Self-Help Housing

As the feds cut back, neighborhood enterprises like this 10-year-old one in Pittsburgh are getting a chance to show what they can do.

Bill and Rose Walk's attachment to their home may run stronger and deeper than is ordinary—apart from their four children, there is nothing they speak of with more pride. Ten years ago, the family was living in public housing with a subsidized rent. The Walks had no hope of ever achieving their "impossible dream," as Rose often refers to the house they now own. Good fortune came to them through the efforts of a coalition of private citizens, local businesses, and a neighborhood organization.

The coalition didn't give the Walks their home. The guiding idea was that if disadvantaged families demonstrated a willingness to help themselves, they would be given the opportunity to "earn" a home. The Walks accepted the proposition, and their pride in home ownership springs as much from the effort they devoted to earning it as from the possession of the physical structure itself.

Standing in the middle of his basement, which has been converted into a family room, Bill Walk gestures quickly, modestly, to the room's decor. The dark wood paneling, the dropped ceiling, the tiled floor, the bar—it is all his handiwork. Bill, as is characteristic of him, beams silently. His wife, a short, stout, dark-haired woman of Italian descent, speaks her pride with enthusiasm. "He did this all himself," Rose says—"all by himself."

Upstairs in the kitchen, over coffee, the Walks retell the events that led up to their moving into this house 10 years ago. It is a modest home—half of a duplex, a two-story, three-bedroom, redbrick affair—comfortable and well-appointed. "We had nothing," Rose says, a plume of cigarette smoke issuing from her mouth. "Absolutely nothing." Prior to December 18, 1972, when they moved in, Bill and Rose and their children had been residing, since 1960, in Crawford Village, a high-rise, public-housing complex in McKeesport, Pennsylvania (14 miles southeast of Pittsburgh).

During the last several years they lived there, "the projects," as Rose calls their prior residence, "were getting real bad." They were particularly worried about their children living in an atmosphere characterized more and more by the open use of drugs, incidents of violence, and the general congregation of "juvenile-delinquent types." But it seemed there wasn't much they could do about it. Bill's employment as a mill worker for US Steel had been interrupted time and again, since 1958, by layoffs. Any potential savings were drained away by the medical bills of their youngest child (now 14), a mentally retarded boy who spent much of his first six years in hospitals.

Despite their considerable hardships, however, the Walks did not find much aid from government sources. Their subsidized apartment, in fact, was the extent to which they drew relief. Bill and Rose each tried once—against a strong inner resistance to the notion of handouts—to apply for government assistance. The only result was frustration with the bureaucrats. So, Bill says, he took on jobs here and there.

It was with little expectation of any improvement in their lives that the Walks listened one day in the fall of 1972 to Jim Butler, then a 25-year-old caseworker for the McKeesport Neighborhood Ministry (MNM). A private, nonprofit, interfaith human-services agency, the ministry was founded in the early 1960s to combat poverty and its effects, working particularly with families and children. The Walks remembered Butler. Bearded and with hair falling to his shoulders, he had come knocking on their door in the projects one day in 1970 to encourage them to take advantage of the area's Head Start preschool program. He had helped the Walks get special education for their retarded child, and they were grateful to him.

On that November day in 1972, Butler asked the Walks if they would like to live in a home of their own. Suspecting that it was some kind of "government deal," Bill remembers being very skeptical. But they listened to Butler explain MNM's newly conceived Earned Home Ownership Program (which at that time did involve government). The Walks agreed to enter the program, and one month later they moved into the home they now own.

Before they acquired their own home, the Walks were among the beneficiaries of an extensive effort by the federal government to provide housing for the disadvantaged. Since the 1930s, federal tax monies have subsidized the construction and rehabilitation of 1.2 million units of housing and the occupancy by low-income families of another 1.5 million units. Federal outlays in this effort have mounted to many billions—$58 billion (unadjusted for inflation) in the 1970–82 period alone, and $250 billion over the next 15–20 years to pay off existing commitments.

Now, the government is pulling back. Along with other social programs, housing has come in for cuts under the Reagan administration in the growth of federal spending. And it's one of the areas where "private-sector initiatives" are being urged by the administration.

Critics doubt whether the private sector is equal to the task. Can the clear benefits of having aid for the less well off provided at the local level, in response to the needs of a particular community, be matched by sufficient funding and commitment? they wonder. But the story of the Walks and the families who have followed them in the Earned Home Ownership Program is a story of how housing assistance, with creativity and dedication, can be and is being offered in the private sector.

The home ownership program administered by the McKeesport Neighborhood Ministry issued from a rather interesting marriage of data, viewpoints, and personalities. Officiating over the union was Edward M. Ryan, a Pittsburgh construction tycoon—founder of Ryan Homes, Inc., one of the nation's largest home-building firms—and a philanthropist of no small consequence.

In 1970 Ryan hired a long-time friend, E. Vaughn Gordy, Jr., to oversee his philanthropic activities. Gordy, a former food broker with a long record of civic involvement, was in part to seek out worthy projects toward which Ryan might direct his charity. Extending his feelers into the Pittsburgh-area eleemosynary network, he soon learned of the McKeesport Neighborhood Ministry.

Since the end of World War II, McKeesport, a city supported mainly by steel and other related industries, had been on the decline. A dwindling population (from a peak of about 60,000 it stands today around 35,000), an old and deteriorating housing stock, and the attrition of local business and industry were taking their toll on the city's social and economic health. "It was like a miniature Detroit," says Gordy, who lives in Mount Lebanon, an old and predominantly upper-class suburb of Pittsburgh. (Ryan, too, lives in Mount Lebanon.) By the early '60s, symptoms of poverty had broken out in rashes. Concerned McKeesport citizens, working within a matrix of local churches, formed the McKeesport Neighborhood Ministry to treat some of the resultant problems.

Gordy was put in touch with the group through his own church and was impressed with its small-scale, neighborhood approach to the locality's problems. He soon became active in the ministry's work, assuming an affiliate position as associate director, and saw an opportunity to put some of Ryan's charity to good use.

In 1970, shortly after Gordy joined MNM, the idea occurred to its directors to do a study—an audit, of sorts—of the problems facing the ministry's clients to get an idea how best to use their limited resources. The audit showed that the single most serious problem plaguing MNM clients was substandard housing. And the bad housing situations, Gordy believed, "were contributing to family and juvenile problems."

By and large the ministry's clients, mostly low-income families, were living as renters in privately owned apartments or in public housing. Many were heavily in debt—"$4,000 to $5,000 appeared to be about the average level of debt of a family," says Gordy. Though most families had some regular income, their debt and, says MNM's Jim Butler looking back on the situation, "perhaps more importantly, their attitudes, their belief that there's no way out of the mess," prevented them from improving their situation.

After pinpointing the housing problem, the ministry assigned one of its caseworkers, a slightly built, angular young man—Jim Butler—to look into what a local, nonprofit agency with limited means might do to help get people into better housing. He researched the problem for several months and submitted his report to the ministry's directors.

Butler emphasized the importance of people overcoming their mental obstacles to change and betterment. The ministry, he thought, through its close contact with its clients, could help people here. He also suggested that the ministry might solicit contributions for a special fund to provide loans to families for down payments on homes. Believing Butler's report worthy of further consideration, Gordy passed it on to Ed Ryan.

Meanwhile, in an independent development, a parallel idea was blooming in the mind of James McDonough, president of Ryan Financial Services. A subsidiary of Ryan Homes, Ryan Financial Services arranges financing for purchasers of Ryan-built houses. McDonough had been studying the problem of the purchase of homes by low-income families, due to the existence of a certain federal program authorized under Section 235 of the 1934 National Housing Act as amended in 1968. Under FHA 235 (so called because it was administered by the Federal Housing Administration, an arm of the Department of Housing and Urban Development), the federal government picked up, for low-income families, the difference between the monthly payment on a mortgage at the market interest rate and the payment that would be required on a mortgage bearing one percent interest. The FHA also guaranteed the mortgage against default.

Nationwide, FHA 235 was scandal-ridden. So widely abused was the program that in 1971 Congress conducted an investigation into FHA 235 (and other similar programs), amassing evidence of inefficiency and corruption in the program's administration. Cited among the evidence were cases of shoddy construction of homes built expressly for purchase under FHA 235 and conspiracies among appraisers and lenders to inflate the prices of homes bought under the subsidy plan. In addition to the program being gouged up front by builders and lenders, significant numbers of FHA 235 participants defaulted on their loans, leaving the government liable for the properties in question.

In Pittsburgh, McDonough turned his attention to why FHA 235 succeeded or failed when it did. Most of the program's participants, he found, were first-time home buyers, many ignorant of the financial demands of home ownership, such as maintenance and utility costs. Some were not aware of even the most rudimentary aspects of the upkeep of a home.

It seemed to McDonough that the program worked well when it successfully screened and selected the right kind of participants. All in all, FHA 235 had performed fairly well in the Pittsburgh area: by mid-December 1972, only 16 defaults out of 3,400 mortgages were on record.

McDonough thought that there might be a way to make even more people—those considered "marginal risks" by government evaluators—eligible for the federal subsidy. Would the FHA, he wondered, approve the subsidy on a marginal-risk family if the family first obtained a mortgage through a commercial institution and demonstrated, over a probationary period, its ability to make the payments? FHA authorities agreed to the proposal, on the condition that the government not be liable during the probationary period in case of default.

McDonough thought of his plan as a means by which low- and moderate-income families could "earn" a home, and he passed the idea along to Ed Ryan, then president and board chairman of Ryan Homes, Inc. With McDonough's notion of "earned home ownership" and Butler's housing study reaching him nearly simultaneously, Ryan sensed the possibility of somehow uniting the two. And "when Ed Ryan wants to do something," says Vaughn Gordy, "it generally gets done."

Gordy further describes his friend Ryan as a no-nonsense man with a quick intelligence and a knack for getting to the root of a problem. "If Ed's involved in something, he'll want to know what the goal is, how it will be achieved, and when."

A GI during World War II, part of which he spent as a POW in German custody, Ed Ryan returned to civilian life to resume his trade as a carpenter. By 1948 he had founded his own home-building company. Today, Ryan Homes is valued in the hundreds of millions of dollars; it is the nation's fifth-largest builder of houses (in terms of sales), with offices in 22 cities in 12 eastern states.

Ryan soon arranged for McDonough and representatives of the McKeesport Neighborhood Ministry, including Butler, to work out the specifics of a pilot housing program along the lines McDonough had already sketched. The project was dubbed the Earned Home Ownership Program.

It was agreed, first, that eligible applicants should be those families unable to obtain a mortgage through other means. Once selected, participants would have to go through a prepurchase counseling and monitoring program for a period of 6 to 18 months. Through counseling, families would learn how to budget their income, avoid excessive debt, make payments on time, and maintain a home. In addition, the ministry would be available for guidance and support, should a participant have difficulties of any sort.

In contrast to the lack of support services in government housing programs, particularly FHA 235, this last aspect was generally viewed by all involved as an important element in the ministry's program. Jim Butler is a passionate advocate of this "personal" dimension provided by small, neighborhood agencies. He decries the impersonal, alienating nature of government bureaucracies and other social "megastructures."

(Butler has adopted the term from the sociological work of Peter Berger and Richard Neuhaus, conducted under the auspices of the American Enterprise Institute and outlined in that institute's publication, by Berger and Neuhaus, "To Empower People: The Role of Mediating Structures in Public Policy." Opposed to megastructures, such as government and big business, are "mediating structures," which include families, neighborhoods, churches, and voluntary associations.)

Ed Ryan was instrumental in getting a pilot program on its feet. Ryan Homes had, in the fall of 1972, just completed construction of seven modest houses in North Versailles Township, an area adjacent to McKeesport. Ryan approached six of his acquaintances—"other people of means," explains Gordy—and urged them to "invest" in this new program: the seven-man group bought the North Versailles homes, which were reserved for resale to EHOP families at the original prices.

The next step was to get a local bank or savings and loan association involved. Pittsburgh National Bank (PNB) was the likely candidate: Ryan Homes was one of the bank's customers, and Ed Ryan wielded considerable leverage there. Ryan suggested that Gordy approach PNB's vice-president, Bill Copeland, about the matter. At that first meeting, Gordy recalls, Copeland did not immediately take to the idea. Ryan himself then interceded, and PNB came around. Participating in the discussions to work out financing for EHOP participants would be officers at PNB; McDonough, the conceptual father of the program; and representatives of MNM, including Gordy and Butler.

That a family should be made to earn a home was not a concept with which Jim Butler was initially enamored. He had subscribed fully to the social-service orthodoxy of the time—"Our clients have rights, rights, rights, and society owes, owes, owes," Butler says now, pounding his fist on the table and mocking his old self. So when he learned that he was to meet with bankers, Butler was suspicious. "In 1972," he says outright, "I considered bankers to be among the seamiest members of society. Most people in social work did—most still do. I didn't trust their motives, and frankly, I didn't think they had any rightful place in this program." It's a view he has, he admits willingly, "turned around on 180 degrees."

Butler is now the executive director of Housing Opportunities, Inc., a private, nonprofit organization spun off from the McKeesport Neighborhood Ministry in 1975 to take over the activities of the growing Earned Home Ownership Program. "I would now rather work with the banks," he states boldly, "than with government bureaucracies, other social-service agencies, or even the churches. You get a lot of talk out of the others—you get action from bankers."

Butler's attitude started to alter when, as discussions with PNB progressed, he sensed the bankers' willingness to find a workable solution. "They'd write up some scheme—requiring, for instance, a certain down payment—and I'd say, 'Our clients can't do it.' So," he recalls, "they'd rip that page out of the notebook and come up with something else. I started to see that they really intended to work something out. I started to trust them."

The motley coalition finally brought into being a financing arrangement for EHOP participants. It was agreed that participating families would assume occupancy of the homes initially on a lease-purchase basis: a family would move into a home and, for a predetermined period of time, pay rent each month, part of which would go into an escrow account to build up a down payment. During this probationary period, the family would be counseled and their finances monitored. Arrangements would be made for the family to consolidate their debts, and a repayment scheme would be set. At the end of the lease period, and after all other conditions had been satisfied, the bank would extend a conventional mortgage to the EHOP family. Soon after, the family could receive the FHA 235 subsidy, as government administrators had agreed.

By late 1972, then, EHOP had been wrought into a mechanism by which to tap into the FHA subsidy, just as McDonough had originally conceived it. On December 18, the first family—the Walks—moved into their new, Ryan-built home, on Palma Street in North Versailles Township. But in January 1973, just weeks later, the Nixon administration turned off the federal faucet on FHA 235.

The ministry's program seemed to be in jeopardy. Of immediate concern was that PNB, now without assurance of federal subsidization and guarantee of the mortgage, might curtail its involvement in the program. That worry proved unfounded. "Once they had committed themselves to the program," Butler says, "the people at PNB never wavered. Even though they had a legitimate reason to drop out after the moratorium on FHA 235, they stayed with us all the way."

In a move designed to simplify the program, Ryan and his "coinvestors" sold the seven homes to the ministry. The investors complemented PNB loans to the ministry—loans with no down payment and interest below market rates—with second mortgages, also at below-market rates. With the homes now in its possession, the ministry established two invaluable components of the pilot project, ones that Housing Opportunities, the nonprofit organization that administers EHOP today throughout the Pittsburgh area, still uses: the revolving loan fund and the second mortgage.

It had perhaps occurred to some organizers of the program at this point simply to give the homes to the families. But pressure from several sources—notably Gordy and Ryan—had always been firmly against handouts. Butler himself, who initially had found the notion of earned home ownership "repugnant," had begun to see its merits. ("If you just give somebody something," he explains now, "that person doesn't learn anything—you've rewarded an attitude that ought to be changed.") Moreover, from a pragmatic point of view, since the ministry now owned the properties, having clients earn the homes by paying for them would replenish the ministry's resources, thus enabling more people to take part in the program.

So representatives of the ministry and the bank went back to the drawing board to work out a new program. As owners of the homes, MNM would itself extend a second mortgage to EHOP families to supplement a first mortgage obtained by the family at PNB. The bank mortgage would be at commercial rates, the second mortgage at a lower interest rate, from zero to six percent. The relative size of the two mortgages and the interest rate charged by the ministry would be worked out after determining what a family could afford to pay each month. Payments on the loan from the ministry would go into a fund that could then be used to expand the program.

The ministry's first model for this regenerative-funding device had come at the inception of the program, before the freeze on FHA 235. In order to pay off the debts of EHOP families when they entered the program, the ministry had set up a loan fund (Ryan was a major contributor). With money from the fund, the ministry would pay a family's debts, thus consolidating its obligation to one creditor—the ministry. At a low interest rate (usually 3 percent), the family would repay the ministry over time; these payments would replenish the fund, and another family's debt could be consolidated likewise. Thus, the loan fund "revolved."

This device was now expanded to provide second mortgages also to EHOP families. Shortly after the moratorium on FHA 235, the ministry received from private sources donations for its revolving loan fund totaling more than $200,000, including $100,000 from the US Catholic Bishops' Campaign for Human Development and $100,000 from the Pittsburgh Foundation, an umbrella organization that oversees more than 2,000 charitable trusts.

James Wyatt, a handsome 33-year-old black man with a disarming smile that seems never to leave his face, explained how the revised program worked for him. At one time, like the Walks, Wyatt too had lived in the projects. Prior to becoming an EHOP participant, Wyatt, his wife Dolores, and their four children were living in a privately owned apartment that Wyatt describes as "just decent." The family's efforts to save enough to buy a house were not working well.

In 1973, the Wyatts entered the program and moved into one of the Ryan-built homes up the street from the Walk family. For a full year, under a lease-purchase arrangement, the Wyatts paid $183 a month to MNM, $40 of which went into an escrow account toward a down payment and the closing costs on the eventual purchase of the home. "It was a 'forced-savings' program," says Wyatt, "something that we needed at the time."

At the end of the lease period, during which the Wyatts received counseling from the ministry, they secured a $14,000 mortgage at Pittsburgh National Bank at an interest rate of 7½ percent. To cover the $5,000 balance on the purchase price of the home, the Wyatts obtained a second mortgage from MNM at 6 percent interest. The difference in interest rates on the two loans was enough to allow the Wyatts to make the monthly payments on both simultaneously. "Without the second mortgage," says Wyatt, "we wouldn't have been able to afford the house."

Butler emphasizes the gamble the bankers took back at the program's inception. "Without the assurance of the federal subsidy," Butler says, "these guys were relying on us—the counselors at the ministry—to come through and pull our clients into shape." Ordinarily, lending institutions require sizable down payments and an acceptable credit history before they will extend a mortgage on a home. The ministry's clients satisfied neither of these conditions. "We realized at the very beginning," Butler now says with much seriousness, "that if the program was going to work, if we were to keep the banks involved, the counseling had to be for real."

Butler himself served as the ministry's sole counselor at the beginning. Today, at Housing Opportunities, which has four full-time counselors and is recruiting and training a dozen more on a volunteer basis, counseling is still taken very seriously.

In order that the counseling of EHOP participants "be for real," stringent demands had to be placed on the participants themselves. Perhaps the harshest demand, and the most awkward for EHOP families, was that they divulge their full financial status and habits. The Walks, the first EHOP family, were instrumental in working out a monitoring mechanism.

Out of fear that the family's "impossible dream" would be lost, Rose Walk had started to keep a record of every penny that came into and left the family's possession. Her husband Bill recalls that "she'd write down what I'd spend on beer and cigars—everything. If someone bought a pack of gum, she wrote it down." Rose explains: "We were paying $95 a month rent at the projects and just getting by. Then, when we moved here, we had to make a monthly payment of about $135. So I started watching every cent." As a further disciplinary measure, the Walks immediately got rid of their few credit cards. With Rose's detailed accounting began the family's highly disciplined budget. This system became the model for other families in the program.

Allen Sethman, who is now the director of consulting and research at Housing Opportunities, was with the ministry during its administration of EHOP and has counseled participating families. A common reason for families dropping out of the program, he says, is the inability or unwillingness to establish a strict budget and abide by it. But this acts as an effective weeding mechanism: families that fail to meet their budgetary obligations—about 20 percent of initial participants, he estimates—are removed from the program.

Over the years, Housing Opportunities has refined its counseling methods and generated considerable revenue by selling its counseling services both to commercial lending institutions (it has developed a counseling program for delinquent mortgage holders) and to government agencies. Sethman directs this portion of the organization's revenue-producing activity.

For Jim Wyatt, who entered the program in 1973, it was "very uncomfortable at first" to sit down with someone he did not know and bare his finances. But after a short time of keeping careful track of the family's income and expenditures, Wyatt saw that they were living beyond their means and would have to discipline themselves if they were ever to get anywhere. "We started budgeting," Wyatt now says with great enthusiasm, "and started sacrificing. It was not easy, but that was the best education I got, and it paid off."

Today, talking with Wyatt, his sense of what he can accomplish seems nearly boundless. He and his family no longer live in the home they bought through EHOP. With the equity in that house, Wyatt made a down payment in 1979 on a three-story apartment building. (The financing, which he arranged on his own, is through a commercial lending institution.) He and his family live in the second-floor apartment (it is roomier than their old house) and the first-floor apartment and the third-floor studio (which Wyatt remodeled) are rented out.

But the Wyatts do not plan to stay in their present home much longer. They have purchased an open lot and plan to start construction on a home there next summer, retaining the apartment building as a source of income. When complimented on this remarkable achievement, Wyatt is quick to attribute it to the attitudes and habits acquired through participation in EHOP. "It was," he says quite happily, "the greatest thing that ever happened to me and my family."

By 1975 the Earned Home Ownership Program had established itself as a successful enterprise. From the initial seven-home pilot project, the ministry had developed the program to include the renovation of old homes for EHOP families and had extended its activities into areas other than McKeesport. Nearly 40 families had been brought into the program. With EHOP expanding, the ministry's directors saw fit to establish a separate organization devoted exclusively to continuing its housing activities. With the assets from the program and grants from churches, corporations, foundations, and individuals, the Housing and Community Development Corporation—which changed its name to Housing Opportunities, Inc., in 1978—was formed. Jim Butler was installed as its executive director.

EHOP directors had by this time developed a commitment broader than helping people "earn" homes. They became dedicated as well to improving declining neighborhoods in Allegheny County (of which both McKeesport and Pittsburgh are part). It became a working premise of the new organization "that a high percentage of owner-occupied dwellings is essential to neighborhood stability," as Butler has time and again expressed the idea. It is to this double end—one, to revitalize neighborhoods by, two, increasing the number of homeowners—that Housing Opportunities directs its efforts. The home ownership program, in its expanded scope, continues to be the key element in the overall strategy.

By the end of 1982, 10 years after the program was launched, over 200 families will have acquired home mortgages through it. In reviewing the track record of EHOP, one is struck by the fact that only two participants have defaulted on their mortgages (and both of these happened in 1982—during a recession). Banks and savings and loans are impressed by this. A dozen commercial lending institutions in the Pittsburgh area have participated in the program. Butler is convinced that it is the quality of the counseling that explains the program's success.

To the suggestion that the organization's very businesslike attitudes have contributed to its achievements, Butler responds, "We don't just act like a business—we are a business. That's the way I think of it." Allen Sethman, who directs the contracting out of the organization's counseling services, explains that having a businesslike viewpoint helps to restrain an impulse—to seek and become dependent upon government grants. "The bureaucratic style," he says, "is to waver—to turn the tap on and off unpredictably. It's hard to get things done under those conditions." Butler becomes very animated in his tirade against the inefficiency and impersonality of government agencies and suggests that as far as housing and neighborhood revitalization are concerned, "government has done more harm than good."

Some government money has come the way of EHOP participants and, in payment for services, Housing Opportunities, Inc. About 25 EHOP families have received federal subsidization through FHA 235, which was reinstated (in a revised form) under a 1975 court order. (Under the Reagan administration, no new funds were authorized for FHA 235 in 1982.) Various public agencies and municipalities have contracted with HOI to provide counseling for participants in government housing programs or to set up and administer EHOP, with government funding, in several communities (about 40 families have acquired mortgages in this way). Yet Housing Opportunities has kept EHOP itself—begun on the short-lived premise that government subsidies would be available for low-income families—from becoming dependent on government funds.

Butler often wonders why many other nonprofit organizations do not fashion a more businesslike self-conception. He points out that it was the entrepreneurial assessment of Housing Opportunities' areas of expertise that led the organization to form two income-earning entities to help support its ongoing work. In addition to its counseling and research services directed by Sethman, HOI has created Quality Craft, Inc., a home-building and home-improvement company. A wholly owned subsidiary of HOI, all its profits are donated to the parent organization. Jim Wyatt, the former EHOP participant who has bought a plot of land, plans to hire Quality Craft to build his new home.

It is fortunate for Housing Opportunities, given its aversion to having to depend on government funds to administer EHOP, that there exists in the state of Pennsylvania the Neighborhood Assistance Act (NAA). Passed in 1967, this piece of legislation allows corporations a substantial tax credit for donations to nonprofit organizations whose activities are directed toward alleviating poverty. Pennsylvania pioneered such a state tax credit; five other states—Delaware, Florida, Indiana, Michigan, and Missouri—have implemented similar programs.

Under the act, Pennsylvania's Department of Community Affairs is authorized to grant corporations an aggregate total of $8.75 million in state income-tax credits for such donations. A corporation may claim a credit of 50 percent of the value of donations, which may take the form of cash, property, or technical assistance. This means, then, that Pennsylvania corporations can contribute up to a total of $17.5 million to certified organizations and receive tax credits worth half that amount. A single corporation's credit is limited to $250,000 (which would be claimed on donations totaling $500,000). A further provision of the act, however, allows corporations to claim a 70 percent credit on donations to organizations whose activities have been deemed of urgent importance by the Department of Community Affairs.

Housing Opportunities, whose activities have been certified for the 50 percent credit in past years, was granted certification for the 70 percent credit in 1982. Butler thinks of the Neighborhood Assistance Act as a rare and sensible piece of legislation: through it, HOI has, since 1975, collected $500,000 in corporate donations, in property as well as in cash. "We can go straight to the area's corporations, show them what we're doing, and get the donations," Butler says. "We bypass the government agencies and build good, direct relations with the area's businesses."

Butler considers it of major importance to get the support of local businesses, to make them see the benefits they derive from the organization's work. "People who live in their own homes are often better citizens, better workers," he observes. "That improves the environment for businesses. Businesses should realize this; sometimes they don't, and it's our job to show them."

It is an early Friday afternoon in mid-June. The unclouded sky is bright with sunshine; the temperature is well into the 80s. On a short residential street in Garfield, a neighborhood at the eastern edge of Pittsburgh, a crowd of 20 or 25 people is milling about in front of a newly constructed house. In the dirt lot that will in time be the home's front lawn, stands an "Open House" sign. Inside the house, as plasterers add final touches, several people tour the two-story structure, surveying three small bedrooms, the sparkling kitchen, the backyard deck with its view of a large, green copse of trees across the way. Later in the day there will be a ribbon-cutting ceremony for the family who, through the Earned Home Ownership Program, will soon move into this house.

Jim Butler, who has been talking to various people in attendance at the function, drifts over to the house next door, which is approaching the final stages of construction. This house, too, will soon be home to an EHOP family. The design is split-level, and Butler comments that he personally prefers a two-story house. With characteristic attention to the future, he says that EHOP families will, within the next year, move into four more houses to be built on lots just up the street. But before much more can be said, the present intrudes on the future, for it is now time for the ceremony at the house next door.

A wide red ribbon has been stretched across the front doorway of the house. Standing by it are a young couple with two small children who cling shyly to their mother's knee. The man and woman are smiling broadly. In her hand the young woman holds a pair of scissors, ready to snip the ribbon at the signal. Posed thus, she cannot restrain a nervous giggle. Cameras click. Someone calls out, "Okay, cut." The young woman snips the ribbon, and the crowd applauds.

A spectator asks when the couple will move into the house. An answer comes from somewhere in the crowd—"Tomorrow." "Oh, that's good," says an attractive woman nearby. "Tomorrow's weather is supposed to be just lovely."

Eric Martí is a free-lance writer. This article is a project of the Reason Foundation Investigative Journalism Fund.

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Social Entrepreneurs

In the 1981–82 fiscal year, the federal government spent $12.7 billion on housing and housing assistance for some 4.5 million families. By comparison, the program of Housing Opportunities, Inc. (HOI), which in 10 years has helped a little over 200 families in the Pittsburgh area, can seem like a gnat on the rump of an elephant. This may account, in part, for the popular conviction—held, as well, by HOI's Jim Butler and Allen Sethman, despite their frequently voiced complaints about government bureaucracies—that the private sector cannot even make a dent in the nation's low-income housing problems, that continuation of increasing public funding is essential.

Yet the government's performance on housing has been roundly and widely criticized. Fraud and mismanagement, which sparked the 1973 freeze on FHA 235, are common elements of these subsidy programs. The government has pursued a costly policy of concentrating on building new housing even though the real problem is not the quantity of housing but the ability to pay for it. And the billions of dollars spent on public housing projects have largely resulted in the creation of huge high-rise slums in inner-city areas that have consequently declined precipitously.

Against this backdrop, the record of Housing Opportunities' neighborhood-based Earned Home Ownership Program in Pittsburgh is impressive. After peeling away what public-sector involvement there has been in EHOP, there clearly remains a successful private low-income housing program. And, unlike the vast majority of the government's housing and other welfare programs, EHOP moves families away from permanent dependency.

Nor is it the only project of its kind. For example:

• Neighborhood Housing Services, begun in Pittsburgh also in 1966, has now expanded to nearly 200 communities across the country. The idea of NHS, working through existing community groups, is to get the local government to upgrade services to a declining neighborhood, to get financial institutions to agree not to "redline" the area, and to establish a high-risk loan fund to make home-improvement loans at low interest rates. (As NHS has expanded, the federal government has become involved in providing technical assistance at the inception of a program and sometimes in partially funding the loan fund.)

• Brothers Redevelopment, Inc., is a 10-year-old Denver organization founded by four residents to engage in construction, rehabilitation, and home ownership counseling for low-income families and the elderly. BRI has relied extensively on volunteer help from church, school, business, and community groups. Its annual budget has grown to about $2 million, drawn mostly from contributions. It receives some funding from government agencies for the administration of specific projects, as well as proceeds from the sale and rental of rehabilitated properties.

• Jeff-Vander-Lou was begun in 1966 in St. Louis by a clergyman, a retired teacher, and a small-business owner. With financing from lending institutions, the nonprofit organization has built and rehabilitated some 800 housing units. It has expanded into combating youth crime and encouraging business development in the area. Recently, with a grant from the Monsanto Corporation, it has developed a shopping mall as a major income-generating resource to support its social-service activities.

While housing is one of the major concerns of neighborhood groups, they have a similar record in activities directed toward crime, unemployment, health care, and the whole panoply of social services that people expect government to provide for the less well off although they are more often than not appalled by the attendant high costs and bureaucratization. Because these are neighborhood projects, their existence and the range of their activities are largely unknown to many of those who believe that cutbacks in federal spending mean that significant numbers of disadvantaged citizens simply will not be helped.

Interest in and awareness of local, community efforts are growing, however. Starting in 1976 with the publication of Peter Berger and Richard Neuhaus's To Empower People: The Role of Mediating Structures in Public Policy, the Washington-based American Enterprise Institute has had a special project to study the history and extent of neighborhood groups, churches, families, and ethnic groups—"mediating structures"—addressing human needs. There is now considerable evidence that mediating structures in our society have been stifled by the growth of government, not only by co-option of their functions but by the proliferation of regulatory requirements for service providers.

Economist Stuart Butler has studied a number of neighborhood organizations and distilled some common characteristics of successful ones: They arise in response to specific problems in their communities. In their early years, they are often kept on their feet by forceful, even charismatic, leaders. These leaders tend to be "amateurs" without social-service credentials, and they often use unorthodox methods to attack the problems at hand; appropriately, Butler calls them social entrepreneurs. As the groups deal with the specific issues that inspired their formation, they confront opportunities and obstacles that invite diversification and greater sophistication. Finally, the most effective groups are able to retain their entrepreneurial flair as they grow, in spite of attracting the financial support of established institutions that tend to impose establishment requirements.

Butler cites Philadelphia's House of Umoja as an example. It was formed in the late '60s to deal with escalating gang warfare. David and Falaka Fattah opened their own home to gang members and sought to create the atmosphere of an extended family, developing a code of conduct and elaborate ceremonies to act as a binding force. The drop in Philadelphia's gang-related killings from almost 40 per year in the 1960s to 1 by 1977 is largely attributed to the Falakas' program.

The House of Umoja went on to secure jobs for the gang members: it contracted with a local shopping mall to provide security services for the shops and escort services for the elderly. It developed a neighborhood block watch system and has now set up a Boystown that will own seven businesses that will provide goods and services to the community and training for the unemployed.

Establishing a profit-making subsidiary is a frequent tack taken by neighborhood organizations that retain their social entrepreneurship as they grow. It offers a more secure and independent funding source than reliance on grants and contributions. Butler speculates that it also tends to foster a businesslike approach that can help the group deliver its social services more efficiently and form a successful partnership with the local business community.

The National Center for Neighborhood Enterprise, located in Washington, D.C., was established last year to demonstrate and help develop private, neighborhood-based alternatives to public-sector assistance to the disadvantaged. Its president is Robert Woodson, who formerly worked on the American Enterprise Institute's study of mediating structures. Acting as a research and consulting network, the center aims to ferret out examples of successful neighborhood groups, analyze why they are successful, bring their experience to bear on other neighborhood groups, and guide interested groups in discovering their market advantage and developing income-generating enterprises.

Stuart Butler is optimistic that budget cuts, the "New Federalism," and the push toward "private-sector initiatives" are creating an enormous opportunity for neighborhood groups whose successes, notes Woodson, have gone "unrecognized, unnoticed, in fact assaulted," by the way government has been trying to help the poor. The image, then, of a gnat on the back of an elephant, called up by the example of one successful private housing program compared to the billion-dollar efforts of the federal government, may not be so devastating as it first seems. An elephant, after all, is big and fat, awkward and heavy-"handed." The gnat, however, is not alone, and gnats are small and can move quickly. And they multiply rapidly.

—Eric Marti & Marty Zupan