1.6: Communities

Viable Communities

Other Information:

The economic and social wellbeing of communities is vital to the nation’s overall growth and prosperity. Adverse economic conditions— including declining home prices, high unemployment, and distressed residential and commercial lending markets—will continue to threaten the long-term viability of communities nationwide. For example, communities with high levels of foreclosures face a growing number of vacant or abandoned properties, which will further depress property values in surrounding neighborhoods and destabilize neighborhood conditions. These conditions could further stress communities with historically higher levels of poverty, homelessness, and disinvestment. In and of itself, promoting economic stability and development in communities is complex, involving the combined efforts of federal, state, and local governments, as well as financial institutions, businesses, and nonprofit organizations. The impact of the recent economic crisis has made these efforts even more complicated. The federal government, in particular, will face significant challenges carrying out its role, including helping to reduce or limit the impact of foreclosures on communities. Homeownership: Housing, which represents over a third of the nation’s total fixed assets, contributes significantly to the health of communities and the overall economy. The federal government plays a role in furthering homeownership through various finance programs, incentives, and requirements administered by the Department of the Treasury (Treasury) and the Departments of Housing and Urban Development (HUD), Veterans Affairs (VA), and Agriculture (USDA). In addition, two government-sponsored enterprises (GSE), Fannie Mae and Freddie Mac, are major participants in the home mortgage market: „„As evidenced by their placement under federal conservatorship in September 2008, the GSEs pose significant risks to taxpayers and investors. For example, the Congressional Budget Office (CBO) estimated that the total cost of Treasury’s financial assistance to the GSEs will be nearly $400 billion. „„Declining home prices and rising mortgage foreclosures were important factors in the financial crisis that began in 2008 (see fig. 28) and have placed severe stresses on federal single-family housing programs, current and prospective homeowners, and the neighborhoods in which they live. For example, the capital reserves of HUD’s Federal Housing Administration (FHA) fell below the statutory minimum in 2009, a year in which FHA’s business volume increased dramatically. As a by-product of FHA’s expansion, the „„volume of guarantees by the Government National Mortgage Association (Ginnie Mae) has grown sharply, raising concerns about the financial risks of these commitments. Furthermore, buying a home is a „„confusing process for many families, partly because of complex settlement procedures and disclosure requirements that have not kept up with changes in the mortgage industry. The recent foreclosure crisis highlights the risks of purchasing a home with mortgage products that borrowers do not fully understand. Enforcing federal laws and disclosure requirements is an important part of protecting prospective homeowners from abuse. Over the long term, the federal government will face difficult decisions on how to balance the benefits and risks of promoting homeownership. Rental housing: The availability of decent, safe, and affordable rental housing can also affect community stability. HUD, USDA, and Treasury spend around $40 billion annually in outlays and tax expenditures on numerous programs to help rental households with lower incomes reside in decent, safe, and affordable housing. Over the years, HUD has made progress in addressing long-standing management weaknesses. However, in recent years, legislative and administrative actions have changed HUD’s biggest programs—Section 8 and public housing—in ways that may call for different oversight approaches. Also, the stock of housing assisted with federal funds and tax incentives is aging, and HUD and other agencies will need to consider strategies for ensuring that these properties remain in good physical and financial condition. Furthermore, some owners may decide to stop participating in these programs, raising concerns about the availability of housing that is affordable to low-income and special-needs households. Over the coming years, the federal government faces challenges in ensuring that federally assisted properties are maintained in a physically and financially sound manner, are administered in a way that best serves the needs of low-income households, and remain available to lowerincome tenants to the extent practicable. Homelessness: The nation’s communities are also affected by the long-standing, complex, and multifaceted problem of homelessness. HUD’s 2008 Annual Homeless Assessment Report to the Congress estimates that 1.2 million to 2 million individuals stayed in homeless shelters or were on the street for at least one night in 2008. This problem may have been exacerbated by the financial crisis that started in 2008. It has been reported that increases in foreclosures and rising unemployment have contributed to higher rates of homelessness among some groups, but particularly among families facing increased financial strain. Multiple federal agencies—HUD, the Department of Health and Human Services, and VA—administer programs that provide housing and services to the homeless at a cost of around $2.5 billion annually: „„Federal decision makers must find ways to improve the design and flexibility of these programs to help the homeless, while working with multiple players— state and local governments and nonprofit organizations—and limited data on the homeless population. „„At the same time, federal agencies must provide enough oversight to ensure that programs meet their goals and comply with federal requirements. Distressed communities: For decades, federal, state, and local governments and the private and nonprofit sectors have sought ways to revitalize distressed communities. The federal government alone operates over 100 programs that offer communities various grants, loans, loan guarantees, and special tax incentives designed to assist distressed areas. For example, the Community Development Block Grant program provides assistance for a variety of infrastructure and capacity-building needs, and the Empowerment Zone and Renewal Community programs are intended to encourage investment in targeted areas: Despite these efforts, no simple answer „„has been found to the question of how best to revitalize America’s distressed communities, in part because of the difficulty of measuring the factors that actually cause communities to improve. Also, the issue of how best to deliver aid „„is complicated by the need to strike a balance between the goals of the federal government and those of state and local governments and nonprofit organizations, which administer a large share of federal dollars for community and economic development. Small business: Small businesses, which employ more than half the nation’s workforce, are crucial to economic growth in many communities. Small businesses are also vulnerable during economic downturns, particularly when these businesses may face challenges in accessing credit. The Small Business Administration (SBA)—the nation’s single, largest financial backer of small businesses—guarantees over $60 billion of business loans and provides management and technical assistance to over 1 million small business owners annually. SBA also has oversight responsibility for federal contracting goals for small and minority-owned businesses. In addition, many of SBA’s programs are intended to assist small businesses that are economically and socially disadvantaged. SBA has faced challenges in overseeing its numerous programs to fulfill its mission to aid, counsel, assist, and protect the interests of small businesses, including ensuring that only eligible businesses obtain assistance from programs that target specific populations. GAO’s work can help inform the Congress in reforming programs and policies that support homeownership, as well as strengthening the management and oversight of the programs that promote affordable rental housing, economic activities in distressed communities, and small and minority-owned businesses. To support efforts by the Congress and the federal government to address these issues, GAO has established the following performance goals and key efforts:

Stakeholder(s):

• Communities

Indicator(s):

Indicator:1

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