Opinion: KY legislature should put pandemic windfall to work building affordable housing

By JAMIE LUCKE (Kentucky Lantern)

FRANKFORT — A proposal by nonprofits working to keep Kentuckians housed is almost touching for its modesty: $150 million as a downpayment on affordable housing seems like the least the legislature could do this session, considering both the enormity of the need and the state’s pandemic windfall.

In Eastern Kentucky, flooded homes that were salvageable are rotting and molding and becoming unsalvageable while awaiting repair, even as Kentucky’s “rainy day fund,” formally known as the Budget Reserve Trust Fund, is projected to reach an unheard-of almost $4 billion by June.

It’s a rainy day, indeed, for Kentucky places that see no future in their forecasts without a big burst of housing construction.

The revenue surplus — common among states, at least temporarily — was fueled by federal stimulus spending that propped up the economy during the pandemic and also by currently high inflation. In other words, much of the surplus will not recur in future state budgets.

It’s hard to imagine a better use for one-time money than investing in solid, energy-efficient homes for Kentuckians.

Even before tornadoes and floods wiped out thousands of homes on both ends of the state, Kentucky suffered a shortage of almost 79,000 affordable housing units, according to an analysis of data from the American Community Survey for 2016-2020. 

The private market will not fix this housing shortage. Neither will another cut in the state income tax that some Republicans are eager to enact. 

We can save for another day the debate over supply-side economics, AKA “trickle-down.” I grant you the appeal of leaving more money in private pockets as a means to stimulate economic growth, even if the evidence is thin.

I’m guessing we can all agree, however, that money saved from income tax cuts won’t be invested in building rental housing or helping residents become homeowners in places like Jackson or Mayfield. The affordable housing field is dominated by nonprofits (as in, no profit) for a reason.

Action by the legislature earlier this year reduced the state income tax rate from 5% to 4.5% effective Jan. 1, a cut not even close to fully offset by the expansion of the sales taxe to 35 additional services, also effective Jan. 1.

Some Republicans are pushing for another cut, to 4%, in this session, which would cost Kentucky a cumulative $1.2 billion a year by 2025; that’s more than 8% of the General Fund and more than the legislature appropriates for all of higher education.

Lowering income taxes disproportionately benefits higher earners. Cutting the income rate again might free up money that boosts employment at Bluegrass restaurants or buys deluxe vacations, but it won’t do much, if anything, for the small towns and rural counties that are most desperate for jobs.

Housing construction and repair, on the other hand, would bring work to places — urban and rural — where jobs are needed most. Investing in housing would boost local economies in communities that were struggling to survive, even before unprecedented floods and tornadoes walloped them.

The Kentucky coalition’s proposal, endorsed by more than two dozen organizations, is designed not to duplicate funding  from the federal government or other sources, but to fill funding gaps, while providing much-needed flexibility to respond to local needs.

Kentucky’s legislature, like others in the South, traditionally has not made direct appropriations for affordable housing, but changing circumstances now demand it, says Adrienne Bush, executive director of the Homeless and Housing Coalition of Kentucky.

“Yes, the state does have a role,” she told me.

Her advice to lawmakers: “Look at your constituents. The housing market is leaving them behind. That was before the disaster.”

Here’s what the coalition is proposing:

  •  In addition to $150 million this year, another $150 million next year to establish an Affordable Housing Emergency Action Recovery Trust Fund, dubbed AHEART. The fund would  hasten repair or replacement of thousands of flood-damaged homes while creating “an infrastructure to respond to the next climate disaster,” said Bush.
  • Next year, when the legislature adopts a new state budget, Kentucky’s existing Affordable Housing Trust Fund overseen by the Kentucky Housing Corp. would get about $115 million. The existing trust fund helps pay for home repairs and gap financing for nonprofit developers. The coalition proposes using $70 million in new money to rehabilitate vacant and abandoned houses to make them livable.
  • Finally, the coalition proposes doubling the deed transfer tax, paid each time a residential mortgage is recorded with a county clerk, from $6 to $12. That tax goes into the Affordable Housing Trust Fund and now generates $4 million to $6 million a year. With the proposed change it would generate $10 million to $12 million annually for affordable housing.

The legislature in a special session in August approved $213 million for flood relief but rejected Sen. Brandon Smith’s funding proposal for housing.

At the time, several powerful lawmakers said they would be willing to look at long-term housing during the regular session convening Tuesday. Here’s hoping they do. Not opening the budget in a non-budget year would be a lame excuse to again do nothing in response to Kentucky’s housing emergency.

Groups supporting an affordable housing plan:

Advocacy Action Network
Beattyville Housing and Development Corp.
Bell-Whitley Community Action Agency
Coalition for the Homeless
Christian Appalachian Project
Community Ventures Corporation
Frontier Housing
Gateway Homeless Coalition
Housing Development Alliance
Housing Partnership Inc.
Highlands Housing Corporation
KCEOC Community Action Partnership
Kentucky Affordable Housing Coalition
Kentucky Center for Economic Policy
Kentucky Habitat for Humanity
Kentucky River Community Care
Kentucky River Foothills Development Council
Kentucky Voices for Health
Louisville Affordable Housing Trust Fund
Louisville Urban League
New Directions Housing Corporation
Partnership Housing
People’s Self-Help Housing
Urban League of Lexington-Fayette County

Kentucky Lantern is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Kentucky Lantern maintains editorial independence. Contact Editor Jamie Lucke for questions: info@kentuckylantern.com. Follow Kentucky Lantern on Facebook and Twitter.

📸 Record floods struck parts of Kentucky in July. Bays Street in Jackson, the Breathitt County seat, was one of many places under water on July 28. Photo by Michael Swensen/Getty Images