JUNEAU -- A state program designed to help rural residents become homeowners has outlived its usefulness, and should be modified or eliminated, according to a recent legislative audit requested by Senator Dave Donley (R-Anchorage).

"The Housing Assistance Loan Fund (HALF) provides housing loans at 1 percent below market rates and was designed to help overcome certain barriers to home ownership in rural Alaska, such as high construction costs and a lack of private financing services," said Donley. "According to the legislative auditors, in the last 20 years most of these barriers have been removed. Other programs and private entities have moved in to meet the needs of rural homeowners. The HALF program no longer accomplishes what it set out to do."

The audit report said in some parts of the state the only barrier left to home ownership is high construction costs. While the program tried to address this by limiting eligibility to small communities, the audit found that building in smaller communities doesn't always cost more. In fact, most loans were being made where construction costs are not higher than the state-wide average.

The report recommends that if the program continues, the statute should be changed to limit loans to communities with construction costs that are 15 percent higher than the cost to build in Anchorage.

Participation in the program is not based on need or low income. Many of the HALF loan recipients have incomes well above the median income for their regions and the state.

"The HALF program was intended to give people a chance at home ownership when they didn't have other options," said Donley. "Now that those options are available, it appears that the program is being chosen for its lower interest rate, not because it is the only way to get a loan."

In addition, the discriminatory lower rate provided by HALF has had an unintended bad affect. The constitutionally created Local Boundary Commission report released in 1998 cited the HALF program as a major impediment to the formation and consolidation of local government in Alaska. That report cited specific examples including that of opponents of the proposal to consolidate the City of Haines and the Haines Borough, who listed the loss of eligibility for the HALF program as a reason not to consolidate. Another example is in the Kenai area where certain residents on one side of certain streets live in the borough and get the 1% reduced home loans, while residents on the city side of the same street cannot. That is unfair discrimination and very poor public policy.

At the time of statehood, the entire state was supposed to be in some form of local government. This program has hindered that effort and is one of the reasons it has not been accomplished.

If the HALF program is not fulfilling its function, it is simply unfair discrimination against some urban Alaskans. In addition, the program potentially costs the state millions of dollars in lost revenue to the Alaska Housing Finance Corporation that could be used to reduce the budget deficit.

"I will be reviewing the audit's recommendations and will be considering possible legislative solutions to the problems identified," said Donley.

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