May 12, 2018

The 2018-19 Budget: The May Revision

Funding to Address Homelessness

The 2018‑19 May Revision proposes a package of actions and funding augmentations aimed at alleviating homelessness. Two major elements of the proposal are described below.

Asking Voters to Approve No Place Like Home. In 2016, the Legislature created the No Place Like Home (NPLH) program to construct and rehabilitate permanent supportive housing for those with mental illness who are homeless. The program authorizes the issuance of bonds backed by personal income tax revenues raised under the Mental Health Services Act (Proposition 63 of 2004). Before these bonds can be issued, the state must complete a validation process whereby the courts determine whether issuance of the bonds is legal. The validation action is pending. As an alternative to court validation, the administration proposes to ask voters to approve NPLH at the November 2018 general election. The administration anticipates that this will allow them to begin awarding NPLH funds by the end of 2018—likely much sooner than if the state waits for court validation.

$250 Million for a Homelessness Emergency Aid Block Grant. The administration proposes a one-time General Fund allocation of $250 million for a new Homelessness Emergency Aid block grant to be awarded by the Homeless Coordinating and Financing Council. (The administration also proposes to move the council to the Business and Consumer Services Agency and provide it $500,000 in annual ongoing funding.) The funds would be awarded to local entities to be used for a variety of short-term housing solutions for homeless individuals and families.

The May Revision also includes a collection of homelessness-related funding augmentations for outreach, mental health services, and assistance targeted to CalWORKs families, youth, and victims of domestic violence. These augmentations total $109 million in 2018‑19. More detail on these augmentations can be found in the Governor’s May Revision summary here (beginning on page 57).

LAO Comments

Putting NPLH on the Ballot Seems to Make Sense. Due to delays in the court validation process, the implementation of NPLH has slipped beyond the Legislature’s intended timeline. At present, it is not clear when and how the court validation process will end. Asking voters to approve NPLH in November likely would expedite implementation of the program, speeding up when new supportive housing units will become available. For this reason, putting NPLH on the ballot makes sense. Despite this, the Legislature should keep one potential concern in mind. The November ballot likely will include a variety of housing-related proposals, including a housing bond measure placed on the ballot by the Legislature. Adding NPLH to these other measures may raise concerns about voters’ bandwidth to understand all of these housing-related measures.

How Long Would It Take for NPLH to Have an Impact? If voters approve NPLH, the administration intends to award $262 million each year for seven years. These awards would start near the end of 2018. Based on typical costs for affordable housing development, these awards probably would fund roughly 20,000 supportive housing units. Under the administration’s award schedule, we estimate that a few thousand units would be available by late 2020 or early 2021. Around half of the units likely would be completed within five years. The remainder likely would be completed within roughly a decade.

Different Approaches to Addressing Homelessness. There are a variety of existing approaches to assisting homeless individuals and families. Each type of assistance has pros and cons. None is obviously superior to the others in all respects. Some approaches—such as rapid rehousing (short-term rent assistance, moving cost assistance, or help with housing search) or shelters—tend to be cheaper, can be deployed more quickly, and have lower barriers of entry for participants. The downside of these approaches is that they tend to offer only a temporary solution. This means that recipients may be more likely to fall back into homelessness. More permanent solutions include long-term rent assistance and supportive housing. With these approaches, recipients receive assistance as long as they need it and their income remains below certain levels. Long-term rent assistance tends to be more expensive than rapid rehousing. Similarly, supportive housing construction tends to require significant upfront costs. Supportive housing also typically takes years to site and build. Balancing out the higher costs and long implementation time is the fact that recipients of these programs are less likely to fall back into homelessness.

Competing Priorities for Homelessness Funding. Existing state and federal funding streams for homelessness (excluding NPLH) include about $200 million for supportive housing and $250 million for other services in 2018‑19. This level of funding serves only a portion of the state’s homeless population. For example, building enough supportive housing to serve the state’s entire homeless population likely would require several billion dollars. Similarly, annual costs of expanding shelter or rental assistance to the entire homeless population probably would be well above $1 billion. The $359 million proposed by the administration is not enough to cover the funding gap on either of these fronts. This means that, should the Legislature wish to move forward with the administration’s proposal, it would face a difficult task of balancing the priorities of providing for short-term needs (through shelters, rapid rehousing, and rent assistance) and providing longer-term solutions (supportive housing and long-term rent assistance).

A Potential Approach: Prioritizing Short-Term Assistance if Voters Approve NPLH. There is no obviously right answer as to how the Legislature should balance the short- and long-term goals mentioned above. However, should the Legislature decide to put NPLH before the voters and it is approved, this would open up a sizeable amount of funding for construction of supportive housing. In this case, it might make more sense to focus one-time funds in 2018‑19 on short-term assistance—such as shelters and rapid rehousing—for which much less ongoing funding is available. As compared to additional funding for supportive housing—which would take years to result in new housing units—allotting funding for short-term assistance would help move more people out of homelessness in the near term while NPLH is ramping up. The Legislature also could consider spending the 2018‑19 one-time funding on long-term rent assistance, but doing so presents some problems. Most homeless individuals and families need rental assistance for several years after initial receipt. Because of this, if long-term assistance is funded with one-time funding it could create a scenario where the funding for the assistance runs out before households are self-sufficient.

Divvying Up Funding Among Locals Usually Is Tricky and Contentious . . . The administration proposes allocating the $250 in one-time Homelessness Emergency Aid grants to local Continuums of Care—local entities that administer housing assistance programs within a particular area, often a county or group of counties. This approach is appropriate given that Continuums of Care have existing staff and infrastructure that could be used to administer the proposed funds. No state agency has comparable capacity or expertise in direct provision of assistance. One challenge in allocating the funding to local entities is that deciding how to divide the pot amongst the locals can be difficult and contentious. There are many factors that could be considered (for example, current and past numbers of homeless persons, composition of homeless population, housing costs, or poverty rates) and many reasonable approaches that can and have been used. Picking one approach over another inevitably benefits some communities over others. This conflict is unavoidable.

. . .So Consider Relying on an Existing Approach. As developing a new approach to allocating funding across communities could be difficult in the limited time left before the budget package must be adopted, the Legislature—should it wish to move forward with the proposal—may want to consider relying on an existing approach. Two potential options are to model the allocations after the (1) allocation of noncompetitive funds under NPLH (proportionate to current homeless population, no county receives less than $500,000) or (2) Emergency Solutions Grant Program (based on a combination of current homeless population, number of people in poverty, and number of low-income renters who pay more than 50 percent of their income for rent).