City and county budgets are shriveling as the ongoing rise in foreclosures drains property tax revenues from local government coffers. Officials are hopeful that the federal government soon will provide some relief.
By June, the House of Representatives had approved its version of The Foreclosure Prevention Act of 2008 and the Senate had passed most of its version, with the exception of some elements. The two versions now are being reconciled in a committee before they are sent to President Bush. “We believe that there is good will on both sides of the aisle and the Capitol to finalize the deal as quickly as possible,” says Nadeam Elshami, spokesman for Speaker of the House Rep. Nancy Pelosi, sponsor of the House version of the act.
Along with helping homeowners in danger of foreclosure stay in their homes, the act will assist governments in areas that have been hard hit by the foreclosure crisis, such as Cape Coral, Fla. In May, the city saw the second-highest level of foreclosures in the nation, according to RealtyTrac.com's May Foreclosure Market Report, which was released in June. According to the study, one in every 79 houses in the Cape Coral-Fort Myers area was in foreclosure that month.
The early estimates for the city's fiscal year 2009 budget show a 26 percent reduction in property values, says Connie Barron, Cape Coral public information director. “That equates to a potential loss of revenue of $26 million,” she says.
The effect will be particularly hard on Cape Coral, Barron says, because the city relies on property taxes to fund its general budget. “Where other municipalities may only have 40 or 50 percent of their budget from [property] taxes, we have a much larger percentage, up around 65 to 70 percent,” she says.
The bill's sponsors still are committed to sending the combined legislation to the president by the end of July, says Mike Wallace, senior legislative counsel for the Washington-based. “We think it's going to pass,” Wallace says. “It's mostly a fight about the details at this point.”
Among other things, Wallace says, the bill could include grant assistance to help cities lessen the effects of foreclosures and stabilize property values by buying abandoned homes. “[The grants] are for cities and states to actually purchase vacantback off the market and basically fix it up,” he says. “Then, the city could turn around and sell [the house] to a low income family, or it could sell it for a dollar to a non-profit organization. There's a lot of different things they can do with that,” he says.
The grants would be most useful to cities, such as Cleveland, that have established “land banks” or a system for buying residential properties. “Cities that have a serious foreclosure problem would probably want to ramp up and do this, and others that don't might not,” Wallace says.
Wallace says it is uncertain how much grant money will be available in the bill's final version, but it likely will be around $4 billion. “So many families are losing homes, the speed of this is really critical,” he says. “We just need to get something to the president that [he] will sign so that we can start acting.”
The Foreclosure Prevention Act of 2008 proposes to:
- Provide between $4 billion and $7 billion in grants that cities can use to purchase foreclosed property, possibly slowing a decline in property values.
- Provide more money for training financial counselors to help homeowners avoid foreclosure.
- Empower federal home loan banks to offer credit enhancement on .
- Allow the Federal Housing Authority (FHA) to re-finance $300 billion in loans following strict FHA underwriting standards.
SOURCE: National League of Cities