|
Public Housing Residents Have
Historically Faced Strong
Disincentives to Work
Over the past several decades, many
public housing developments became places of high unemployment
and concentrated poverty. It is widely believed that traditional
public housing rent policies are partly to blame, since they
created a disincentive for residents to work. Under those
rules, rent was calculated as 30 percent of a family’s adjusted
income (defined as total income minus certain deductions,
or disregards). This income-based rent structure functioned
as an implicit tax: as a family’s income increased, so did
its rent. In addition, under the federal welfare system that
operated through 1996 (Aid to Families with Dependent Children,
or AFDC), residents on welfare who took jobs saw their cash
grants reduced exacerbated by the potential loss of Medicaid
coverage and increased child care costs. In short, public
housing residents who increased their earnings have historically
seen a large portion of these new earnings siphoned off by
a combination of higher rents, lost welfare benefits, and
work-related expenses.
Changes in Non-Housing Policies
During the 1990s Increased Work
Incentives — Although Rent-Related
Disincentives Remained
In the past 10 years, several changes
made to non-housing policies have increased the financial
benefit that low-income families — including public housing
residents —derive from increased earnings. In implementing
the 1996 federal welfare reform legislation, many states put
into place policies that prevent recipients from losing all
of their welfare benefits when they go to work. Moreover,
changes in Medicaid eligibility rules for adults and the inception
of the Children’s Health Insurance Program expanded the health
coverage available to low-income families, including those
leaving welfare for work. Perhaps most notably, the federal
Earned Income Tax Credit (EITC) was made far more generous,
and now provides significant financial support for working
families.
As a result of these changes, public
housing residents, like other low-income groups, can now benefit
more from going to work — if they know about and take advantage
of all the benefits available to them. Yet, a number of studies
have shown that supports like the federal child care subsidy
program and the EITC are used by fewer families than are eligible
and that many families remain unaware of them altogether.
Indeed, in a baseline survey taken of residents of Jobs-Plus
housing developments before the demonstration began, only
40 percent said that they had heard of the EITC. It is likely,
therefore, that many residents still believe that the economic
payoff from low-wage work remains marginal.
Even after taking the potential impact
of these changes into account, however, traditional rent rules
continued to act as a disincentive to employment for families
in public housing. Under some circumstances, the rules discouraged
residents from taking a full-time rather than part-time job,
from taking a job that paid higher wages, or from having a
second wage earner in the family. Moreover, the risk that
taking a job would result in higher rents remains a matter
of particular concern for public housing residents. In the
baseline survey, 46 percent of residents said they believed
that having their rent raised because of going to work full
time would create a “pretty big” or “very big” problem for
them.
New Federal Housing Legislation
Passed in 1998 Included Rent Rules
Designed to Encourage Employment
Among Public Housing Residents
Intending to transform public housing
developments into mixed-income communities with many more
working residents, Congress enacted the Quality Housing and
Work Responsibility Act (QHWRA) in 1998. Among the legislation’s
key features are the following new public housing rent policies
designed to overcome the work disincentives inherent in traditional
rent rules:
- QHWRA requires public housing
authorities to disregard 100 percent of new earnings for
one year when calculating rents for certain groups of residents,
including those who move from welfare to work.
- During the next 12 months, housing
authorities can increase rents for these groups by only
half as much as would be permitted under traditional income-based
rules.
- Housing authorities must also
offer a flat-rent option that allows residents to choose
whether to pay a rent that remains fixed at a flat rate
or a rent based on the traditional formula (that is, 30
percent of income).
- At their discretion, housing
authorities may implement such policies as establishing
lower ceiling rents (which cap how high income-based rents
can go) and creating further income disregards.
Taken together, the QHWRA rent policies
represent one of the most ambitious legislative efforts to
date to promote employment among public housing residents
by increasing their financial incentive to work.
Jobs-Plus Is Testing Incentives That
Are Consistent With the New Housing
Law — And Go Even Further
Implemented at seven public housing
developments in six cities (Baltimore, Chattanooga, Dayton,
Los Angeles, St. Paul, and Seattle),4
Jobs-Plus combines employment and training services, financial
work incentives, and a “community support for work” component
in a comprehensive intervention targeted at all working-age
residents.5 Although the creation
of Jobs-Plus preceded QHWRA by more than one year, the demonstration’s
focus on increasing employment among public housing residents
is consistent with the goals of that legislation. In addition,
the Jobs-Plus financial work incentives, which are created
primarily by changing the traditional link between income
and public housing rents, are congruous with the types of
rent incentives contained in QHWRA.
The Jobs-Plus incentives go even
further than QHWRA in their scope and generosity, placing
the demonstration at the forefront of innovation regarding
work incentives targeted at public housing residents. Because
each site’s incentives were designed through the collaboration
of residents, public housing administrators, and other neighborhood
entities to reflect local conditions, the Jobs-Plus incentives
vary considerably across the demonstration sites (Table
1). Each site’s incentives consist of one or
more of the following elements.
- Rent freeze. Rent remains fixed at its current level for a
specified period of time as long as the resident is working. A rent
freeze serves essentially as a 100 percent disregard of new earnings
and is designed to benefit families making the transition to employment
who often must absorb new work-related expenses, such as clothing and
transportation.
- Flat rents. As is the norm in the private unsubsidized rental
housing market, rent is fixed at a specified level for a period of time
and does not change as the resident’s income changes. Sites with flat-rent
incentive plans allow residents to switch to income-based rents if the
flat rent creates a financial hardship, such as might occur if the resident’s
income were to fall due to a job loss.6 At
two sites with flat rents, residents who lose their jobs are allowed
to pay minimum rents for one to three months while looking for work.
- Income-based rents calculated using a lower percentage of adjusted
income. As under traditional public housing rent rules, rent is
calculated as a percent age of adjusted income. However, this percentage
is set lower than the standard 30 percent.
- Lower ceiling rents. A complement to income-based rents, ceiling
rents place a cap on how high a family’s rent can go. Jobs-Plus sites
with ceiling rents have set them at levels lower than the housing authorities
use for their other developments.
- Incentives beyond basic rent rules. Some Jobs-Plus sites place
a portion of residents’ rent payments into escrow accounts to promote
asset accumulation, provide rent credits to reward sustained employment,
assist working residents with transportation costs, or help residents
with health coverage and child care.
How Jobs-Plus Rent Incentives
Affect Net Income
The following case studies illustrate
how rent-based incentives developed by one Jobs-Plus site,
in combination with other non-housing financial incentives
available to tenants, would affect the net income of three
prototypical resident families who pursue three common employment
scenarios. DeSoto Bass Courts in Dayton, Ohio, has implemented
an incentives plan with two flat-rent steps. In the year-long
initial step, the participating tenant’s rent is set at about
one-third of the authority-wide flat rent. In the final step,
rent increases to about half the authority-wide standard and
remains at that level for the balance of the demonstration.
The figures below compare what each of the prototypical tenants’
net monthly income7 would
be under traditional rent rules and under the Jobs-Plus second-step
rent rules. As the Dayton case studies illustrate, Jobs-Plus
rent policies increase the financial reward for housing authority
residents to work more hours and, in many cases, to take better-paying
jobs. Although the amounts differ, similar patterns hold across
the demonstration sites. Because most Jobs-Plus sites began
implementing their financial work incentives only in 2000,
the evaluation of these policies is still underway. When completed,
it will provide an important account of what it takes to put
the different strategies into operation, how residents view
and react to the alternative approaches, and how the incentives
affect residents’ employment and earnings.
Case#1: Ana is a single mother with two children. She is
currently on welfare and is considering taking a job for $6 per hour.
 Even
under traditional rent rules, both part-time and full-time work
produce a net income gain for Ana’s family — thanks in large part to the
increased generosity of the EITC and other reforms in non-housing policies
discussed above. Jobs-Plus rules, however, expand the advantage
of full-time over part-time work because rent does not increase along
with her earnings. By working full time under Jobs-Plus, Ana’s net monthly
income would be $141 (14 percent) higher than if she worked the same amount
under the traditional rules.
Enlarge
Figure
Case#2: Mary is a single mother with two children who recently
took a part-time job paying $10 per hour. She is now considering taking
a full-time job at the same wage rate.
 Under
traditional rules, Mary would realize a net income gain by taking
a part-time job. However, by taking a full-time job, she would end up
with less net income than if she worked only part time because
of a greater reduction in benefits and jump in rent. Jobs-Plus rules
correct this problem, leaving her with more net income if she works
full time rather than part time. Furthermore, she would realize $304 (32
percent) more in net monthly income than she would with the same full-time
job under traditional rules.
Enlarge
Figure
Case#3: Brenda lives with her spouse and two children.
Her spouse works full time earning $6 per hour, and the family receives
welfare and Food Stamp benefits. Brenda is considering take a job that
pays $6 hour.
 Under
traditional rules, net income for Brenda’s family would decrease if
she went to work either part time or full time. Under Jobs-Plus rules,
however, her family’s net income would increase — though only if Brenda
were to take a full-time job. In this scenario, the family’s net income
would be $398 (37 percent) higher per month than under traditional rules.
Although Brenda has a greater incentive to work full time under Jobs-Plus,
the lower rent the family would pay under the program’s incentives would
also make it easier for her or her spouse to stop working — or to work
less — without making the family any worse off than they would have been
under traditional rent rules.
Enlarge Figure
How Jobs-Plus Incentives
May Affect Housing Authority
Rent Revenues
Jobs-Plus will also yield an important
lesson about the impact of rent incentives on housing authority
revenues. Underlying the Jobs-Plus approach to public housing
rent reform is the assumption that housing authorities will
lose revenue in the short term as they reduce tenants’ rents
to encourage greater employment, but that those losses will
be recouped over the longer term as more residents go to work
(and thus pay more rent than they would have paid when not
employed). To encourage the housing authorities participating
in Jobs-Plus to experiment with new approaches, the U.S. Department
of Housing and Urban Development is compensating them for
any lost revenue caused by the rent incentives over the course
of the demonstration.8 The evaluation
will measure cumulatively how much revenue (if any) they actually
lose, which is of great importance both for housing authorities
and federal policymakers.
The Relevance of Jobs-Plus
Financial Incentives Extends
Beyond Public Housing to Other
Self-Sufficiency Efforts
Although Jobs-Plus is operating solely
in public housing developments, the demonstration’s lessons
on financial incentives can contribute to a deeper understanding
of efforts to make work pay for low-income families. For example,
the Jobs-Plus programs have introduced innovative strategies
to educate public housing residents about financial work incentives,
including an interactive Web-based income calculator that
allows users to see how different employment scenarios (varying
the hourly wage rate or the number of hours worked per week,
for example) would affect their net income when coupled with
the available benefits (such as the EITC, Food Stamps, or
child care subsidies). Promising outreach and educational
strategies for ensuring that families take advantage of these
benefits may be applicable to the welfare system and other
systems serving low-income families. Findings from Jobs-Plus
may also suggest ways in which the U.S. Department of Housing
and Urban Development’s Section 8 housing assistance program,
which currently calculates rents as 30 percent of family income,
might use financial incentives to promote employment.
Conclusion
Enhanced financial work incentives targeted
at public housing residents have the potential to increase
employment and net income and, even more broadly, to change
how families in public housing perceive the real financial
rewards of work. Future publications from the Jobs-Plus demonstration
will assess whether these ambitious goals are achieved.
Notes
1. Earlier briefs
have discussed the relationship between housing and employment
and welfare outcomes for welfare recipients (Welfare,
Housing, and Employment, May 2001), and provided an overview
of the Jobs-Plus strategies being tested and described the
communities in which they are being tried (Promoting
Employment in Public Housing Communities, November 2001).
2. This policy
brief is based on Cynthia Miller and James A. Riccio, 2002,
Making
Work Pay for Public Housing Residents: Financial-Incentive
Designs at Six Jobs-Plus Demonstration Sites, New York:
MDRC.
3. The U.S. Department
of Housing and Urban Development (HUD), The Rockefeller Foundation,
and other public and private funders listed at the end of
this document are sponsoring the demonstration, which is being
managed and evaluated by MDRC.
4. Jobs-Plus
originally included eight public housing developments in seven
cities. The Jobs-Plus site in Cleveland, Ohio, withdrew from
the demonstration due to local factors. The Seattle site is
also no longer part of the national demonstration because
the Jobs-Plus development there is being razed and rebuilt
under a federal HOPE-VI grant; however, it is continuing to
operate a modified Jobs-Plus program during the redevelopment
process.
5. For a full
description of the Jobs-Plus approach, see James A. Riccio,
1999, Mobilizing
Public Housing Communities for Work: Origins and Early Accomplishments
of the Jobs-Plus Demonstration, New
York: MDRC. A detailed analysis of inter-agency and resident
collaboration in designing and operating the program at the
local level is presented in Linda Y. Kato and James A. Riccio,
2001, Building
New Partnerships for Employment: Collaboration Among Agencies
and Public Housing Residents in the Jobs-Plus Demonstration,
New York: MDRC.
6. Jobs-Plus
sites with income-based rents have a built-in safety net for
residents who lose their jobs — as their income drops, so
does their rent.
7. These calculations
take into consideration earnings, AFDC/TANF payments, Food
Stamps, child care subsidies, the accrued monthly value of
EITC payments, child care and transportation costs, tax obligations,
and rent. Part-time employment is defined as working 20 hours
per week; full-time employment is defined as working 40 hours
per week.
8. If a participating housing
authority’s combination of rent revenues and operating subsidies for its
Jobs-Plus development is lower when rents are calculated according to
Jobs-Plus rent rules rather than traditional HUD rent rules, HUD reimburses
the housing authority for the difference.
|
