Volume LIII, No. 9
May,
2000
Building Just Communities:
Advocacy for Affordable
Housing
Jesuit Office of Social and International Ministries
Especially in this time of national prosperity, the reality of substandard and inadequate housing is a national stumbling block. The authors give us an overview of domestic policies and programs related to housing and community/economic development. Details are provided about priority issues for advocacy, such as the shortage of affordable housing, wage and income issues, community revitalization and access to capital and credit.
In 39 states housing is "out of reach" for 40 percent or more of renters seeking a two-bedroom unit at fair market rent (FMR). In no state is the federal minimum wage as high as the state-wide housing wage, that which is necessary to afford the FMR for a two-bedroom unit. In 29 states the housing wage is more than twice the minimum wage, and in three states - Hawaii ($17.01), New Jersey ($15.90), and in Washington, D.C. ($15.77) - the housing wage is more than three times the minimum wage. The nationwide median housing wage for states is $11.08/hr. In fact, nowhere in the U.S., in no state, metropolitan area, county or New England town, is the minimum wage adequate to afford a two-bedroom rental unit.
Affordable, decent housing is as important to social and economic well-being as health care and education. However, in recent years housing has not been a priority for our government or the private sector. As a result of this inattention, the U.S. is experiencing a "housing affordability crisis". This means rising rents, lack of supply, low vacancy rates, people stuck in shelters with no place to go, "shelter poverty": paying so much in rent that basic necessities are no longer affordable, and wages that are not keeping pace with rising rents. Those who bear this burden include working families, the homeless, those moving from welfare to work and now a growing portion of the middle class.
This problem is disproportionately borne by low-income renter families who have not experienced any real wage growth or wealth accumulation during the last few years of this booming economy. Unlike homeowners, who can accumulate wealth beyond their annual income (e.g., home equity), these renters usually pay more than 30% of their limited income toward housing costs. Exacerbating this trend, a recent report from the Federal Reserve indicated that the strong economy has pushed more households into higher income brackets (the top 20 percent of families earn $140,000/yr.) and that the strong stock market showered benefits on all but those in the lower income brackets (the bottom 20 percent of families earn $13,000/yr.); this disparity is all too real and widening.
In order to close the affordability gap, we must raise incomes - the minimum wage, the Earned Income Tax Credit - and lower housing costs through increased production, subsidies and the preservation of existing units for low-income families. Looking beyond the critical issue of supply, solving this crisis will require us to work in a new and radical way, creating opportunities and supporting policies for low-income people that allow them to access capital and credit -build wealth. Building individual wealth creates communities that respect the dignity of each individual while helping them recognize and reach their full potential.
Are we supporting federal, state, local and Community-based organizations’ initiatives that empower families - community organizing, economic literacy programs, etc.? How do we make housing and economic security available to all members of our community? A new paradigm requires us to pay attention to and advocate for the de-concentration of poverty, mixed-income housing, adequate public transportation, economic development, and inclusionary zoning which repeals NIMBYISM (Not In My Backyard) and provides mobility and choice. All of which policies foster racial and economic integration while creating jobs, increasing wealth, reducing social problems, and building strong neighborhoods.
In the coming year we will continue to contribute to the policy debate around asset development policies: EITC (Earned Income Tax Credit), CRA (Community Reinvestment Act), the administration’s New Markets agenda, and the Minimum Wage as well as work for the largest aggregate funding for low-income, elderly and disabled programs administered by the Department of Housing and Urban Development.
AFFORDABLE HOUSING AND HUMAN DEVELOPMENT
FY 2000 HUD Budget
On October 20, 1999, the President signed the $26 billion FY00 budget for the Department of Housing and Urban Development (HUD). The total funding exceeds last year’s budget by about $1.5 billion but was subsequently subject to a $91 million decrease due to the application of the .38% across-the-board cut adopted as a compromise at the end of the budget negotiations. HUD says that the $91 million reduction in appropriated funds will have no programmatic effect. In tight fiscal conditions, legislators budgeted the final amount only by advance appropriating $4.2 billion from the FYOI budget. Additionally, legislators used a little over $2.2 billion in uncommitted funds from the Housing Certificate Fund or the Annual Contributions for Assisted Housing accounts to bolster the bill’s overall funding. Virtually every program area saw modest increases or level funding, including Section 8 assisted housing vouchers, homeless assistance, Community Development Block Grants, HOME, and Fair Housing. Just as importantly, several key pieces of authorizing legislation were included in the final bill. The following provides a review of key housing initiatives.
Section 8 Vouchers
A bipartisan compromise funded 60,000 new rental assistance vouchers costing $347 million. Section 8 vouchers subsidize the rents of apartments which families locate in the private market. Recipient families pay 30% of their income in rent; the difference between what the families pay and the rent of the unit is paid by the Public Housing Authority with HUD funds. These vouchers are often critical in allowing families to relocate to areas of new job creation, in helping homeless families secure permanent housing, or in providing the stability necessary for individuals to get and hold jobs. Taken together with the 50,000 vouchers from FY99, this represents a renewed commitment to extending housing assistance to additional households.
Public Housing Operating and Improvements
Operating funds for public housing authorities were increased by $320 million to $3.1 billion while funding for capital improvements endured a small decrease to $2.9 billion. These two funding streams are critical to removing and replacing the worst units, renovating and maintaining existing stock, and allowing public housing authorities to serve their clients effectively.
Homeless Assistance
Recent analysis by Urban Institute researchers, Martha Burt and Laudan Aron, has uncovered that "at least 2.3 million adults and children are likely to experience a spell of homelessness at least once during a year." Homeless assistance grants received $1.02 billion - an additional $45 million from last year. The funds, designed to be allocated through national competition and block grants, aim to provide a whole range of outreach and service programs including emergency, transitional, and permanent housing.
Homeless assistance is meant to be a safety net of last resort. However, research has found that the majority of the homeless have also interacted with other "mainstream" services designed to keep poor people from slipping into destitution, including: welfare, mental health care, substance abuse clinics, foster care, prison, and services for veterans. Yet, despite these interactions numerous individuals and families end up homeless even though they received assistance through these other services. One way to look at homelessness, therefore, may be that it is in part the result of a whole range of inadequate social services. Insofar as this is accurate, our best chance of diminishing the experience of homelessness lies specifically in improving our "mainstream" safety net.
Community Development Block Grant
CDBG was awarded $4.8 billion (a $50 million increase over last year). The program operates as a partnership between local, state, and federal governments, as well as private sector for-profit and nonprofit organizations. Funds are used to stimulate economic development and job creation, housing revitalization, and public works and infrastructure development.
HOME Investment Partnership Programs
Congress level-funded the HOME program at $1.6 billion. The money is used to promote affordable home ownership and rental housing opportunities through new construction, rehabilitation and repair, and tenant-based assistance and housing counseling.
Fighting Housing Discrimination
$44 million was provided for Fair Housing initiatives, a modest increase over last year. The money supports the Fair Housing Assistance Program (FHAP) and the Fair Housing Initiative Program (FHIP). FHAP provides federal funds to state and local civil rights agencies to enforce fair housing, while FHIP provides grants to non-profit groups working on fair housing education, outreach, testing, and litigation.
Congressional Authorizations
Over the past years, many affordable units have been lost because the long-term agreements between the government and individual landlords expired. Landlords, whose property was worth far more in the private market than the rents they were receiving through housing-assisted tenants, were lacking incentives to continue providing low-income people with affordable housing. In this year’s budget, Congress fully authorized HUD’s mark-up to market program. The program seeks to address the problem of "opt-outs" by diminishing the incentive for landlords to "opt out" of the Section 8 program. The initiative provides market rents to previously below-market properties, those most likely to opt out. Furthermore, HUD mortgage programs designed to ensure affordable housing were altered to provide incentives for affordability to the owners of good properties. HUD was also given the authority to negotiate longer-term renewals of Section 8 affordable properties. Last, households who risk being displaced when units are withdrawn from the section 8 program will now be offered "enhanced vouchers" which will protect these residents from substantial rent increases and allow them to stay in their homes.
Other major authorizing legislation included within the budget was directed to elderly households receiving housing assistance. HUD was given the power to adapt its current programs to allow for more seniors to age in their own homes - including the necessary retrofitting of homes for the special needs of the elderly. At the same time, for seniors requiring more intensive services than traditional elderly housing might provide, the legislation will give low-income elderly individuals access to assisted living arrangements. Currently, many low-income seniors end up in large, institutional facilities like nursing homes, which turns out to be much more expensive for the government than the newly adopted program. The program achieves this through allowing HUD to convert some of its existing elderly housing into assisted living, while low-income seniors already receiving assistance through vouchers will be able to apply that assistance to the assisted facilities.
Access to Capital and Credit
Equal access and open access to capital and credit is profoundly important if individuals are to develop assets and revitalize their communities. One finds that minority and low-income families are underserved by the financial services industry on account of being viewed as higher risk investments. The label of "high risk" justifies higher interest rates on loans that are themselves much more difficult to secure. In fact, there have been cases of credit-worthy poor or minority loan applicants being unjustly or inappropriately directed to sub-prime lending affiliates of certain financial institutions. All of which raises acute concerns about the status of fair lending throughout the industry. Additionally, the lack of financial literacy makes these populations more likely to fall prey to the so-called practice of predatory lending. The following section provides an overview of recent legislative and regulatory action in this area.
Financial Modernization
On November 12, the president signed into law the Gramm-Leach-Bliley Financial Modernization Act. This sweeping legislation, perhaps the most prominent legislative accomplishment of this past session, overturned Depression-era banking laws that prohibited cross-ownership between banks, insurance companies, and securities firms. For the past 20 years, the financial services industry had been lobbying Congress for this law change, spending $300 million in 1997 and 1998 alone in lobbying fees and political contributions. The industry has characterized the mega-mergers that will result from the new authorization as good for the consumer: one will be able to purchase securities, insurance plans, and perform banking operations all under one roof. Beyond the privacy issues inherent to legislation of this sort, community groups vociferously opposed the passage of the bill at every stage because it substantially reduced the scope of the Community Reinvestment Act.
Enacted in 1977, the CRA sought to combat the practice of redlining in the banking industry by requiring banks to fulfill their obligations to serve the needs of all of the communities in which they were chartered. For the past 22 years, banks have been required to pass CRA exams every two to three years. The exam reviews a bank’s lending to low-income and minority borrowers and measures it against their market-share and the demographic make-up of the communities in which they are situated. When a bank applied to regulators for approval of a merger or the opening of another branch, it had to demonstrate a record of passing exams. Community members and organizations were permitted to comment during the review process on the merit of the bank’s record in serving the needs of the communities. Moreover, the need to achieve at least minimal compliance in the exams encouraged banks to explore partnerships with community organizations dedicated to tailoring financial services to the unique needs of their communities. The resulting agreements have directed or pledged about $1 trillion of investment into traditionally poor and underserved areas.
In the new law, however, banks with minimal compliance will be able to exercise the new powers without any public comment period. Moreover, if a financial holding company begins to exercise the new powers, and subsequently one of its depository subsidiaries fails a CRA exam, no penalty will be imposed on the holding company: it will neither face divestment, nor will it be prohibited from engaging in the new activities. The exam schedule itself will be lengthened to four or five years for all small banks with compliant CRA ratings, a designation which includes 70% of all banks. Infrequent exams have tended in the past to lead to less compliance. Finally, all agreements between banks and community partners pertaining to CRA will have to be reported to federal regulators from the four regulatory bodies - the FDIC, Federal Reserve, Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS). Failure on the part of the community groups to report the agreements will be punishable by fine, but the substance of the agreements (the dollars pledged to communities by the bank) will not be upheld by regulators. It is thought that this provision will significantly stifle community participation in the CRA process.
The immediate recourse for advocates is the regulation and rule-making process. Over the next couple of months, the regulatory agencies will be issuing regulations and rules in accordance with the new statutes. Each issued rule has a comment period. Hopefully, the community perspective will be heard during this process, and the new regulations will diminish the harm to the CRA.
Beyond this, there is interest in proposing new legislation that would update CRA in much the same way that Financial Modernization updated the banking industry. Furthermore, there are continued efforts to apply CRA-type standards to credit unions and to the insurance industry.
Regulations
Regulators are just as powerful as legislators in the community reinvestment movement. Recently, a rule change to Regulation B was considered that would allow for the voluntary collection of race and gender data on small business loans. For home loans, the collection of this data is mandatory. Permitting the collection of this data is an important first step to being able to assess whether banks are meeting the credit needs of underserved communities in small business loans as well as home loans.
New Initiatives
Important legislation on community development will likely be introduced this year as part of the administration’s New Markets Initiative. The goal is to spur private sector investment in communities experiencing prevalent and persistent poverty. The proposal would create additional Empowerment Zones and enhance existing ones with new tax mechanisms. The zones designate communities that have been selected for tax and investment credits in order to support economic development and job creation. Also included are proposals that would devise ways to extend basic financial services to low and moderate-income individuals who might not otherwise have banking relationships.
Finally, the administration has initiated several efforts to use public-private partnerships to attract capital to under served areas. Last year, Congress authorized the creation of entities called America’s Private Investment Companies (APICs). These companies, licensed and partly capitalized by HUD, would make equity investments in companies thinking of expanding or relocating in inner cities or rural areas. These investments will leverage private equity capital and lower the cost of business for under-served communities. This year, members of Congress and the administration are introducing legislation to create so-called New Markets Venture Capital Firms (NMVCs). These firms will provide incentives to increase the availability of venture capital in low and moderate-income Communities for small businesses. Technical assistance will be provided to small business entrepreneurs in inner cities and rural areas.
These initiatives constitute efforts both to develop the capacity of underserved communities and to attract capital and investment into these areas. The National Office will continue working to promote policies that forward these goals.
A GLIMPSE AHEAD
Vouchers
The administration has announced that it will seek $690 million for 120,000 new housing vouchers in FY01. Of the 120,000 proposed new vouchers, 32,000 would be targeted to families moving from welfare to work; 18,000 would be designated for homeless families; and 10,000 vouchers would be set aside for helping low-income families move into new units created through the Low Income Housing Tax Credit. The remaining 60,000 vouchers would be unspecified and distributed to localities with large unmet housing needs.
Low Income Housing Tax Credit
The LIHTC was created to spur private sector development of affordable housing. Over the past two years efforts to expand the credit have failed despite fairly strong support. This session, both parties are prioritizing the enactment of modest tax relief. The legislation is expected to contain the long-sought expansion of LIHTC.
Minimum Wage
Perhaps the greatest barrier to shared prosperity is the inability for low-income households to build wealth and savings. The minimum wage is crucial in this respect. Last year’s failure to enact legislation raising the minimum wage was the result of time constraints on Congress and the assertion by the majority party that a wage increase be enacted only if linked to an array of tax cuts ostensibly offsetting the increased labor costs for small business owners. If the minimum wage were raised by one dollar, it would give a worker a raise of $2,000 a year. A full-time earner at that wage would then be making almost $12,800. 10.1 million workers, 69% of whom are at least 20 years old and 40% of whom are sole breadwinners for their families, would receive a pay increase Currently, Sen. Kennedy (D-MA) and Rep. Bonior (D-MI) have introduced legislation in the House and Senate proposing an increase of $1/hour over two years, but no action has been taken on that legislation. Republican-sponsored minimum wage legislation has been attached to S.625, a bill overhauling bankruptcy protections. It raises the minimum wage by $1/hour over three years and includes large tax cuts ($18 billion over 5 years, $60 billion over the next 5 years) mostly benefiting high-income individuals rather than small employers. The bankruptcy bill awaits a vote in the Senate.
Earned Income Tax Credit
The president has outlined a proposal to dramatically expand the Earned Income Tax Credit. The Credit provides a tax benefit for working people earning low to moderate incomes. It aims to reduce the tax burden on these workers, supplement their wages, and further encourage movement into the labor force. Currently, workers who are raising one child in their home and earn family income of less than $27,000 are eligible to receive up to $2,312. Workers without children between 25 and 64 years of age are eligible to receive $347 if they earn below $10,200. The president’s proposal would add another tier to the credit to allow for a greater benefit for families with three or more children. Also, two-earner married couples would be able to earn up to $14,480 and still receive the credit, an increase of $1,450 over the current household. Another provision would provide families with two children with a slower phase-out of the credit. Lastly, retirement contributions and other non-taxable income would no longer count against the income used to calibrate the EITC, assisting continued saving for low-income households.
ABOUT THE AUTHORS
The ten staff members of the Jesuit Social and International Ministries Office serve as part of the national offices of the United States Jesuit Conference, 1616 P Street NW, Suite 400, Washington, DC 20036, e-mail outreach@jesuit.org. The office maintains an advocacy network website at www.jesuit.org/advocacy.
