A HOUSE of CARDS

DOWNLOADING NON-PROFIT HOUSING
TO THE MUNICIPALITIES

KINGSTON PRESENTATION TO THE
ONTARIO PROVINCIAL LIBERAL CAUCUS COMMITTEE

February 14, 1997

We are appearing here today to express our grave concern to the Liberal Caucus Committee about devolution: both the federal intention to download or devolve community-based non-profit housing to the provinces, and the Ontario government's intention to devolve responsibility for non-profit housing to the municipalities, including the federal government's current housing component.

WHO IS AFFECTED: In Kingston, more than 3,500 households and 8,000 people will be directly affected by this combined abandonment of housing responsibility. The direct and indirect effects on local governance and administration, taxation, property values, and the quality of life will be felt throughout our community.

WHAT IS HAPPENING

FEDERAL PLANS:

The federal government is planning to devolve responsibility for housing to the provinces, including funding and administration for a wide array of federal and joint federal-provincial programs for community-based housing. The federal government is heavily involved in non-profit housing in Ontario; it funds, for example, 70% of the co-ops.

PROVINCIAL PLANS:

The Ontario government wants "to get out of the housing business". This means that they not only want to download to the municipalities, but they also want to stop funding non-profit housing which they see as unnecessary and expensive.

According to a leaked Cabinet document, the Ontario government intends to take over federal responsibility for housing. It then intends to redesign all programs before turning them over to the municipalities along with the province's own (redesigned?) programs. The provincial government told the Co-operative Housing Federation of Canada (CHF) before Christmas that, if necessary, they will pass a law to strip co-operatives and non-profits of their rights in order to redesign those programs. The co-operatives and non-profits will have no say in this matter.

The province has already unilaterally broken building and housing subsidy contracts and is being sued for it.

THE CONDITIONS UNDERLYING OUR CONCERNS

Given the intention of the province "to get out of the housing business", the federal government is, in effect, devolving co-operatives and non-profits to their executioner. We know from consultations that the federal government has no enforcement plan to guarantee the conditions of their housing partnership contracts after devolution. They also refuse to consider any plan other than devolvement based on block funding for housing to the province. For example, the federal government has refused to honour a budget promise to co-operatives to negotiate with the province CHF's plan for third-party administration of federally funded co-operatives, a plan that saves the government $5 million a year and releases them from co-op administration. The Ontario Non-Profit Housing Association (ONPHA) has presented a similar proposal for non-profits based on the CHF plan.

Non-profits, as their name implies, operate with very slim margins for managerial error. A significant loss of revenue or increased expense can quickly make a non-profit unviable. A number of programs formerly self-supporting over the life of the mortgage may well be unviable after provincial redesigning which, based on recent Conservative government history, will almost certainly involve funding cuts.

• The administration of non-profit housing - given the many different missions and tenant/client/member bases - is complex and tailored to specific programs.
• The municipalities have neither the money or administrative expertise to deal with the many different types of housing that exist, their modes of operation, their financial needs and now diminished resources.
• Even if federal devolution does not occur, many co-operatives and non-profits receive provincial funding for geared-to-income subsidy and/or parts of their developments, which makes them extremely vulnerable to provincial manipulation.

SCENARIO

Given these conditions non-profits and co-operatives can foresee the following scenarios:

• The federal government downloads housing to the province without binding guarantees for their partnership contracts with community-based housing.
• The province 'redesigns' the federal programs by gutting the contracts and handing the developments over to the municipalities to fund from the property tax.
• In this scenario the non-profit homes pay a heavy price.
• The municipalities create one big housing agency, a mini-provincial bureaucracy to deal with the problems or they attempt to deal with all housing in the same way on the cheap. Either way, the result, and especially the turnover phase, is costly and chaotic.

Loss of Independence and Mission: Administratively homogenized, and with reduced funding, non-profits will lose much of their ability and flexibility to redress the specific housing market need they were set up to address.

Effect on property taxes: The municipalities must now fund non-profit housing from property taxes.

• The costs will be greater than anticipated: For example, because of downloading and administration costs, the cost to municipalities is actually greater than the total cost of the original provincial and federal programs.
• A portion of formerly provincially owned public housing, and elements of municipally owned housing, have not been properly funded or maintained - the municipality inherits these built-in, off-loaded cost problems with no prospect of provincial bail-out.

Tax dollar competition will tend to lead a viscious funding cut cycle. Non-profit housing must now compete with traditional municipal priorities such as roads, sewers, fire, police and snow removal for local tax dollars. There is political resistance to funding so- called 'subsidized' housing despite the fact that all housing in Ontario is massively subsidized (see below).

These political and financial conditions will tend to initiate a vicious cycle of cuts in funding occasioned by inappropriate competition for municipal dollars - which are already in short supply. In such a competition, non-profit housing will tend to lose funding. Property taxes tend to rise anyway, but not enough in terms of non-profit housing budgets to cover necessary, especially mid-to-long term, costs. This process will tend to slowly bleed the non-profits to death.

A further recession occurs: demand for non-profit services (shelter; rent supplement) rise; municipal budgets freeze or constrict as home owners demand property tax control; non-profits and their clients/tenants/members suffer. With relative funding shortfalls, physical infrastructure will tend to deteriorate, maintenance standards fall, occupancy and arrears problems will increase, social and recreation dollars will dwindle, and community connections will begin to fray. This will tend to lead to a higher levels of community depression, apathy, social tension, vandalism and crime - all of which will feed in on themselves, worsening the conditions, the causes and the results. NIMBYism becomes an issue. It will become cyclically more difficult to obtain adequate funding for a declining asset. As its property values of non-profits tend to fall, property values around them tend to fall in tandem. Social costs in policing and social services tend to rise.

How do we know about this deterioration scenario? Because we have seen the results of this kind government neglect and downloading in Britain and the United States under similar political regimes.

In a worst case scenario, non-profits - stretched to breaking between increasing costs and relatively falling funding - are forced into mortgage default with consequent upheaval for banks, tenants, members, suppliers and municipalities alike - with bankruptcies, tax hikes and evictions. The mortgage liability may fall initially onto the federal government through Canada Mortgage and Housing Corporation (CMHC) mortgage insurance. However, ironically, where CMHC has bilateral funding agreements with the province, the province is by agreement liable for the defaulted mortgages - unless, of course, under the province's current proposal, the municipalities end up being liable, setting the stage for further municipal financial instability.

OR

The federal government downloads housing to the province with binding guarantees for their partnership contracts with community-based housing.

In this scenario, for the majority of non-profit housing the previous deterioration scenario still holds except that certain federal non-profits will have maintained their agreements. Those non-profits will have a tied commitment - inherited from the federal government - which the municipality would have to honour, regardless of other commitments. This may cause political tensions, but would save some homes from the vicious cycle.

However, it should be realized that it is quite possible that federal guarantees for partnership contracts will be impossible to enforce if provincial downloading occurs.

This is because, while the federal government may download programs and money to the province, if it is municipalities that are responsible for funding housing in Ontario, then there will be no funding connection between the federal government and the municipalities - the bucks will simply stop at the provincial level. With no funding connection, neither the province nor the municipalities will be inclined to listen to the federal government. The federal government will have no funding means or 'stick' to ensure program compliance (as we have started to see in the health field).

As a result, there will be no meaningful accountability for federal housing transfer expenditures.

The federal non-profits - the homes of very real people - will be at the mercy of a capricious and inadequate municipal tax system.

For similar reasons, the province's reassurances that it will set standards for non-profit housing ring hollow. Over time the province will not have any more funding 'pull' than the federal government. Even now the province appears to be willing to negotiate a social policy 'say' with the Association of Municipalities of Ontario (AMO) regarding welfare. The prospect of housing policy reverting to municipal control is frightening to non-profits, who have seen first hand the effects of NIMBYism.

The Effects on Tenants/Clients/Members:

• Non-profits are significant property tax payers; their property taxes will undoubtedly rise, while, ironically, their funding will tend to fall.
• Non-profit services will tend to be diminished - both within the organization and with regard to what the non-profit can do for the municipality.
• Non-profit homes will tend to be caught by a whiplash effect caused by multiple diminishing resources - not only for their own service, but for those services their low to-middle income members and tenants tend to use which will also tend to be diminished, For example, under municipal control, social assistance rates will tend to stagnate or fall, useless demeaning workfare programs may be implemented, daycare will be threatened. The loss of these services, and the effect on people and their children, will cause a decline in the quality of non-profit life and increase the difficulties of management.
• Rent controls are lifted - so affordable and/or appropriate housing opportunities will tend to decline, just as non-profit quality also is tending to decline.

WHAT DO WE WANT?

• Liberal MPPs to vigorously oppose the downloading of the federal housing component to the province by lobbying the federal government. Federal downloading will simply make a bad situation worse for everyone concerned: the non-profits, municipalities and even the province (why does the province want federal housing, if it wants "out of the housing business"? Unless it means to simply 'skim' the federal contribution?)
• Liberal MPPs to vigorously oppose the downloading of non-profit housing to municipalities. Non-profit housing is a form of income support program and, as such, should be funded from provincial income taxes, not property taxes.
• If provincial devolvement to the municipalities takes place, Liberal MPPs to ensure that non-profits remain viable entities in a municipal structure.

OUTSTANDING ISSUES

1. Independence:

(A) Non-profits are owned by private corporations. How will their independence be ensured? How will the legal ramifications be handled?

(B) Non-profits gain efficiencies by being focused on their client/tenant/member base and utilizing volunteer labour and expertise. If they are subsumed in a greater bureaucracy, with a consequent loss of control, how will these efficiencies be maintained?

2. Mortgage services and pooling: Currently, the province/CMHC provide these services which, because of economies of scale, allow for very significant savings in mortgage costs - and, by extension, mortgage and housing subsidy costs - for everyone concerned. How will these savings be continued with municipal control or involvement?

3. Reserves: Non-profits generally have reserves to cover future major costs - without which they are not viable. Will these reserves be protected under devolvement? Please note that public housing does not have any reserves of its own - and dependent upon the province for major expenditures. Will the province or the municipalities be responsible for the cost of covering these liabilities?

4. If there is no non-profit housing program - what measures will government take to ensure that there is affordable, appropriate and decent housing available to low and middle income people in a time of falling real wages, no rent controls and poor employment prospects?

Prepared for Kingston Non-Profit Housing Providers by: Rob Hutchison, Kingston Co-operative Homes, Inc.; David Jackson, Community ServicesNet; Bob McDonald, Kingston Co-operative Homes, Inc.; Joan Simeon, Lois Miller Co-operative Homes, Inc.

APPENDIX "A"

Underlying Questions of Downloading: Subsidy - who gets it and why? Is it worth it? What is the role of non-profit housing?

It is important to understand the role of non-profit housing in the context of the housing market and housing policy in general.

All housing in Canada and Ontario is subsidized. Historically, left to its own mechanisms, the housing market does not serve most people well. Even after the Second World War most people could not afford to buy their own home; banks would not risk giving them a loan.

Over the years, the federal government in particular has addressed this problem through a number of different subsidies designed to increase home ownership and worth billions of dollars to home owners. These include:

• CMHC home mortgage insurance and CMHC direct loans;
• a veritable alphabet soup of home ownership plans met to increase supply, stimulate demand or improve existing stock from savings plans to condominium ownership programs - RHOSP, AHOP, CHOSP, RRAP, NIP, etc., etc. Provincial governments often topped up these federal programs up with policies of their own worth thousands to home buyers and owners, e.g., HOME and OHOSP in Ontario.
• the Federal Income Tax Act exemption on capital gains tax for first home residences offers homeowners a annual subsidy worth at least $1.5 billion (1988 dollars on 50% capital gains tax exemption - now a 75% exemption) and probably much more (Prof. Hulchanski, 1988, pp. 21, 31-32; CMHC 1979, p. 127; Sewell, 1994, p.94).
• None of these subsidies are of course available to the approximately 37-40% of the population that are tenants. Tenants, like everyone else, have their housing subsidized, but the cost of building support and rent supplement programs is considerably less than the subsidies that go to homeowners
• The housing market has also tended not to supply an adequate supply of decent, affordable and appropriate housing for middle to low income people as well as the traditionally difficult-to-house such as the disabled, ex-psychiatric patients, survivors of domestic violence, youth, etc.
• It is this void in the housing market that non-profit community-based housing groups have tried to fill in their communities - with, up to the present, very successful results.
• Non-profits are supportive of home ownership subsidy programs. We believe that proper, equitable public policy should allow everyone to obtain decent, affordable homes.
• What we are asking for is that the kind of housing subsidy afforded to homeowners by public policy be extended to non-profit and co-operative homes as well. Indeed, when the amount of subsidy afforded to homeowners is calculated, and compared to the amount of subsidy for non-profit homes, it is clear we are not even asking for that much.

• Subsidy - housing
• Province's intention
• effect on non-profit of loss of dollars - NOT viable -

SCENARIO - IF BIG HOUSING AUTHORITY

• property values down
• NIMBY
• Effect of housing on property taxes - (inappropriate - for income maintenance program) - effect on housing of reliance on property taxes - therefore, threatened short-term
  • recession in 2-3 years; therefore threatened long-term.
  • have less money when need most.
  • contributing factor - shift in property tax
• Effect on municipal administration - administration is complex and tailored to specific programs
• We are Communities: First of all, we would like to stress that co-operatives and non- profits are not simply concoctions of brick and wood; we are not just 'houses' - we are communities of homes for families and individuals who are, in general, badly served by the private housing market. We are the off-spring of concerned private citizens who have come together to form community-based, non-profit boards simply to address a lack of affordable, appropriate housing in our communities. We are appalled at the prospect that years and years, even decades, of effort and striving - simply to provide decent housing for those who already receive less than the average from our society - are threatened by an ill-conceived
• Effect on members
  • also, We pay property taxes
  • welfare and workfare
  • rent controls lifting
  • residency requirements.

Federal and provincial housing programs supply two entirely different types of assistance: (1) mortgage assistance to make buying the building itself affordable and/or (2) geared-to-income housing subsidy to make it affordable for low-income people to live in the building. These programs fund community-based housing such as private and municipally owned non-profits and housing co-operatives and public housing (owned and operated by the province).

Municipal and private non-profits supply homes for low-income tenants and/or people who have traditionally had difficulty obtaining appropriate, decent and affordable housing Member owned housing co-operatives principally supply affordable homes for middle to low income people who cannot afford their to buy their own homes as well as families and individuals who belong to difficult-to-house groups.

The federal government supplies funding assistance for:

1. 100 % federally funded housing co-operatives and non-profits.
2. 50 % to 70 % of joint federal-provincial programs for community-based housing

Currently, devolution involves:

• devolution of federally funded The federal government is by far the biggest player
• devolution of provincially funded housing to the municipalities, and the plans of the Ontario government to also devolve