Local governments and nonprofits in North Carolina are vying for millions in federal dollars meant to bail out counties suffering from the housing crisis, but critics fear the funds could benefit private lenders and liberal advocacy groups more than struggling homeowners.

Congress allocated $4 billion in July for the Neighborhood Stabilization Program, administered by the U.S. Department of Housing and Urban Development. The funds, part of the $700 billion bail out of the mortgage industry, enable local governments to purchase and resell foreclosed homes, ostensibly avoiding blight. North Carolina qualified for $52 million in NSP funds, and Charlotte received an additional $5 million.

Supporters say the funds will help homeowners weather a turbulent economy, but state-level homeowner groups and free-market advocates are approaching the program cautiously in light of numerous scandals involving misuse of mortgage bailout funds.

“We’re concerned that they really stay on point with housing,” said Chris Estes, executive director of the North Carolina Housing Coalition, an organization that campaigns for low- and moderate-income housing.

“We want to make sure that cities don’t use this to supplant some of their other funding and use it to build a park or a parking deck,” he said.

The U.S. Office of Inspector General identifies NSP funds as “high risk.” That, mixed with weeks of headlines about misappropriation of government funds, has some members of North Carolina’s congressional delegation worried, too.

“With much of the money being funneled to liberal political groups like ACORN, [which] is under federal investigation, there must be strict oversight to prevent the waste and abuse of tax dollars,” said U.S. Rep. Patrick McHenry, R-10th, an opponent of the bailout.

U.S. Rep. Virginia Foxx, R-5th, another critic of the bailout, called the NSP constitutionally suspect. “Like I’ve said before, if you liked the way the federal government handled Hurricane Katrina relief, you’ll love the way they handle real estate investments,” she said.

Tar Heel bailout

Economic uncertainty has hit home in North Carolina, which ranked eighth among all states in unemployment in November and 35th in foreclosure filings nationwide in December. The state is expected to experience a $2 billion budget shortfall, and many local governments, facing evaporating tax revenue, are going hat in hand to the federal government asking for relief.

HUD has identified 23 counties in North Carolina as areas of greatest need for NSP funds. The state’s top urban centers are on the list. Forsyth, Guilford, Mecklenburg, and Wake counties had the largest number of foreclosure starts between January 2007 and June 2008. Other counties experiencing high foreclosure rates include Gaston, Cabarrus, Union, Durham, and Johnston.

Local governments, nonprofits, and housing agencies had until Feb. 3 to apply for NSP funds. Grants are capped at $5 million for local governments and housing agencies and at $2 million for nonprofits, according to program guidelines published by the N.C. Department of Commerce.

“Grantees must use at least 30 percent of funds to assist households whose incomes do not exceed 50 percent of the applicable area median income,” the guidelines say. “The remaining 70 percent of grant funds may be used to service households up to 120 percent of the applicable area median income.”

The state was expected to award the grants by Feb. 16, although a spokesperson for the Commerce Department said it could take until the end of the month.

A preliminary list of applicants obtained by Carolina Journal shows 46 entities that have applied for the funds: 23 local governments, 20 nonprofits, and three housing and community development agencies. Some of the local governments overlap. Both Wake County and Raleigh, for instance, applied for funds.

State taxpayers already fund two of the housing agencies that are seeking NSP dollars — the N.C. Housing Finance Agency, which received $12 million in state appropriations for fiscal 2008-2009, and the N.C. Community Development Initiative, which received $1 million.

The third agency, the Durham-based Center for Community Self-Help, is a nonprofit that received $2.5 million in government contributions for fiscal 2007, according to the group’s IRS Form 990. The organization’s mission is to create and protect “ownership and economic opportunity for people of color, women, rural residents and low-wealth families and communities.”

Liberal nonprofits

Government transparency advocates are particularly concerned about leftist nonprofits obtaining and misusing bailout funds.

U.S. House Minority Leader John Boehner, R-Ohio, issued a press release Jan. 23 warning that the Association of Community Organizations for Reform Now, or ACORN, could get “billions” from the Obama administration’s economic stimulus bill. That bill contained an additional $4.19 billion in funding for the NSP, which would augment the amount approved by Congress last summer.

ACORN responded to the Boehner press release shortly afterward claiming that it has no intention to pursue the funds. “We have not received neighborhood stabilization funds, have no plans to apply for such funds, and didn’t weigh in on the pending rule changes,” said Bertha Lewis, chief organizer for ACORN.

The North Carolina chapters of ACORN were not on the list of NSP-applying nonprofits provided to CJ by the Commerce Department. But at least one nonprofit on the list, the Community Reinvestment Association of North Carolina, pushes a liberal legislative agenda.

The group, which applied for $751,000 in NSP funds, advocates “social change and economic justice” and “uses research, education, mobilization, media, litigation, regulatory changes, legislative advocacy and stockholder actions to initiate change.” It received financial backing in 2008 from the Z. Smith Reynolds Foundation, a supporter of left-wing causes and promoter of “progressive public policy and social change.”

Another of the nonprofits, the Dubois Center in Wake Forest, has faced fraud allegations. Authorities arrested the group’s former executive director in 2006 for allegedly embezzling $169,000 from the nonprofit and devoting the funds to a different group, also devoted to low-income housing. The Dubois Center, now under a new executive director, applied for $2 million in NSP funds.

At least one of the nonprofits, St. Augustine College in Raleigh, does not appear to have a direct link to the NSP’s purpose of acquiring and redeveloping foreclosed properties. The school has asked for $2.35 million in NSP funds.

More in the pipeline

The new stimulus bill will include billions more for neighborhood stabilization. The $4.19 billion in the House measure was stripped before the Senate approved the bill, but a compromise version is expected to include at least $2 billion.

California, Florida, and Michigan got the largest grants from the initial appropriation in July because of high foreclosure rates. The NSP isn’t the best fit for North Carolina because the state hasn’t experienced foreclosure rates on par with cities like Cleveland and Detroit, Estes said.

“It could have a neighborhood stabilizing effect, but the Catch-22 is that you’ve got to have buyers who can buy those homes,” he said. “In Raleigh that’s probably not a problem, but in areas where unemployment is higher, it might actually be tough to get the homes sold again.”

Click here for a list of nonprofits applying for funds.

David N. Bass is an associate editor of Carolina Journal.