Almost a year after a federally funded housing program enveloped City Hall in controversy, Modesto officials have revised a plan for spending another $3 million through the program.
Modesto received more than $33 million from the first two phases of the Neighborhood Stabilization Program to buy and renovate homes in foreclosure-ridden sections of the city. The third phase, known in government lingo as "NSP3," aims to develop affordable housing in lower-income neighborhoods.
In February 2011, the City Council initially decided to spend the $3 million of third-phase funding to improve blighted properties in the airport neighborhood. But it expanded the target area last week to include areas in south, west and northwest Modesto.
The continued stimulus effort, coming four years after the nation's economic collapse, will spend $1.56 million to buy and renovate foreclosed or abandoned homes, $1 million for new construction, $100,000 for demolition and $295,000 for administration.
Officials said the city has to spend half the money by March of next year and all of it by March 2014, or risk having to return the money.
The city will work with the Housing Authority of Stanislaus County, Habitat for Humanity and the Stanislaus County Affordable Housing Corp., or STANCO. Those developers were chosen for their experience with affordable housing, officials said.
Steve Madison, executive director of STANCO, said he believes valuable work can be done despite the prior troubles with the program. He said STANCO feels comfortable participating because the city came out with stronger oversight procedures early this year.
"If we consider buying a house, the city has a roster of appraisers to make sure the price we pay for the home is appropriate," he said. "We are definitely scouting the market for potential sources of housing."
Modesto, which was pounded by the foreclosure crisis, welcomed the federal funding that was awarded to distressed cities starting in 2009. Officials were enthused about using the money to create construction jobs, remove blight in neighborhoods and retain employees who run housing programs at City Hall.
But the program became linked in the public's mind with SCAP, or the Stanislaus Community Assistance Project, and also came under fire for weak oversight, conflicts of interest and charges of favoritism.
SCAP, chosen as one of 10 developers for the program, spent up to $164,000 on sometimes luxurious home renovations and then placed employees or their family members in some of the houses. Bee stories exposed examples of overspending on property purchases and home improvements, as well as shoddy construction.
In early August, city leaders suspended the program after Councilman Joe Muratore was ordered to return a $62,500 commission on the purchase of an apartment complex by developer Trinity Ventures using a program loan. As an elected official for the grant recipient agency, Muratore violated federal rules by accepting the commission.
In early December, FBI agents seized records from SCAP's Coffee Road office and searched the home of Denise and Joe Gibbs, the husband-and-wife team that formerly managed the nonprofit. The FBI has not commented on the status of the investigation.
SCAP's board hired a new executive director and, in April, changed the agency's name to Community Impact Central Valley and moved into a new office on H Street in downtown Modesto.
City revises program rules
After a federal audit report concluded that the city had violated a few regulations, the city in January rolled out revised guidelines and procedures for continuing the program. The new guidelines cap purchase and rehab costs at $165,000 per home, require developers to get two or three bids on construction work and limit taxpayer property subsidies to 30 percent.
Most of the remaining second-phase funds were allocated to the Housing Authority, including $6 million to build a Coolidge Avenue apartment complex for young adults coming out of foster care, plus about $1.5 million to renovate homes for resale.
Between the Modesto and Stanislaus County programs, the Housing Authority has used the federal funding to remodel 101 foreclosed or abandoned housing units, of which 48 were sold, 19 are for sale and 34 were converted to rentals.
Bill Fagan, Housing Authority executive director, said the agency hopes to do more of the same in the third phase of Modesto's program. It has plans to buy and fix up eight foreclosed dwellings, he said five as rentals for low-income tenants and three for resale.
Anita Hellam, executive director of Habitat for Humanity Stanislaus County, declined to talk about a proposal that it's discussing with the city. The Modesto-based nonprofit helps families build their own homes.
Habitat has been looking for money to buy 21 ready-to-build lots next to Modesto's SOS Club near John Thurman Field.
"We don't have anything specific to bring forward at this time," Hellam said.
Julie Hannon, director of Modesto's Parks, Recreation and Neighborhoods Department, said the city had no luck acquiring properties in the airport area. A program requirement to pay at least 1 percent below the appraised property value made it difficult to compete with private investors, she said.
A Modesto property manager said the Phase 3 developers should be able to find tenants for the rental housing.
Ben Sweet, president of Sweet Properties, said the current market for rental homes is normal, with no waiting lists for tenants and landlords not waiting long for qualified applicants.
"The market for apartments is not as strong," he said. "For duplexes and fourplexes, landlords are giving incentives to get the units rented, such as a half-month of free rent or lowering the security deposit," he said.
The rentals developed through the federal program are usually for low- to moderate-income tenants.
Bee staff writer Ken Carlson can be reached at email@example.com or (209) 578-2321.