2014 March

New Public-Private Models for Stabilizing Neighborhoods in the Wake of Foreclosures

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ForeclosureBy Barbara Ray

Six years after the housing market bust, the effects of the foreclosure crisis still linger for thousands of communities hit hard by a spiral of disinvestment that left families facing painful decisions.

A father of three teens in suburban Chicago lost his job as a truck driver and soon began to fall behind on his $1,700 monthly mortgage payments and was on the brink of foreclosure.  A mother, left with child support as her only income after a divorce, was repeatedly denied a modification on her mortgage when it threatened to swamp her. To add insult to injury, she lost $1,500 to a loan modification scam. She too faced foreclosure.

And it’s not over. As a recent CNN story reported, up to 180,000 people will see their mortgage payments increase on average about $200 a month this year, when rates under the Home Affordable Modification Program begin to reset.

In response to the continuing crisis, nonprofits across the country have been developing new approaches to stop the spiral of decline. As Sarah Berke of the Housing Partnership Network and Carolina Reid of the University of California Berkeley write in the latest issue of “Community Development Review,” published by the Federal Reserve Bank of San Francisco:

“It hasn’t been easy—funding for neighborhood stabilization remains small in comparison to need, and the volatile housing market has required quick thinking and the ability to design new solutions on the fly. And although the housing market has finally begun to rebound, nonprofits are working to sustain their work in response to continued historically-high levels of foreclosures and bank-owned inventory.”

One thing is clear: We can no longer address the foreclosure problem with yesterday’s policies. The crisis is too fast-moving and at such a different scale, and budgets are too tight, for siloed approaches to make a dent. Instead, it will be critical to continue creating funding models that blend public and private dollars.

In Confronting Suburban Poverty in America, Elizabeth and Alan point to the Mortgage Resolution Fund as a good example of a collaborative effort to leverage funds. At the height of the crisis, four national organizations, including Housing Partnership Network, joined forces to form the MRF. MRF aims to keep homeowners in their homes, and uses innovative tools and enterprise-level investment to do so. In a novel, market-based approach, the MRF partners tapped into the Treasury Department’s Hardest Hit Fund to negotiate a loan of $100 million with very favorable terms. This allowed them to buy 270 properties in four suburban areas in the Chicago region and work with the owners to keep them in their homes.

In summer 2013, MRF expanded to northeast Ohio, where the mortgage pool was riskier, according to Danielle Samalin in “Community Development Review.” Despite these odds, initial results from the loan pool purchases “have been extremely encouraging,” she says.

With the help of MRF, the suburban father of three was able to reduce his monthly mortgage to an affordable payment (and he found a new job). The young woman who had struggled after her divorce was able to move forward with her life by voluntarily entering into a deed in lieu of foreclosure. Communities were stabilized instead of depleted.

The Review showcases several other fresh approaches to the crisis. Boston Community Capital’s (BCC’s) Stabilizing Urban Neighborhoods (SUN) Initiative, for example, purchases foreclosed homes and then turns around and helps owners repurchase them at a lower price, bringing down housing expenses by an average of 40 percent. The program recently expanded to Maryland, which had the highest foreclosure “starts” in the country in the fourth quarter of 2013. And it’s not just in inner-city Baltimore. According to an NBC news report in January, “Montgomery, Frederick and Howard counties each suffered from 100 percent increases in home foreclosures between autumn 2012 and autumn 2013. There was a 50 percent increase in Prince George’s County. In Anne Arundel County, the spike is much larger: 400 percent.”

In the end, even these innovative models only begin to scratch the surface of a problem that has affected, and will continue to affect, metropolitan communities of all kinds. But they demonstrate that public-private partnerships must become more the norm, given the scale of the challenge.

Photo/ BBC World Service

With More Poor Students, Suburban Districts Look to Expand Public Pre-K

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PreKBy Sarah Jackson

Several years back, Ed Leman, then superintendent of District 33 in West Chicago, began searching for funding to expand preschool services to students in his school district, 30 miles outside of Chicago.

Like many communities in suburban DuPage County, Illinois’ District 33 was experiencing dramatic jumps in the number of low-income students. Educators in the early grades were struggling to meet the needs of this changing population, more and more of whom were arriving on the first day of kindergarten far behind their higher-income peers.

These challenges were new to some suburban educators in the area, who as recently as 10 years ago had almost no low-income students in their classrooms. “We can’t begin the academic work,” Leman told the Chicago Tribune in 2010, “because they’ve taken such a step back in such rudimentary things as entering a classroom, handling their materials, interacting with tablemates and orienting a book right side up.”

District 33 ran a pre-K program, but slots at the publicly funded preschool were hard to come by. In most states, preschool falls outside the funding structure for K-12 education. So when public preschools programs do exist, they are often susceptible to politicking and budget shortfalls, which has been the case in Illinois. The state’s Preschool For All program has never been fully funded and the Early Childhood Block Grant, which pays for preschool, has suffered $80 million in cuts over the past few years.

For District 33, the solution came through a partnership with the Ounce of Prevention Fund, which worked with the district to build Educare of West DuPage. Today, the center offers year-round preschool to 102 at-risk children ages 6 weeks to 5 years, with funding from private foundations. Educare’s model, which is now being expanded, is in many ways similar to other programs being implemented in cities and states around the country and to Obama’s Preschool for All proposal: year-round full day services, low staff ratios, well-trained teachers, rigorous curricula, and health care and family support programs.

Early results from Educare’s model show that low-income children who attended Educare preschools entered kindergarten with vocabulary and school-readiness scores that were near national norms. On average, low-income children enter school with significant shortfalls in these and other skill sets. These results mirror national research that has found that investments in high-quality pre-K can help prevent achievement deficits between low-income students and their more advantaged peers. And Economist James Heckman has found that investments in high quality pre-K eventually pay off in longer-term benefits to society as a whole, like lower social welfare costs, decreased crime rates, and increased tax revenue.

Big cities, of course, have traditionally been home to more of the nation’s low-income school children. And it’s here that lawmakers have been taking the lead in finding innovative ways to fund universal pre-K programs. In San Antonio, mayor Julian Castro led a successful campaign in 2012 to institute an eighth of a cent sales tax increase to expand preschool to more than 22,000 four-year-olds over the next eight years. New York City Mayor Bill DeBlasio has proposed an increase in taxes on higher-income residents to help fund public preschool for all four-year-olds (though now state financing seems likely). And Seattle’s city council has proposed providing free preschool to three- and four-year-olds living in households earning less than 200 percent of the federal poverty level.

But disadvantaged young children live outside of cities, too. As poverty continues to rise in suburban communities, it’s the youngest children who are most likely to be poor. (A child under age five in DuPage County, for example, is about twice as likely to be poor as a senior citizen.) These imbalances, some are proposing, set the stage for nasty face-offs between young and old over scarce resources. To avert these no-win showdowns, communities around the country will need new regional models and funding structures to support their youngest children. Doing so is critical to these communities’ futures.

In suburban Oak Park, Illinois, for example, six government bodies have come together to create the Collaboration for Early Childhood, a public-private partnership designed to better meet the needs of the area’s youngest children and their families through high-quality preschool, parent information and support, and developmental screening. All governmental agencies participate and contribute financially and the group works to overcome fragmentation by leveraging all available community resources.

Confronting Suburban Poverty in America points out that low-income students in the suburbs are going to schools where students are performing only slightly better than their counterparts in urban schools and not nearly as well as students in typical middle- or higher-income suburban schools. Publicly funded pre-K may help more students in low-income suburbs do better in school over the long haul, increasing the school’s share of students meeting standards and lowering the burdens educators and schools in these communities face.

“In preschool, you never know if you’ll be here the next year,” preschool teacher Christina Stangarone told the Chicago Tribune. “You’re just praying that the state will be generous and that the school district and board believe in the program.”

Low-income children in the suburbs deserve more than a prayer.

Photo/White House

New Analysis Shows EITC Expansion Would Strengthen Credit for Childless Workers

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By Jane Williams and Elizabeth Kneebone

For low-income working families, the Earned Income Tax Credit (EITC) is one of the nation’s most effective tools for reducing inequality and alleviating poverty. However, for low-income childless workers, the EITC is a weak or unavailable resource.

Recognizing the need to reform the EITC to better benefit childless workers, the Obama administration recently released details for how it would go about expanding the EITC. The administration’s proposal joins others from officials in both the House of Representatives and the Senate including Representative Richard Neal’s Earned Income Tax Credit Improvement and Simplification Act of 2013 and the Working Families Tax Relief Act of 2013 introduced by Senators Sherrod Brown and Richard Durbin.

Yesterday we released a new analysis estimating the impact of each of these proposals’ on low-wage workers at the state level and across the nation’s 100 largest metro areas using our MetroTax model for Tax Year 2012.

We found that:

  • Each proposal would significantly strengthen the credit for millions of workers.
  • At least 15 states would double the number of filers eligible for the childless worker credit.
  • Every major metro area would see thousands of workers benefit from an expanded EITC.

Our findings illustrate that the proposed EITC expansion would contribute a significant federal investment in low-wage workers as well as the communities in which they live. This is particularly important for our suburban poverty work.

For part of what makes the EITC effective as a poverty alleviation tool is its responsiveness to changes in the economic cycle (bolstered in recent years by targeted expansions) and to the changing geography of poverty in the United States.  As the low-income population rapidly suburbanized in recent years, so, too, did the geography of EITC recipients. Between Tax Year 1999 and Tax Year 2011, the number of filers claiming the EITC in the suburbs of the 100 largest metropolitan areas increased by 61 percent, compared to an increase of just 32 percent in the largest cities. In Tax Year 2011, 10.2 million suburban filers claimed the EITC for a total of $22.9 billion.

Modernizing the EITC by enacting the proposed expansions would ensure the credit is an effective work incentive and poverty alleviation tool for childless workers, many of whom reside in suburban communities that are otherwise ill-equipped to address growing need.

When Transit Is Not an Option

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Auto Loan Image

Through affordable auto loans, Ways to Work helps ease the financial burden of owning cars for low-income suburban workers.

By Sarah Jackson

The suburbs are in many ways defined by cars. Part of the popular stereotype of an American suburb is homes with two-car garages built on quiet cul-de-sacs, removed from retail and businesses, with scarce sidewalks.

While suburbs are certainly more diverse than that picture, in practice suburban residents often have to get into their cars to pick up groceries or get to work. Where suburban public transit exists, it carries commuters to and from the central city and not many other places, as we wrote about here.

As a result, most suburban residents, including low-income families, depend on their cars. More than 94 percent of suburban households own at least one vehicle. Seventy-four percent of low-income suburban residents drive alone and 12 percent carpool to and from work, according to Brookings’ analysis of the American Community Survey Data.

But cars are expensive.

As Elizabeth and Alan write in Confronting Suburban Poverty in America, in addition to the costs of purchasing and insuring a car, low-income drivers also “face frequent and costly repairs to keep the car running because they tend to buy older, cheaper vehicles.”

This was the case for Natasha Gregory, a single mom in Waukesha, WI, a suburb of Milwaukee, who relied on a car she bought “cheap off the street” to get to her part-time job, to school at Marquette University, and home to care for her 9-year-old. When it broke down, Gregory told the Milwaukee Journal Sentinel, she “started to panic a little bit.”

“I was like, ‘How am I going to get to school?,’” she said. “’How am I going to get to work? If I can’t go to work, there is no way I can pay my rent.’”

On top of those stressors, research shows that people who live in low-income neighborhoods pay between $50 and $500 more than residents of higher-income neighborhoods for the same car, according to work by Matt Fellowes, a former Brookings fellow. In some cases, this may be because residents of low-income neighborhoods have poor credit or payment histories, but also because they are more likely to be victims of predatory lending practices that result in loans with very high interest rates.

Research from the Consumer Federation of America shows low-income residents are likely to pay more for less when it comes to auto insurance coverage as well. In California, for example, State Farm won’t sell auto insurance policies at all to young men with poor driving records from certain low- or moderate-income neighborhoods like Compton, near Los Angeles, or Sunnyside, near Fresno.

Kristina Hubbard could not afford a car with her wages at a call center in suburban Atlanta. And she was making a two-hour trip each way—on two trains and a bus—just to travel 25 miles to work. In the evenings, she told NBC News, she regularly didn’t make it to her daughter’s daycare by its 6:30 pm closing time, and incurred expensive fines.

Gregory and Hubbard both found assistance through Ways to Work, a community development financial institution that provides affordable auto loans to families facing credit challenges. Through a network of 44 loan offices across the country, Ways to Work provides low-interest loans and financial education, and partners with nonprofit, family-serving agencies that are members of its sister company, the Alliance for Children and Families.

Ways to Work clients usually have 24 to 30 months to repay loans at around an 8 percent interest rate. Ways to Work President Jeff Faulkner says 90 percent of clients repay their loans on time, despite their credit risks.

Ways to Work program evaluations show that cars enable clients to improve their employment circumstances (by pursuing promotions, and/or higher paid jobs), enroll in education programs, miss fewer days of work, increase their credit scores, and spend more time with their families.

Hubbard is paying off her two-year loan and is the proud owner of 2006 Honda, which she says allows her to get to work and daycare on time.

“I’m more confident in myself. When I go to job interviews I don’t have to plan two or three hours ahead waiting on a bus. I’m actually able to think about career moves and where I want to go and going back to school,” Hubbard said.

With its centralized lending services and program management, the Ways to Work model is an excellent example of how to create efficiency while working at scale. The organization’s established partnerships with a network of existing providers, as well as its franchise approach have enabled Ways to Work to expand to more than 50 sites in urban, suburban, and rural communities across 21 states.

It’s that kind of scaled approach that will bring needed efficiency and expertise to communities around the country struggling with suburban poverty, and help families in its midst navigate their way toward better job opportunities.

Photo/ David Hilowitz

Resources

Learn about suburban poverty in your community, how innovators around the country are addressing it, and what you can do locally and nationally to take action.