What Paul Ryan’s Anti-Poverty Plan Could Mean for Affordable Housing

Published by Michael Novogradac on Wednesday, July 30, 2014 - 12:00am

In a July 24 address to the American Enterprise Institute, House Budget Committee Chairman Paul Ryan, R-Wis., announced his new anti-poverty proposal, Expanding Opportunity in America, which builds upon a series of hearings the Budget Committee has held examining ideas to reform federal anti-poverty programs. These reforms are inspired by traditional Republican domestic policy principles of devolving authority to states by consolidating formula-driven niche federal programs into flexible state block grants. Ryan’s discussion draft proposal is designed to allow states to experiment with a variety of comprehensive anti-poverty approaches in exchange for holding those states accountable with measurable and meaningful outcomes.

Having a single professional case manager to address a wide variety of societal challenges that people in poverty routinely face has bipartisan appeal. However, some of the ideas contained in the draft proposal could undermine place-based housing programs that depend upon a stable and reliable long-term capital commitment, such as the Low-Income Housing Tax Credit (LIHTC) program, and reduce the supply of affordable housing.

First, the draft proposes giving states discretion to participate in a pilot program combining funding for a variety of anti-poverty programs, including housing, into a single “Opportunity Grant.” Among housing programs, the Opportunity Grant would combine funding from Housing Choice Vouchers (vouchers), Section 8 project-based rental assistance, Public Housing Operating and Capital Funds, the Community Development Block Grant (CDBG), Section 521 Rural Rental Assistance, the Low Income Home Energy Assistance Program (LIHEAP) and the Weatherization Assistance Program. By giving states discretion over how to distribute these funds, the draft proposal could divert funds that are critical to the underwriting and operation of LIHTC properties.

The risk of diversion is very real. As the Center for Budget and Policy Priorities notes in commentary about Ryan’s proposal, “… states and localities [could substitute] some of these funds for existing state and local funds that they now use for some of the same purposes. That’s what happened under the Temporary Assistance for Needy Families (TANF) block grant, even though Congress tried to forestall that through a maintenance-of-effort requirement and non-supplantation provisions.”

Even if the states don’t use federal funds to replace existing state funds, shifting housing funds to other uses would be disruptive to families dependent on housing assistance and would threaten the value of existing federal investments, such as LIHTC properties.

As the National Housing Conference points out in its response to the draft plan, “… rental housing properties and the people living in them depend on reliable funding from those federal programs. Diverting it, even to worthy uses, risks destroying federally funded investments that took years to create and could last for years to come.”

This is especially true for LIHTC properties. Nearly 70 percent of extremely low-income households in LIHTC units receive some form of federal rental assistance. Without the additional rental assistance, developers would be forced to either target higher income renters at the expense of those most in need, or use more tax credits per unit, reducing the number of affordable housing units available to impoverished families.

Second, several proposals within the draft would cost additional federal money, risking funding for housing programs. Because the plan aims to be deficit neutral, any new initiatives would have to be funded by cuts in existing anti-poverty programs, which could include housing programs. Specifically, the Ryan draft calls for the creation of “life contracts” that poor Americans would create with caseworkers to plan how they would get out of poverty. Whatever the specific merits of this proposal, one fact is undeniable: it would cost money. Consider this rough calculation by Stephanie Mencimer:

“Consider, as a hypothetical, the food stamp program, which Ryan thinks should require people to work as a condition of receiving the benefit (ignoring, for the moment, that nearly 60 percent of working-age adults getting food stamps already work). More than 40 million Americans get food stamps. Providing all them with a hand-holding caseworker with whom, under Ryan’s plan, they’d draft long-term plans and contracts outlining their responsibilities and goals before they’d be allowed to eat, would require a fleet of roughly more than 700,000 social workers, assuming a reasonable caseload of about 55 clients per caseworker. Social workers don’t make much money, with a median salary of about $44,000 a year. Even so, 700,000 of them would cost more than $30 billion a year, not including benefits. That’s nearly 40 percent of what the country currently spends on food stamps and nearly twice the entire federal welfare budget.”

Even a conservative estimate of the costs of hiring caseworkers would be in the billions. Every dollar spent on hiring caseworkers would be a dollar less spent on other anti-poverty programs, which could include housing.

Third, the proposal does not adequately deal with the issue of counter-cyclicality. During recessions, income-based programs such as Housing Choice Vouchers automatically increase assistance as family incomes are cut. Because the Ryan proposal is in the form of a block grant, it would not include these automatic stabilizers. This could risk housing assistance. Furthermore, recessions increase the number of people in poverty, creating more demand for anti-poverty programs, which block grants often are unable to respond to, ultimately reducing the amount of funding available for housing for each family in need. Finally, the Ryan proposal fails to account for the political problems faced by block grants. Historically, block grants have been easy political targets for spending reductions because they consolidate a variety of programs under a single umbrella that makes it difficult to see how reductions in funding levels hurt specific recipients. As former chief economist to Vice President Biden Jared Bernstein notes, history is not on the side of block grant programs:

“Of these 11 [block grant programs], eight shrank significantly in real terms (the dollar values are adjusted for inflation), from -18 percent to -87 percent since inception, and from -12 percent to -58 percent since 2001. Two block grants expanded, also significantly, but the general pattern has been to shrink. The average real decline since 2001 has been -23 percent (and that’s just inflation-adjusted; adjusting for population growth would lead to larger losses).”

This political vulnerability of block grants is one of the reasons many housing organizations opposed efforts to convert the Housing Choice Voucher program to a block grant for states in 2003.

Overall, Ryan’s draft proposal in its current from represents a major potential threat to the goal of supplying more affordable housing.