By Susan O’Leary, Vice Chair
Los Alamos County Council
In the coming weeks, the Los Alamos County Council will be considering both Capital Improvement spending and Economic Development spending.
There’s typically some interplay between these two programs. In the past, the County has devoted considerable resources to developing new housing subdivisions as a way to improve our housing stock and attract more residents. While those efforts have been and can continue to be beneficial, the focus on new neighborhoods hasn’t done much to promote the renewal of our existing neighborhoods; many of which have a number of properties that are unoccupied or in poor repair.
In an effort to get some balance between our public investment in new neighborhoods and our legacy neighborhoods, I’ve developed a broad outline for an Economic Development initiative that would channel some of our Economic Development spending to the purchase and renewal of distressed properties in our established neighborhoods. The program would offer County and Los Alamos Public School staff 100 percent financing support to buy and renovate distressed properties in our neighborhoods.
Over half of these public service employees live outside our County, and bringing some of these people who contribute so much to Los Alamos here as neighbors would support several of our strategic goals. It would help renew unattractive properties and properties with health and safety challenges in our existing neighborhoods. It would help attract and retain top notch public employees. It would help grow our in-County population. And, it would spread our Economic Development spending among a large number of deserving public employees and small local contractors, rather than handing large subsidies to a few out-of-town developers.
As I began studying this issue, what caught my attention was how very, very inexpensive it is to provide financing guarantees for stable, responsible borrowers. As an example, the Veteran’s Administration consistently experiences the lowest loan default rate across all borrower groups, even though the VA program allows for $0 down payment home purchases. Our County and Schools employees have an even better stability profile than VA borrowers nationally, and we can partner with commercial lenders to provide these solid employees with VA-like loan guarantees with a reasonable expectation of very low cost.
The proposal combines features of the VA loan program with programs in place in other communities, other states, and with federal programs that target resources to neighborhood renewal. In the proposal, I set out a number of specifics; but this is very much a draft product. I’m really seeking to gather ideas from the other Council members, from county staff, and from the public to flesh out whether a program like this can benefit our community as part of a broader economic development effort. I’m open to expanding eligibility to disabled veterans and perhaps to others. And I’m open to better ideas on program requirements. The goal of this proposal is to take some kind of constructive action along these lines in this year’s spending cycle.
I’ve sent this proposal to the other members of the Council and to County Staff, and I’m sharing it here today to generate some public discussion about ways in which we might re-balance support for legacy neighborhood renewal with our ongoing support for new subdivision development. I believe that with some creativity and innovation we can have some tangible, high-return Economic Development progress through this effort.
Economic Development Proposal: Scattered Site Housing Renewal through Public Service Employee Home Loan Guarantees.
By Susan O’Leary (email@example.com)
Concept: Many of Los Alamos County’s economic development initiatives have been geared toward attracting new residents to achieve a threshold population that can sustain additional retail and jobs. These initiatives have largely focused on efforts to create new housing developments and to attract new businesses to our community.
This proposal suggests a more focused approach to attract existing and new public service employees as residents by offering them loan guarantees and/or subsidies to purchase and rehabilitate unattractive properties in our existing neighborhoods.
Prospective Participants: Los Alamos County and the Los Alamos Public Schools have hundreds of employees who live outside our County. Over half of all County employees live elsewhere; and while a much higher percentage of current school employees already live within the County, the program could be an important recruiting tool for the best young teachers considering career opportunities. Our public service workers already contribute to our community in a number of important ways, and as we consider strategies for growing our community, this is a natural pool of prospects for us to tap into.
Strategic Objectives: This proposal can serve a number ofstrategic aims. First, it will focus County resources on the renewal of our existing neighborhoods, most of which have some deteriorating properties.A structured program to encourage the rehabilitation of those properties would benefit neighborhoods throughout the County by improving neighborhood appearance and increasing property values for existing homes currently near deteriorated properties.
This proposal would also serve the County’s longstanding goal of increasing population by directly enticing people who already have good, stable jobs in our community to join us as residents. It advances the County’s goal of providing a variety of affordable housing options for a key segment of the Los Alamos community – teachers, public safety and other county employees; many of whom currently choose not to live here.
This proposalcan also be an important recruiting tool to help the County and LAPS to attract and retain the best public employees. This is especially important for school employees who are tied to a state funding system that has kept their wages far behind County wages.
And, as a final benefit, this proposal puts the public economic development subsidy broadly in the hands of many public service employees and small local contractors who will support existing home renewal, while providing ancillary benefit to neighboring property owners;rather than putting our public economic development subsidy into the hands of a few select developers focused on new subdivision creation.
Other Examples: In addition to some home ownership programs sponsored by the New Mexico Mortgage Finance Authority, here are examples of several other public bodies that offer a raft of housing incentives with similar aims:
- California Extra Credit Teacher Home Purchase Program – www.calhfa.ca.gov
- Texas Heroes Home Loan Program – www.tsahc.org
- HUD Good Neighbor Next Door – http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/reo/goodn/gnndabot
- Oklahoma Teacher Loan Program – https://www.ok.gov/ohfa/Homebuyers/OHFA_4_Teachers.html
Suggested Approach: This proposal suggests a variation of the home loan guarantee program sponsored by the U. S. Department of Veterans Affairs for eligible veterans. Under the VA program, veterans have the opportunity to take $0 down payment conventional loans with competitive interest rates from commercial lenders with the VA guaranteeing loan repayment on the 20% of loan balance that a typical borrower would put down on a conventional loan as a down payment. The VA collects some fees from some veterans and the net cost of the program is based on default rate on loans, on the portion of the 20% guaranteed amount that is lost on the few defaulted loans, and on offsetting fees collected.
As one possible approach, a Los Alamos program could include the following features:
- Eligible Borrowers – First-time home buyers or first-time in LAC homebuyers who meet public employment and modest tenure requirements (e.g., 2 year employee). We could initially open the program to LAPS faculty and staff, to public safety employees, or to all LAPS and LAC employees.
- Eligible Properties – The program would only provide financing for existing homes in LAC in poor repair or in poor exterior cosmetic condition.
- Rehabilitation – Consistent with the county’s soon-to-be-available Housing Rehabilitation Program, the loan portion for rehabilitation would focus on mitigation of health or safety hazards, improvements in home energy efficiencies that decrease energy and water consumption (and decrease homeowners’ costs), and modifications which allow seniors to age-in-place in their own home. Additionally, improvement to the exterior including reasonable landscaping would be required. Participants would be required to acknowledge that the purposes of the program include neighborhood beautification, and would commit to promptly rehabilitatingand maintaining properties at least to code standards.
- Amount – The program would work with commercial lenders to provide for $0 down purchase & rehabilitation loans, with the program guaranteeing repayment of the traditional 20% down payment, buyers closing costs, and the rehabilitation loan amount.
- Program Cost – The cost of the program would vary based on the number of loan defaults and the net loss on each default. As a simple example, if LAC supported one hundred loans at an average of $250,000, for a total loan portfolio of $25,000,000; the program might have a loan guarantee exposure (a maximum amount the County could potentially be liable for) of $5-6M. The most recent data for the foreclosure rate on VA loans is 1.4% (http://www.worldpropertyjournal.com/real-estate-news/united-states/mortgage-delinquency-rates-2015-mortgage-bankers-association-national-delinquency-survey-foreclosure-actions-marina-walsh-home-foreclosure-rate-2015subprime-loans-8900.php), meaning that for every 3 mortgage defaults, the VA successfully helps about 200 eligible veterans buy homes with $0 down.
I would argue that LAPS and LAC employees have more economic stability that the national pool of eligible veterans; but even using a 1.4% default rate as experienced by the VA, the one hundred loan example would result in a program cost of $70,000-$84,000 if each default reflected a total loss against the LAC guarantee. Of course, the program could cost more if a rash of defaults by public employees occurred, but it is difficult to foresee how costs for this program could rise to the hundreds of thousands or millions of dollars that have been devoted to other housing-based economic development initiatives.
In summary, this program has a variety of valuable benefits; attracting and retaining the best public sector talent, renewing our aging housing stock, building our population to the threshold levels our planners have so strongly argued for, and broadly spreading public investment to a large number of deserving local recipients. As the VA experience has shown, it’s remarkably inexpensive to take a small bet on good people; and those good people can solve a number of our development challenges.