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| Image: Is government in charge
of infield watering? This may be the last post on the city's General Plan housing element. Then again maybe not. I find a lot of this interesting because it unveils a significant economic activity that our local government is involved in. I think we all recognize that the city provides police, fire, and roads (or more appropriately employees associated with roads paid for with funds that are supposed to be dedicated to improve roads). But Chico is also in the landlord business. The city manages a mortgage subsidy program. First-time home buyers able to pay $5,000 can get a loan of $30,000-$70,000. 44 of these loans were made in 2007. I seem to recall the Finance Committee allowing a borrower to convert their city subsidized property into a rental. I'm not sure if the council as a whole approved that approach, but it certainly creates some interesting questions. On one hand, there's a philosophy that the city should provide help to people that can't get help elsewhere. And in return the city should be guaranteed some profit sharing. For example, someone could have had a property purchased by this mortgage subsidy program and then sold it for a sizable profit during the peak of the market. Should the city (and taxpayer) receive some portion of those capital gains? Is that any different than the city loaning some money to someone to invest in the stock market? On the other hand, why should government be entitled to anything more than the banking industry gets from a loan contract. Forcing profit sharing on a subsidized property removes much of the benefit of home ownership. Some of the First Time Home Buyer funds come from HUD HOME funding. This funding source has also been used for a rental assistance program, a home rehabilitation program, funding special needs housing (example: domestic violence shelter), and direct funding to developers providing housing affordable to low- and very-low income households. Here's a description of HOME from the HUD web site. HOME provides formula grants to States and localities that communities use-often in partnership with local nonprofit groups-to fund a wide range of activities that build, buy, and/or rehabilitate affordable housing for rent or homeownership or provide direct rental assistance to low-income people. Purpose HOME is the largest Federal block grant to State and local governments designed exclusively to create affordable housing for low-income households. Each year it allocates approximately $2 billion among the States and hundreds of localities nationwide. A second housing related funding mechanism are Community Development Block Grants, or CDBG. These funds must be directed at low to very-low income households. Unlike HOME funds these block grants don't need to be directed toward housing. So you'll find CDBG funds used to prop up community organizations that provide services to the target demographic. It's easy to feel like these federal and state funding mechanisms are free money, and worthwhile to help lower income households in Chico. I'm not so sure. Government is always less efficient than profit oriented organizations, not to mention community groups that are more philisophically oriented. As an example of as lack of efficiency, let's take a look at the third big player in low income housing funds for the city of Chico. That would be the Redevelopment Agency (RDA). The RDA strips a portion of property taxes from many areas in Chico and diverts them from the state and other tax entities, and keeps it local (the diversion of these funds comes with a cost in interest payments and millions of dollars drained from General Funds every year). 20% of RDA funds must be used for housing programs. That is state law. Over the last 20 years Chico's RDA has expended $47,000,000 on housing programs. It has funded an average of 63 units of low and moderate affordable housing per year though those expenditures. $47 million / 20 years = $2.35 million per year $2.35 million / 63 units = $37,301 per unit per year $37,301 / 12 months = $3,108 per unit per month So the RDA has spent and average $3,108 per month for a single unit of low to moderate income affordable housing. Keep in mind that a housing unit is not a "house". It could be a couple of rooms in an apartment complex. Using an online mortgage calculator, and assuming 6% interest, and $5,000 down, the $3,108 per month would cover a loan of $422,000. For the same amount of money the city could have purchased 126 homes each costing $208,000 (15% lower than the median home price). If each home had an average of 3 rooms the city could have provided 378 units in very nice homes, at no cost to the tenant. Although this is a simplified exercise in number comparisons, and doesn't account for state laws or bureaucratic requirements made of the RDA, it does provide some insight into what we get for our tax money. Government is inefficient and expensive. And we should all look closely at the favors they are granting on our behalf. |
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Efficiency
Lon
About Me: Fasten your seatbelts for an exhilarating trip through Chico's public policy; I guarantee it's marginally better than public access TV.
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