Denn, others disappointed settlement money plugged budget gaps

Attorney General Matt Denn and others expressed disappointment Wednesday that lawmakers used about half of the $61 million from financial crisis-related settlements to balance the state's budget, instead of funding police foot patrols in Wilmington or helping families on the brink of foreclosure.

Lawmakers ignored Denn's proposal to use some of the one-time settlement money to fund crime-fighting efforts, provide subsidies for low-income schools and boost housing programs, and ignored a grassroots effort that called for the money to go to those who lost their homes in the 2008 housing crisis.

The money stems from settlements with the nation's top lenders and rating agencies for problems they caused with risky residential mortgage-backed securities, financial products that left investors with huge losses during the 2008 financial crisis.

Robbin Brown, who asked lawmakers earlier this year to use the settlement money to assist the 32,000 Delaware families who lost their homes to foreclosure since 2008, said she was discouraged by the state's legislators. Her Newark dream house was foreclosed on after her husband lost his job at Chrysler in 2009.

"You would think they would have at least broken off a piece (for foreclosure victims), but they evidently don't care," she said Wednesday.

Denn also expressed dissatisfaction with the early-morning budget decision to not fund city foot patrols. He said it will be a "real setback in the effort to reduce violent crime in our state."

Seven officers have staffed the overtime patrols nightly since March in high-crime areas mostly in West Center City. Foot patrols will end in two weeks without an appropriation from the General Assembly's budget committee.

Lawmakers – forced to approve a budget by Wednesday, the first day of the new fiscal year – had access to about $61 million from two settlements with the rating agency Standard & Poor's, and Bank of America and Citigroup.

Denn began urging lawmakers in January to use the $36 million from the Bank of America and Citigroup settlement to target a variety of areas hit by the financial crisis: low-income schools, substance abuse treatment, foreclosure assistance, downtown revitalization, down payment assistance in designated districts, affordable housing, and foot patrols and video cameras in Wilmington.

At the time, a newly-formed group called Victims Stand Against Foreclosure Everywhere, rallied, asking lawmakers to use the money in a way that would directly benefit those whose homes were foreclosed on.

As an olive branch, Denn told the Joint Finance Committee that the $25 million from the Standard & Poor's settlement could go to these foreclosure victims or to other budget priorities.

But lawmakers had their own plans for how to spend the settlement money.

Chairs of the Joint Finance Committee Sen. Harris McDowell, D-Wilmington North, and Rep. Melanie George Smith, D-Bear, said late Tuesday night, before the final allocation of funds was made, that they were trying to ensure that the settlement money was being used in a way that benefits the victims of the housing crisis.

"I think we're very sensitive to wanting to make sure that the money is going to be used in the budget in ways that would help folks who had been foreclosed upon," Smith said.

However, McDowell said Wednesday afternoon, after the allocations were final, that they cut a little more into the settlement money than he would have liked.

The $25 million S&P settlement was used completely: $15 million went to expenses in Delaware's capital budget, $5 million to expenses in the operating budget and $5 million to transportation operational costs.

A small portion of the $36 million Bank of America and Citigroup settlement was also used to fund farmland preservation and avoid cuts to fire companies and senior centers.

Ian McConnel, who was part of the team under former Attorney General Beau Biden that pursued banking settlements, said it was wrong for lawmakers to use the money in those ways.

"To use hard fought settlement funds obtained by Beau Biden and his team to plug one-time budget holes leaves those people living in the hardest hit communities, who were most affected by the foreclosure crisis, without recourse or voice, and it ignores the reality of the day-to-day violence," he said.

Lawmakers left untouched roughly $30 million of the settlement money, or about half, which could potentially help solve a budget gap next year.

This remaining money has left some hopeful that lawmakers could next year support those harmed by the 2008 financial crisis.

Penny Dryden, executive director of the nonprofit Community Housing and Empowerment Connections and an organizer for VSAFE, said this gives VSAFE more time to talk to lawmakers. She has proposed opening a one-stop center for foreclosure victims to receive assistance

"We will continue to advocate because there is still a need," she said.

Contact Jessica Masulli Reyes at 302-324-2777, jmreyes@delawareonline.com or Twitter @jessicamasulli. Contact Jonathan Starkey at (302) 983-6756, on Twitter @jwstarkey or at @jstarkey@delawareonline.com. Contact Jon Offredo at (302) 678-4271, on Twitter @jonoffredo or at joffredo@delawareonline.com.