The Failing Emergency Rental Assistance Program
Last month the U.S. Supreme Court declared the federal moratorium on residential evictions unconstitutional; and by the end of this month all but two of the remaining state eviction moratoriums will expire. These events are setting the stage for a humanitarian crisis of unprecedented proportions as over six million American families that have been economically devastated by the coronavirus pandemic will soon be placed in jeopardy of losing their homes. The sad thing is that this looming crisis could and should have been avoided. Rather than trying to analyze and understand the nature of the problem that lay ahead, the Congress hastily embarked upon an ill-conceived program with little thought as whether its appropriation of over $50 billion would actually allay the looming housing crisis.
It was inevitable from the outset of the pandemic that economic activity would be hampered, that tens of millions of Americans would become unemployed and that as a nation with a significant portion of its population already living from paycheck to paycheck there would be significant economic disruptions. Among those disruptions would be families unable to pay their rents and residential property owners unable to pay their mortgages or maintain their properties. The depth of the potential problem could have been gauged by the fact that by July 2020 approximately 50 million Americans had lost their employment and were subsisting on unemployment insurance.
To prevent a humanitarian crisis, at the very outset of the pandemic the U.S. Congress enacted the CARES Act, which among other things appropriated $4 billion for rental assistance and imposed short-term moratoriums on residential evictions and foreclosures on residential rental properties. Also in the CARES Act was a $600/week federal supplement for state unemployment allowances which legislators thought would enable those who had lost or would lose their jobs to continue to make their monthly rental payments. That supplement, however, expired in the fall of 2020 and by the end of 2020 the problem of unpaid rents had begun to reach stratospheric levels.
The looming eviction crisis was again addressed in December 2020 with the passage of the Consolidated Appropriations Act (also referred to as the “Coronavirus Response and Relief Act”) which, in addition to authorizing a more modest ($300/week) federal unemployment supplement, included a $25 billion appropriation to fund a newly created federal Emergency Rental Assistance (or ERA) Program. This Program was intended to help those in danger of losing their homes to pay past and future rents as well as utility and energy bills. The appropriated funds were to be distributed through state and local governments. This legislation was followed in March 2021 by the $1.9 trillion American Rescue Plan which included an additional $21.55 billion appropriation for the ERA Program. While the Program should have gone a long way to avoid a housing crisis, it has been a terrible disappointment as only a little over $5 billion of the over $50 billion (including monies provided by the CARES Act) appropriated by Congress has actually been disbursed.
The seeds of the nation’s current situation were planted long before the coronavirus pandemic invaded the U.S. as during the 40 previous years wage growth had been suppressed through tax and anti-labor policies. Thus, when the pandemic struck in early March of last year almost half of the nation’s over 100 million individuals living in rental housing units were spending at least 30% of their household incomes on their housing costs and 25% were spending 50% or more of their household incomes on their housing costs. These factors were causing roughly 2.2 million American families a year to lose their homes through rental evictions. With the pandemic sapping the nation’s economy, the potential number of residential evictions has almost tripled. Now it’s estimated that 6.4 million American households are roughly $70 billion behind in paying their rent and that this number would have been a lot worse had the federal government not stepped in and supplemented state unemployment payments, the last of which supplements ended this week.
The problem, however, goes well beyond those low income families that reside in rental housing. Approximately 22.7 million (or roughly 47%) of the nation’s 48.5 million rental housing units are owned by “mom and pop” investors, many of whom have their own financial problems. They do not have access to lines of credit upon which they can draw to pay the taxes and operating expenses on their properties. Even many of those who do have credit lines are in danger of having the mortgages on their properties foreclosed.
Like so many hastily-conceived government programs, the ERA Program contains a number of significant flaws. The Program is overseen by the Treasury Department which doesn’t have a bureaucracy to process applications for financial assistance. To get around this problem the 2020 Consolidated Appropriation Act delegated the administration of the Program to the states, many of which also lacked an existing bureaucracy to perform this function. Even those states that had an existing rental assistance program had neither sufficient personnel nor resources to handle the volume of applications that would be generated to address the financial disruptions stemming from the coronavirus pandemic.
To make matters worse, the Program’s resources were allocated on the basis of political considerations rather than need. Instead of allocating rental assistance funds on the basis of the numbers of rental housing units, the enabling statute provided for the funds to be allocated to the states on the basis of their respective total populations. Since rental housing is far more prevalent in heavily populated urban areas, this allocation tended to disproportionately skew the Program’s funding in favor of those states with a high percentage of their populations living in rural areas. This problem was further aggravated by the statute’s providing for a minimum per-state allocation, giving states with small populations an even larger share of the available funds than their percentage of rental households or total populations would have otherwise justified. As a result, smaller less populated states received more funding than they needed and states with large urban populations received less than they need. For example, New York State was allotted $766 per rental housing unit while Wyoming was allotted $5,167 per rental housing unit. Nor did these allocations take into consideration the differences in rental costs that existed from state to state or the differing extent to which the virus had made inroads in the various states.
Although both of the statutes appropriating the emergency funds listed three seemingly simple and straightforward eligibility standards, they left to the states the job of specifying objective eligibility requirements as well as the documentation required of applicants to satisfy those requirements. Part of the problem was that the statutory eligibility standards were drawn in very subjective terms (e.g., “a member of the applicant’s household has incurred significant costs or experienced other financial hardship during or due to the coronavirus pandemic” and “one or more members of the household can demonstrate a risk of experiencing homelessness”). This gave the states little guidance and wide latitude in specifying the nature and extent of documentation to be produced by applicants. Accordingly, most states erred on the side of making their documentation requirements more burdensome because they were also required to adopt safeguards to assure that only those meeting the Program’s qualifications received funding. Thus, it should not have been surprising that many would-be applicants, most of whom were already over-burdened just trying to survive in the middle of the pandemic, were simply intimidated by the extent and complexity of the Program’s application process.
It was also foreseeable that the states that had not previously established a bureaucracy capable of administering the Program might simply avoid doing so by choosing not to promote the Program. Equally foreseeable was the possibility that states run by politicians who were antithetical to social welfare programs would intentionally set high documentary requirements for proving eligibility or would have made the application process unduly cumbersome so as to discourage applicants. More importantly, it should have been anticipated that many of the intended recipients would choose to defer applying for the Program’s resources because they were being shielded by the existing eviction moratoriums.
Still, all of these factors don’t begin to explain why only a few hundred thousand of the estimated 6.4 million families behind in their rent chose to avail themselves of the Program’s funds. In roughly three-quarters of the states landlords as well as their tenants were able to apply for relief. Accordingly, even if their tenants were not sufficiently informed or motivated to apply for ERA grants, faced with their own economic pressures they should have been motivated to apply for relief on behalf of their qualifying tenants. Nevertheless, relatively few applications were submitted by landlords whose foreclosure protection had expired before the Program had even been established. To be sure, some landlord resistance could be attributable to state-imposed requirements that landlords accept a discount against the back-rent owed by their tenants. Even taking that into consideration would not explain what was causing millions of financially-strapped individuals and their landlords not to seek the billions of dollars the federal government was offering them.
One significant problem that Congress and state ERA Program administrators may not have contemplated was that the market for low-income rental apartments was and remains in a state of utter chaos. In New York City and possibly other large metropolitan areas a significant percentage of privately-owned low-rent housing units are subject to rent control regulations designed to limit increases in monthly rental charges. The result is that rent-controlled housing tends to be a very valuable asset because the occupying tenant is able to pay less than the prevailing market rent. In many cases tenants with rent-controlled apartments will secretly pass them on to their children who will occupy them without having to pay a stepped-up rental charge which their landlords is permitted to impose when the apartment changes hands. Perhaps even more prevalent, tenants with leases on rent-controlled apartments will illegally sublet their units at a near-market rental and pocket the difference. In both cases, the landlords may not even know who is actually occupying their apartments, and both those who hold a lease on a rent-controlled unit and those who actually occupy the unit have a good reason not to wish to be identified. The result is that neither the nominal nor actual tenant wants to apply for assistance under the ERA Program and the affected landlords are not in a position to do so.
The problem is far more widespread than one might expect. Many, if not most, low-income tenants do not have official leases. Such individuals or families sublease living space from a friend or even share rental a unit with a stranger. That makes them harder to find and even harder to help by programs like the ERA Program designed for formal rental markets. It is also common for economically vulnerable individuals and families to live in “illegal” housing units. It’s estimated that in Los Angeles County alone there are approximately 200,000 illegal (or un-permitted) housing units. These are dwellings or parts of dwellings that have never been approved for residential occupancy. In such cases, the very disclosure of their existence could itself lead to the tenant’s eviction. For this reason, participation in the ERA Program has little appeal for those living in these units.
Just how this looming and largely needless crisis is going to be resolved is very much in doubt. A number of progressive legislators have been speaking out about the coming onslaught of residential evictions but further legislative action at the federal level seems unlikely. It’s possible that the Treasury Department will reduce or simplify the Program’s eligibility requirements or provide further guidance to the states for simplifying their requirements for documenting Program eligibility. In addition, states with large urban populations could seek to extend or re-impose their eviction moratoriums, but even that is not a particularly attractive option as it would only defer the problem faced by tenants while making it worse for affected landlords. Nevertheless, New York State, which may face the nation’s most serious problem of tenant evictions, this past week chose to extend its eviction moratorium until January 15, 2022.
The most likely governmental actions will be efforts to better publicize the availability of ERA funding. Part of the problem, however, is simply finding a way to notify those in need of rental relief of the existence of the ERA Program. This could be achieved by working through the landlords who are much easier to contact than their affected tenants. Still, that may not work as some landlords might be happy to have their tenants evicted so they can seek more favorable tenants and/or rental charges. Also, even tenants living in legal apartments might be skeptical of going through the application process for fear that doing so could subject them to some form of negative governmental action such as incarceration for past criminal acts or collection proceedings for unpaid tax obligations. In a nation in which 30% of all adults are currently refusing to avail themselves of government-funded life-saving vaccinations, it’s easy to imagine this level of distrust in the nation’s government.
A particular disappointment has been the efforts to promote the ERA Program in New York State where 46% of households live in rental units (the highest level in the nation). A few weeks ago the State’s Comptroller issued a scathing report castigating the Office of Temporary and Disability Assistance (“OTDA”) which administers the state’s ERA Program. As of July 30th, the OTDA had received only 168,321 applications from the state’s 1.2 million low-income rental households eligible for relief under the Program and had made payments to only 7,072 of those households. While the Comptroller’s report cast blame on the OTDA’s seemingly incompetent efforts, the real causes may have been beyond the OTDA’s control because the state’s eviction moratorium was still in effect and the factors discouraging Program applications were beyond the OTDA’s powers to correct.
The current situation places the landlords of eligible ERA recipients in the uncomfortable position of having to decide whether to seek to evict their delinquent tenants or to try to find a way to continue to finance the operations of their rental properties. The eviction process is generally viewed by landlords as their option of last resort as the eviction process can be long, costly and filled with aggravation. That’s because most courts are understandably reluctant to render delinquent tenants homeless if there is any chance that the tenants will be able to make their future rent payments. They therefore give the tenant every opportunity to retain control of his/her living quarters and frequently grant requests for adjournments even under questionable circumstances.
In addition, once eviction proceedings have commenced the chance of a landlord’s receiving any further rental payments virtually disappears. Landlords also have to be mindful that even if they are successful in evicting a tenant it could be several more months before they are able to secure a viable replacement tenant which is a serious consideration during a pandemic that may persist for many more months. Also weighing on the side of not instituting an eviction proceeding is the possibility that delinquent tenants might ultimately be convinced to apply for assistance under the ERA Program. Where that possibility exists most landlords might be willing to offer assistance to their tenants in preparing and documenting their applications for ERA funding.
In many cases, however, landlords may reluctantly conclude that eviction is their most (or only) viable course of action. With so many residential tenants in arrears, the courts will have their own problems. Residential evictions are handled by state and local courts, virtually all of which are short-handed, under-funded, and generally ill-equipped to even handle their everyday caseloads. This means that they will be easily overwhelmed by the magnitude of cases about to be unleashed by the lifting of eviction moratoriums following 18 months of accumulated rental delinquencies.
Accordingly, the courts will be forced to practice a form of judicial triage. They will have to develop questionnaires designed to determine which cases require immediate eviction and dispose of them summarily. Where a tenant may be eligible for rental assistance, the courts will likely order the tenant to file an application for assistance within a limited period and adjourn the case during that period. If an application is not filed within that period, the court will issue an eviction order. If an application for assistance is filed within that period, the court will likely further adjourn the proceeding for additional 30-day periods until the application has been acted upon. If rental assistance is provided, the case will be dismissed. Cases falling into these two categories can largely be handled by the judge’s clerks. All other cases will likely require consideration by the judge. As our current legal system is far from perfect, we can expect that many of these cases will drag out for far too long and their outcomes may not be what most people would consider justice.
For all of the reasons described above there appears to be little that can be done to salvage this well-intentioned, but ill-conceived program. While the Treasury Department can issue guidance that will encourage the states to relax their Program eligibility requirements and to replace their documentation requirements with tenant affirmations, it will remain difficult to encourage the submission of applications from tenants who occupy housing in violation of local housing regulations or the terms of the current lease. Therefore, the best course of action would appear to be for the Treasury Department to require that all applications under the Program be filed by October 30th, with all Program funds distributed no later than December 31st. This should provide those tenants willing to take advantage of the ERA Program both with an incentive and with ample time in which to do so. All funds remaining in the Program after the end of the year should be returned to the Treasury Department and thereby become available to help fund the Biden administration’s reconciliation infrastructure legislation.