A federal housing program originally designed to help keep people in their homes is increasingly being used for a dramatically different purpose — the demolition of vacant homes that keep property values from rising.
The Treasury Department this week agreed to let Ohio use $60 million in federal money to demolish abandoned properties. That followed a June decision to allow Michigan to spend $100 million in federal funds on demolition efforts.
The funding comes from Treasury's Hardest Hit Fund (HHF), an initiative born of the Troubled Asset Relief Program (TARP) that gave 18 states and the District of Columbia a total of $7.6 billion in housing aid. Until this summer, the money was used by states to help homeowners stay current on their mortgage payments or make insurance or property tax payments.
As of this week, Treasury still describes the program as one designed to bring "targeted aid to families in states hit hard by the economic and housing downturn," but Treasury's approval of demolition projects in Michigan and Ohio could be a sign of how unspent HHF money might be used over the next few years.
The Treasury Department declined to comment on whether other states are seeking similar flexibility. But in announcing the Ohio agreement, Treasury seemed to indicate support for the concept of giving states more options.
"Vacant and abandoned properties are depressing home values and weakening efforts to revitalize communities across Ohio," said Assistant Secretary for Financial Stability Tim Massad. "That is why Treasury is pleased to help Ohio utilize the Hardest Hit Fund to address neighborhood blight and thereby prevent foreclosures and strengthen the housing recovery."
According to Treasury's latest reports on HHF funds, hundreds of millions of dollars still appear to be available under the program, some of which could be used for demolition.
Most of the 18 states receiving money under HHF were allocated amounts between $100 and $300 million, but two states received about 40 percent of the total $7.6 billion: California was allocated $1.975 billion, and Florida was given just over $1 billion.
So far, members of both parties have backed using the money to pay for demolition.
In March, Rep. Dan Kildee (D-Mich.) asked Treasury Secretary Jack Lew for permission to use HHF funds for demolition, a request that was approved months later. In June, Michigan Gov. Rick Snyder (R) welcomed Treasury's decision to let the state spend $100 million — 20 percent of Michigan's total HHF allocation — on demolition.
This week, Snyder announced that more than half of the $100 million approved would be used in Detroit, which filed for bankruptcy earlier this year.
Treasury's approval of Michigan's request led Sens. Rob Portman (R-Ohio) and Sherrod Brown (D-Ohio) to make a similar request to Treasury on behalf of their state. Ohio was given $570 million in HHF funding, and this week, Treasury agreed to let the state use $60 million of that for demolition efforts.
Earlier this summer, Portman introduced the Neighborhood Safety Act, which would have allowed all municipalities to use HHF funding for demolition. Portman's office noted in June that using the funds for demolition is "not presently allowed."
On Thursday, Portman said he would continue to push for passage of his bill so other states get the same chance as Ohio and Michigan.
Portman's bill was opposed by advocates for the homeless when it was introduced. Back in June, the Coalition on Homelessness and Housing in Ohio argued that the state already has access to funding for demolition, and that Portman's bill was not needed.
"It's ridiculous for people to advocate taking all the money from prevention when there are funds already available for demolition," Coalition Director Bill Faith said. "Why gut a program that's doing exactly what it's supposed to do?"
That opposition did not seem to deter Republicans or Democrats. Rep. Marcy Kaptur (D-Ohio) introduced a bipartisan House version of Portman's bill and also praised Treasury's decision to allow HHF funds to be used for demolition.
"Treasury's decision will help alleviate the demolition bottleneck," Kaptur said. "This allows us to take the important first step in rebuilding and revitalizing neighborhoods that have been devastated by the implosion in the housing market."