After waiting months for their money, participants in a program designed to stabilize Jacksonville’s recession-hit neighborhoods have been unexpectedly told by the city they must adhere to a complicated clutch of federal regulations or they won't be reimbursed hundreds of thousands of dollars.

Combined with delays stemming from the wholesale sacking of city government middle management late last year, the change has led at least one developer to pull out of the program and others to worry the federal government will end up asking for some of its money back.

This month, city Deputy Chief Administrative Officer Karen Bowling stepped in to speed up the process, a move the nonprofit and for-profit developers involved in the program say has helped. Still, work is far behind schedule, and some participants have been stuck with hundreds of thousands of dollars tied up in property months after they had expected to be reimbursed, particularly pinching some nonprofits.

"The time frame with nonprofits is we don't have months and months of reserves," said Kevin Gay, president of Operation New Hope, one of the developers working with the program.

Contracts sat
The program, known as the Neighborhood Stabilization Program, uses dollars from the U.S. Department of Housing and Urban Development to build or renovate homes in areas plagued by foreclosures.

Two phases of the program are under way locally, each dealing with its own issues.

The newest portion, known as NSP 3, stalled almost from the beginning. Contracts with participants were drawn up last spring but were never executed in the waning days of the Peyton administration nor once the reins of government were turned over to Mayor Alvin Brown.

Then, more months passed.

"We understood it was a new mayor, a new contract, that it takes time," said Mary Kay O'Rourke, president of HabiJax, the Jacksonville affiliate of Habitat for Humanity. "Still, we were quite surprised at the length of the hold-up."

Those contracts are beginning to be signed now, but actual work on NSP 3-funded construction won't start for months, with houses and parcels of land not even having been identified yet.

Although the developers were left in limbo in that part of the project, at least they weren't out any money.

Things are more dire for participants in NSP 1, which is operating with its second tranche of funding.

That program appeared to be doing well through September, when the city issued letters of commitment to developers giving the OK to proceed with the purchase of more than a dozen properties.

Based on those letters, developers shelled out hundreds of thousands of dollars buying property and houses with the expectation that the program would reimburse them within a few weeks.

New strings attached
Almost five months have gone by, and the developers are still waiting.

Now not only is the money slow in coming, but it has new strings attached because of a change made a few weeks after the commitment letters were issued. In October, the head of the city’s Housing and Neighborhoods department was let go as part of the new mayor's general housecleaning.

When LaCree Carswell, chief of the Community Development division who was made interim director of the Housing and Neighborhoods department, took over the new position, she felt the program wasn't complying with federal regulations, known as Section 3.

Those regulations require HUD-funded programs such as NSP to hire low-income residents from the neighborhoods where the programs operate, helping such residents develop job skills.

In the past, the city has required the entire NSP program to adhere to Section 3 requirements in an overall fashion but didn't demand that each individual developer comply.

"We weren't giving the type of attention to it that we should have," said Carswell, who oversees Section 3 compliance as part of her regular job. "We just wanted to do better."

HUD did not directly tell the city to make the changes, Carswell said, but had questioned the city's Section 3 compliance levels in the past.

So now that the city finally is preparing contracts for the developers to sign, Section 3 regulations are being incorporated. If the developers don't agree to the regulations, they don't get reimbursed.

"What we applied for and what the program ended up being is different," developer Ken Atlee said. "We've been waiting, and they changed the rules."

The first phase of the NSP program didn't have the Section 3 requirements, which some developers say add to the cost, time and complication of projects.

Pulling out
Developers also complain the requirements don't make sense considering the scope of work being done.

Atlee, for example, said he agrees with the goal of the program — to broaden the pool of qualified contractors — but doesn't see how the new regulations do so. A single-family home isn't a big enough project to provide significant learning opportunities.

"The money might be better used to set up a training program," he said.

HabiJax, meanwhile, is familiar with Section 3 requirements but didn't expect them to apply to the NSP houses, O’Rourke said.

"We've done it before in bigger projects where we had to be in compliance because it was a large-scale development," she said. "We were surprised because we had already participated and hadn't known the agreement had changed from one contract to another."

The change was significant enough that HabiJax has pulled out of the NSP program, in part because of the added paperwork and slowed-down procurement process.

"Our model is different anyhow," O’Rourke said. "We were putting a square peg in a round hole."

For the developers that are sticking with the program, contracts started moving once the mayor's office took a more hands-on approach to the issue.

"I wish we had gone to them sooner," Gay said. "I don't think they understood the impact on us."

Still, few if any contracts had been signed off on by the city as of Friday.

Time continuing to tick by worries some developers. The deadlines for both NSP programs are in the first quarter of 2012 — not absurdly tight, developers said, but only if work begins soon.

If the deadlines aren't met, HUD can ask for its money back. Estimates are that the program could lose $10 million to $17 million out of the $35 million it has been granted.