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California Kicks Off $2 Billion Bond Program to Fight Homelessness

Romy Varghese

(Bloomberg) -- Every day, thousands of people suffering from mental illness sleep in tents under freeways and along sidewalks in Oakland, California. In a few years, a lucky couple dozen could live in new waterfront homes among neighbors paying $7,095 a month for such amenities as quartz countertops and a pet wash station.

Their apartments will be financed through a $2 billion program known as No Place Like Home that California voters authorized last year amid a deepening crisis that’s left the state grappling with a quarter of the nation’s homeless. Officials on Tuesday will sell the first offering of $500 million of municipal bonds under the initiative aimed at providing permanent housing and assistance to those afflicted with mental illness.

“It’s not only housing, but it’s social services that are delivered,” said James Lyman, director of research for the municipal fixed-income team at Neuberger Berman. “You’re not just taking homeless people and making them invisible. You’re trying to resolve the problem.”

About 15% of the new homes at the development in Oakland’s Brooklyn Basin district -- an ambitious decade-long transformation of derelict land into a vibrant waterfront neighborhood -- will come at rents affordable to those left behind by the region’s tech-fueled boom. And of those, 26 apartments will house homeless people who will also receive treatment for their mental health issues and other ailments to prevent them from slipping back onto the streets.

“It sets a tone for the formerly homeless folks that they are in a neighborhood that’s like any other, that they’re living among working folks, sort of an implicit expectation that they too can get back on their feet,” said Matt Franklin, president and chief executive officer of MidPen Housing, the developer of the affordable housing portion near the market-rate buildings at the 64-acre site. “It’s a really healthy environment.”

Catch Up

Yet advocates worry that the public may not fully understand that homelessness is a consequence of intractable problems allowed to fester over decades: housing production falling short of growth, deepening income inequality, lower federal support and influence of parochial communities against new development. Even with the cash infusion, it will take some time and policy shifts to see dramatic progress -- and likely more and continual funding.

“Two billion dollars is a lot of money, but we’re playing catch-up. We’ve had decades of underinvestment in building affordable housing and building permanent supportive housing,” said John Maceri, chief executive officer of The People Concern, a social-services agency in Los Angeles. “These measures, they’re wonderful and they’re much needed, but they are significant down payments on what needs to be done going forward.”

Indeed, the amount of money needed to build permanent homes shows how challenging it is. MidPen will receive $5.5 million under No Place Like Home for 26 units, or about $200,000 per unit, which the developer called “critical” financing for the project it expects to complete in 2022. Treatment for mental illness, substance abuse and physical disabilities could run about $10,000 a year per person.

Alameda County, which partners with developers and provides psychiatric care and other services under the program, estimates more than 5,600 households in Oakland and elsewhere need such supportive residences. Statewide, about a quarter of the 130,000 homeless suffer from severe mental illness.

Millionaire’s Tax

California’s wealthy bankroll No Place Like Home through a tax voters authorized in 2004 on personal income above $1 million to fund mental health services. Legislators 12 years later tried to borrow against some of those collections for the program, but in the face of litigation questioning their authority to do so, put it to the voters to approve.

“There was a recognition that we used to have institutions that would care for people who were gravely disabled,” Maceri said. “Now our streets have become open air asylums.“

So far, the program has committed $509 million to disparate projects across the state to create 2,300 supportive homes for the homeless, according to bond documents. It has “definitely changed the dynamic” by giving developers and investors an incentive to serve a community that they generally didn’t target before, said Robert Ratner, housing services director at Alameda County Behavioral Health. Still, he compares the amount of potential aid that may flow to the county to a “drop in the bucket” for what’s needed.

Homelessness costs the public in ways that aren’t broken out as clearly as a line on a tax bill, by straining resources from agencies ranging from police to public works, MidPen’s Franklin said. For instance, Santa Clara County estimated that dealing with the impacts of homelessness -- not the direct services -- cost it $520 million annually from 2007 to 2012, and almost half of that was due to just 5% of the homeless population.

“We have solutions,” Franklin said. “They do require a significant upfront investment. But they more than pay for themselves.”

To contact the reporter on this story: Romy Varghese in San Francisco at rvarghese8@bloomberg.net

To contact the editors responsible for this story: Elizabeth Campbell at ecampbell14@bloomberg.net, Michael B. Marois, William Selway

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