How to Pay For the Los Angeles Homeless Strategy

A couple weeks ago I summarized one section of the City of Los Angeles' Comprehensive Homeless Strategy, and just a few days ago it was adopted by City Council. The question that's now on everyone's mind is how to pay for the $1.9 billion in recommended expenditures, most of which is for leasing and building permanent supportive housing.

The answer to that question is: coordination. 

Expenditures on services for homeless individuals in LA County, FY 14-15 [report].

The City already spends about $100 million of its own funds on homelessness each year, but almost all of that spending goes to LAPD enforcement activities in places like Skid Row, not the homes or shelters that are so sorely needed. The County pays far more: nearly $1 billion, with $580 million spent on health- and mental health-related services, $294 million on social services like cash benefits and food stamps, and $92 million on law enforcement. (The County report starts on page 160.)

If we cut our spending on enforcement in half, and did the same for health services, the City and County could save nearly $400 million a year. And before anyone jumps the gun on this proposal, I'm not suggesting we just cut these programs and call it a day. But what we can do is begin spending the money required to reduce homelessness, and backfill those costs with savings on law enforcement and exorbitant health care spending that is largely a product of people living in dangerous, unstable conditions. The County says that the homeless residents in the top 5 percent of public expenditures cost over $50,000 per year, each, so there's a huge fiscal benefit to focusing on the most high-risk individuals first, to say nothing of the moral imperative. 

LA County has also already agreed to set aside $100 million per year for affordable housing to address homelessness, so we're at $500 million per year.

The City is home to roughly half of the County's homeless residents, so lets assume that to address the needs of homeless residents throughout LA County would require double the spending recommended by the City—about $3.8 billion. This roughly sketched out plan could raise nearly $5 billion over a 10-year period, enough to subsidize the construction of 33,000 to 50,000 permanent supportive homes (assuming $100,000 to $150,000 in local subsidies per unit). The upper end of that range is actually greater than the number of homeless individuals and families in the County, and many homeless people don't require such intensive support. Realistically we would only need to divert this money until homelessness was effectively abolished (no big deal right?), so it could take less than 10 years.

New Pershing Apartments, a supportive housing development in Downtown LA. Image from National Equity Fund, Inc.

After that 10 years (or less) is up, and we have a bunch of housing built and homelessness is relegated to a mostly intermittent malady—rather than chronic one—our City and County general funds have a few hundred million dollars to spend on things like infrastructure, education, or whatever else we can dream up. Or we could just keep building affordable housing, albeit with no more money coming from the Medi-Cal coffers.

The major road block to this plan is getting those health services costs reimbursed. They're not actually County funds—the County provides the services, but they're ultimately reimbursed by Medi-Cal (aka, the state of California). As it stands, I'm pretty sure that Medi-Cal will not reimburse the City or County for constructing housing for homeless residents, even if it's less expensive than treating them for problems that arise primarily from living on the street. We need to convince the state, and probably the federal government, that it's in their interest to change this. We're already spending the money, we just need to align everyone's incentives to make sure it's being spent right.