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When the Government Shuts Down, the Vulnerable Suffer the Most

Michael Dedmon | Policy Manager| The Financial Clinic

While a partial shutdown of the federal government dominates the daily news cycle, the real impact on people’s lives can be hard to see because many essential services continue to function – more or less – as normal. For example, the U.S. Postal Service is still running, Social Security payments continue to be made, many Veterans’ services are still available, and federal employees deemed essential like federal transportation safety workers and military personnel continue to report to work each day. But, beneath the surface, this staged political crisis is already generating more significant consequences than many realize, and the risk of a deeper national crisis rises every day the impasse continues.

Up to 450,000 of these government employees won’t be receiving a paycheck this Friday despite working throughout the shutdown, and there are thousands more who have been furloughed while the negotiations over reopening the government continue. Although the majority of the furloughed and all essential employees will receive back pay for the time lost to the shutdown, many staff working for government contractors, like cleaning and food service employees, will not. This loss of income presents a huge risk to these less financially secure employees who already receive significantly fewer protections and are paid much less.

Nearly 80% of Americans report that they live paycheck to paycheck, and over 40% of families lack emergency savings, claiming that coming up with $400 would pose a significant financial burden. Like many workers across the country, federal employees have seen their incomes stagnate in the past decade, allowing them even less flexibility to deal with unplanned instability. This sudden shock to their income will force many of them into tough financial choices like whether they should pay their rent and utility bills or buy groceries. Like so many other households dealing with income volatility, many families will be forced to rely on risky and expensive credit products to make ends meet.  As the shutdown drags on, it’s critical that we not lose sight of the very real impact this disruption has on the financial lives of federal employees and their families, and consider the long-term effects some will feel after the political disputes are resolved.

In addition to these affected employees, a number of vulnerable households across the country that rely on government services will soon start to feel the consequences of the shutdown. The Washington Post reports that the Department of Housing and Urban Development (HUD) is scrambling to prevent the eviction of over 1,000 people receiving support from a federal program that ended on January 1st, and in just weeks, millions of SNAP beneficiaries could face reductions to their benefits. Also, with tax season just around the corner, the IRS is both unable to process tax refunds and will have to delay critical support it provides to nonprofits, like The Financial Clinic, that participate in the Voluntary Income Tax Assistance (VITA) program. The Post has reported that over 90% of Internal Revenue Service (IRS) staff has been sent home without pay just weeks before tax season begins in earnest.

This is especially poorly timed this year as changes to tax law passed by Congress in late 2017 spell a number of important changes that may impact low- to moderate-income (LMI) households this season, including the elimination of the personal exemption, the introduction of new tax brackets, and alterations to the Child Tax Credit. “With the new tax law changes starting this year, VITA customers will be looking to their tax preparer to learn what the changes mean for them. ‘Why is my refund changing?’ Many will not think to ask the question of how will this impact their future refunds.” says Darren Liddell, Director of Program Innovation at The Financial Clinic. “Also, refunds won’t be issued while the government is shut down even though the government will still accept the returns.”

Credits claimed at tax time like the Earned Income Tax Credit (EITC) can make up 12% of some households’ yearly income and present a huge opportunity to get ahead financially, save some money for future goals like education and retirement, or pay down debt. Financially insecure families expect a properly functioning federal government to process their returns and issue their refund just like the IRS expects them to file on time. “We see the biggest rush for VITA services right at the beginning of tax season, so in late January, as many customers want to file as soon as they can,” according to Darren. Families looking to get on top of debt accumulated during the holiday season, make some headway on yearly savings goals, or make education/childcare payments for the semester will be relying on receiving their refund.

The financial pain inflicted on government employees, a looming shutdown of some housing and nutrition programs, and the disruption of the tax season are real consequences that will have a lasting impact on the lives of some of our most vulnerable friends and neighbors. The human impact should be considered with the knowledge that all of it is, in fact, needless, as the shutdown is the result of a manufactured, partisan crisis over a poorly conceived and racially charged plan for border security. We call on all representatives in Congress to fulfill one of the most basic tasks entrusted to them: provide the resources to deliver the critical services Americans everywhere rely on and reopen the government without delay.

How Low-Income Renters Squeezed Out By The Affordable Housing Crisis Can Fight Back

By Laura Christensen-Garcia| Manager of Service Delivery |  The Financial Clinic

Across the United States, low-income residents are being pushed out of affordable communities by an influx of higher-earning newcomers who are drawn by the business opportunities and are able to pay higher rents. The housing crisis is often talked about as something that started in 2008 when the mortgage bubble burst and ended a few years later as the housing market stabilized. On the contrary, the housing crisis today is pervasive and profound. What started as an owner’s crisis has shifted to a tenant’s crisis. As houses were foreclosed upon and millions of families lost their homes, the rental market suddenly became saturated with an influx of renters competing for an incredibly limited supply of housing.

Today’s housing crisis is primarily two-fold, based on affordability and availability. A recent report by The Eviction Lab showed that one in four working-class families spend over 70 percent of their income on rent and utilities alone.  As housing costs continue to rise, wages stay flat. Despite an improving economy, workers simply are not seeing more money in their pockets. The Federal Reserve highlighted this in a report released this July. The report explained that “despite the broad-based strength in measures of employment, wage growth has been only modest, possibly held down by the weak pace of productivity growth in recent years.” This means that many individuals and families are just one misstep, one late rent payment, away from being evicted and left on the street.

The affordability and availability of housing in American cities not only make it difficult for individuals and families to find housing, but to keep housing. Developers buy housing stock in low-income neighborhoods with the intention to remodel and rent at an increased rent (sometimes more than 300% the original rent). Not only are rents increased, but many 2-3 bedroom units are broken up into studios and 1-bedrooms, decreasing the availability of family housing options.

A prime example of this is happening in Albany Park, Chicago. Albany Park is a working class, primarily Latino neighborhood on the Northwest side of Chicago. Stark Holdings LLC recently bought a 52-unit building on North Kimball and served a majority of the tenants with eviction notices. The tenants in the building organized alongside the Autonomous Tenants Union and formed the Kimball Tenants Union to organize as a community and to fight the eviction process in court (Block Club).  As the fight continues, the tenants face a mountain of issues in their search for affordable housing in the area. Many tenants who have lived in the building for over a decade were understandably unprepared for the exorbitant fees to move into a new apartment and were unaware of the effect that their credit score has on their ability to secure housing. As they work to build their financial profile for a possible move, they continue the fight to stay in their homes and to protect their neighbors from displacement.

How can you be ready in the event of an eviction or unplanned move?

Increase your credit score:

Landlords and rental agencies typically look for a FICO score that is at or above 680. Use credit building tools, like secured cards, personal loans, lending circles (tandas/susus), and try to maintain a credit utilization rate below 30% to keep your score in check. In addition to the offensive tactics listed above, the financial system requires that consumers be constantly on the defensive. This means that you should stay on top of your score by pulling your report for free (check out this great blog post by Amy Cao for more information on credit report access). It’s important to check your report for any inaccurate/outdated personal information and negative accounts that may affect your score. If you find any unrecognizable debts or debts that are past the statute of limitations, or if you fear that you may be a victim of identity theft, send a dispute letter to the credit agency and the owner of the debt (i.e. collection agency).

If you do not have a Social Security Number, obtain an Individual Taxpayer Identification Number (ITIN) by filling out Form W-7 when you file your taxes. An ITIN allows you to build credit by obtaining credit cards and personal loans and join lending circles (see Mission Asset Fund). If you aren’t able to obtain an ITIN, consider building an alternative credit file. This file can contain receipts for on-time payments like utility bills and check/money order receipts for rent payments. There are also online services like RentTrack that report your on-time rent payments to credit agencies.

Make saving a habit:

The cost of moving to a new apartment can be outrageous. Many landlords require tenants to pay a security deposit, as well as first and last month’s rent upon moving in. For some tenants, this can be upwards of $3,000. Moreover, real estate brokers in some cities (incredibly prevalent in NYC) often charge broker’s fees which average at 15% of the annual rent. For someone who lives in a studio apartment at $1,900/month, this can mean a move-in fee of $8,120 (first and last month’s rent + security deposit + broker’s fee). On top of this, renters often have to pay to hire movers or rent a moving truck.

Come up with a personal savings plan that works for you. Saving for a crisis can be hard to commit to when you’re in a state of relative stability or if you deal with income volatility. If you make saving a habit and put a little aside each week or month, you’ll be more prepared to fight an eviction or pay for the move to a new apartment. Consider setting up an automatic transfer to a separate savings account that you don’t have easy access to with your debit card.

Organize in your community:

Pushing against the rising tide of rent increases and displacement can feel like an impossible and daunting task, especially when you yourself are in the midst of a housing crisis. You can take small steps within your community to help keep the housing stock in your area affordable and to prevent the displacement of your neighbors.

Have you lived in your building for years but never once met your neighbors? Take advantage of your building’s underused courtyard and organize a summer BBQ. In addition to having a friendly face next door to borrow a cup of sugar from, you might find an ally in a fight to repair the leaky roof or fix the lights in your stairway.

Learn about your building’s owner and their intentions for the building. You can look up records relating to your property and your landlord on your county’s recorder of deeds website, circuit court website, and assessor’s office. If you notice that your building was recently purchased with an incredibly expensive mortgage, this may signal that the owner plans to remodel the property and flip it for a profit. Take the Kimball Tenants Union case referenced earlier–Stark Holdings LLC purchased 4841 North Kimball for $4.65 million with a mortgage of nearly twice the buying price at $9million–this may signal that they expect to make a profit that will exceed the nearly $5million deficit.

Connect with local organizations that support tenants and stay abreast of ballot initiatives in your area that might affect your housing situation. One way to stay informed is to attend your local community board or zoning meetings.

Most importantly, know your rights as a tenant. Tenant protection laws vary by state and city. In Chicago, for example, renters have very few rights. What rights they do have are protected by the Residential Landlord and Tenant Ordinance. One example of a right articulated in the RLTO is that tenants may reduce their rent to make necessary repairs to their unit if their landlord has not responded to their request for repairs within 14 days. Take time to learn about the rights that you have as a tenant in your city–it could be the difference between whether or not you lose your home.

You can also use the following Change Machine tools to help you brainstorm and create your own plan:

Did you know?

  • “There are 900,000 evictions every year which equates to about 2.3 million people evicted, many of them families with children. That’s about 6,300 people a day that are evicted. That’s twice the number of people who die in car accidents every day in America.”
  • Evictions take place in civil court where tenants do not have the right to an attorney.
  • Many recipients of housing vouchers like Section 8 are unable to find landlords that are willing to accept the voucher. In Dallas, about 60 percent of people who get vouchers are unable to use them, according to MaryAnn Russ, the former CEO of the Dallas Housing Authority.
  • “The U.S. has a shortage of 7.2 million rental homes affordable and available to extremely low-income renters, whose income is at or below the poverty guideline or 30% of their area median income. Only 35 affordable and available rental homes exist for every 100 extremely low-income renter households (NLHC).”

Find resources in your community at https://justshelter.org/community-resources/.