New funding source for housing programs: my BH piece

[This was my BH column for October 1st. Comments are off here, please comment at the original]

The technorati who brought you the phrase “Web 2.0” are back with a new one: “Government 2.0.” A core idea of Gov 2.0 is a rejection of what Donald Kettl calls “Vending Machine Government” — you put tax money in and get services out, and are limited to kicking and cursing the machine when it doesn’t work. Others talk about how collective action should be more than collective complaining.

Of course, we don’t need new technology to make this happen. A great example of collective action has been the series of meetings to create a “People’s Vision for Affordable Housing.” The vision is motivated by a community frustration surrounding the struggle to secure basic necessities like shelter, aided by the slow pace of the city committee process in producing workable ideas. Mayor Dave Cieslewicz, after last year’s conclusion of the inclusionary zoning effort, created a new committee to explore new affordable housing strategies for Madison. Nine months later — five months after it was due to report back — the committee has met only four times and has yet to discuss a single improvement. Even ASM moves faster than that.

The People’s Vision aims to give the Housing Diversity Committee a list of priority problem areas and potential solutions. It’s been some of the most inspirational time I’ve ever spent in a meeting room. The problems and solutions we’re considering run the gamut from helping the visibility homeless get off the streets to helping the most well-off of renters and homeowners. At the end of a meeting, it really feels like solutions are closer and it wasn’t a waste of two hours.

One of the issues I’m most interested in seeing addressed is making the cash flow of renters a bit easier. When renting an apartment, a renter may have to provide a security deposit upfront. For people living paycheck to paycheck, this can be a significant challenge, especially if they already have a security deposit tied up in their existing apartment. They may eventually have the money, but not right when they need it. This can be addressed through a loan fund, where the city pays the security deposit upfront and the tenant pays the city back. Madison has a small program like this, as does Iowa City, Iowa, through a private provider.

At the end of the lease term, landlords have to give the security deposit back, so they can’t do anything with the money except put it in short-term investments. For the small landlords, which are the vast majority of landlords in Madison, this amounts to a couple of extra dollars a year. The landlord only truly needs the security deposit in the case where they’re going to make a deduction, and even then, usually not the entire amount. In fact, the full amount may never actually need to exist.

Instead of a loan program, what if the city only gave the landlord the amount for damages at the end? The individual landlords wouldn’t care because they weren’t earning much anyway, but the city could earn a fair amount of money on the collective interest.

Now, take it one step even further and imagine if all security deposits went through this program. Using back-of-the-envelope numbers, there are at least 55,000 rental units in Madison, each with about $500 of security deposit. That’s $27 million, and the real numbers could be much higher. Using a conservative 4 percent return, that could be $1.1 million a year in new money for the city. It doesn’t raise taxes on anyone, except perhaps the very large management companies like Madison Property Management, who no longer get a free loan from their tenants. It just makes existing money work smarter. Even subtracting the 0.75 percent interest landlords are required to pay tenants, the city would still come out ahead. This could easily be expanded to cover the whole county since housing is truly a regional issue.

It’s a simple program; the city Treasurer’s Office could easily run it electronically without much additional staff. They already run a comparably-sized program with property taxes. It’s a win for students, and all renters, because security deposits would be handled uniformly and, according to state law, without having to hope your landlord gets it right or doesn’t go bankrupt. Renters would also benefit from transferring their security deposit straight from one apartment to the next, without having to temporarily have enough money for two security deposits. Finally, everyone wins because we could fund things that we know would help but there just hasn’t been the money to do, like affordable housing and building inspectors.

Will this be part of the People’s Vision? I don’t know. The next meeting of the group is Oct. 22 at 5:30 p.m. at Madison Central Library. I’m going to make my case, and if you’ve got ideas, come and take action.

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