Unintended Impact of Welfare Cuts on Pro forma’s of Housing Providers

As Executive Director of SRO Housing, and one of the region's most knowledgeable people on the provision and management of affordable housing, share with our readers your prognosis on the future availability of federal and city funding for very low-income housing.

The greatest funder of very-low income housing over the last decade has been the Los Angeles Community Redevelopment Agency (LA/CRA). To my knowledge, they are the only entity that has used any local funds in the form of tax increment proceeds to provide housing in Los Angeles. 

The CRA’s largest project, the Central Business District (CBD), has reached its cap which was imposed by a consent decree. Without CBD funds, many projects won't get done, a big change locally. 

The Los Angeles Housing Department (LAHD) has become more productive in the last several years. They have bonding authority, although they have not taken advantage of it very aggressively. LAHD will not replace CRA in the kind of projects that will get funded or the amount of money that will be generated. 

At the same time, we are being threatened with a virtual dismantling of HUD. Long before the Republican-dominated Congress introduced any recision bill, the Clinton Administration floated a "reinvention" blue­print for HUD, which itself was terribly scary, particularly for low-income—namely public housing. The Clinton administration has been severely critical of public housing and is proposing to convert public housing operating subsidies into vouchers, supposedly to give tenants a choice in the housing market. The argument is, if the housing authorities cannot provide a decent product, then people can vote with their feet. They can enter the market with their voucher and purchase decent housing in the private sector. This is the most dangerous feature of the "reinvention" blueprint.

They are also reconsidering Section 8 programs. Instead of long-term commitments of five, ten, or fifteen years which encumber treasury funds, they are now discussing two or three year commitments, which will also mean fewer projects. Financial institutions had come to rely on the almost automatic renewals of Section 8 programs, whose commitment to a project would make its financing work. Reducing the length of time and converting certificates to vouchers will have a terrible impact on housing nationally, and certainly here in Los Angeles. 

Even the best case scenario leads me to believe that we are going to be in a period of declining resources from the federal government. If anything like the worst case scenario comes to pass, it is hard to imagine that public housing authorities are going to be able to survive in anything like the form in which we currently understand them. 

What's the demand for such housing in the City? What do you foresee as the impact of cuts in housing subsidies for the poorest of the poor in Los Angeles? 

In Los Angeles there are currently 91,000 people on the General Relief rolls. A few months ago, there were close to 116,000. That's the group I know best. They have an extremely difficult time finding safe, sanitary and affordable housing under current conditions, never mind any future cuts. I am less familiar with housing for families. 

Jonathan Zasloff, you have been looking into the implications of welfare reform for Public Counsel. What's your analysis of the impacts of welfare reform and cuts in General Relief on the provisions of SRO and affordable housing in the basin? 

General Relief, which is the state's program of last resort for indigents in LA County and throughout the state, should not be confused with what we normally consider welfare, which is a federal program called Aid to Families with Dependent Children (AFDC). The state legislature mandates that the counties pay for GR. Since AFDC benefit levels are higher than those for GR, GR winds up going to people who are desperately poor but are categorically ineligible for AFDC. These are predominantly single people, often men (unlike AFDC), who frequently depend upon SRO housing. 

The County is now attempting to fundamentally alter the nature of GR, perhaps even to abolish it. Because the County spends $210 million annually on General Relief, it is a real budgetary pressure and Sally Reed, the LA County Chief Administrative Officer, wants to achieve savings in this area. 

First, the County wants to have a particular legislative change in the statute which mandates Counties to provide General Relief in order to allow the Counties to count health benefits as part of the General Relief grant. Since those on GR are already eligible for services at county health facilities, this would allow the County to lower the GR benefit level without incurring any extra cost. They attempted to do this a couple years ago under the existing statute but were prevented from doing so after being sued by the Western Center on Law and Poverty—Public Counsel also joined in the lawsuit. The court ruled they had to maintain the General Relief grant at $295 per month. Because they lost the suit, the County is now going back to the legislature to specifically change that statute to include the value of health benefits. 

Two other major points. The County is asking the legislature to change the statute so the County does not need to provide General Relief at all. In this case, there would be no General Relief, nor any source for income for people in SROs. 

Alternately, they could allow the statute to be changed so people who normally would have been on a federal program before the current welfare reform would not be eligible for General Relief. This would reduce people's ability to pay for housing in two ways. First, for the past two years  the County has been encouraging GR recipients to apply for the federal Supplemental Security Income (SSI) program. Since SSI is run by the Social Security Administration, this meant that federal dollars replaced County ones. 

Now the proposed welfare reforms would make large numbers of SSI recipients ineligible for GR; so if the County is now able to make those cut off by welfare reform ineligible for GR, it has achieved a nice little bait and switch. Second, in the U.S. Senate there is a movement to block grants and slash Food Stamp benefits. Those on GR are eligible for Food Stamps and rely heavily on them. If those Food Stamps are no longer available, GR recipients will have to use more of their cash money for food, leaving them less to pay for SRO housing. 

Andy Raubeson, how do you react to such fiscal proposals at the County and State levels?

First of all, I'd like to step back a little further. We're not just looking at a cut from $295 to $212 per month, but from $343, which was the level of General Relief three years ago, before it was lowered to $295, and then lowered again to $212. We are in an era of low inflation, not in an era of zero inflation. There has been inflation over those five years, and people have gone from $343 cash benefits to $212. It is extremely difficult for people to survive, and it is difficult for us, as the housing managers of last resort to survive. 

Five years ago, our lowest rent was $195 per month. Because of the GR cuts, we cut our rent in three steps to $180 per month. But still, to a person with $212 in cash, $180 is a huge price. If you take the federal standard of 30 percent of income for rent, we should be charging those tenants $64 per month. In the long term, we don't know how we're going to make it at $180, let alone at $64. 

While this has been going on, our General Relief population has continued to climb. About 47 percent of our permanent tenants are on General Relief. We are operating under a rent regulatory agreement with LA/CRA to charge at least 20 percent of our tenants no more than our lowest rent of $195; in actuality, we are at 47 percent and $180 per month. 

As a result, we have stopped putting money into reserves. We have cut back on staff. We have cut the security staff in half. Instead of having two security officers in a building with 290 tenants, we now have one. Everyone knows Skid Row is a hard area in which to operate, and security is a very real concern. We didn't feel like we were cutting fat out of the budget, and we're still operating at a deficit. 

It gets even worse. I'd like to diverge to a slightly different issue. Seven or eight years ago, as a result of the Perris case, the County agreed to provide people with shelter from the first day they applied for General Relief. In a further suit, Gary Blase of the LA Legal Aid Foundation brought a consent decree establishing certain minimum property standards for those contractors or vendors to provide shelter. At this time, those standards are pretty well ignored. Our properties are still inspected regularly, but I don't think the proprietary hotels are. 

Also, as the GR load increased, the voucher load decreased. I think this happened for two reasons. First, the County Department of Public Social Services (DPSS) staff became much better at processing. Five or six years ago, people would receive housing vouchers for an average of 22 days—the period of time between the application for General Relief and the completion of the processing. Most recently, the average is 5 days. In other words, DPSS has gotten better at processing, which I think is good. But they also instituted a policy to take out 1/30 of the GR arbitrary housing allowance. Presently, the County takes $4.50 per night, and their eligibility workers work hard to convince people not to take the vouchers. This means they save in buying the voucher, and many people are literally left homeless. A business man who pays taxes to the County would not be happy to know there are policies in place which actually encourage people to sleep out in cardboard condos and other places.

Andy, what is the extent of the infrastructure investment we have publicly made in Los Angeles for SRO housing and what, given proposed cuts in relief, are the risks (in terms of high vacancy rates for extended periods of time) to this investment in housing stock? 

On Skid Row, and the surrounding area, there has been an investment of slightly over $100 million of public money. Of that, about $50 million providers, we have rehabilitated over 30 hotels, representing just over half of the SRO housing stock on Skid Row. 

Jonathan describes a wish list the County has given its lobbyist in Sacramento. In the worst case scenario, if there were to be no GR, it would leave 47 percent of our tenant base unable to afford housing. Other providers have a much lower percentage, perhaps 20 percent. If you put that together, you' re talking about adding over 1,000 people to the streets of Los Angeles. That's just counting those living in non-profit SRO's on Skid Row. County-wide, it will increase the homeless population by 20,000 to 30,000 people. 

The next question is, how do housing operators make it with that kind of a vacancy rate? I don't have an answer for you. I think we will have failures. We will have tax credit investors who will not be getting their tax credits, which will undermine the confidence of private investors in affordable housing. It's quite a doomsday scenario if it goes to the worst. 

The fallback position is no one can receive General Relief for more than 90 days in any year. However, people cannot maintain housing if they have income for three months and nothing for nine months. That is not much different from being knocked off the roles all together.

Jonathan, what is your reaction to the above analysis by Andy Raubeson? 

The problem is, everyone seems to think this is policy concerning poor people, and it will not affect the rest of the community; but it will. This is not simply an issue for poor people, but also an issue for middle-class people—it will affect the quality of life for people in all neighborhoods across the city. For instance, Administrator Reed argues that the County must cut GR in order to pay for public safety. But what will happen when GR recipients—many of them young males—are cut off with no housing and no money for food? That will create an enormous law enforcement problem throughout the county. GR is a public safety issue. 

Andy, what issues will surface over the nut six months for which we're not now adequately informed? 

Jonathan is correct. I don't think anyone has looked closely enough at the ramifications. If you remove the safety net, the net savings may be far less than the associated costs. If businesses are having people with no place to go to the bathroom, urinating and defecating in their doorways in the morning and at night, and the first customers in the morning never come back again, there will be all kinds of prices to pay for these policies. Not all of them will be in downtown either. You'll see people in the neighborhoods all over the city who are looking for a place to sleep or go to the bathrooms; and you will have public health problems also. We're going to have less livable neighborhoods throughout Los Angeles.