Continued challenges for neighborhood stabilization efforts

Several weeks ago we noted that our recent experience with the Neighborhood Stabilization Program (NSP) revealed significant hurdles facing the program, and highlighted the struggle to realize on-the-ground benefits for target communities.

Unfortunately, the latest news on this front confirms our assessment.

Much of the nearly $4 billion put forward under the NSP to help the country’s most blighted communities is showing limited and inconsistent benefits.

While some cities are finding success, the combination of robust private sector purchases of foreclosed properties along with banks’ unwillingness to systematically support the NSP efforts has fostered frustration.

In what might be viewed as a last ditch effort to see the NSP succeed and overcome the significant operational challenges inherent in the acquisition, rehab and funding of foreclosed homes, a new coordinating entity has emerged as a potential solution: The National Community Stabilization Trust.

A nonprofit organization, The Stabilization Trust will aim to ‘right the ship’ by providing local agencies with services that should counteract the NSP’s underperformance, specifically:

• Streamlined, coordinated access to foreclosed properties, and
• Flexible and timely financing to renovate the properties.

To execute effectively, The Stabilization Trust has established direct partnerships with leading financial institutions, such as Bank of America, Chase, Citi, Fannie Mae, Freddie Mac, GMAC and Wells Fargo, which in theory should for allow municipalities to acquire targeted properties in bulk across specific neighborhood locations.

Bigger picture considerations…

While the success of The Stabilization Trust is still uncertain, the facts on the ground to date feed the skepticism of those who opposed the NSP from its inception. As the next steps play out, current market activity raises some important questions to consider:

• Does the success of private investors (to the detriment of contained and focused city-run rehabs) signal that markets are indeed functioning quite well, thus suggesting the need for government to move aside?

• Are banks’ fiduciary responsibilities to their shareholders the driving force that trumps larger questions of long-term community welfare? If so (and many would argue yes), where is the proper balance between commitment to shareholder wealth, and service to the communities in which a bank operates?

Have an opinion on the effectiveness of the NSP, or the broader policy implications of the program? Leave us a comment, and let us know what you think.

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Tax credits for green investing by insurers — we’ll pass

The availability of appropriate insurance coverage is a key risk issue that affects the overall value of green buildings and their financing.  Without proper coverage tailored to a green building’s technical features, green building owners might be exposed to losses on sustainability-related systems that can’t be recouped via an insurance claim.

At the end of the day, that leaves lenders and investors exposed to losses on those features, which inherently reduces their value and presents a barrier to advancing green building.  So appropriate “green” insurance coverage is key to assuring the proper financing and valuation of green buildings.

Skip Rawstron of InterWest Insurance Services of Sacramento, sent around an article detailing efforts to require the California insurance commission to study various sustainability risk issues tied to insurance coverages. The article (request it from us here) shares a laundry list of hearings that the insurance commissioner would be required to hold if the legislation passes.

The following snippets from the proposed legislation reveal the lawmakers focus on trying to attach advantages to green finance and investing as well as levy costs on those insurers continuing business as usual. Specifically the law, if passed, would:

• Require the insurance commissioner to hold hearings on the risk, costs and claims associated with green buildings.
• Require the insurance commissioner to conduct hearings regarding the health impacts on workers in green buildings, and use the information in establishing the Workers’ Compensation Claims Cost Benchmark. [our note: wow!]
  
• Offer state tax credits to insurance companies that invest in financial institutions that provide products designed to protect the environment and support renewable energy.

Now here’s the rub:

The concept of encouraging insurer investments in banks offering green products is a novel pass at trying to influence market forces in favor of both ecologically-friendly insurance and green banking products. Lots of folks have been talking about similar moves.

But despite being a big fan of incentives and novel financial mechanisms, I don’t think that using already strapped state funding sources to effectively pay insurance companies with tax credits to make those investments in banks is the way to go. Actually its surprisingly cheap.

Insurance companies are not hurting for cash in any respect, so there is no need to bribe them into green investing with tax credits. Everyone knows that tax credits are really a short-term play and we’re at a place where longer term financial mechanisms are needed to advance sustainability. And banks are not reluctant to offer green credit products due to lack of investment by insurers. They haven’t made that leap for other reasons that we’ve covered in other posts.

On top of all of that, the increasing availability of insurance products, well ahead of the banking industry, only convinces me that the insurance industry already sees green insurance products as  being both necessary and profitable.

Please email us to request the article, since Skip sent it to me personally.

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• Photo credit: NYArchitecture.

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