Los Angeles County Supervisors Mark Ridley-Thomas and Sheila Kuehl are spearheading efforts to impose a local income tax to fund programs to combat homelessness.

LOS ANGELES — Leaders in California's largest cities are contemplating bond measures and tax increases to tackle worsening homelessness and housing crises.

According to a 2014 report by the U.S. Department of Housing and Urban Development, Los Angeles city and county combined ranked second in the nation with more than 34,000 homeless people, while San Diego ranked fifth with about 8,500 and San Francisco ninth with more than 6,000.

In Los Angeles County, city and county officials have been working together since the fall to craft an interlocking program designed to be palatable to taxpayers without hindering both governments' efforts to bolster their balance sheets.

"The issue of homelessness has reached the crisis point in Los Angeles County," said County Supervisor Mark Ridley-Thomas.

The annual count by the Los Angeles Homeless Services Authority found more homeless people than the federal survey. The authority, a joint initiative of the city and county, counted 46,874 homeless people on the streets of Los Angeles County in 2016, a 5.5% increase from 2015.

The county is proposing a 1% local tax on income above $1 million.

It needs state legislative approval before it can even ask its own voters for the tax, a policy that faces headwinds because it would set a major precedent in a state that does not now permit local income taxes.

Los Angeles Mayor Eric Garcetti sent a letter to state legislative leaders supporting the county's tax proposal on May 31.

"This proposal empowers voters and local governments to maintain and improve the supply of affordable housing and homelessness services," Garcetti wrote. "It will also provide funding for the production and preservation of affordable housing without impacting the state budget."

Los Angeles City Administrative Office Miguel Santana called the joint efforts between the city and the county "unprecedented." The city and county released their proposals on the same day, Feb. 9.

"We developed a plan in coordination," Santana said. "It is an unprecedented collaboration between agencies."

The division of efforts is based on the way the governments are structured, he said.

The county's primary mission is to provide services to its neediest residents, so it maintains the infrastructure of social services, public assistance and children's services. It also receives dedicated streams of funds from the federal government.

The city government is not charged with the responsibility of providing social services, but it does have the role of helping to develop housing, partnering with non-profit developers, and making land available for development and through its land-use policies.

"It is a natural division of labor; that is why collaboration is so important," Santana said.

Los Angeles County is also building housing for the homeless, according to Los Angeles County Supervisor Sheila Kuehl.

Last year, county supervisors voted to dedicate $150 million of its $28 billion annual budget to homeless services. It continued that when it passed its fiscal year 2016-17 budget recently.

"If you think of a $28 billion budget -- $150 million doesn't sound like a lot of money," Kuehl said. "We spend almost $1 billion annually on people who are homeless, because they are indigent."

In the long run, the joint program will save the county money, because it will spend less on foster care, on incarceration and in having people in the criminal justice system, Kuehl said.

The county did a study on expenditures on homeless single adults and concluded in fiscal 2014-15 that it spent $965 million.

"If you house people who are homeless, it really helps in terms of the service you give them," she said. "They respond better to mental health services. A woman is more likely to respond well to mental health services, if she is in a home, then if she is worried about being raped as soon as the sun goes down."

It also keeps people out of jail, because sometimes people commit a crime just so they have a place to sleep, she said.

Los Angeles City Council members are still weighing whether to place a sales tax measure on the ballot, or ask voters to approve general obligation bonds or a parcel tax as a funding source.

The L.A. City Council's Homelessness and Poverty Committee has until the end of June if it wants a measure on the November ballot, Santana said.

City officials have been debating how to fund their plan to combat homelessness for months. It calls for spending $1.8 billion over the next 10 years on new housing and shelters.

That level of funding would require an additional new revenue stream either through a new tax or proceeds from a bond measure. The $60 million to $70 million in this year's budget was one-time funding.

Garcetti has commissioned a study for a potential fee on developers that according to budget analysts could generate between $38 million and $112 million a year toward that effort.

City officials have also discussed a $1 billion general obligation bond measure.

In California, local tax initiatives to pay for a specific policy or project must be approved by a two-thirds popular vote. The same would be the case if L.A. went out for a GO bond measure.

Kevin Dayton, president and chief executive officer of Labor Issues Solutions LLC and the Dayton Public Policy Institute in California cautioned against using long-term debt to tackle homelessness.

"I think they need to consider the debt service that is going to be paid each year on these bonds and figure out if it is really worth it to go ahead and bond for it," Dayton said. "If they are going to sell the bonds in smaller increments, would it make more sense to do it another way?"

He suggested city officials are looking at a bond measure because voters are more likely to approve them than a standard tax increase.

 "I still think most California voters could not tell you what a bond is," Dayton said. "That is one of the reasons that bond measures continue to pass at high levels."

The county government conducted a recent poll on possible long-term funding streams to meet the challenges of homelessness. When likely voters were asked an open-ended question about the most pressing problems facing the County, the homelessness crisis was the second most cited problem behind the economy and jobs.

The poll said 76% of likely voters would strongly support a November 2016 county ballot initiative to tax income above $1 million.

The poll also found that the presence of such homelessness measures on the November 2016 ballot would have no negative impacts on the potential transportation or parks measures, or on a statewide revenue initiative, all of which were also broadly supported by voters.

The county is seeking an amendment to state law that would authorize counties to seek voter approval to impose a local income tax to combat homelessness. Kuehl and Ridley-Thomas' motion instructs the County's state legislative team to work with leaders in Sacramento to secure that amendment in time to potentially put the measure on the ballot this November.

San Diego launched a three-year homelessness action plan called Housing First in November 2014. One aspect of the plan, which aims to provide housing solutions for some 1,500 homeless people, includes up to $30 million to support permanent housing in conjunction with a variety of financing methods including multifamily housing revenue bonds, low-income housing tax credits, state Mental Health Act funds and loans from commercial banks. The plan also includes a $17 million renovation of the historic Hotel Churchill to become 72 housing units for homeless people, a project that the city expects to complete this year.

San Diego Housing Commission president and chief executive officer Richard Gentry said San Diego has an extremely large homelessness problem because of its hospitable weather, relatively friendly political climate in matters of homelessness, and a large local military presence that attracts homeless veterans. The SDHC regularly issues bonds to deal with housing problems, Gentry said, and receives fees in proportion to how much development is going on in the city.

"Tax-exempt bond financing is one of the backbones of what we do," Gentry said. "There is a lot of development right now, so the fees are flowing. That's a godsend to us."

Early this year the San Diego City Council also unanimously approved funding for The 1,000 Homeless Veterans Initiative, authorizing SDHC to direct up to $4 million in City funds resulting from the ground lease an apartment complex and up to $3 million the sale of a hotel it owns to the initiative.

San Francisco, which has a limited amount of land to work with, is also using bonds and other sources of financing to tackle the issue. City voters approved $310 million of bonds for funding affordable housing solutions in November 2015.

A $350 million public safety and public health bond measure voters passed Tuesday included $20 million to build, acquire, and improve homeless shelters and homeless service sites.

Mayor Ed Lee supports a plan to help at least 8,000 people permanently exit homelessness by 2020, and wants to rehabilitate 30,000 homes with at least one-third available at below-market rates.

Lee's two-year budget, released May 31, includes funding for the new Department of Homelessness and Supportive Housing, which will launch on July 1st.

The department's budget will be $221 million and include 107 positions in FY 2016-17.

The Office of Community Investment, a separate legal entity under the authority of the San Francisco Board of Supervisors, proposes over the next two years to issue over $100 million in taxable housing bonds under Senate Bill 107 bonding authority to finance the delivery of over 700 affordable housing units.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.