Where are COVID-19 rescue funds going? The place with pervasive, 'urgent' need: Housing
Austin, Texas, is wrestling with rising homelessness even as it's become a hotbed for tech companies, corporate relocations and young transplants.
City leaders set a lofty goal to rehouse each of Austin's 3,000 homeless citizens in three years – but how to pay for the $515 million undertaking remained a question.
Steve Adler, the Democratic mayor of Austin, found a solution: a portion of his city's share of $350 billion in direct aid from President Joe Biden's American Rescue Plan, approved by Congress in March, that began flowing to cities and states in May. Local governments have wide latitude to decide how to spend the infusion of federal dollars, designed to replenish their coffers after tax revenue collections collapsed during the pandemic.
"We've never had even the dream of having the resources to actually set up the system that we need until (the American Rescue Plan)," Adler said.
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From Austin to Indianapolis, Minneapolis to Seattle and San Diego, mayors are steering substantial portions of their rescue funds to one of their most elusive challenges: housing. Plans include building affordable housing for low-income residents, bolstering housing trust funds to provide gap financing to developers, expanding rental vouchers and – like Austin – securing housing for those who lack a permanent home.
A USA TODAY review of plans submitted by U.S. cities to the Treasury Department found replacing lost revenue to avoid budget cuts is the most common use of COVID-19 rescue funds. But when it comes to new investments, no area has seemingly gotten more attention than affordable housing and programs for the homeless.
Seattle plans to spend $49 million in COVID-19 rescue funds on homelessness and affordable housing that includes the addition of 400 new affordably priced units. San Diego County signed off on $85 million for homeless services and $15 million more for other housing priorities. Milwaukee will spend $30 million on housing initiatives including gap financing to support 326 mixed-income affordable housing units. Los Angeles County is devoting $400 million to house the homeless.
At the state level, Colorado is pumping $550 million of its COVID-19 recovery money into an affordable housing fund. In Massachusetts, Republican Gov. Charlie Baker has proposed $1 billion to assist first-time homebuyers, housing for veterans and seniors and other housing initiatives.
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Yet housing advocates want more lasting federal funding than one-time money. And they're looking for execution, not just plans. Cities and states have been slow to spend the rescue money, deferring to lengthy public input processes and waiting for the Treasury Department to finalize guidelines. Several cities and states still lack approval from their legislative bodies.
"Certainly, there's a huge opportunity here because there is $350 billion on the table that can be used for housing," said Sarah Saadian, vice president of public policy at the National Low Income Housing Coalition. "How much actually is used for housing at the end of the day? We'll have to wait and see how the dollars are spent."
Spike in housing costs outpaced income during the pandemic
The $350 billion in federal funds to states and cities is divided into two waves, with a second allocation coming next year. The 50 states and Washington, D.C., will split $195 billion. Counties, cities and towns will get $130 billion. Another $24.5 billion will go to territories and tribal governments. Money must be obligated by 2024.
Cities nationwide are facing a housing crunch. The U.S. has a shortage of 6.8 million rental homes considered affordable for households that earn 30% or less of their area's median income, according to the National Low Income Housing Coalition.
The problem was exacerbated during the pandemic. National home prices increased between 7% and 19% each month between September 2020 to June 2021, according to the White House, far outpacing income growth over the same period.
Advocates say the number of Americans experiencing homelessness is also on the rise.
"There are so many things that are going right in this city. It's a pretty magical place," Adler said of Austin. "But that means more and more people are coming. And frankly, we don't have the housing supply. We're trying to catch up."
The Austin City Council in June approved spending $95 million in COVID-19 rescue funds out of $188.5 million the city will receive on their plan to end homelessness, which city officials are expected to roll out in more detail this week. Travis County, which includes Austin, plans to spend an additional $110 million of its $247 million in COVID-19 funds on the same priority.
Austin's goal is a "system" to respond to homelessness. That includes securing 2,300 rental units for homeless people through incentives to landlords, building 1,000 more units – including converting two vacant hotels to house the unsheltered – and expanding homelessness services with 200 additional staff. To cover costs, Austin and the county are pooling rescue funds together, combined with other federal and state dollars, to attract an additional $120 million from the private sector.
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Housing stability as a 'public health response'
In rapidly growing cities like Nashville, Tennessee, rampant gentrification has turned once-neglected neighborhoods in the urban core into real estate hotspots, squeezing out residents who can't afford escalating rent and home prices.
"Faster-growing cities are feeling the crisis of affordable housing greater," said Nashville Mayor John Cooper, who intends to submit his plan to use rescue funds to the city council before the end of the year. He hopes to use about 10% of the city's $267 million in COVID-19 funds over two years to boost the city's affordable housing fund, which offers grants to developers for affordable projects. "In the end, housing has become one of the highest priority items for successful cities. The need is urgent."
More:Across Tennessee, affordable housing is becoming harder to find
Indianapolis stands to lose 1,500 affordable housing units over the next four years as fixed-rent requirements to receive federal tax credits expire. Following city council action last month, Indianapolis plans to spend $60 million on housing initiatives out of $419 million the city is getting in COVID-19 funds over two years. That includes services aimed at eviction prevention and rental assistance as well as $20 million for the creation and preservation of affordable housing units.
"To have access to one-time federal resources on a scale unlike any other over the past century gives cities across the country an opportunity to invest in this as the significant priority that it is," said Jeff Bennett, deputy mayor of community development for Indianapolis Mayor Joe Hogsett. Bennett called investing in housing stability "a public health response."
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In Cleveland, where decades of disinvestment in some neighborhoods have led to vacant houses and concentrated poverty, city officials view housing investments as part of neighborhood vitalization. Of the $511 million in COVID-19 funds Cleveland will receive over two years, Mayor Frank Jackson has proposed $110 million to offset lost tax revenue from the pandemic.
Before his mayoral term ends in January, Jackson also wants the council to authorize $80 million to support neighborhoods for building demolitions, rental assistance, gap financing for affordable housing and down payment assistance for new homebuyers. The city has identified 16 vacant school buildings it wants to convert to affordably priced homes.
"We can move the needle and make positive change," said Michiel Wackers, Cleveland's assistant director of community development. He pointed to the city's plans as a catalyst for a bank recently committing to lend $22 million over 10 years for affordable housing in Cleveland. "The real reason why they are willing to do that is because we're putting in ARP money."
A push to keep affordable housing in Biden's social spending bill
The $350 billion in direct aid is separate from the $46.5 million in federal Emergency Rental Assistance Program that cities and states have taken in since the start of the pandemic. That money was meant to help renters unable to make payments amid the pandemic by compensating their landlords. The program has been under fire after many states struggled to get money out quickly, but the pace has picked up since July.
With the federal COVID-19 funding, cities have leeway to target spending on any project that responds to the public health emergency including assistance to households.
More:89% of federal rental assistance remains unspent as potential evictions crisis looms
Alan Berube, senior fellow and deputy director at the Brooking Institution's Metropolitan Policy Program, said that flexibility explains why so many cities have chosen to spend significant rescue funds on housing.
"Typically, when affordable housing dollars from the feds come to cities, they're incredibly prescriptive," Berube said of rules that often restrict which families are served and the types of housing the money supports. "Now, so long as they're serving low-income families, cities can do a whole heck of a lot of different stuff from a housing perspective with these dollars. They're able to leverage these dollars with private capital much more effectively."
More:Panicked cities pressed Biden on rescue funds during the pandemic. Months later, some are slow to spend.
Minneapolis's $28 million chunk of COVID-19 funds earmarked for housing, approved by the city council in June, includes $5 million to purchase and rehabilitate apartments for individuals earning 30% of the area's median income or less. There's also funds for gap financing to support new affordable housing, home repairs for low-income households and services for the homeless.
"Through a global pandemic," Minneapolis Mayor Jacob Frey said, "the need for the foundation from which people can rise in the form of a home has been all the more essential."
Yet Frey said for cities to truly address "an affordable housing crisis," the funds must be "massive and continuous" from the federal government. "We need to do more, and cities can't do it alone."
For advocates and many mayors, the answer is Biden's social spending bill,dubbed the Build Back Better plan, which includes $327 billion for affordable housing. It also includes $90 billion to expand housing vouchers, $80 billion to repair public housing, and billions more to build and retrofit more than 3 million affordable housing units.
"Together those things could end homelessness in America, but they are under enormous threat of being cut or eliminated altogether," Saadian said. "The problem is there are lots of important good priorities that are in the bill."
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Facing resistance from moderate Democrats in the Senate, the White House is working to scale down the legislative package significantly. The original price tag of the bill came in at $3.5 trillion, but it is expected to be closer to $2 trillion now. The legislation also includes subsidized child care, Medicare expansion, universal prekindergarten, national paid family leave, free community college and climate initiatives.
By using COVID-19 rescue funds on housing, San Diego Mayor Todd Gloria said mayors are responding to a "public outcry" nationally for more action on housing affordability. San Diego is spending $10 million in COVID-19 funds to address homelessness on top of the county's $85 million.
Gloria added that he hopes these investments "help to make the case" that housing is a critical component to keep in the social spending legislation.
"I understand the pressures and the complexities of the situation as best as I can from 3,000 miles away, but the need is still extremely large," Gloria said. "ARPA was great to stave off a lot of really bad things. I see the Build Back Better agenda as an opportunity to take the next step."
Reach Joey Garrison on Twitter @joeygarrison.