Community Progress Blog

Restoring America’s Neighborhoods by Alan Mallach, Senior Fellow and Payton Heins, Program Officer, Center for Community Progress

Written by on March 7, 2013


A national problem calls for federal action

Sustained economic decline and the foreclosure crisis have resulted in a wave of vacancy, abandonment and blight in cities and towns across the country. Since 2000, the number of long-term or abandoned housing units has risen nearly 60 percent. The scale of the problem has grown too large for cities and towns to recover on their own.  The federal government has attempted to provide support through the Neighborhood Stabilization Program, but its impact has been limited; widespread abandonment continues to undermine already disinvested neighborhoods and threaten the stability of those still teetering on the edge. Many neighborhoods and cities will not fully recover from the housing crisis without comprehensive and adequately-funded federal action.

Last week, Ohio Rep. David Joyce (OH-14) introduced H.R. 656 the Restore Our Neighborhoods Act of 2013, a bipartisan bill that would provide $4 billion in new funding for demolition activities through bonding to states.  This bill has the potential to funnel millions of dollars to cities across the country for the purpose of removing abandoned and blighted structures that continue to lower neighboring property values, encourage criminal activity, and threaten public health. The bill is an encouraging step towards federal action on widespread vacancy and abandonment, but lacks the flexibility needed to address the scale and complexity of this national problem.

The promise of H.R. 656
The Restore Our Neighborhoods Act of 2013, a successor bill to H.R. 4210 that was introduced last year, would amend the Internal Revenue Code to allow for qualified urban demolition bonds, a type of tax credit bond that can be sold to investors. Under this approach, in lieu of receiving interest, bond holders would receive a Federal tax credit equal in value to the interest they would otherwise receive. The bond issuer would only be responsible for repaying the principal when the bond became due, after 20 or 30 years.

The bill would allocate $2 billion in bonds equally to all 50 states, or $40 million each, while  an additional $2 billion in bonding authority would be granted to “qualified” states – the states with the highest levels  of vacancies, unemployment and mortgage foreclosures, and the lowest rate  of population growth (H.R. 656, Sec 2 (g)(3)). The bill would also amend the provisions governing the Hardest Hit Fund Program to include demolition as a permitted use of those funds.   States would have to commit their funds in two years, or they would be re-allocated to other states. All funds must be spent within five years of the legislation’s effective date.

H.R. 656 could offer a dramatic boost to efforts in cities like Cleveland or Detroit, as well as many others, which are facing a surplus of vacant properties – residential, commercial and industrial – in need of demolition. At the same time, we have some concerns, both about the bill itself, and about the underlying policy framework that focuses exclusively on demolition as a response to vacancy.

Where H.R. 656 falls short
The qualified bond approach, as described earlier, is an effective way of reducing the cost to the bond issuer while limiting the cost to the federal treasury, but bond issuers will still have to spend their money to get this money. Specifically, they will have to create a sinking fund, and deposit enough money into the fund up front so that, after 30 years, that money along with the interest it earns will be enough to pay off the principal on the bonds. A fair estimate, given today’s interest rates, is that they will have to come up with about 40% of the amount of the bond; in other words, if a state were to issue $100 million in bonds, they would have to come up with $40 million from somewhere else to create the sinking fund. The question is: will hard-strapped states and cities be able to come up with that money?

A second concern relates to the definition of “qualified issuer.” As we read the bill (Sec. (g(1)), in those states that have state-authorized land banks, as later defined in the bill, only those land banks can issue bonds. In Michigan, where land banks have been in business for a decade, and one exists in nearly every county that might have a concern with demolishing properties, that’s not an issue. The same may be true in Ohio. In states like Pennsylvania or New York however, land banks are just now getting started. In fact, New York state law caps the number of land banks statewide, meaning that many communities – even if they wanted to create a land bank – would be unable to do so. Furthermore, many land banks are small with limited resources, and may not have the ability to issue bonds in any significant amount. This provision may ultimately impede getting these resources to places that need them. Similarly, the two year ‘use it or lose it’ requirement of the bill may prevent many states or localities desperately in need of funding but with limited capacity at present from successfully issuing bonds in time, resulting in the re-allocation of these resources to other jurisdictions that are more sophisticated or better-endowed financially.

Taking a more comprehensive approach
Our biggest concern remains the narrowness of the proposed response to vacancy. This bill provides funds only for demolition. While more resources for demolition are urgently needed, that is not the only area where resources are needed. Moreover, while it is fair to say that without funds for demolition, many neighborhoods will continue to deteriorate, it is not clear that demolition alone will bring them back.

In a policy brief issued at the end of 2012 written by Non-resident Senior Fellow (and Center for Community Progress Fellow) Alan Mallach, the Metropolitan Policy Program at the Brookings Institution proposes a more comprehensive federal approach to neighborhood stabilization and economic recovery – the Strategic Neighborhood Investment Program. The program would include both a Qualified Neighborhood Investment Bond (QNIB) and a multi-part Neighborhood Investment Tax Credit program. The QNIB, which uses the same bond structure as the Restore Our Neighborhoods Act, provides a more flexible funding source for communities. It would double the amount of available bonds to $8 billion, distribute 25 percent of the bonds equally across all 50 states, and allocate the remaining 75 percent to ‘qualified’ states. Bond funds, however, could be used not only for demolition, but also for property acquisition, rehabilitation, maintenance and reuse.  The bond program would be combined with a series of tax credits designed to provide incentives for people to buy and rehabilitate vacant homes in designated neighborhoods, as well as to provide funds for the essential ‘glue’ of neighborhood revitalization – improving the public realm, building stronger neighborhood institutions, marketing and more. The Brookings proposal thus focuses on the central issue with neighborhood revitalization – rebuilding market demand.

We strongly support federal action to further the recovery of our communities from the blows they have suffered over the past few years. We believe, though, that it should take the form of a more comprehensive program with the flexibility to address the full range of issues – including demolition –that must be tackled if we are to see strong, sustainable neighborhoods re-emerge in our towns and cities.


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[…] as discussed by Alan Mallach at the Center For Community Progress Blog, is the Restore Our Neighborhoods Act of 2013, which also has bipartisan support and “would […]


Karen Arrington says:
Jun 17, 2013

I am dismayed so much money has been allocated to demolish vacant properties. If this money had gone to restoring these properties, many of which I imagine are historic, there could
have been a way to house people who are homeless or near homeless. THERE NEEDS TO BE A NATIONAL PROGRAM TO TEAM RESTORATION OF HISTORIC BUILDINGS FOR HOUSING WHILE HIRING PEOPLE WHO NEED JOBS. I READ THERE IS SUCH A PROGRAM IN DC. STOP THE GENTRIFICATION AND HIRE PEOPLE TO RESTORE FOR WORK AND HOME. ALL PEOPLE, ESPECIALLY THE POOR, NEED REAL NEIGHBORHOODS AND BEAUTIFUL ARCHITECTURE TO FEEL LIKE REAL HUMAN BEINGS. PLEASE TELL ME YOUR THOUGHTS.
MANY THANKS!!


[…] properties: At present there are two bills in Congress that offer some hope. One is H.R. 656 (the Restore Our Neighborhoods Act) that proposes $2 billion in federal funding for demolition. While demolition is a necessary tool […]


Therese Pohorence says:
Dec 28, 2015

In Cleveland Ohio, These programs and monies are only being offered to a small number of people. These people are connected politically to the people who run these programs and it is very hard for an outsider to get information and guidance. Often, interested outsiders are told things that are not correct. I would like to see the programs run by people who are not retired politicians. I think that an effort should be made to see that these monies actually are offered to the public.


Laura McShane says:
Dec 28, 2015

I hope this legislation is finally DEAD. It is a not so veiled attempt to feed the mob demo contractors in Northeast Ohio. Good riddance.


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