Small States Cry Foul on Federal Rental Relief Redistribution

This story was originally posted by Stateline, an initiative of the Pew Charitable Trusts.

States with small populations say a federal plan to take back unspent emergency rental aid and redistribute it elsewhere is unfair, potentially depriving them and their residents of millions of dollars to address broad affordable housing challenges.

Last December’s federal law appropriating $25 billion for emergency rental assistance scattered the money to some 500 grantees across all 50 states—but it also authorized the U.S. Treasury Department to recapture unused funds beginning Sept. 30.

Under the law, the Treasury can take back money from grantees that failed to spend or allocate at least 30% of their dollars by Sept. 30, and redistribute the money to grantees, potentially in other states, that spent more than 65% of their funds.

But grantees and lawmakers in smaller states argue that their sluggish spending pace doesn’t reflect a lack of need. Instead of judging grantees by how fast they are spending the money, they argue, Treasury officials should consider how many tenants are at risk of eviction in their area, and the share of needy applicants who end up receiving help.

State allocations were based on population, but the minimum share was $200 million—too much money, critics say, for small states to spend quickly.

At the end of August, Virginia, New Jersey and 104 local grantees, including the city of Houston, Prince George’s County in Maryland and Miami-Dade County, had met or surpassed the 65% threshold. At the same time, 204 state and local grantees were under the 30% threshold.

Among states, Wyoming, South Dakota, North Dakota, Delaware and Rhode Island, in order, have the lowest expenditure rates.

“The clock is ticking,” said Treasury Secretary Janet Yellen during an event in early September with state and local leaders. The White House used the online event to highlight high-performing programs and push slower jurisdictions to pick up the pace.

“We need everyone, every state and every community to try to match the spirit of urgency and expediency and to take advantage of the flexibility we’re providing,” Yellen said.

Congress approved the Emergency Rental Assistance program to help households earning at or below 80% of their area’s median income. Residents who qualify can get up to 15 months of assistance to cover rent and utility costs.

In a Sept. 7 letter to Congress, Wyoming Gov. Mark Gordon, a Republican, acknowledged that “the needs of Wyoming renters will never justify the $200 million allocated to the state,” in large part because 70% of Wyoming households own their homes. However, Gordon argued that “Wyoming desperately needs this funding to cure severe shortages in affordable housing across the state.”

In Delaware, reaching the 65% standard would have meant spending $130 million by Sept. 30—an unrealistic target for a state with fewer than a million households, said Marlena Gibson, director of policy and planning at the Delaware State Housing Authority, in an interview with Stateline.

Delaware spent $16 million, or 8% of its award, by the end of August. But Gibson said the housing authority is in the middle of processing about 5,500 applications for an additional $32.5 million in assistance.

“In Delaware we are tracking our performance against estimates of need, on rental delinquency and the number of applications that we have in progress and processing those,” she said.

The Treasury Department says it will gradually remove unspent dollars from programs with low spending rates, but that it will strive to keep the money within state borders. However, states with a single grantee—including Connecticut, Delaware, Maine, Montana, North Dakota, Rhode Island, South Dakota, Vermont, West Virginia and Wyoming—might have to forfeit their money to other states.

Grantees also can voluntarily reallocate funds to other programs within the same state.

In Nebraska, for example, there are five grantees: the state, grantees in the cities of Lincoln and Omaha, and grantees in Douglas and Lancaster counties. The local programs have spent 80% of their awards, compared with 5% spent by the state program.

Shannon Harnor, executive director at Nebraska’s Investment Finance Authority, which oversees the state program, said she hopes that any unspent money will remain in the state. Harnor said 79% of Nebraska’s allocation went to the state program, even though the other four grantees cover more than half of renters in the state.

Lorraine Polak, executive director of the South Dakota Housing Development Authority, said many applicants in her state don’t qualify for help because they were not financially affected by COVID-19. Businesses in South Dakota were never officially shut down. However, she said South Dakota officials hope to keep the leftover money to address the need for more affordable housing.

“I think every state would love that opportunity,” Polak said, “because what we're seeing is that there's definitely a demand for more housing units and not sufficient funding to meet that demand.”