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The technorati who brought you the phrase “Web 2.0” are back with a new one: “Government 2.0.” A core idea of Gov 2.0 is a rejection of what Donald Kettl calls “Vending Machine Government” — you put tax money in and get services out, and are limited to kicking and cursing the machine when it doesn’t work. Others talk about how collective action should be more than collective complaining.
Of course, we don’t need new technology to make this happen. A great example of collective action has been the series of meetings to create a “People’s Vision for Affordable Housing.” The vision is motivated by a community frustration surrounding the struggle to secure basic necessities like shelter, aided by the slow pace of the city committee process in producing workable ideas. Mayor Dave Cieslewicz, after last year’s conclusion of the inclusionary zoning effort, created a new committee to explore new affordable housing strategies for Madison. Nine months later — five months after it was due to report back — the committee has met only four times and has yet to discuss a single improvement. Even ASM moves faster than that. [Erik Paulson does work for ASM — Ed].
The People’s Vision aims to give the Housing Diversity Committee a list of priority problem areas and potential solutions. It’s been some of the most inspirational time I’ve ever spent in a meeting room. The problems and solutions we’re considering run the gamut from helping the visibility homeless get off the streets to helping the most well-off of renters and homeowners. At the end of a meeting, it really feels like solutions are closer and it wasn’t a waste of two hours.
One of the issues I’m most interested in seeing addressed is making the cash flow of renters a bit easier. When renting an apartment, a renter may have to provide a security deposit upfront. For people living paycheck to paycheck, this can be a significant challenge, especially if they already have a security deposit tied up in their existing apartment. They may eventually have the money, but not right when they need it. This can be addressed through a loan fund, where the city pays the security deposit upfront and the tenant pays the city back. Madison has a small program like this, as does Iowa City, Iowa, through a private provider.
At the end of the lease term, landlords have to give the security deposit back, so they can’t do anything with the money except put it in short-term investments. For the small landlords, which are the vast majority of landlords in Madison, this amounts to a couple of extra dollars a year. The landlord only truly needs the security deposit in the case where they’re going to make a deduction, and even then, usually not the entire amount. In fact, the full amount may never actually need to exist.
Instead of a loan program, what if the city only gave the landlord the amount for damages at the end? The individual landlords wouldn’t care because they weren’t earning much anyway, but the city could earn a fair amount of money on the collective interest.
Now, take it one step even further and imagine if all security deposits went through this program. Using back-of-the-envelope numbers, there are at least 55,000 rental units in Madison, each with about $500 of security deposit. That’s $27 million, and the real numbers could be much higher. Using a conservative 4 percent return, that could be $1.1 million a year in new money for the city. It doesn’t raise taxes on anyone, except perhaps the very large management companies like Madison Property Management, who no longer get a free loan from their tenants. It just makes existing money work smarter. Even subtracting the 0.75 percent interest landlords are required to pay tenants, the city would still come out ahead. This could easily be expanded to cover the whole county since housing is truly a regional issue.
It’s a simple program; the city Treasurer’s Office could easily run it electronically without much additional staff. They already run a comparably-sized program with property taxes. It’s a win for students, and all renters, because security deposits would be handled uniformly and, according to state law, without having to hope your landlord gets it right or doesn’t go bankrupt. Renters would also benefit from transferring their security deposit straight from one apartment to the next, without having to temporarily have enough money for two security deposits. Finally, everyone wins because we could fund things that we know would help but there just hasn’t been the money to do, like affordable housing and building inspectors.
Will this be part of the People’s Vision? I don’t know. The next meeting of the group is Oct. 22 at 5:30 p.m. at Madison Central Library. I’m going to make my case, and if you’ve got ideas, come and take action.
Erik Paulson ([email protected]) is a Ph.D. candidate in computer science.
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This is a really interesting, and good, idea.
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It’s just another tax on property owners in Madison. The small amount ($5 or $10 per year, perhaps?) will just be passed on through the cost of rent and/or the reduction of amenities.
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What every happened to Rate My Landlord? Was this any way affiliated?
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Security deposits are deducted from by companies for renters’ damages to property.
To fit this into the system you propose of city/county-run security deposits, I’d imagine these deductions would have to be cleared in some way by the city, with the city paying rental companies for the damages; how would the city go about clearing these claims for 55,000 different rental properties, none of which the city program workers would be all that familiar with? This seems like a very easy system to take advantage of as a rental company, even if they DID need photographic evidence, which they are required by law to give.
Also, consider being a renter in such a situation. Your security deposit return from the city has been deducted from for some debatable reason. Now instead of negotiating directly with your management company, who knows the property well, you must take up your issue with a city worker who has no direct interest in or experience with your rented apartment or claim.
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Bryce, thanks for all of your excellent comments.
For security deposit return, I’d imagine it works basically the same way it does now: a presumption of correctness. I imagine that at the end of the lease term, the landlord sends a letter to the tenant saying “we’re going to deduct X for these reasons, and give you back Y”, like they do now. If the tenants disagree, they can argue with the landlord at this stage and maybe come to an agreement before the city gets involved. Eventually, the landlord tells the city (electronically, ideally) “give X to the tenant, give Y to us”. The overwhelmingly vast majority of cases, the city has nothing to do except deposit the money and doesn’t need to know anything about the properties.
In fact, I think the city as an uninvolved 3rd party could work better than the current system. Right now, if a landlord deducts money from your SD for reasons you think are invalid, what are you supposed to do? Your only option is to complain to them and hope they give you something back, or take them to court. If the city were involved, they could easily insure that process is followed. For one, if the landlord doesn’t act within the required 21 days, the whole amount could simply automatically be returned to the tenant. Again, right now if the landlord is a couple of days late, you have to sue for damages.
If the landlord deducts, the city can insist that they also file their evidence at the same time. This would be an obvious added expense, but we could have the city offer some sort of mediation service, short of going to court, to resolve disputes between tenants and landlords. This would protect both tenants and landlords. Finally, the court option is still always available, regardless if there’s a mediation service or not, and even better, there’s the legal authority of the city to certify when documents were filed.
So, in short: in most cases, it can be no different from how it is today; it adds an optional opportunity for some new services for landlords/tenants; it strengthens existing avenues for dispute resolution with minimal new bureaucratic overhead.
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Also, let’s reconsider the city-paying-damages idea.
You say that 55,000 properties and $500 per deposit at 3.25% (after returning interest to renters) gives ~$900,000. To break even for the city, we could employ 22 people at $40k/yr to administer this program. This assumes that there are no renters that are delinquent in their SD payment to the city.
What benefit would this system provide? This isn’t the loan idea, so it means renters would still need a large initial chunk of cash to rent.
The net result would be either 22 new city employees, or something less than that along with a little extra city revenue. However, this comes at the cost of management companies, who will have just as much work to do to take care of security deposits, but will not have the 4% security deposit interest. In addition, these companies will not have the security deposit to cover losses from tenants who do not pay rent and break their rental contracts. This last point effects small and large management companies equally.
So, net result: management companies have just as much work to do with less money, and the city employs new workers to do newly-created work that doesn’t benefit renters or rental companies. The city may have some additional revenue, likely <~$500,000. Worth it? I dunno.
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This program won’t require 22 new FTEs to administer. It will obviously add some, but none of the employees need to be specialized. This would add a few more people to the City Treasurer’s office, all of whom would be expected to be able to service this program. The new people we hire would work on this program, along with paying property taxes, parking tickets, park permits, bike licenses, and all of the other things that they city has to handle. Again, most of this program can be done electronically through MadisonPays. So, I think that there’s significant revenue opportunities available with this program.
Even if it were only break-even to the city, there are benefits to tenants. For one, if you’re already renting a place in Madison and want to rent a new apartment, they city can simply credit your account from your old place to your new place. Yes, there’s a risk of a default here, depending on how big of a deduction the old place takes. Second, there’s a benefit that the city can be more flexible on payment terms - for very-low income renters, perhaps we require less than the full amount of deposit or we waive the deposit entirely. Again, we have to plan for and budget for potential defaults, but it might be cheaper to eat a $200 security deposit deduction from a landlord than a couple of weeks emergency shelter vouchers if the tenants couldn’t get into any housing at all without it. We can also extend payment terms and treat it as a loan, perhaps charging some fee or just using revenues from the interest to cover the defaults.
A friend of mine read the column and said “so you’re just turning the city of Madison into a bank”, which is a good way to describing the proposal. However, instead of profits for shareholders, the money would fund housing efforts, and the customer service would be focused on getting people housing. Many of the people who would most benefit from the program are the people who could not get access to a real bank, and if they can get a loan their options might be limited to payday or other predatory lenders. Finally, the city as a whole benefits from having more people with stable housing, which means we have fewer people to support when they’re homeless, which is a much more expensive time to assist them.
Landlords would still have access to all of the money they need to cover what they could legally claim from the security deposit. If the city chose not to keep the fund at the full amount, because it waives too many people’s deposits or whatever, they’d have to decide how much they need to budget from whatever revenue the fund provides (or, decide if they’re willing to back the SD fund with the general fund).
I doubt that most of the landlords in town (the overwhelming majority of which are small) are able to get 4% on the security deposit. The big ones might be able to get 4%, or in this economy, maybe they can’t even get that. If they need money for short-term things, interest rates are so low that they can get money fairly cheap. I know the city can at least get 4% - we can use it to offset capital borrowing. This is beneficial in that we need to borrow less, which keeps our interest rates down. It may also be good to have a large pile of cash around - this is a question for the Comptroller and how we account for the money, but having another 27 million in the bank might be helpful to keeping our AAA bond rating. That rating may get harder to maintain as our debt service grows over the next few years.
Perhaps we eliminate the 0.75% interest the tenants get on their security deposit. That’s certainly not a big source of money that any tenant is counting on getting back, but again collectively, it’s a lot of money - probably more than enough to pay for the program if the personnel required is as low as I think it is.
So, my net result: there’s a significant revenue opportunity that can be used to pay for social programs that reduce the need for more expensive social programs. The program has a happy bonus of making life easier for both well-off individuals and low and very low income individuals, at minimal administrative hassle, and negligible cost to most landlords. Seems worth it to me.
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Now, what about the loan idea, in which renters pay the city slowly for the SD rather than all at once? It would certainly benefit renters.
There would be less revenue associated with this, unless the city charges a fee or interest to renters who desire such a loan.
I could see how this option could work. It provides a beneficial service to renters that did not exist before, at a cost. If the service is not desired by the renter, there is no adverse impact upon them or their management company.