In addition to the urban homeownership initiative, HMFA operates a mortgage program (known as "Too Good, But It's True Mortgage Program") which provides below market interest rates to designated urban areas of the state. In addition, HMFA's Upstairs-Downtown Rehab Program provides acquisition and renovation funds for housing units with store front commercial space. Also, the Local Initiatives Support Corporation's Multi-City Program, which combines state and private funds to revitalize declining urban areas, will provide three million dollars to support community development corporations in six target cities in New Jersey, including Elizabeth, Trenton and Vineland -- three designated urban target areas.

DCA is in the process of developing a lending consortia, where participating financial institutions will pool resources to jointly fund feasible business ventures in selected communities. This initiative will help to promote the development of businesses and provide increased job opportunities for low- and moderate-income persons.

A History of Neighborhood Revitalization

Since 1975, DCA has operated the Neighborhood Preservation Program. New Jersey became the first state in the nation to pass legislation calling for the comprehensive improvement of neighborhoods. The NPP, like the Governor's Urban Strategy and the Strategic Neighborhood Assistance Program, assists cities in pulling together many different resources for the preservation of neighborhoods. Currently, thirty-four municipalities are involved in NPP programs throughout the state. The objectives and activities in the NPP bring together local and state government, neighborhood residents, private businesses and institutions in a common effort to restore a favorable climate for investment and improve the quality of life for residents of those neighborhoods. Through NPP, the state provides a maximum grant of $300,000 to a municipality to be used for rehabilitation of substandard housing, administrative costs (up to 20% of the grant) to hire a local NPP coordinator, commercial rehab, public improvements and services, demolition, site clearance, and property acquisition. In addition to financial resources, DCA staff will survey neighborhood residents to collect demographic and other neighborhood information necessary to identify and assess existing conditions and needs; and assist in developing a neighborhood revitalization strategy and work plan. The Governor's Urban Strategy and DCA's SNAP receive priority for NPP funding.

DCA operates another program targeted towards neighborhood preservation, specifically to help municipalities in meeting their fair share allocations. The Neighborhood Preservation Balanced Housing Program provides resources to municipalities to assist in providing affordable housing to low- and moderate-income people in fulfillment of Section 20 of the Fair Housing Act of 1985. Applications are accepted on a continuous basis. Eligible activities include: rehabilitation of substandard housing, creation of accessory apartments, conversion of non-residential space to residential housing, acquisition, demolition, new construction of low- and moderate-income housing and grants for soft costs.

DCA encourages projects that are located in a target area -- such as the Governor's Urban Strategy or SNAP communities -- and projects that provided mixed-income housing opportunities.

PROVIDING HOUSING OPPORTUNITY AND CHOICE TO THE HOMELESS

Besides its focus on providing housing opportunity and choice to distressed neighborhood residents, New Jersey's HOME program also provides tenant-based rental assistance to the homeless. Approximately $1.4 million was set aside from the state HOME allocation in FY96 to provide direct rent subisidies to transitional housing program graduates. These persons will utilize the HOME TBRA until permanent assisted housing is secured through the Section 8 program. This contribution of HOME funds has allowed many otherwise homeless individuals and families to continue up the ladder to self-sufficiency and to locate housing of their choice.

FAIR SHARE ALLOCATIONS

A series of New Jersey Supreme Court rulings, in 1975, 1983 and 1986, known as the Mount Laurel Decisions, established the constitutional obligation for each of the State's municipalities through their land use ordinances to provide a realistic opportunity for the construction of its fair share of the region's low- and moderate-income housing needs. Responding to the mounting litigation of cases in the courts, the Legislature and Governor enacted the Fair Housing Act of 1985 which created the Council on Affordable Housing (COAH) to administer municipal fair housing allocations. COAH helps foster the creation of affordable housing by allocating to each municipality a numerical "fair share" obligation. This fair share number defines the number of low- and moderate-income units the municipality needs to develop. By fostering the construction of a variety of housing types in all of the State's municipalities, COAH helps achieve the following: (1) increase the number of affordable units; (2) reduce hardship conditions due to high housing costs or housing unavailability; and (3) enable employees to reside closer to their places of employment.

FAIR HOUSING/AFFIRMATIVE MARKETING

HOME units must be affirmatively marketed in compliance with federal fair housing laws. The Department assures compliance with these laws by requiring the use of its Affordable Housing Management Service (AHMS) for a fee of $500 per unit. AHMS assist subrecipients in complying with these laws as well as with marketing the project and referring prospective tenants.

The Affordable Housing Management Service helps municipalities administer low- and moderate-income housing built as a result of the New Jersey Fair Housing Act of 1985.

The Fair Housing Act requires DCA, HMFA and COAH to help municipalities meet their affordable housing obligations and that housing constructed pursuant to the Act remain affordable to low- and moderate-income households for six or more years. To meet this requirement, municipalities must control occupancy, resale prices and rental charges. Municipalities can contract with AHMS to ensure these requirements are met. AHMS can perform any of the following activities:

AHMS maintains an automated management information system that tracks each affordable housing unit, including its base price or base rent, affordability range, occupancy requirements, guidelines for occupancy, location codes, and history of sales, resales, and rentals. This system also provides data on each applicant, including the number of family members, income level, affordability range, occupancy requirements and locations codes. The system matches applicants with available units and recalculates resale prices and rental charges with appropriate notices.

Chapter Four. Conclusion

People desire to have greater housing opportunity and choice. To low-income families purchasing their first home this may mean financial assistance in purchasing the home and also the opportunity to purchase the home in a location that best suits their employment and social needs. To low-income families living in distressed, declining neighborhoods, greater housing opportunity and choice may mean a better quality of life provided through the development of decent, affordable housing opportunities.

The HOME Investment Partnerships Program is a flexible source of funds to assist states in providing greater housing opportunity and choice to very low-, low- and moderate-income people. HOME can support a range of activities necessary to produce decent, affordable housing, from acquisition and rehabilitation to new construction and tenant-based rental assistance.

The three states profiled within this guidebook -- South Carolina, Maryland and New Jersey -- have all utilized their state HOME allocation to provide greater housing opportunity and choice. The activities funded with the HOME allocations are not unique (i.e., all states use their HOME allocation to fund most of the same activities). These three states are unique in the sense that state housing policy, whether driven directly by the state agency or by the Governor, has created a unique manner in which the HOME funded activities are to be targeted.

In South Carolina, HOME funds have been targeted to a unique population, Section 8 residents, to provide homeownership opportunities. This is not a population that is traditionally targeted by states for homeownership assistance. By providing assistance to Section 8 residents to purchase their first home, South Carolina is providing these residents with the means to self-sufficiency and is, at the same time, providing housing opportunity and choice to people on its Section 8 waiting list by making available certificates and vouchers.

In Maryland, HOME funds will be targeted to the Governor's "Smart Growth" initiative to assist in curbing suburban sprawl by targeting state and federal resources to older, more established areas. HOME funds may also be targeted in the future that encourages citizens to "Live Near Your Work." The initiative is an attempt to revitalize declining areas by offering incentives for homeownership within those areas. Maryland's HOME Innovations Fund, provides financial resources to eligible applicants to fund "innovative" projects, including projects that assist special needs populations, including the developmentally disabled, persons with mental illnesses and the elderly. These funds provides housing opportunity and choice through providing downpayment and closing cost assistance for first-time homebuyers, rehabilitation needs of the elderly and disabled to allow them to remain in their homes, and funds for the new construction of affordable housing for low-income families who might not otherwise be able to obtain affordable housing.

New Jersey allocates a considerable portion of its HOME funding to targeted revitalization areas. With the Governor's newly launched Urban Strategy and DCA's existing Strategic Neighborhood Assistance Program, both of which are targeted to providing state and federal resources to declining urban areas, HOME funds will be used to provide a better quality of life for these neighborhood residents through the development and redevelopment of decent, affordable housing. In addition, DCA set asides a portion of its HOME allocation to provide tenant-based rental assistance to the homeless. The HOME TBRA allows homeless families to rent a unit of their choice in a location of their choice. It also allows the families the opportunity to remain in decent, affordable housing until permanent Section 8 housing assistance is obtained.

All of these states have chosen to use portions of their HOME allocation in a unique manner which facilitates greater housing opportunity and choice. Using HOME funds in such a manner can constitute relatively little set aside within the state HOME program and relatively little risk or staff time, as presented by South Carolina's "Stepping" HOME program. Even Maryland and New Jersey's set aside, although larger than South Carolina's, will constitute no restructuring or additional hiring of staff.

Other states, besides the three profiled within this guidebook, have also set aside portions of their state HOME allocation for unique programs to provide greater housing opportunity and choice. For example, the Mississippi Department of Economic and Community Development awarded $500,000 to the city of Natchez to help fund the Brumfield School Renovation. This development converted a former school into 28 low-income apartments for single parents receiving AFDC. This project provides on-site child care, job skills training, educational programs and a counseling center. The goal of the project is to enable the families to learn a skill or trade, complete their education, be removed from the welfare roll and become independent citizens of the community. The New Mexico State Housing Authority has used its HOME funds to assist low-income first time homebuyers purchase foreclosed RECD properties through a lease-purchase arrangement. In addition, the Authority has previously set aside HOME funding for TBRA for family self-sufficiency initiatives.

This guidebook has been produced to provide examples to the fifty state HOME program administrators of different mechanisms for utilizing HOME funds to provide greater housing opportunity and choice. It is meant as a learning aid and hopefully, will be used by state HOME program administrators to "think out of the box" and create new and unique programs to provide housing opportunity and choice to low-income people.

ABOUT COSCDA

Vision

COSCDA is the premier national association advocating and enhancing the leadership role of states in holistic community development through innovative policy development and implementation, customer-driven technical assistance, education and collaborative efforts.

Mission

• Advocate for the common development goals of the states.
• Develop policies and recommendations on community development issues.
• Keep members informed about federal and state administrative and legislative developments that affect members.
• Enhance the capacity of states to deal effectively and comprehensively with community development issues.
• Ensure the availability of community development expertise to members.
• Encourage and assist states in the development and implementation of effective community development programs.
• Facilitate the exchange of information about programs and achievements among states and act as a clearinghouse for community development organizations.

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