Summary
Poverty remains one of the most intractable problems to deal with, both in the international community and in the United States. Poverty presents both socio-economic and political threats since it can seriously destabilize the domestic and – indirectly – international political situation. Acute problems of social inequalities have the potential to induce a rise in tension levels in society and increase crime and mortality rates, which potentially leads to an increase in social costs and economic instability. Within an integrated approach, poverty is measured and interpreted as the absence or extremely limited access to resources that determine the quality of life of an individual. Nowadays, low incomes and stagnant wages are one of the main reasons millions of American tenants are struggling in the face of rising prices – especially renting prices.
In 2017, Public Broadcasting Service (PBS) and National Public Radio (NPC) released a journalistic investigation regarding the issue of the lack of affordable housing for low-income people. The documentary targeted specifically the Low-Income Housing Tax Credit policy, which is a federal program for investors that provides a reduction in their federal tax liability if they provide the funding for building affordable houses. Moreover, the film also elaborates on the multimillion fraud cases in the public housing development industry. The political issues of corruption and the decrease in the affordable housing industry are crucial to the investigation.
Problem Background
The problems of poverty and social inequality arose at the dawn of the American state, and, throughout history, the government has sought to solve this problem in various ways. In 1964, U.S. President Lyndon Johnson proclaimed the start of an “uncompromising war on poverty”. He presented initiatives for the improvement of education and health care systems and the labor market and provided low-income people with access to the country’s economic resources. Much later, further steps to improve the situation and ensure the economic security of the U.S. to prevent working Americans from falling below the poverty line during the global economic crisis were taken by Obama’s administration. However, the war on poverty turned out to be quite costly for the country.
Stated Policy Goal
The goal of the Low-Income Housing Tax Credit (LIHTC) program is to provide subsidies for the construction of houses that will be affordable for low- and moderate-income people. As the government gives tax credits to the local authorities, state housing agencies then distribute them between independent developers who would build affordable housing projects. The developers cooperate with investors to whom they sell these credits in order to obtain the needed funding. When a funded project is ready to be rented, the investors turn to the LIHTC for a dollar-for-dollar reduction in their taxes.
The policymakers state that the program was designed to address the disparities between the amount of affordable housing and the population’s demand for it. This goal is achieved with the help of developers who specifically construct affordable housing projects in areas with low median income.
List and Explanation of Criteria for Analysis
The first criterion of efficiency is the timely achievement of strategic performance. In the absence of forecast indicators, or in the case of their regular adjustment, the proper measurement of policy’s efficiency is not possible. For example, Sullivan et al. (2017, May 9) explain that “from 1997 through 2014, the number of units produced has fallen to less than 59,000, but the program is costing taxpayers 66 percent more in tax credits” (28:09 – 28:24).
Thus, the next criterion would be the amount of time spent on the implementation of the policy, while also taking into account the vertical hierarchy of government’s levels and the horizontal specialization of its spheres. As the final criterion, it is advisable to single out the targeted spending of budgetary funds. It implies minimizing corruption and shadow practices of the illegal redistribution of state money in the form of rent to officials and businessmen. Such as Sullivan et al. (2017, May 9) state that “investigators discovered the two companies – Florida Housing and Carlisle development – stole $34 million from 14 projects” (34:21 – 34:36). Within these criteria, the analysis of the alternatives would remain objective and provide the needed data.
Development of Alternatives
There are three methods to achieve the LIHTC goal of providing the U.S. population with affordable housing. The first one is to critically review the existing regulations of the program to pinpoint and improve the exact weak spots that make the policy subject to fraud using third parties. The next method would require making crucial changes in the policy after critically reviewing it. For example, in the the case of LIHTC, the government could avoid including state housing agencies and use the local authorities to directly distribute the tax credits to the independent developers. Lastly, the third method would call for changes in the competition system – the government could establish more strict rules for entering the developers’ competition. For example, it could make a full financial and legal audit prior to entering the competition mandatory.
Identification of Stakeholders
The most important stakeholders of the policy are, of course, the tenants who suffer from the lack of affordable housing. Yu et al. (2021) state that “racial residential segregation and income inequality, of metropolitan areas in the United States, have contributed to health-compromising conditions; moreover, these two features, when combined, may be particularly lethal” (p. 18). In addition to that, the federal government of the U.S. is obviously one of the instances that have a high interest in the increase in the affordable housing industry. The investors also belong to the stakeholders of this policy, as for them, the LIHTC program proves to be quite valuable in terms of tax reduction. Finally, the independent developers, too, belong to the stakeholders of the program, which provides them with both the funding and the projects – they directly represent the special interest of the policy.
Analyzing the Alternatives with Criteria
Policy Recommendations
Based on the analysis of the alternatives, it can be concluded that the first method – the use of third parties – would be the safest and most prolific way to adjust the policy. Due to this method, a thorough analysis of both the policy and the industry of affordable housing would be conducted by independent, unbiased agencies. McClure (2017) supplies that “the program should exercise greater rigor in market analysis so that new units are added only in tight markets and deteriorated units are rehabilitated elsewhere” (p. 65). Moreover, the third parties would also implement the needed changes, which would allow lowering the potential of corruption.
Discussion of Public Interest
In High Cost of Inequality, Reshma Kapadia explores the consequences that the income and wealth disparity brought to the U.S. economy. According to the statistics Kapadia (2020) provides, “the top 1% of earners now account for a fifth of total income in the U.S., while the bottom half of earners account for just 13% of total income” (p. 23). The impact such a gap brings is immense: the market mostly ignores the problem with wealth distribution, further widening the gorge. Moreover, the average and low-income families experience severe difficulties surviving during a crisis such as a coronavirus pandemic. Thus, the policy revolves closely around the public interest and wellbeing. Among the experts for the film who has taken an interest in the issue of affordable housing frauds, are Michael Sherwin – a federal prosecutor from Southern Florida – and the Republican Senator from Iowa Charles Grassley. Both had investigated the program for its legal weaknesses.
References
Kapadia, R. (2020). The High Cost of Inequality. Barron’s, 21–26.
McClure, K. (2018). What should be the future of the low-income housing tax credit program? Housing Policy Debate, 29(1), 65–81. Web.
Sullivan, L., Young, R., Schwarz, E., & Kramer, F. (2017). Poverty, Politics and Profit. PBS. Public Broadcasting Service. Web.
Yu, Q., Salvador, C. E., Melani, I., Berg, M. K., Neblett, E. W., & Kitayama, S. (2021). Racial residential segregation and economic Disparity Jointly exacerbate COVID‐19 fatality in large American cities. Annals of the New York Academy of Sciences, 1494(1), 18–30. Web.