ECONOMIC IMPACT ANALYSIS: USING BANK SETTLEMENT FUNDS FOR FLORIDA S HOUSING PROGRAMS I. SUMMARY ANALYSIS: A mortgage related fraud lawsuit filed by Florida Attorney General Pam Bondi, the Federal Government and 48 other state Attorneys General against lending institutions was recently settled, with the lending institutions agreeing to a $25 billion federal-state settlement. Much of the settlement monies were earmarked as direct compensation to homeowners and the remainder directed to the Attorney General in each of the 49 states participating in the lawsuit. Attorney General Bondi recovered $8.4 billion for Florida with $334 million being a direct payment. The Attorney General has been aggressively reaching out and taking public input on how the direct payment dollars should be allocated based on the agreement reached in the settlement. This analysis will measure the economic and public policy benefit when allocating $250 million of the settlement dollars to two of Florida s existing housing programs, specifically, the State Housing Initiatives Partnership (SHIP) Program allocating $150 million and the State Apartment Incentive Loan (SAIL) Program allocating $100 million. In summary, the use of $250 million in these two programs will result in: More than 25,000 jobs Economic output of $2.995 billion Labor income of $1.086 billion Increased revenue from state and local taxes of $107.8 million Although a valid policy argument and rationale can be made for a variety of uses for the settlement dollars in mitigating the damage caused by the housing crisis, this analysis based its conclusion on two undeniable assumptions: 1) Homebuyers will need assistance for repairs caused by neglected and abandoned properties, and increased down payment assistance will be required due to new federal regulatory lending guidelines; 2) The demand for rental properties will increase as those impacted by foreclosure and short sales will transition to rental housing coupled with the continued natural and migration growth trend in Florida s population. 1
II. BACKGROUND A. State Housing Initiatives Partnership (SHIP) Program The State Housing Initiatives Partnership (SHIP) Program provides funds to all 67 counties and 44 cities for existing housing programs. By state statute, SHIP is primarily intended to assist with homeownership activities either helping persons purchase their first home or providing rehabilitation funds to keep low income elders in safe homes. The cost of administering the SHIP Program is limited to only 10% per s. 420.9075(7), F.S. SHIP funds are distributed by population, with a minimum of $350,000 to each county per s. 420.9073, F.S. Every local government receiving SHIP funds must adopt a plan for use of the funds per s. 420.9076, F.S. and the plan is reviewed by the state to ensure that it is in compliance with the legislative restrictions of the program. Additionally, every local government must submit an annual report to the state that shows activities by program, so that actual use of the funds can be evaluated for compliance with the statute parameters found in s. 420.9075(10), F.S. The state monitors all local governments to ensure that reports are accurate. SHIP funds are typically used to: Rehabilitate/renovate existing empty housing stock (such as foreclosed or abandoned houses) to ready it for families to move in; Help move the existing housing stock by providing down payment and closing cost assistance; Rehabilitate/renovate owner occupied homes, primarily to keep low income elders in safe homes. Provide pre and post purchase counseling. The SHIP Program is flexible enough to be used for locally designed programs, but has statutory parameters that emphasize spending monies rapidly, with a focus on construction (75% of funds must be spent on construction related activities) and home ownership (65% of funds must be spent on homeownership related activities); highly leveraged, with oversight, technical assistance and annual reports to ensure accountability (s. 420.9075(5), F.S.). Construction does not necessarily mean new construction. It is important to note that all rehabilitation/renovation work is considered construction as well. SHIP Program funds can be used for foreclosure prevention activities and to prevent homelessness by providing one-time security and utility deposits to help families move into rental properties. For example, SHIP funds can be used to assist homeless veterans using vouchers that provide ongoing rental assistance but do not provide the security and utility deposit monies they need to secure housing. SHIP funds are most often utilized in conjunction with long term, fixed rate first mortgage loans that are provided by the private sector. Therefore, the total economic impact of the SHIP Program is far greater than what would be expected by the expenditure of the SHIP funds by themselves. 2
B. State Apartment Incentive Loan (SAIL) Program The State Apartment Incentive Loan (SAIL) Program loans funds to the private sector to build new apartments, or rehabilitate existing ones, that have affordable rents for Florida s workforce, the elderly, and persons with disabilities. The SAIL Program provides gap financing which means that the bulk of the funds for each development come from bank loans and private equity investors. SAIL funds can be used for: Gap financing, enabling the private sector to develop and preserve much-needed rental housing for the low paid workforce, persons with disabilities, and the elderly. SAIL is the most highly leveraged of all Florida s housing programs. Rehabilitation of existing apartments (which could be foreclosed or abandoned housing stock) in dire need of repair and apartments that house Florida s most vulnerable populations, such as the frail elderly and persons with disabilities who might otherwise need to live in an institutional setting. The statutory parameters of SAIL are found in s. 420.507(22), F.S. and s. 420.5087, F.S. SAIL, and are flexible enough to provide partial financing for apartments that serve a wide range of residents in terms of income, age, and other conditions. Because SAIL funds are always utilized in conjunction with first mortgage loans and equity that are provided by the private sector, the total economic impact of SAIL is far greater than what would be expected by the expenditure of the SAIL funds by themselves. III. IMPACT OF FUNDING PROPOSALS A. $150 Million of Funding for State Housing Initiatives Partnership (SHIP) Program Allocating $150 million for the SHIP Program would allow approximately 22 counties to receive the minimum funding of $350,000. The remaining counties would receive larger allocations based upon population. The following economic data is based upon a May 24, 2012, whitepaper written by Dr. Alan B. Hodges and others from the University of Florida, entitled Economic Contributions of the Florida Housing Finance Corporation in 2010. The analysis below takes the results from the study and simply adjusts them to the funding levels proposed herein. $150 million of SHIP funding would result in the sale or rehabilitation of more than $722 million of existing housing stock, with the bulk of the funding coming from bank loans, private equity, and federal funds. 3
This translates into $1.9 billion of economic activity. This results from purchase of materials, salaries, and spending by those in the employment and supply chain. Labor employment income would exceed $713 million. The $722 million in sale and rehabilitation of existing housing stock would result in the creation of an estimated 16,476 jobs. B. $100 Million of Funding for State Apartment Incentive Loan (SAIL) Program The following economic data is based upon a May 24, 2012, whitepaper written by Dr. Alan B. Hodges and others from the University of Florida, entitled Economic Contributions of the Florida Housing Finance Corporation in 2010. The analysis below takes the results from the study and simply adjusts them to the funding levels proposed herein. $100 million of SAIL funding would result in the rehabilitation or construction of over $427 million of new and existing housing stock, with the bulk of the funding coming from bank loans and private equity investors. This translates into $1.04 billion of economic activity. This results from the purchase of materials, salaries, and spending by those in the employment and supply chain. Labor employment income alone would exceed $372 million. The $427 million in rehabilitation or construction of new and existing housing stock would result in the creation of 8,640 jobs. IV. ECONOMIC AND SOCIAL IMPACT OF FUNDING PROPOSALS A. Fiscal Impact on State Government: Revenues: The University of Florida whitepaper, adjusted for funding levels, shows that the $250 million of funding for SHIP and SAIL would result in $107.8 million in state and local revenue. Expenditures: No state funds would be expended. All funding is from the lawsuit settlement. 4
B. Fiscal Impact on Local Governments: Revenues: The University of Florida whitepaper, adjusted for funding levels, shows that the $250 million of funding for SHIP and SAIL would result in $107.8 million in state and local revenue. Local Governments are currently unable to collect ad valorem taxes on abandoned properties. Using SHIP to put these properties back into circulation will provide much needed real property taxes to local governments, including in some cases, back taxes owed. As housing stock is rehabilitated, it helps to secure the property values of the neighborhood, stabilizing the market and providing an increase in ad valorem collections as real property values rise. When SHIP and SAIL are used to prevent homelessness, which has been the case in a number of instances, local government savings include the costs of unnecessary hospitalizations and institutionalizations, which can cost government services approximately $40,000 per year per homeless person. As families move into what are now abandoned houses, a multitude of purchases are made from construction materials to home furnishings, and utility services. All these activities increase revenue to local governments from the various fees that businesses pay to local government, in order to operate. Expenditures: No state funds would be expended. All funding is from the lawsuit settlement. C. Direct Economic Impact on Private Sector The proposal would boost the private sector, leading to the sale, rehabilitation, or construction* of $1.2 billion of new and existing housing stock. This would result in: More than 25,000 jobs Economic output of $2.995 billion Labor income of $1.086 billion Increased revenue from state and local taxes of $107.8 million * construction refers to all rehabilitation/renovation work, as well as new construction. D. Societal/Public Benefits: 1. Stabilizing Florida s Housing Infrastructure. The SHIP Program was created by the Florida Legislature as a statewide program administered at the local level within each of Florida s 67 counties to allow every jurisdiction, including Florida s rural communities, to implement the statutory housing element requirements and respond to local needs in the most efficient and cost effective manner. The critical importance of this housing delivery infrastructure was proved when Florida suffered a series of hurricanes in 5
2004. Because each of the hurricane-devastated communities had a SHIP Program in place, they were able to deploy federal emergency assistance immediately. The SHIP administrators receiving the disaster funds had received training from the Catalyst Program of Training and Technical Assistance (a program funded by the Sadowski Trust Funds and administered by the state through a statewide nonprofit organization) on how to procure contractors, conduct inspections, work write-ups and manage the rehabilitation and rebuilding of properties. All SHIP communities have an adopted disaster relief strategy within their plans. But with the diversion of SHIP funding to general revenue over the past four years, Florida has lost SHIP offices entirely in some rural areas and has suffered the loss of experienced staff in many parts of the state. For example, Charlotte County s SHIP office was instrumental in the community s hurricane recovery and was unfortunately forced to close due to lack of funding. The ability of Florida s communities to recover from natural disasters in the future is compromised without the housing infrastructure and assistance of a local SHIP office. 2. Ensuring an Adequate Stock of Workforce Housing. One of the reasons that organizations such as Associated Industries of Florida and the Florida Chamber of Commerce have consistently supported Florida s housing programs, including SHIP and SAIL, is that affordable housing supports businesses. Whether to support employers already in Florida or draw new employers, having an adequate stock of affordable housing from rentals to moderate income homeownership is something that all employers depend upon. The SHIP Program is akin to an employee assisted housing program and has been an asset for Florida s business community since the program s inception. 3. Providing a Safety Net for Florida s Most Vulnerable Citizens. Whether they are low income persons with physical or mental disabilities, the frail elderly, or homeless veterans, there will always be a population in need of housing assistance to avoid living on the streets or becoming unnecessarily institutionalized. Florida s housing programs, both SHIP and SAIL, are used to help Florida s most vulnerable populations and this is, in part, why statewide organizations such as Florida Catholic Conference, Florida AARP, and Florida United Way have always been such strong supporters of SHIP and SAIL in addition to Florida s business community. V. CONCLUSION Allocating $250 million of the available federal mortgage-settlement dollars to the SHIP and SAIL programs would result in the creation of more than 25,000 jobs, $107.8 million in increased revenue from state and local taxes, $1.086 billion in increased labor income and an overall economic output of $2.995 billion for the State of Florida. Factual data compiled by Mark Hendrickson, Executive Director, Florida Association of Local Housing Finance Authorities and Jaimie Ross, Affordable Housing Director, 1000 Friends of Florida. 6