Grant agreements from the first round of the Neighborhood Stabilization Program have all been allocated, and the funding process for the highly anticipated second round of the program is now underway. Applicants have until July 17 to compete for a portion of the nearly $2 billion allocated by the American Recovery and Reinvestment Act of 2009 to help stabilize neighborhoods across the country hard-hit by foreclosures.

Round two has a number of key differences from round one. The initial funding of $3.92 billion, appropriated by the Housing and Economic Recovery Act of 2009, was allocated based on a formula basis to 309 grantees including 55 states and territories and 254 selected local governments. Under NSP2, the U.S. Department of Housing and Urban Development (HUD) is allocating $1.93 billion through a competitive process, and this round is open to not only states and local government but also to nonprofits, a consortium of nonprofits, and for-profit/nonprofit partnerships. Additionally, round two includes green requirements for redevelopment; previously, green was only suggested and encouraged.

“We have never run a competition of this nature before,” says Stan Gimont, director of the office of block grant assistance at Washington, D.C.-based HUD. “It’s taking a lot of effort to pull this together. Hopefully, we will see some very innovative approaches to dealing with the foreclosed properties in the nation’s communities.”

The allocation process is designed to get the money in the hands of those who need it most. The Recovery Act directed HUD to narrow the field of qualified geographies based on need using the NSP need calculation tool. Proposals from the areas of highest need will be judged on the capacity of the lead applicant to execute projects; leveraging potential; concentration of investment to achieve neighborhood stabilization; and other criteria that the HUD Secretary Shaun Donovan determines to be appropriate. Proposals must be designed so that the grantee expends at least 50 percent of its award within two years and 100 percent of the award within three years of the date the award is issued.

“Because NSP2 is a competition, you are probably going to see higher capacity organizations, whether that is governmental or nongovernmental, applying because part of the NOFA [notice of funding availability] requires proof of capacity; you have to prove you’d done 75 similar units in the past 24 months,” says Amanda Sheldon, a research and policy analyst at Washington, D.C.-based nonprofit Enterprise Community Partners, which recently published a report analyzing state and local uses of NSP. Enterprise is eligible to apply for funding, but the firm has not yet decided whether to enter the competition.

Activities that are eligible for inclusion in the proposals are generally the same as those eligible in round one, but the Recovery Act did make several modifications: Land bank is redefined to include operation costs and is expanded to include residential properties and not just foreclosed homes; the demolition of public housing is prohibited; and vacant or demolished property can only be redeveloped as housing.

Many of the same jurisdictions that received funding in round one are expected to compete for much-needed additional dollars in this cycle. The City of Avondale, Ariz., is one such city. “Our formula allocation [in round one] was only $2.4 million, which turned out to be enough just to scratch the surface of the problem in our community,” says Gina Montes, neighborhood and family services director for the City of Avondale. “If we receive a grant, it will go a long way toward addressing the huge foreclosure problem we have in Avondale.”