State Senators Consider Modest Support for Renters — and Acknowledge the Need for a Bigger Look

The challenge of severe housing un-affordability looms over California. The average cost of a home here has grown to two-and-a-half times the national average, and the average monthly rent in California is now 50 percent higher than the national average.

California homeowners receive billions of dollars in state and federal aid in the form of tax expenditures like the mortgage interest deduction, property tax deduction, and capital gains exclusion on primary residences — the three of which combined for $8.5 billion in lost state revenue in 2012 alone. Meanwhile, renters received just $110 million in tax benefits through California’s Renters’ Credit in 2012 — a tiny fraction of the amount received by homeowners — and if you include the Low-Income Housing Tax Credit, which only directly benefits renters who manage to find housing in a development that received the credit, renters got another $33 million in state aid in 2012. Only about one-quarter of low-income households in California live in subsidized affordable housing or receive housing vouchers.

Two bills, one in the Senate and one in the Assembly, seek to give some small additional relief to California renters — but could be better designed to target aid to those who need help the most.

Senate Bill 1103 (Cannella), heard yesterday in the Senate Governance and Finance Committee, would increase the value of the state’s Renters’ Credit from $60 to $100 for individual taxpayers earning up to $38,259 in adjusted gross income. (The credit would increase from $120 to $200 for married couples earning up to $76,518.) The income eligibility limits for the credit would continue to be adjusted for inflation annually.

Similarly, but going a bit further, Assembly Bill 2694 (Lackey) would double the value of the credit to $120 for individuals and $240 for married couples. AB 2694 would also boost the income limits to $50,000 for individuals and $100,000 for married couples. The income limits would also continue to be adjusted for inflation annually.

However, neither of these bills would address the fundamental shortcoming of the Renters’ Credit, which is that the credit is nonrefundable. This means that if the credit reduces an individual or family’s tax liability to below zero, they don’t benefit from the balance of the credit. As a result, the Californians who most need help covering the state’s staggering housing costs — which can eat up two-thirds of income for families in the lowest quarter of households — don’t receive any relief from the Renters’ Credit. Making the credit refundable, like the state’s new Earned Income Tax Credit, would mean that individuals and families could receive any balance of tax credit value back in the form of a tax refund payment. When Senator Beall raised this point during the hearing, Senator Cannella agreed that making the credit refundable would be an improvement, but worried that higher costs might doom the bill to failure.

Furthermore, the way AB 2694 gives the income caps another bump up beyond the annual inflation adjustment grows the cost of the Renters’ Credit and does so in a poorly targeted way: more people higher on the income scale would be eligible and benefit from the credit rather than more people lower on the income scale. Policymakers would do better to target that increased spending on the Renters’ Credit toward people who need the help most — such as by making it refundable.

Finally, as noted by the Senate Committee on Governance and Finance, while the income limits are adjusted annually for inflation, the amount of the credit is not. This means that the Renter’s Credit has lost value over time. Even with a one-time increase from SB 1103 or AB 2694, the credit would resume falling behind as time went on. Indexing the value of the credit to inflation would help it to keep up with housing costs over time. Of course, this would also mean that the cost of the credit would grow with the cost of living as well.

Arguably, California needs much bigger action at both the state and local levels to address its ballooning housing affordability problem. As Senator Moorlach raised with regards to the Renter’s Credit and SB 1103, “It seems so de minimus, and I’m just wondering why it’s there and why can’t we even raise it more?” And a moment later in response to Senator Hertzberg’s observations on the disparate treatment of homeowners and renters, and rapidly rising rents, “[…] the Senator touches on something where maybe we need to take a bigger look at what we’re doing here instead of throwing a bone.”

Still, it is good to see lawmakers paying some attention to the needs of the growing population of renters, as renters’ and homeowners’ fortunes diverge. As policymakers seek solutions, they should make sure to keep in mind those most in need. Senator Cannella made the point well in closing, “It is nominal, but to a person that’s poor, every bit helps.”

— William Chen