Category Archives: Poverty & income gap

One of Three Virginia Children Unready for Kindergarten

Source: Joint Legislative Audit and Review Commission

Roughly one third of Virginia children lack the social, self-regulation, literacy or math skills needed for kindergarten, finds a study on early childhood development released by the Joint Legislative Audit and Review Commission (JLARC).

(That estimate was derived from a representative sampling from 63 of Virginia’s 132 school systems, so a comprehensive statewide survey might yield a different percentage.)

Factors such as poverty, low birth weight, and maternal substance abuse place childrens’ early development at risk and strongly influence whether they will be ready for school. The scientific research is clear, says the JLARC report:

Very young children who grow up in — or are regularly exposed to — safe, language-rich, and healthy environments, with caregivers who support their curiosity and learning, are likely to enter school ready to learn. Conversely, children not exposed to such environments are less likely to be ready for school and are more likely to be held back, enrolled in special education classes, and perform poorly in later grades. Those same students are more likely than their peers to commit crimes, become teen parents, and rely on public assistance as they grow older. … Each of these outcomes can carry significant financial costs to government, including the state.

Virginia has 13 “core” early childhood development programs, including seven voluntary home visiting programs for expectant mothers, the Virginia Pre-School Initiative, the Child Care Subsidy Program, and two Individuals with Disabilities Education Act programs. The state spent $144 million on early childhood development programs in FY 2016; total federal, state and local spending amounted to $359 million.

An opportunity exists to improve the effectiveness of the state’s spending commitment without spending more money, JLARC concluded. “Careful attention is needed to whether programs are well designed, implemented as designed , and perform effectively.” But there is insufficient data to evaluate which programs are delivering the most bang for the buck. 

Bacon’s bottom line: By all means, we should evaluate the efficacy of Virginia’s early childhood development programs and reallocate resources to programs that deliver the most value. But such fine-tuning of the existing system amounts to rearranging the deck chairs on the Titanic when one out of three Virginia children is unready for kindergarten. Virginia appears to be experiencing what can only be interpreted as a slow-motion societal collapse.

Lagging childhood development is strongly correlated with poverty and other phenomena such as low birth weight and maternal substance abuse that are also strongly correlated with poverty. The percentage of Virginia’s population in poverty at present runs about 11%. Yet one-third (subject to revision if we could obtain statewide data) of children are unready for kindergarten. Why the three-to-one disparity? A big portion of the problem, I submit, is demographic: Mothers in poverty have more children than middle-class mothers do, and they have children at much younger ages.

At 64 years of age, I’m about to become a grandfather for the first time. My eldest daughter, whose baby is due in literally one or two days, is 32 years old. Like her 30-year-old sister, who wants to have children but is waiting until her family’s career and finances are in order, and like the vast majority of middle-class Americans, she waited until she completed her education, found a job, got married, saved money, and achieved financial stability. Poor people don’t hew to the same family planning logic. Although the number of teen pregnancies is declining, poor women tend to give birth at a much younger age than their middle-class peers do, and they tend not to be married. (This proclivity, by the way, applies to all races and ethnicities.)

Given the strong correlation between poverty and low literacy levels, substance abuse, single-parent households, child neglect and a host of other pathologies, it should come as a surprise to no one that the percentage of Virginia’s young children ill equipped for kindergarten is increasing. And it should surprise no one that the percentage of teenagers ill equipped to graduate from high school is increasing, and that the percentage of young adults ill equipped for college is increasing. The same problem is manifesting itself on every step of the educational ladder.

Yes, we need to treat the symptoms of this systemic problem by, among other things, helping prepare young children for kindergarten. But the same pathologies that hinder readiness for kindergarten also hinder progression to 1st grade and beyond. In the long run, the most important thing we can do is to persuade teenagers and young women that they can improve their lives by adopting bourgeois values — deferring gratification, staying sober and delaying child bearing until they have completed their education, formed a stable marriage, and found a stable job.

Is the Big Problem at Richmond Schools Decrepit Buildings or Teacher Turnover?

Linwood Holton Elementary School in Richmond. Richmond has several beautiful new schools. What difference have they made?

The City of Richmond is debating proposals to spend $740 million to $800 million to modernize the city’s school buildings after years of neglect. The latest new wrinkle reported by the Richmond Times Dispatch is that the Richmond School Board has delayed a vote on the grounds that it needed more time to ponder the plan. The main concern expressed so far — where on earth would the money come from? — is valid. But there is an even more fundamental question: Will modernizing school buildings do anything to reverse the school system’s atrocious under-performance?

No question, many school buildings are aging and sub-standard, with crumbling tiles, broken toilets, wheezing HVAC systems, and leaking roofs. They are an embarrassment and a disgrace, and they need to be fixed. But that should cost a fraction of the sums being discussed.

Based on the conviction that creating a better physical environment can improve academic performance, Richmond has built several expensive new school buildings in recent years. As part of their deliberations, School Board members should examine whether those buildings have made any difference in educational achievement of the children who passed through their doors.

Here’s what I hear. While new buildings provide a better physical environment, poor children from broken homes in inner city neighborhoods bring the same emotional and disciplinary issues to school. Young, inexperienced teachers are shocked and dismayed by the environment, they get burned out and they leave. The Richmond school system has such a horrendous reputation among teachers in the metropolitan area that it couldn’t hire enough to fill its classrooms this fall, meaning it has had to rely more heavily than ever upon substitute teachers, some of whom probably shouldn’t be teaching at all. Prediction: Richmond’s teacher shortage will get even worse in January when burned-out teachers decide after Christmas Break they don’t want to return.

Once basic health and safety standards are resolved, Richmond schools have more urgent priorities than building fancy new school buildings. Above all, the system needs to address the problem of school discipline and teacher churn.

Poverty, Government, and the Bourgeois Virtues

Richmond Mayor Levar Stoney. Photo credit: Richmond Magazine

Unwinding historical injustices that trap African-Americans in inter-generational poverty is “the moral challenge of our time,” Mayor Levar Stoney told attendees of at an anti-poverty conclave at Virginia Union University Tuesday. Policy decisions that hurt the poor “have done more to hold the flesh and blood of our city back … than any bronze and granite has,” he said in an apparent reference to the city’s Civil War statues.

Stoney was right to re-focus the public discourse from removing statues of Confederate generals to fighting the scourge of poverty. But his lofty rhetoric raises new causes for concern. Embedded in his speech is the assumption that government can set things straight. In effect he’s saying, “The social engineers got it wrong when they created the housing projects. But trust me, this time we’ll get it right.”

Promising a “bold and courageous” budget in the future, Stoney spoke of the need to “consider some of our critical needs in housing, in public education and in poverty mitigation.” Better Housing Coalition CEO Greta Harris, co-organizer of the summit, took the opportunity to say that a “dedicated funding stream” is needed to create affordable housing opportunities and redevelop aging public housing projects.

When someone talks about addressing “critical needs” and “dedicated funding streams,” I hear “raising taxes.” When the Richmond Times-Dispatch brought up the tax issue, the mayor responded: “I’m not prepared to today to talk about any specific tax.”

I don’t want to pre-judge what Stoney has in mind, but when you’re mayor of a city, you’re likely to look to government to fix poverty. And when you run a better housing coalition, you’re likely to tout a housing program as a response to poverty. In either case, you’re likely to conflate the amelioration of the material effects of poverty with the vanquishing of poverty itself. While government anti-poverty programs do, in fact, provide shelter, food, and medical care to the poor, they do little to elevate the poor from their condition.

J.B. Bryan. Photo credit: Richmond Times-Dispatch

What poor Richmonders need is more J.B. Bryan, not more government.

“I don’t want to hear stupid crap about government programs and how the city of Richmond needs to give more subsidies,” Bryan told the T-D in a Saturday profile unrelated to the housing summit. “Real wealth opportunities are to build up the disadvantaged, not tear down our examples of success.”

Bryan’s purpose in life is to put people on a path to financial stability and wealth building. As the founder of JB Bryan Financial Group Inc., the only black-owned investment advisory firm in Richmond, she preaches what she calls AfroEconomics.

She preaches self-reliance and responsibility, not dependency. She pushes for investing over spending, the importance of financial planning and having good tax strategies in place.

She talks about the damaging effects of materialism and how people can build or repair their credit, get better jobs and, most importantly, she encourages entrepreneurship and the value of sacrifices needed to run a business.

“I am on a mission to make sure anyone who crosses my path is not broke,” Bryan said. “Success is on your balance sheet, it’s not on your back — on what you wear or what you drive.”

AfroEconomics is not about division, she said. “It stands for building a better tomorrow for everyone.”

In addition to investment advice, one might say that Bryan preaches the unfashionable “bourgeois” virtues such as hard work, thrift, and saving — values that helped generations of Americans bootstrap themselves out of poverty but now are criticized in progressive circles as an ideology of oppression.

The progressive intelligensia makes much of the wealth gap between blacks and whites. “White households in the middle-income quintile … own nearly eight times as much wealth … as middle-income Black earners,” says a recent study, “The Ever-Growing Gap: Without Change, African American and Latino Families Won’t Match White Wealth for Centuries.” And the wealth gap is getting worse. By 2024, the report says, black and Latino households are projected to own less wealth, and if trends continue black wealth will hit zero by 2053.

Somehow, blacks managed to accumulate property and modest wealth (modest by white standards) during the era of Jim Crow segregation and rampant racial discrimination, but now, after a half century of civil rights and welfare statism, they’re seeing their wealth evaporate. The usual response from the progressive camp is to double down on the theory that America is riddled with institutional racism. But, as I have documented on this blog, the decline in black wealth coincides with policies, enacted with the best of intentions, to promote black home ownership and college attendance. The bursting of the sub-prime bubble decimated black wealth after the real estate bubble, and student loans are  saddling a new generation of blacks with debt peonage.

Rising from poverty in Virginia starts with becoming employable. That doesn’t require earning a four-year degree at a residential college. It can mean learning a trade or earning a skill certification at a fraction of the investment in time and tuition. Beyond getting a good job, joining the middle class entails getting married and sharing in a two-income household, having no more children than you can afford, staying sober and drug-free, sticking with budgets, avoiding debt, living beneath your means, and regularly socking away small sums into savings.

This has nothing to do with race. This is a race-free formula. And the beauty of it is that it doesn’t require government. If government wants to help, it can provide good schools and community colleges, keep taxes low, and create a positive climate for job creation.

Richmond City Councilwoman Kimberly Gray. Photo credit: Richmond Times-Dispatch

Much to my delight, it appears that not everyone in Richmond’s African-American community shares an unwavering faith in the power of government to address poverty. City Councilwoman Kimberly Gray was one of those attending the housing summit where Stoney spoke.

Here’s what she told the T-D: “I think [a tax increase] is the easiest out for policymakers. … Ultimately, we need to find a way to sustain this, and we can’t continue to increase taxes because we get to a point of diminishing returns.”

I am pleased to hear such thinking from Gray. As her allusion to “diminishing returns” makes clear, tackling poverty is not just about the taxes, programs and good intentions. It’s about results.

Even Progressives Acknowledge the Failure of Indiscriminate Student Loans

I’ve been making the case for a couple of years now that if you’re looking for a real example of social injustice, take a look at the United States higher education system. For years liberals and progressives argued that everyone deserves a college education, that government should help anyone with a high school degree attend college, and that poor students could borrow huge sums to pay for ever-escalating tuition and fees without ill consequence. Now even the social justice warriors are waking up to the social disaster they have wrought.

Readers of Bacon’s Rebellion know full well that the policy of indiscriminately handing out student loans to everyone has created a new class of debt slaves. Not all high school graduates are academically prepared for college-level work. Not everyone who undertakes to earn a college degree is financially able to complete their degrees, even with financial assistance. As a result, literally millions of Americans have taken on college debt without earning the degree or other workforce credential that would allow them to obtain a job that pays enough to carry that debt.

The members of the new debtor class are disproportionately poor, and they are disproportionately African-American. This is a real social injustice, not an imagined one, and it has arisen from the blind pursuit of good intentions.

Finally, progressives are waking up. According to an analysis by the Center for American Progress, data from a U.S. Department of Education study provides a “first-ever look at long-term outcomes for student loan borrowers, including results by race and ethnicity.”

The data show that 12 years after entering college, the typical African American student who started in the 2003-04 school year and took on debt for their undergraduate education owed more on their federal student loans than they originally borrowed. This holds true even for students who finished a bachelor’s degree at a public institution. One reason they might not be paying down their loans? Nearly half of African American borrowers defaulted, including 75 percent of those who dropped out of for-profit colleges.

Among the detailed findings:

  • African-Americans borrow more on average than their peers.
  • The typical African-American made no progress over 12 years in paying down his or her loan. African American borrowers who started college in 1995-96 owed 101% of their loans a dozen years later, compared to 60% for whites and 72% for Hispanics.
  • A bachelor’s degree does not insulate African-American borrowers from bad outcomes. College drop-outs are not the only ones who default; college grads do, too.
  • Nearly half of all African-Americans defaulted on their student loans. One reason, suggests the analysis, is that African-Americans take on higher debt on average.
  • Seventy-five percent of African-American dropouts from for-profit colleges defaulted. (No word on how this compares to the percentage of African-American dropouts from public colleges or Historically Black Colleges and Universities.)

A conservative/libertarian reaction to this data is that the system hands out student loans too indiscriminately. Many Americans — of whatever race — would be better off learning a trade in a two-year college than attending a four-year college. Some would be better off not going to college at all and learning on the job. Student loans, like any other kind of loan, should be granted based upon a person’s ability to repay the loan.

The problem is that granting educational loans on the basis of a student’s ability to repay — based upon key predictors like academic preparedness and household resources — would “discriminate” against the poor and, because African-Americans are disproportionately poor, against African-Americans. In today’s political climate, that’s a non-starter.

The Center for American Progress expresses an admirable sentiment when it suggests that policymakers should strive to create a world where African American students don’t start their careers with large loan debts they struggle to repay. But the CAP’s answer is to admit more poor African-Americans into better institutions with more resources to help them succeed. How? By “fixing” admissions practices and funding systems “so that African American students do not end up disproportionately underrepresented at institutions with the greatest resources to educate them.” 

Translation: Get higher-ed institutions to admit more African-Americans in the blind hope that somehow they will do better regardless of whether they are academically prepared. Great idea. That’ll work out well.

For Irish, Italian, Jewish, Chinese, Koreans and other Americans, the typical family’s climb from poverty into affluence took place over generations. Parents sacrificed so their children could rise a step higher on the educational and socioeconomic ladder. Today’s social justice warriors are impatient. They want African-Americans to vault from Mosby Court to the University of Virginia and a job in the hedge-fund industry in a single generation. A handful of individuals are so extraordinary that they can succeed. Most aren’t. Instead of reaching for achievable goals for self improvement, millions are pursuing unrealistic dreams and winding up in debt bondage as a result.

Justice for Whom?

The Legal Aid Justice Center, which has released another report decrying differential rates of suspensions and expulsions in Virginia public schools, is described by the Richmond Times-Dispatch as an organization that “works to fight injustice.” I have no doubt that the Legal Aid Justice Center sees itself on the side of the angels, but I’m surprised that the Times-Dispatch accepts the group’s self definition so uncritically. I’ve never heard of an organization anywhere claiming to fight for “injustice.” It’s really a question of whose justice is being fought over.

In this case, the Legal Aid Justice Center (LAJC) fights for “justice” for black students who commit offenses that get them suspended or expelled. Making an issue out of the fact that blacks were suspended in Virginia about four times as often as Hispanic or white students in 2015-16, the LAJC calls for sweeping changes in school disciplinary policies and, of course, more money to implement them.

The LAJC is not fighting for “justice” for black children whose classrooms are disrupted by trouble makers. While the organization goes to great pains to measure the rates of suspensions and expulsions by race, it makes no effort whatsoever to measure the race of those whose educations are deprived by the ne’er-do-wells. Indeed, its report, “Suspended Progress 2017,” shows no interest in their plight whatsoever.

The front-page Times-Dispatch article quotes extensively and uncritically from the LAJC report. The reporter doesn’t quote anyone else who has studied school disciplinary issues, nor does he quote anyone from the Virginia Department of Education or local school districts. The reporter never informs the reader that parents — including many black parents — are often dismayed by the lack of discipline in many schools.

The report found that Virginia schools issued over 131,500 out-of-school suspensions to over 70,000 individual students in 2015-16, an increase in the overall suspension rate for the second year after several years of declines. Virginia schools use “exclusionary” discipline with very young students at an “astonishing” rate, states the report. And the majority of suspensions were issued for minor offenses — “approximately two-thirds of all suspensions given [were] for behavior offenses, such as possession of cell phones, minor insubordination, disrespect, and using inappropriate language.”

Perhaps most disturbing is that Virginia schools continue to disproportionately suspend African-American students and students with disabilities. The suspension rate for African-American students was 3.8 times larger than for Hispanic and white students. Students with disabilities were suspended at a rate 2.6 times larger than that of their non-disabled peers. When examining the effects of race, sex, and disability, the results are especially troubling: African-American male students with disabilities were almost 20 times more likely to be suspended than white female students without disabilities.

The authors never talk to anyone in the educational front lines — the people meting out the discipline — to get their perspective on what’s happening. The authors assume from the get-go that racial disparities in disciplinary actions are in and of themselves evidence of injustice — no other explanation needed.

The LAJC never pauses to consider that the reason why African-American male students with disabilities are disciplined at a higher rate is that they are committing offenses at a higher rate than white female students without disabilities. Given what we know of the breakdown of the family, the geographic concentration of poverty, and how many poor single mothers lose their children to “the street,” it should not surprise anyone that behavior problems are rampant in poor communities generally and poor African-American communities specifically.

This chart, which appears in the “Suspended Progress” report, shows the school districts where the highest rates of suspensions occur. Every one of these has high percentages, often majorities, of African-American students. Let’s take the City of Richmond, with which I have some familiarity. Most teachers are African-American, most principals are African-American, the superintendent is (or was, before he was canned for political reasons) African-American, and the school board is predominantly African-American. It defies reason to think that anti-African-American bias is permeating Richmond school disciplinary practices.

The real problem is that teachers and administrators in Richmond are grappling with large numbers of students who come from exceedingly challenging environments like housing projects riddled with violence, drugs, crime, and murder where the norms of bourgeois behavior have utterly collapsed. Eighteen percent of the student body was suspended because 18% of the student body committed offenses against school rules.

The LAJC engages in a classic case of defining deviancy down by declaring that cell phone possession, disrespect, and “inappropriate language” as “minor” offenses. We didn’t have cell phones when I was a kid, but I can assure you that being disrespectful to teachers and using profanity assuredly would have warranted disciplinary action at my school. The phrase “inappropriate language” sounds inoffensive, but I question whether students are suspended for using the occasional profanity. As for cell phone possession, the LAJC’s own data shows that the number of students disciplined for that offense is a minor cause of short-term suspensions and a negligible one of long-term suspensions.

The biggest causes of disciplinary action are disruption of classrooms or campus, defiance of authority, disrespecting teachers. Some offenses may seem “minor” if viewed in isolation. But we have no sense from these numbers how often similar offenses are routinely ignored, and we have no sense how often students have been lectured or given second or third chances before finally being slapped with a disciplinary action.

I find especially noteworthy the LAJC’s observation that after two years of supposedly improving statistics that suspensions and expulsions have increased for two years. How do we explain this? Have teachers and administrators become less rigorous in their adherence to the protocols imposed by the American Civil Liberties Union and the Obama administration justice department? Have they become more biased in their attitudes against African-American (but not Hispanic) students? Or has discipline gotten worse under those protocols? Have the supposedly “proven alternatives” like “restorative practices, multi-tiered systems of support, and emotional learning programs” failed to maintain discipline? Indeed, do misbehaving students, perceiving that they are less likely to suffer adverse consequences from their actions under the new regime, felt freer to act disruptively?

Locked into its mindset that views every racial disparity as evidence of a social injustice, LAJC never asks those questions. But Richmond Times-Dispatch reporters and editors should not accept social justice warrior dogma without question. In fact, if the Times-Dispatch were truly interested in social justice, it would conduct its own inquiry into how LAJC-inspired disciplinary policies are working out.

Plugging “Mercy” into the Judicial System

O. Randolph Rollins, founder of Drive to Work.

Just when it looked like the country was so locked in partisan gridlock that no one could agree about anything, along came the Republican-dominated General Assembly, the Democratic governor, and the Virginia Supreme Court to put into place reforms that make it easier for people owing court fines to keep their drivers licenses and continue driving to work.

More than 600,000 Virginians have had their drivers’ licenses suspended for failure to pay court fines, and nearly 200,000 have had them suspended for drug offenses unrelated to driving. The penalties, which arose from war-against-drugs legislation in the 1980s, trapped people in a cycle of poverty. But over the past decade, the unintended consequences have grown too big to ignore.

As House Speaker William H. Howell described it during a panel discussion at the annual banquet of the Drive to Work non-profit Monday, the suspension of drivers licenses for failure to pay court costs is reminiscent of 18th-century debtor’s prison. If someone can’t pay his court debts, he can’t drive. If he can’t drive, he can’t work. If he can’t work, he can’t pay his court fines. And if he gets caught driving repeatedly with an unsuspended license, he goes to jail… where he can’t work or repay fines.

As it became increasingly clear that the license-suspension penalty was adding immeasurably to the hardship of poor Virginians — an awareness raised largely by the Drive to Work program — a bipartisan consensus emerged that the system needed to change. After picking at the edges of the problem for several years, the General Assembly passed six bills in the 2017 session addressing the drive-to-work issue.

Perhaps the most significant reform was the measure that gives judges more leeway to consider an individual’s circumstances before suspending his or her driver’s license. A law enacted in 2015 conveyed a policy message to the judiciary that they should apply the law more flexibility, but provided few specifics. The Judicial Council, which is charged with overseeing the rules and procedures of Virginia’s judicial system, issued guidelines to local judges on how to apply the law. In 2016, the chief justice of the Supreme Court appointed a panel to devise “rules of law” that carried greater weight than the guidelines. Early this year, Del. Manoli Loupassi, R-Richmond, introduced a bill that would embed the rules of court into state statute.

Speaking in the panel discussion, Loupassi described how he thought his bill had “zero percent” chance of passing until Governor Terry McAuliffe and Secretary of Public Safety Brian Moran made it an issue. Before he knew it, other key legislators fell in line. “It’s a great thing,” he said. “There is something inherently good and positive about people working.”

Associate Supreme Court Justice William C. Mims praised the bipartisan nature of the legislation. The reforms have occurred the right way, he said. They weren’t imposed by judicial decree but emerged organically from the interaction between the General Assembly, the Supreme Court and the McAuliffe administration, which added a key provision to the bill.

“The system worked, and it worked for all the right reasons,” he told Bacon’s Rebellion. The courts “plugged mercy into the equation.”

Related laws enacted this year created a uniform set of standards for people with suspended licenses to repay their court fees, and gave judges more discretion not to suspend the driver’s license of some one convicted of a first-time marijuana possess in offenses unrelated to their driving.

In a keynote speech, McAuliffe framed the drive-to-work initiatives as part of a larger effort to make it easier for felons to return to productive lives after their release from prison. He cited other programs such as transferring youths from central state-run facilities to locally based programs near their homes, cutting the cost for prisoners to make phone calls and maintain contact with family members, and starting programs that help felons get their state ID cards and drivers’ licenses before their release from prison. It’s no accident, he added, that Virginia has the lowest recidivism rate in the country.

“We want everyone back in society,” he said. “We want to help their re-entry. We want them providing for their families, and paying taxes.”

While great progress has been made, O Randolph Rollins, founder of Drive to Work, said more remains to be done. Looking ahead, he wants to decouple drug convictions from the loss of driving privileges. The law enacted in the 2017 session, which relaxed the penalty for marijuana possession, was a “baby step” in the right direction, he told Bacon’s Rebellion. He wants to break the link between all drugs — even including cocaine, heroin and meth — and driving privileges.

Roughly 185,000 Virginians have had their licenses suspended for drug offenses, he said. Only about 1,000 of those offenses were tied to driving, such as driving under the influence of drugs. If lawmakers want to put drug abusers in jail or go to treatment, that’s a different debate. But it makes no sense to take away their right to drive, he said. Taking away their license does little to deter them from abusing drugs. But it does interfere with their ability to make a living and support a family.

Second Chart of the Day: Unemployment

Source: Commonwealth Institute

Another chart from the Commonwealth Institute based on the latest U.S. Census data: poverty rates across Virginia metro areas.

Here’s what leaped out at me: Every single metro area, from Harrisonburg to Winchester, had a poverty rate below the statewide average of 11%. How high must the poverty rate for non-metro (aka rural) Virginia be to skew the numbers in such a way? As Augie Wallmeyer says, there are two Virginias.

A Better Model for Lending to the Poor

LendUp office in Chesterfield County. Photo credit: Richmond Times-Dispatch.

It’s time to introduce into the public lexicon a distinction between “social justice warriors” and “social justice entrepreneurs.”

Social justice warriors (or SJWs, as they are known short-hand on some conservative blogs) seek to remedy the conditions of the poor and downtrodden through political action, typically calling upon government to wield its power and money to fix some perceived institutional wrong.

Then there are social justice entrepreneurs. Instead of seeing government as the answer, they look to private action: creating new business and not-for-profit models to help the poor. The entrepreneurs don’t agitate, they don’t wave placards, and they don’t frequent protest rallies. They go out and change peoples’ lives for the better.

Regular readers of this blog know that I have no patience with SJWs, most of whose “remedies” are counter-productive, if not outright destructive. By encouraging the poor to buy houses they can’t afford, take out higher-ed loans for degree students never complete, and shutting down lenders-of-last-resort like payday lenders, SJWs have worsened the plight of the poor — all for the most noble of motives, of course.

California-based LendUp Global Inc., is an example of a social justice enterprise that has the potential to help ameliorate the lives of millions of poor people — without a single dollar of government funding. The company, which has established its first East Coast office in Chesterfield County, was recently profiled by the Richmond Times-Dispatch. I base the following account upon that article.

Sasha Orloff had worked in finance, including an internship at the Grameen Foundation, a global nonprofit co-founded by Nobel laureate Muhammad Yunus that provides micro-financing for poor people in developing countries.  His experience there inspired him and his stepbrother Jake Rosenberg, who had worked in technology at Yahoo! and an online gaming company. They conceived the idea of tapping the emerging FinTech industry to make small loans to an estimated 100 million Americans, mostly poor with low credit ratings and income volatility, who cannot get loans from traditional banks. In early 2016, LendUp raised $150 million in venture capital with the goal of becoming a better small-loan provider.

As with payday lenders, LendUp’s interest rates are extremely high on small, short-term loans. A $250 loan repayable within a month would carry a finance charge of $44, equivalent to an annualized interest rate of 214 percent. Interest payments must cover the transaction costs of making the loans, after all. They also reflect the increased risk on non-payment by low credit-score borrowers. 

As Rosenberg acknowledges, “There is a subset of the population that actually needs payday loans, and for this population, banks cannot readily serve them for a wide range of reasons.”

“Yes, payday loans are expensive. The real problem is there is no other options,” he says. “The average borrower is getting ten [payday loans] a year, and they have no pathway to a better product. The key thing is, we’ve tried to create a model where we win when the customer wins. … We do that by trying to incentivize behaviors that are constructive to the consumer’s financial life. If they do those things, they get access to more, the cost goes down, and the amount of capital they can get goes up.”

LendUp offers customers a “ladder” out of the indebtedness trap. The company provides financial, advising customers on how to improve their credit rating and qualify for lower cost debt. Borrowers can win points by paying back loans on time. As they prove themselves, they can work from payday-like loans to installment loans of up to $1,000 with lower interest rates.

Earlier this year, LendUp passed the $1 billion mark in loans provided. It has made more than 3.5 million loans.

Time will tell if LendUp has a profitable business model. But if it does, it should have no trouble attracting capital and expanding. Most likely it will attract competitors, and it will push the payday lending industry to reform itself — either develop a better business model or get dismembered by new tech-savvy, FinTech enterprises.

Interestingly, although LendUp’s East Coast operation is based in Virginia, the company does not offer loans in the Old Dominion. The article does not explain why, but don’t be surprised if there are regulatory restrictions inspired by do-gooders trying to protect the poor from predatory lending.

Motels as Housing of Last Resort

Flagship Inn, Petersburg

Two Sundays ago the Richmond Times-Dispatch ran a disturbing special report on poverty and housing insecurity along the Jefferson Davis Highway in Chesterfield County. Hundreds of people live in shabby motels, paying $200 or more per week to live in conditions almost as deplorable as Richmond’s public housing projects. These hotels, the housing equivalent of pawn shops and payday lenders, serve the poor and the desperate who have nowhere else to turn. It is depressing to think that people live this way.

People pay huge sums — $200 per week translates into more than $800 per month, enough to rent a nice, two-room apartment in a decent neighborhood — to dwell amidst deplorable conditions. Many hotel rooms have roaches, bedbugs and other insect infestations. The article cites leaking sewage, mold, mice droppings, and inoperable door locks. Conditions sound similar to those of the public housing projects — without the same level of crime.

The plight of some of the residents is truly pitiable. Latisha Ragland, a single mother with three children, lives in the Flagship Inn in Petersburg. The 39-year-old had most of her right leg amputated because of complications from diabetes and high blood pressure. She receives dialysis three times a week, and is waiting for a kidney transplant. She receives $735 a month in disabilities benefits but spends $220 a week for rent. Any unexpected expense is devastating. Stressful insecurity adds to the misery of her circumstances.

It seems absurd that someone must pay the equivalent of nearly $950 per month in rent (4.3 weeks per month x $220) for a literally lousy hotel room. The article prompts the question of why tenants have to pay so much. Are people like Ragland being exploited by greedy motel landlords?

That’s hard to say because landlords would not talk to the reporters. The lawyer for one responded, “There’s plenty of other hotels. Obviously, it’s not that bad or she would leave.” That’s not much of an answer.

But there are hints in the special report as to why the rents are so high. People who live in hotel rooms come only when they can’t find housing anywhere else. Other than living in a tent in the woods, this is truly housing of last resort. Who are these people? For the most part, they live hand-to-mouth and have terrible credit. Who would pay $950 per month if they could qualify to rent their own apartment?

Evidently, some tenants fail to pay their rent. Consider the predicament of the landlord. Anyone who stays at a motel for longer than 90 days has rights under the Landlord-Tentant Act. Landlords can evict clients for non-payment only after giving them a reprieve to allow them to come up with the money, and only after a court proceeding. Sometimes unpaid rent can accumulate to substantial sums.

The T-D cites the situation of Trimaine Reed, living at the America’s Best Value Inn, who took the motel to court after living with cockroaches for three years. In return, the motel tried to remove her for failing to pay $4,016 in rent. The judge ruled against her, she claimed, because she had forgotten the paperwork laying out her defense.

The larger point is not whether Reed was fairly or unfairly evicted. The point is that motel owners are dealing with clients with terrible credit quality who frequently fail to pay their rent. Motel owners either eat the lost rent or attorneys to collect it in court. In either case, they bear a substantial cost which must be compensated for by charging what seems to be unconscionably high rents. The situation is directly analogous to payday lenders who charge what seem to be unconscionably high interest rates to clients with a high propensity for default.

What is to be done? How does society at large deal with the heart-breaking stories of people who live in these motels? Cracking down on the motels does not seem to be a viable option. Driving the motels out of business will leave the tenants with no place to live. Some say Chesterfield County should encourage more affordable housing by requiring developers to add affordable-housing units as a condition of development. That’s fine if you’re OK with wealth transfers from the middle-class to a lucky few who qualify for those apartments; regardless, the lucky few won’t come from the ranks of the motel people because landlords would accept only lower-income tenants with the very best credit. Another option mentioned by the T-D is to create rental subsidy program funded in part by the county. That’s fine if you’re OK with tapping middle-class taxpayers.

None of the traditional remedies look good. But let me throw out an idea. There does seem to be an opportunity to create a charity-based enterprise. Because of their poor credit, motel tenants are paying outrageous sums for terrible living conditions. Address the credit issue, and a charitable entity can get the motel people into better housing at lower rents. Perhaps a charitable enterprise could bundle a couple hundred of these people, in effect pooling the risk and functioning as a co-signor so tenants can qualify for better housing under more favorable terms. Inevitably, some clients would default and the charitable entity would have to eat some bad debt, so it would be necessary to inject some charitable capital or public housing funds to maintain solvency. But in theory, tenants will be at lower risk of falling behind on their rent because they will be paying a significantly smaller percentage of their income. It’s an idea worth noodling.

Public Housing Vs. Private Housing, Round Two

A couple of weeks ago, I published a post, “Your Taxpayer Dollars at Work: Stuffing Poor People into Hideous Housing,” trying to put the $150 million maintenance backlog at the Richmond Redevelopment Housing Authority into context. I noted that the RRHA’s $65 million budget, spread over 4,000 public housing units, amounts to $16,250 per unit per year, which would buy luxury digs in the private rental market. That seemed like an outrageous amount of money, I wrote. However, I made it clear to readers that I needed to vet my “back-of-the-envelope calculation” before drawing any authoritative conclusions.

It’s a good thing I added that disclaimer because, in fact, I did omit relevant information. Hang with me because this gets a bit involved. The Richmond Times-Dispatch ran an unsigned editorial citing my numbers, unfortunately without noting my caveats. RRHA CEO T.K. Somanath took justifiable umbrage at my suggestion that for the money it spent, the authority could put housing project residents into a posh apartment in Richmond’s Manchester neighborhood. In point of fact, he said, the RRHA spends only $30 million maintaining its public housing project. The rest of the budget is dedicated to real estate and community development projects.

Somanath chastised the T-D for “parroting the grossly inaccurate musings of libertarian blogger Jim Bacon,” although he did acknowledge that my piece had contained the aforementioned caveats. The T-D reprinted Somanath’s letter and responded, as appropriate, that he was “quite right. We’re grateful for the additional context, and we should have included it in the original piece.”

But Somanath doesn’t get off the hook so easily. Let’s take a closer at the numbers.

The figures at right come from the RHHA’s 2014 annual report. (The numbers in the 2015 annual report are not as detailed, and the 2016 annual report has not been published yet.) The heading atop the column refers to the “Total Low-Rent Housing Fund Group,” which, if I am not mistaken, refers to public housing.

Thus, we can see that the RRHA spent $31.2 million in 2014 on Richmond’s public housing projects. Of that amount, “operation and project cost” amounted to $28.4 million. Averaged over the 4,000 housing units, it cost about $7,100 a year per unit to operate and maintain Richmond’s public housing. Please note: That’s just to operate and maintain the properties.

To make an apples-to-apples comparison between the cost of public housing and the cost of private-sector housing, we would have to include the capital cost of purchasing land and making improvements equivalent to the public housing units.

We can get a sense of the capital cost by looking at the City of Richmond assessments. I looked up the assessments for Mosby Court, South Mosby, North Mosby, Whitcomb Court, and Creighton Court, accounting for 1,501 apartments all told. (If I had all day, I’d dig up assessments for the other public housing units, but this is a blog — I don’t have all day.) The land and improvements for those properties totaled $47.4 million, averaging $31,600 per unit. If assessments are similar for the other public housing projects, that extrapolates to a value of about $126 million for the entire portfolio of public housing projects.

Now, let’s say the RRHA tried to replicate its public housing portfolio from scratch, selling $126 million in 30-year municipal bonds paying a 3% yield to purchase the land and build the apartments. That would amount to an average financing cost of $1,525 per unit per year. Add that cost to RHHA’s “operations and project cost, and you get a total annual cost of $8,625 per year, or $718 per month per unit.

What can you rent in the private housing market for $718 or less per month? Well, you can rent a two-bedroom, one-bath, 800-square-foot apartment at Nottingham Green for $645. You can rent a two-bedroom, one bath, 795-square-foot apartment at Village South Townhomes for $629. You can rent two-bedroom, two-bathroom apartments at The James on W. Bacon Street (cool, huh?) for $709. The James includes a pool, fitness center, water, heat, cable and air conditioning!

You pick:

Mosby Court

or…

The James

I’m sure these comparisons could be refined. I made three requests, one by email and two by telephone, to interview Somanath and make sure I was using the RHHA numbers correctly. He never responded. If he doesn’t like these numbers, I gave him every chance to shape this article. If he changes his mind, I would welcome his input after the fact.

The disparity between public housing and private housing may not be as great as I conjectured in my original article, but it is still significant. And, to return to the point of my previous post, the original justification for public housing in the 1930s was that government needed to address the “market failure” of private builders. If the private sector couldn’t provide affordable housing for the poor and working class, government needed to step in. From the evidence provided here, it still appears that the private sector can provide superior housing in the Richmond region at a lower rental price.

My point is not to condemn the RHHA. I’m sure RHHA employees are doing the best job within the constraints they are working under. The point is that public housing projects are a failed model for sheltering low-income Americans. The logical solution is to get government out of the business of owning and operating low-income housing. Tear down the projects, let the private sector re-develop the land, and empower the poor through vouchers to seek their own accommodations.