Sacramento’s affordable housing trust fund is a bust

Rob Kerth remembers the surreal feeling that followed the destruction.

It was a grimy afternoon in the 1990s. Then-Councilman Kerth was fighting a losing battle to keep his North Sacramento district from sliding further into blight. Standing on Harris Avenue, Kerth watched as the city crews working for him obliterated six condemned houses.

“It was hot, and the wind was blowing, and dust and debris were just swirling through the air: It looked like a scene from The Twilight Zone,” Kerth recalled. “Those six houses that were torn down that day were part of 600 homes demolished in my district during the time I was on the city council.”

More than 18 years after Kerth witnessed the razing, Sacramento’s Habitat for Humanity built six new dwellings on the same street. For Kerth, it was a sign. He’s now working as the group’s CEO, leading a charge against the housing insecurity that hangs like a cloud over countless families in Sacramento.

But his challenges are legion.

According to the California Housing Partnership Corporation, a housing policy research group, the county needs more than 59,000 affordable rental homes to effectively house the region’s lowest-income residents. The same report shows the region’s lowest income families are now spending 62 percent of their earnings on housing costs alone. Paths to rising out of homelessness are even fewer.

Housing advocates predicted this would happen back in 2014, when they implored city and county leaders not to weaken policies for building affordable units—a dual approach heralded as a gold standard by many experts. Back then, developers were required to set aside a certain amount of their projects to build homes for working-class residents and those living paycheck to paycheck. Despite universal opposition from groups representing the marginalized, officials swapped out their policies for a low-bottom tax on developers that represents local government’s only avenue to creating affordable homes.

According to an SN&R analysis of the data, the experiment has been a documented failure.

The dust-up in 2014 centered on whether the city and county would quit making developers slate 15 percent of any residential project as affordable units. Despite protests, both jurisdictions switched their mandates from project-percentages to modest fees charged per square foot, with the money tucked away in funds aimed at assisting low-income developments built with federal and state grants.

Sacramento County now tells builders to simply shell out $2.61 per square foot for its fund. Ditto for the city of Sacramento, at $2.58 per square foot.

Advocacy groups warned two years ago that dropping the hardwired decrees to build affordable housing would limit real dwellings going up in exchange for theoretical ones in the future.

“I encourage you to take a good look at what you’re throwing away,” Russell Rawlings, a disability rights activist and recipient of subsidized housing, warned supervisors in January 2014.

Moreover, developers lobbied hard to pay as little fees as possible. Darryl Rutherford, executive director of the Sacramento Housing Alliance nonprofit, cites an internal study indicating developers would need to contribute between $9 and $12 per square foot to keep pace with the level of housing built under the previous 15 percent rule. When Rutherford showed up to county meetings about the change, the fee some developers wanted the supervisors to pass jarred him.

“There were people from the development community who were trying to draw a line in the sand at $1 per square foot,” Rutherford recalled. “Our organization drew its own line in the sand at $9 per square foot. We were hoping that the compromise elected officials passed would at least be somewhere in between, like, at $4.50 or $5. Instead, it ended up being half of that.”

District 5 Supervisor Don Nottoli also believes the fee the county switched to was too low. “I thought it wasn’t enough to achieve the housing we need,” said Notolli, among the only politicians in the region to vote against the move.

The conclusions he and Rutherford came to independently now appear prescient.

In an interview with SN&R, officials from the Sacramento Housing and Redevelopment Agency, or SHRA, said its housing ordinance trust fund helped create 482 affordable units during the nine years the county made builders follow the 15 percent rule. That means the fund assisted in building roughly 54 low-income units a year. Since county leaders switched to a fee only, the same fund has helped build roughly 24 units a year, representing a 55.6 percent plunge in affordable housing for the unincorporated county.

SHRA Assistant Director of Finance Christine Weichert said all 48 units built between 2014 and 2015 were part of the Arbor Creek Family Apartments on Elk Grove Florin Road near the edge of Sheldon.

“When you look at the figures around the fund now, the question is, ’What does that really help us with?’” Nottoli said.

But some action is better than no action, which is what the city of Sacramento has achieved since changing its percentage requirement to a fee.

Between 2000 and mid-2015, the city’s 15 percent requirement caused 1,559 affordable units to rise, according to SHRA records. But since it was enacted in 2015, officials from the city of Sacramento’s Community Development Department acknowledge that the replacement fee hasn’t resulted in any new affordable housing units.

That is: zero.

“We haven’t collected enough funds from the residential side,” explained Greg Sandlund, an associate planner with the city. “One reason is that the housing market has been slower than we’d hoped when our approach was changed … and the fact that new subdivisions that were already approved were exempted from paying it, because those projects hadn’t been developed with the fee in their budgets.”

Sandlund added, “When we have money, we’ll use it.”

Rutherford doesn’t dispute that residential construction is at a standstill in the city, though he strongly disagrees with Sandlund’s predictions about how much revenue the new model can net in the future.

“The bottom line is they need to get that fee up,” Rutherford stressed.

It’s unlikely that will happen. Sandlund said his staff remained confident the fee-based approach would make more money over time.

To make matters a little more confusing, both the city and county have alternative affordable housing trust funds that collect fees from commercial developers, which have existed since 1989 and 1990, respectively. But according to SHRA’s annual reports for 2015, those funds have also lost momentum.

Sacramento County officials say their nonresidential building fund collected $42.8 million between its inception and 2014, netting on average $1.8 million a year. The SHRA report notes the same fund landed only $488,039 in 2015 between fees and interest.

Similarly, SHRA’s own reporting indicates that last year, the city’s version of the nonresidential fund lost roughly $464,290 from its annual average intake of $1.4 million.

Regardless of the type of construction happening in the last two years, SHRA has a withered muscle to flex when it comes to housing Sacramento’s working class families.

It’s a searing summer day in North Sacramento as Kerth inspects the newest Habitat for Humanity house being hammered together at the corner of Calvados Avenue and Fairfield Street.

From this sector of the city—Kerth’s childhood neighborhood—all the way south to Florin Road, Habitat has been making home ownership a reality for hardworking Sacramentans priced out of the market. A few streets away from where he stands is the home his organization built for a single mother who works as a medical technician. Before Habitat stepped in, she was living in a garage with her children after her husband was killed in a random act of violence.

Stories like that are rarely told, but Kerth and his Habitat team know them well.

They also know that helping similar people is about to get harder now that Habitat just lost the bond revenue from the Housing and Emergency Shelter Trust Fund Act of 2006, which expired this year. The organization is now staring at a $75,000 budget shortfall for every single affordable house it builds.

That’s where the strength of the city’s affordable housing trust fund matters. Sacramento officials have agreed to give some of its money to Habitat. For the moment, Kerth said, the allotment will be $10,000 toward each house—about 5 percent of the cost for an individual project.

“It’s a piece of the puzzle,” Kerth told SN&R. “We raise money, and when we get to $200,000, we build the next house. Five percent is more than a little bit.”

And it’s less than a lot.

With less money coming into the city and county housing trust funds, and developers no longer being required to integrate affordable homes into their projects, Sacramento is quickly accelerating out of range for the very people that made it one of the most diverse places to call home.

As groups like Habitat work to fill the affordable housing gap, low- and medium-income families are getting no reprieve from Sacramento’s rental landscape. A report from RentRange, a rental market intelligence firm, suggested that in 2015 Sacramento had the second highest year-to-year rent increase in the nation.

Nottoli stresses that options for people falling into the “extremely low income” category are even fewer, since the revised housing policies no longer account for these residents whatsoever. According to the U.S. Department of Housing and Urban Development, the term applies to people earning 30 percent or below the area’s median income. In Sacramento, that translates into a family of four with a combined income of $24,300 a year.

“The extremely low income houses were a concern for me when [the county’s trust fund] changed,” Notolli said. “There was no provision for that in the new ordinance.”

The latest numbers from Sacramento Steps Forward, the main public-private partnership for housing the region’s homeless, supports that concern: Of the nearly 3,500 homeless people that Steps Forward has assessed for housing services over an 18-month period, ending in June, only 6 percent—approximately 209—were actually placed indoors, whether through temporary rapid rehousing assistance or permanent housing support.

“I don’t think anybody would say we have enough housing for everyone who wants a house free of charge,” said Sacramento City Councilman Larry Carr, who represents District 8.

In some cases, the wait for affordable housing stretches more than two years, said Bob Erlenbusch, executive director of the Sacramento Regional Coalition to End Homelessness.

“I mean, they’re trying their best,” Erlenbusch said of Steps Forward. “You can have all the [homeless outreach] navigators in the world, but if you don’t have anywhere to navigate them to …”

He doesn’t complete the thought.