By: Tim Houchen
October 8, 2018 —
Proposition 2, which will appear on the November 6th ballot, would allow California to move forward with a program called, No Place Like Home (NPLH), and finances the development of permanent supportive housing (PSH) for people with mental illness who are chronically homeless or at-risk for chronic homelessness. Prop 2 was placed on the ballot by the legislature and Governor Brown because of a lawsuit that challenged NPLH and the plan to finance it has prevented California from implementing the program.
The state would finance the new housing using proceeds from the sale of up to $2 billion in bonds. The bonds would be repaid over several decades, with interest, using revenues from an existing state tax on millionaires proposed by Prop 63 back in 2004, the Mental Health Services Act (MHSA).
Currently, most of the proceeds from this tax, a 1% surcharge on taxpayers with annual taxable incomes of more than $1 million, pay for a broad range of mental health services that are provided by all counties within the state. If voters approve Prop 2 it would allow the state to use a portion of these revenues, up to $140 million a year, to pay off NPLH bond debt over a 30-year period.
Safe and affordable housing are key building blocks to health and well-being. Housing offers opportunities that can change lives and influence personal education, health and economic outcomes. Without safe and affordable places to live it is nearly impossible to achieve good health or one’s full potential.
Unfortunately, California’s worsening housing crisis means that many people lack access to stable housing and find themselves living on the streets. As of January 2017, more than 134,000 California residents, including both adults and children, were experiencing homelessness. This means that 34 out of every 10.000 Californians lacked a stable home, double the national rate of 17 per 10,000.
Many of those people experiencing homelessness also struggle with mental illness. About one quarter of the total estimated homeless population in California have been identified as suffering some type of severe mental illness. A sizeable share of those who are both homeless and mentally ill (half or more) also experience problems with drug and alcohol addictions and “self-medicate” in order to relieve their symptoms, according to experts.
No Place Like Home would assist people with mental illness who are homeless or at-risk of chronic homelessness by building or rehabilitating permanent supportive housing specifically for this population. Supportive housing is a highly effective strategy that combines affordable housing with intensive coordinated services to help people struggling with chronic physical and mental health issues. Supportive housing linked with “wraparound services” helps people to maintain stable housing while they receive treatment for chronic physical and mental health issues, as well as issues relating to substance abuse.
Under NPLH, the state would borrow up to $2 billion and distribute the funds to all of the counties to 1) finance the capital costs and 2) capitalize the operating reserves of permanent supportive housing. Also, counties could use other revenue sources, such as annual Prop 63 funds, to provide or coordinate services including mental health and substance abuse treatment for tenants of supportive housing developments for 20 years as required by the legislation that created NPLH in 2016.
No Place Like Home could significantly reduce the number of mentally ill people who are living on the streets. If voters approve Prop 2 in November, the state plans to award $262 million in NPLH funds each year for seven years, beginning at the end of 2018. This amount of funding could pay for the creation of “roughly 20,000 supportive housing units over the course of a decade,” with “a few thousand units” available by late 2020 or early 2021, according to the Legislative Analysts Office (LAO).
The bad news here however, is that there are well over 30,000 people in California that suffer from mental illness and are homeless meaning that even with the projected 20,000 units of supportive housing there still remains a significant shortfall of units needed to house them all. Therefore even if voters approve Prop 2, state and local leaders would still need to adopt additional policies locally to fully address the overlapping crisis of homelessness and mental health.
Issuing bonds would allow the state to quickly amass a large amount of funding (up to $2 billion) to jump-start the development of supportive housing around the state. Increasing the supply of supportive housing over a short period of time would allow counties to better focus their resources on a population that is difficult to serve and at the same time increases the potential to achieve better outcomes for this population through the provision of supportive housing combined with mental health and other supportive services.
On the downside, in selling bonds, the state would incur a debt that would have to be repaid with interest. Over time, the cost of servicing the debt would by far exceed the amount of borrowed funds. Debt service on NPLH bonds could amount to $120 million per year, assuming a 30-year debt-service schedule with a 4.2% interest rate. That amounts to a total of $3.6 billion paid over time for a $2 billion bond. Moreover, since the bond payments would be funded with Prop 63 revenues that would otherwise go to the counties, the counties would receive about $100 million less annually in Prop 63 funding that counties would use to meet the mental health needs of their residents.
It should be noted that even while counties’ annual mental health funding from the state would be reduced if voters approve Prop 2, counties could also experience savings in other public systems like jails and emergency rooms due to the expansion of supportive housing.
In 2017, the University of California, Irvine in its Cost Study of Homelessness, found that the estimated average annual cost of services per capita for PSH clients is 50% lower than for the chronically street homeless ($51,587 vs. $100,759). In consideration of the average cost per capita, it was estimated that a cost savings of approximately $42 million per year in Orange County if all of the chronically homeless were placed into PSH.
Our state’s worsening housing crisis has left more than 130,000 Californians homeless, including tens of thousands of people with severe mental illness. Prop. 2 would take a significant step toward reducing the number of people with mental illness who are living on the streets. It would do so by allowing the state to sell up to $2 billion in bonds and use the proceeds to spur the creation of permanent supportive housing (stable housing linked to services) for this population.