FINANCIAL MANAGEMENT/Buying down loans for urban renewal

Cuyahoga County, Ohio, like other urban industrial counties, has experienced a decline in population. As the population fled the county, so did its tax dollars. Now, the county is looking for ways to recoup both.

In the 1970s the county was home to 1.7 million residents. Since then, it has lost 300,000 residents to outer-ring suburbs in adjoining counties. Additionally, aging housing stock and its related problems have caused an exodus of middle-class families from the county’s older suburbs.

The loss of tax revenue has resulted in a loss of city services, deterioration of the infrastructure and loss of revenue in the school system. Those problems have caused a downward spiral in the suburbs, much the same as Cleveland faced years ago.

To encourage residents to stay in the county, Treasurer James Rokakis has developed a low-interest home improvement program. The Housing Enhancement Loan Program (HELP) is a partnership between the Cuyahoga County Treasurer’s Office, 32 eligible communities and seven participating banks. The program earmarks a portion of the county’s core investment portfolio to “buy down” home improvement loans for homeowners.

To be eligible, communities had to meet the county’s criteria, which is based on housing appreciation values. Communities whose housing stock had appreciated no more than an average of 2 percent a year over the past 15 years qualified.

Homeowners in Cuyahoga County’s eligible communities can apply for home-improvement loans at one of the banks participating in the program. The banks determine the best rate they can offer the homeowner based on equity, borrower’s income and other pertinent criteria.

Once the loan is approved, the Treasurer’s Office reduces that rate by three percentage points. The Treasurer’s Office then purchases a certificate of deposit from the lending institution involved at three percentage points below the going rate on CDs.

The HELP program is easily replicable by any agency that has investment funds. Government agencies only need to determine how much interest revenue they can afford to forego, and thus what portion of their investment portfolios can be devoted to CDs that earn a lower rate of return. They can then enter into partnerships with lending institutions that agree to offer that lower rate to homeowners, in exchange for the government agency accepting the reduced rate on certificates of deposit.

Under the HELP program, there are no upper income limits on borrowers; the loans can be used for primary residences or rental properties, single-family homes or multi-family units; and there are few restrictions on what improvements may be made. The program also avoids large overhead costs and a huge bureaucracy by having the participating municipalities and lending institutions take an active role in the implementation and maintenance of the program. “The HELP program is a powerful tool to help cities and counties stem the flow of families from older suburbs to newer suburbs and outlying counties and [to keep] those communities and their schools vital,” Rokakis says.

Since July 1999 more than 3,000 homeowners have borrowed more than $30 million through the HELP program to improve their homes. Surveys of the program’s loan recipients have shown consistently that they would not have renovated their homes without the reduced rates, and that they now plan to stay in their homes as opposed to moving to newer residences. Ohio plans to replicate HELP in other communities as part of the state’s Urban Initiative Program.

The author is communications director for Cuyahoga County, Ohio.