Unsustainable Sustainability Strategy: Tax, Subsidize, and Build

The Projected New Normal

On September 29, 2017, California Governor Jerry Brown gifted California residents with yet another package of taxes and regulations by signing 15 bills intended to mitigate the state’s housing-affordability crisis.  The Governor, as well as legislators who passed the bills, all made clear this was only a start.  Hence forward, Californians must expect a steady stream of affordable housing funding proposals and mandates to ensure that every community meets its Regional Housing Needs Allocation numbers.  A new steering committee, the CASA Steering Committee -- whose slogan is Production, Preservation and Protection – is tasked with making tax, subsidize, and build the “new normal.”

The Bay Area is an epicenter of unaffordability, and it appears leaders in the region’s major cities are on board with the state’s tax, subsidize, and build plan – either because they are true believers or because they fear loss of state transportation funds if housing goals are not met.

The Perils

As an aside, it should be noted that California is among states that enjoy the following distinctions,

*   highest taxes
*   highest priced real estate
*   highest unsheltered homeless population
*   highest state debt per capita, not even counting unfunded pension liabilities.
*   most regulated
*   declining net in/out migration per 1,000 residents

It also should be noted that the states’ cities and counties have their own debt and pension liabilities woes.  They also have challenges associated with poor quality schools and crime.  

At some point, the costs associated with high taxation, micromanagement, bureaucratic expansion, and crowding will outpace the benefits of subsidies.  Add to the costs project labor agreements, diversity-tracking paper work, disgruntled residents demanding control over their neighborhoods, and we get perilously closer to the tipping point.

Although the combination of all these variables have the makings of a perfect storm, especially in the high-cost Bay Area, as a rule, once so much time and treasure is invested in a strategy such as the tax, subsidize, and build plan, it is difficult to change course.  No one sees an alternative to getting on board.

Comments of participants during the CASA Steering Committee meeting of September 27, 2017, provided good examples of the one-track option gripping the Bay Area.  Here are samples.

Steve Heminger, Executive Director of MTC, declared housing planning and construction are on a new track, and some “sacred cows” will need to be discarded.

Jake McKenzie, President of MTC, indicated a need for “different taxation structures” to finance housing needs.

Scott Wiener, CA Senator, said the 15 housing bills, including his SB 35 containing the gas tax, were a first step, a “healthy down payment.”

Ed Lee, Mayor of San Francisco, declared that plenty of affordable [subsidized] housing is the only solution to ensure that people who work in the City, including first responders, also live in the City.

Libby Schaaf, Mayor of Oakland, indicated her hope for bold action.  She noted the predicament of people who would like to move but fear not being able to find anything they can afford.

Bob Alvarado, Executive Officer of Nor Cal Carpenters Regional Council, expressed perhaps the most direct comments. He noted that in the past, builders produced a lot of track housing in bedroom communities; since that is no longer possible, new ways to build need to be found.  He added that there is push back on taxes, so there needs to be impetus for voters to vote in favor of more taxes; a lot of money is already spent on promoting bond and local measures.

Failing On All Fronts, but No Plan B

Steve Heminger opened the CASA meeting mentioned above by saying that in the current housing affordability plan, "We are failing on all fronts."  However, there is no Plan B. 

The tax, subsidize and build mind set is the "new normal."  It will continue to be promoted to the voting public. Advocates of the current plan will continue to be the only ones welcomed at the MTC/CASA table.  Hopefully, those who take the possibility of a perfect storm seriously will also take action by pushing back and suggesting alternative plans.