Community Preservation Act: a case study in good incentives
Like many public goods, affordable housing is something we want … but want someone else to pay for. So the manner by which government raises and spends money for affordable housing programs has a lot to do with how they are received politically, and therefore how much long-term impact they have.
Consider, for instance, the illuminating experiment of
The program has proved very successful, as a useful retrospective from CommonWealth Magazine shows:
This spring, the preservation coalition celebrated the 100th community to approve the CPA (see map) when voters in
Martha’s Vineyard is the Napoleonic hat island;
Over its first five years (enacted September, 2000), the CPA has generated $170 million in funding for its permissible uses — meaningful money in a state of 6.3 million people — and its support is growing.
Its success neatly illustrates a double handful of important policy-program-design principles (ones that could be reflected in the GSE half-tithing now under debate):
1. Raise money broadly, spend it locally
The state has a leadership role:
The law provides state matching funds to cities and towns that approve a property tax surcharge of up to 3% dedicated to spending in three areas: open space, affordable housing, and historic preservation.
2. Make those who want it pay for it
People value only what they pay for, so to get the state match, the community has to act:
The law provides state matching funds to cities and towns that approve a property tax surcharge of up to 3% dedicated to spending in three areas: open space, affordable housing, and historic preservation.
Just as savings precedes borrowing, so here the state says, if you want our free money, you have to earn it.
3. Fund via an evergreen, logically-associated income stream
Finding annual appropriations is always a challenge, so the Community Preservation Act rather niftily links its source to a
The state matching funds come from a $20 fee assessed statewide on all mortgages recorded through the registry of deeds.
Simple, automatic, collectible, de minimis (who notices $20 at a property closing?), linked to home sales activity and appreciation. Nifty.
4. Ring-fence the proceeds
For an activity to be a program, not simply a slush fund, its purpose must be discretely defined:
[Money is] dedicated to spending in three areas: open space, affordable housing, and historic preservation … with communities that adopt the CPA mandated to spend at least 10% of the money in each of the three categories.
Although individual communities plumped for heavy usage in one area,
“There was a lot of skepticism initially, with people saying the CPA was only perpetuating buying up open space and locking out housing development,” says Dorrie Pizzella, executive director of the preservation coalition, an umbrella group that includes conservation, housing, and historic preservation advocacy organizations.
… overall results are encouragingly diversified:
Of the $170 million appropriated since the act was approved:
38% has gone to open space acquisitions
35% has been earmarked for affordable housing
19% has gone to historic preservation projects
The remaining 7% has gone to recreation projects, a category designed to allow spending on park improvements in communities where there is little remaining open space to buy.
5. Guard the fences!
Just like Doonesbury’s Uncle Duke, who once famously exclaimed, “but the pension fund was just sitting there!” elected officials who see a large pot of money are always eager to tap it — just for a minute, as Atlas said to Hercules:
“Let me shift it on my shoulders.”
Each year since the law’s passage, supporters have also had to contend with various proposals to divert money from the state matching fund for other purposes. The latest came this year, when Gov. Mitt Romney’s budget proposed transferring $10 million of the approximately $100 million in the Community Preservation Fund into a separate fund established last year to reward communities for adopting zoning changes that allow for denser development near town centers, part of the administration’s smart-growth strategy.
They must be prevented from doing so:
Every effort to raid the fund has been turned back, and with nearly one-third of the state’s communities now having adopted the CPA, the constituency for the preservation act is only growing bigger and stronger.
If a raid succeeds, the political coalition that raised the funding collapses.
6. Reward participants with bonus funding
In any well-intentioned program, you might think that savings would be its own reward. In fact, regardless of whether one is dealing with a low-income household or a municipality, you must provide a tangible reward for participating:
The law provides state matching funds to cities and towns that approve a property tax surcharge of up to 3% dedicated to spending in three areas: open space, affordable housing, and historic preservation.
Note the simplicity of a 1-for-1 match, coupled with local flexibility. You can pass a 1% surtax? Fine, you get a 1% match. You pass 2%, you get 2%. Even a city councilor can understand it.
7. Incentivize the first movers
Because the proceeds are raised from a mortgage closing fee, and deposited into a fund tapped only by communities that have enacted the CPA:
Homebuyers and those refinancing mortgages across the state are underwriting projects in towns that have approved the CPA, giving a Robin-Hood-in-reverse dynamic to funding for a program more popular among voters in affluent communities.
That, in turn, meant the first movers had a clearer field to the money:
“Towns that got involved early are the ones benefiting the most,” says Wilbur, the
Then the observant herd kicks in:
“What has happened over time is success has bred success,” says Pizzella. “Communities look at their neighbors and the fact that they have gotten state matching money.”
8. Allow local flexibility
The Cape and the
With communities that adopt the CPA mandated to spend at least 10% of the money in each of the three categories, the first round of funding saw towns approve millions of dollars to acquire and preserve open space, while setting aside just the bare minimum for affordable housing.
Pizzella says a lot of towns had open-space acquisitions already on the drawing board, so it’s not surprising that early spending reflected this bent. “But you now see a lot of suburban communities who’ve never spent money on housing before using the CPA to do so,” she says.
Meanwhile, communities that did not want to build more affordable housing found ways to use the money to preserve affordable housing:
The funding – about one-third of Stow’s total CPA spending thus far – will ensure that the units remain a source of affordable rental housing in a community where, like every place in the state, home prices and rents have soared in recent years.
Covenants, not bricks, but the end result is the same.
9. Measure outcomes, not process
Permissible uses are broad, and not overgrown with bureaucratic process kudzu. Braintree renovated its historic town hall:
“People looked around and saw other communities were starting to spend the money from the CPA,” says Juan Carlos Serna, who chaired the CPA campaign committee in
10. Rather than assault NIMBYism, channel it
Preservation fits nicely, as it harnesses the NIMBY’s rather than provoking them
“We acknowledged that we had an increasing need for affordable housing, and yet [
There’s only one downside. In land-tight
But, by definition, preserving open space removes land from the market, potentially making it harder to build housing. And it was no surprise that many towns jumped on the CPA bandwagon specifically to buy land and head off development.
“The best response,” says Doug Foy, the state’s chief development official, “is to try to get more cities into the mix.” But some mayors have complained that it’s tough to win tax approvals in urban centers, despite exemptions from the CPA surcharge for lower-income homeowners.
Tom Callahan, executive director of the Massachusetts Affordable Housing Alliance, has a simple explanation for why so few cities have adopted the act. “Not many have tried,” he says.
Seven cities have approved the preservation act: Agawam, Cambridge, Easthampton, Newton, Newburyport, Peabody, and Westfield.
A 2001 campaign to pass the CPA in
