The California Department of Finance (DOF) generally focuses only on the cost to the state of proposed new investments. Just last week they insisted that a common sense proposal by Senator Jim Beall (SB 873) should be limited to only three years because mistaken assumptions by the Franchise Tax Board (FTB) led the DOF to conclude that the change would cost hundreds of thousands of dollars annually. Never mind that when challenged by the real experts at the California Tax Credit Allocation Committee neither the FTB nor DOF could produce any real evidence to support their conclusions. In reality, SB 873 would effectively increase the value of the state’s Low Income Housing Tax Credit by more than $25 million annually at no cost to the state.
But focusing on these types of mistakes misses a larger and, in my opinion, more important point: by counting only the likely costs of such investments and ignoring the benefits, the Governor’s staff risk leading the Governor to be “penny wise and pound foolish” in his decisions. The Governor’s team would serve him better by looking at the results of studies like the one released last week showing that for each $1 billion in new state investment in proven affordable housing programs, the state can expect to reap the following benefits:
- 17,000 new and substantially renovated affordable homes
- 49,000 new jobs
- $8 billion in economic activity
- $350 million in new state and local tax and fee revenue
Or try this for a different way of making spending decisions when it comes to affordable housing: for each $1 the state invests, the return to the state is nearly $1.60 in total economic impact.
How should this affect the Governor’s thinking? Consider the case of the Assembly’s proposal earlier this year to invest $1.3 billion of the state’s $5 billion plus budget surplus in affordable housing production programs. Instead of taking a balanced view of the costs and benefits of the proposed investments, the bean counters in the Governor’s office pushed the Assembly to reduce the proposal to $650 million, then to $400 million. But even a 70% reduction in the proposal was not enough. So, they conditioned the Governor’s support upon the Legislature’s passing a new complex land use entitlement streamlining proposal that, while a good idea at a macro level, has strong opposition from many quarters and is unlikely to be approved in its current form.
Governor Brown took an important step when he acknowledged the severity of the State’s affordable housing crisis in his revised budget. However, instead of holding desperately needed investments hostage to other agendas, the Governor’s office should focus on the triple bottom line that investments in affordable housing bring: (1) new housing to reduce homelessness and stabilize our lowest-income workers, (2) new jobs to ensure unemployment remains low and (3) new economic benefits that far outweigh the cost to state government.