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Is a “Homelessness” Tax Coming to Your City?

UPDATE 11/08/2018 – During the mid-terms this past Tuesday, voters approved new tax measures to help resolve homelessness in both San Francisco and Mountain View, CA. Want to know more? Read further to learn more about these and other recent initiatives taken by communities to tackle this very serious issue.

In virtually any metropolitan setting, you don’t have to walk far to see someone who is homeless. Entire sections of West Coast cities have tents lining the streets. The number of families living out of vehicles is on the rise. Low wages and high housing costs, coupled with lack of affordable transportation and the opiate epidemic, are all important factors that drive individuals and families into homelessness. The homeless population continues to increase across the country. Whether it’s through sales tax, a special excise tax, or even a straight headcount tax, more and more communities are looking to tackle this homelessness crisis head-on through various taxation mechanisms.

QUANTIFYING THE HOMELESSNESS CRISIS

According to a report from the U.S. Department of Housing and Urban Development (HUD), in 2017 there were over 553,000 homeless Americans, with these U.S. cities having the most:

It should be noted that the actual homeless population is thought to be much larger, as these figures are just a snapshot in time, and do not capture displaced individuals and families staying with friends and other family. The people under consideration for the HUD report are individuals and families spending their nights in emergency shelters, transitional housing, as well as those who sleep on the street, in cars, and in places that are not intended for human settlement. Chicago did not make it into HUD’s top 10 list for 2017, yet a 2016 estimate prepared by Chicago Coalition for the Homeless reported over 80,000 homeless of which approximately 80% were staying with friends and family and therefore would not have been captured in the HUD study.  It should be noted that HUD’s assessment in Chicago involved “visible counts from the street” that were conducted on just a single night in January!

LACK OF AFFORDABLE HOUSING

Housing costs are a significant contributor to the rise in homelessness, and are increasing at a faster rate than wage earnings, most notably along both coasts and in some of the largest and fastest growing U.S. cities. The median list price of a home in the U.S. in August 2018 was $295,000, and over the last five years has increased on average over 8% per year. In places like San Francisco or New York City, median list prices are between $1.4 and $1.5 million. San Jose, Seattle and San Diego were large markets with the biggest inventory jumps from the year before, posting upsurges of 28% percent and higher. Other major markets including San Francisco, Dallas, Boston, Los Angeles and New York saw inventories climb over last year as well.  It’s no surprise that almost all of these markets are consistently ranked by HUD as having the largest homeless populations.

Rising costs are not just limited to homes, as rental costs continue to go up as well.  Although the rental market has cooled down a bit to just a 1% increase in median rental costs over the past year, nationally it has averaged more than a 3% increase annually for the prior four years. Even with the momentum slowed, a two-bedroom apartment in Seattle or Boston will set you back $2,000 a month, and in San Jose will cost upwards of $2,900 a month. Half of the cities on HUD’s top ten list have seen median rental prices jump more than 16% over the last five years.

In comparison, wage data only shows average annual wage gains of 2.9%, and cumulative of 15.3% over the last five years when comparing the most recent data available from Q2 2013 – Q2 2018. It’s clear that wages have not kept up with rising housing costs, and fall well short of the 40% hike in median list prices observed over the same five-year period. As the national rise in housing costs continue to outpace wage earnings, it is foreseeable that the number of homeless persons and families will escalate.

HOW COMMUNITIES HAVE TAKEN ACTION

So what are states and local communities doing to help? Most larger metropolitan areas already use a portion of employer tax revenues to assist with local housing and transportation needs that support demographics such as the homeless. Recently however, there have been some additional tax measures specifically targeted to help the homeless.

In October 2017, Los Angeles County instituted a quarter percent increase to the local sales tax in most of the county, and is expected to collect an additional $355 million per year over the next 10 years, with a portion of this revenue going towards rental subsidies to help the homeless transition into affordable housing units. Proponents of the measure anticipate helping 45,000 escape homelessness, and prevent an additional 30,000 from becoming homeless over the next five years. The year before, a measure was passed authorizing $1.2 billion in bond funding to construct 10,000 affordable housing units in Los Angeles County.

Lack of affordable housing is also a crisis for the city with the largest homeless population, New York City. While NYC does not have a specific tax designed to fund homeless services, the City’s Department of Homeless Services is slated to receive over $1.8 billion in funding under the fiscal year 2019 budget, up over 10% from fiscal year 2018. Almost $1.6 billion of DHS is dedicated to facilitating adult and family shelters, and $384 million of this spending currently goes to hotels for housing the homeless. The Mayor’s “Turning the Tide on Homelessness” strategy includes adding 90 new shelters and providing 15,000 units of permanent supportive housing to help transition homeless services away from the costlier hotels. Unfortunately, the addition of affordable housing units has been slowed by the rising number of homeless in NYC, and resulting need to provide temporary shelter for them.

Other cities, such as Chicago, have an indirect approach to taxation benefiting the homeless. Booking a stay in the Chicago area through Airbnb will include an excise tax, a portion of which is used to fund homeless services.  Revenues from this tax are expected to help provide permanent housing for 100 families in high crime communities. In 2017, this excise tax raised almost $2.9 million in funding.

To date, consumer spending taxation, appropriated city funds, and other means haven’t been enough to address homelessness and the lack of affordable housing in some of the nation’s largest cities. Spreading public opinion has viewed large corporations as the root of the problem. Plenty of businesses have benefitted from rapid growth and expansion in recent years. The thought is that successes of these large companies have, at the same time, negatively impacted the cost of living for residents, especially those in West Coast states who can’t keep pace with rising housing or rental costs and are ultimately driven into alternative housing arrangements. Should these companies be responsible to also provide additional funding for affordable housing and other homeless based services? The City of Seattle thought so, and made national headlines this year while clashing with Amazon over a tax on large corporations to fund services helping the homeless of Seattle. This head tax, later dubbed the “Amazon tax”, was initially purposed as an annual tax of approximately $540 per full-time employee to be levied upon businesses generating at least $20 million annual revenue in Seattle. It was estimated to have generated $86 million per year in funding to help counter the homeless crisis. The proposal quickly received opposition from Seattle businesses in addition to Amazon and was scaled back to $275 per employee per year in an effort to garner enough support for approval by the City Council. A month later and after contentious public debate, the City Council reversed course and repealed the tax. Amazon and Starbucks would have been the companies most impacted by this tax. It’s worth pointing out that the City has allocated over $77 million towards homeless related services for fiscal year 2018, a substantial increase from $39 million just five years ago.

BIG DECISIONS ON NOVEMBER BALLOTS

Despite the recent failure in Seattle, both San Francisco and Mountain View (in Silicon Valley) will put similar homelessness tax levies up for vote during the midterm elections next month. San Francisco already administers a gross receipts tax related to company sales, or alternatively a tax on payroll expense for the City’s largest businesses. The Homelessness Gross Receipts Tax Ordinance that will be on the November ballot represents an additional gross receipts tax (or payroll tax if applicable) on businesses with over $50 million annual revenues, and is expected to affect over 1,000 companies. If passed, an estimated $250 – $300 million in new annual tax revenues from the ordinance would go towards funding permanent, affordable housing, shelters, homelessness prevention, and mental health services to homeless people suffering from an opiate addiction and other behavioral health impairments. This would be in addition to the over $271 million in annual funding budgeted to San Francisco’s Department of Homelessness and Supportive Housing.

Mountain View has proposed an increase to its business license tax (Measure P) on the November ballot called the Per Employee Business Tax. Similar to what ultimately failed in Seattle, this would be an employee headcount tax and thus affect the City’s largest employers, most notably Google with over 24,000 employees at its headquarters and other campuses in Mountain View. Not surprising, the tax has been referred to as the “Google tax”, and for good reason. Over half of the estimated $6 million in annual tax revenue would come from Mountain View’s largest employer. So far Google has not taken a public position on the issue, and the measure still appears set to move forward for vote next month. Only 10% of revenues generated from Measure P would actually be used to support affordable housing efforts though, with almost all of the rest earmarked to address transit needs. Cupertino, also located in the Silicon Valley and where Apple’s headquarters is located, considered a headcount tax of its own, but has since put those plans on hold until at least next year for further planning.

LOOKING AHEAD

The continued rise in the homeless population is a serious concern for our country. Cities most affected have seen more residents and businesses alike voice opinions on how best to resolve. Ginovus has clients on both sides of the issue and we respect their positions equally. Communities gripped by this ever expanding crisis will wait to see what voters decide next month in cities like San Francisco and Mountain View. If these new tax measures can be approved and successfully implemented with limited corporate backlash, then we could see more cities follow suit. There is no “one size fits all” solution to tackle homelessness, and each community needs to chart their own course forward. However, whatever solution a community selects to adopt, it needs to be sustainable. Regardless of the revenue sources used to fund homeless support services, if factors such as a lack of affordable housing, high cost of living and lower educational attainment levels in urban communities remain, then homelessness will continue to be a growing dilemma.

Meet the author

Jason Kallio

CLIENT ADVISOR