Grants to do good

One of the more interesting items in the federal housing bill that’s now awaiting President Bush’s signature originally prompted him to threaten to veto the legislation: $3.92 billion in Community Development Block Grant funds for local governments to buy and rehabilitate foreclosed properties.

The block grant is a meritorious idea that we have supported in the past. As it gets closer to implementation, however, it’s worth remembering why the president objected to it as a bailout for lenders and speculators. Just under $4 billion may not seem like much when spread across the U.S. population, but Los Angeles -- where activists lobbied heavily for the grant -- stands to be a big winner. Funds are allocated by the number and percentages of default notices in a given area. L.A.’s default and foreclosure percentages are smaller than those of communities in surrounding counties, but with 5,259 foreclosures and 18,052 default notices in 2007, the city’s raw numbers are much higher. It also benefits from a proviso that cities with populations of 50,000 or more can apply directly to the Department of Housing and Urban Development for funds, rather than going through state governments.

The catch is how to disburse these funds into the local community without turning the city government into a market maker. State and local governments don’t have impressive track records running businesses, and public money turns a straightforward housing support effort into a balancing act involving many variables. Should you buy abandoned properties in areas that have good odds of a quick recovery, and if so, does that mean ignoring the truly hard-hit areas? How do you refurbish houses at reasonable rates while observing the many wage and workplace regulations required for city projects? Most important, how do you provide support for local markets while allowing house prices to fall back into more realistic ranges?

In a county that collects billions of dollars in property taxes each year, it may be too hasty to worry about what will most likely be modest funds. But why not try to minimize the effect of government intrusion into the market? Los Angeles has a wide range of church-affiliated and other nongovernmental organizations that are already in the business of reclaiming foreclosed properties. There is a problem of self-dealing here, because many of these groups lobbied heavily for the block grant. But they also have long experience in the business. When the city starts spending its federal windfall, it should start by getting the funds to the people who know best how to spend it.