Modesto city officials defend Neighborhood Stabilization Program

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.