Taxpayers Foot Bill for Housing Subsidies for 1,800 State Employees

Bureaucracy is not well known for policing itself.  In pursuit of its mission, self-described as always a noble one, it often casts aside common sense.  The justifications developed for its actions can be humorous, especially when they are delivered with a straight face by an earnest departmental spokesperson. 

California is home to about 330,000 state employees.  On a per capita basis, this is actually below the national average, but civil servants in California earn more than the average state taxpayer and they enjoy generous retirement packages.  Of these 330,000 government workers, some 1,800 enjoy an additional benefit: subsidized state housing. 

From prison wardens to California Highway Patrol officers in remote locations, some of these public servants would, at first blush, appear to be serving in hardship posts deserving of perks like low-cost housing. 

Unfortunately, anything resembling consistent logic in the pricing and use of state employee housing seems to have long been forgotten by the system.  This has led to a surprising array of rental policies.  For example, some state park rangers pay $148 a month to live in newly restored, million dollar, three-bedroom cottages right on the Pacific Ocean in Orange County.   Contrast this with employees who care for aged veterans in the remote desert town of Barstow who, subject to room availability, pay $10 per night ($300 per month) for the privilege of staying overnight in a tiny room in the veterans’ home where they work. 

Of course, it is not supposed to be this way.  In 1994, Gov. Pete Wilson issued an executive order requiring agencies to determine fair market value for the housing they provide for their employees.  In 2003, Gov. Gray Davis ostensibly followed up with a similar order.  Even government employee union contracts stipulate that, if provided housing, they may have to pay fair market value. 

California’s Department of General Services manages the state’s office buildings and housing.  It determines housing fair market value based on factors such as age and size of the house and rental value of nearby private properties.  The trouble with implementing this policy is that individual agencies are then able to discount as they please from the calculated fair market value. 

The Department of Parks and Recreation compounded this arbitrary discount with an added bureaucratic fiat.  Three years ago, they sought the authority from the Department of General Services to make their own fair market value calculations.  They then proceeded to claim that, since they were not allocated any money for that purpose, they were unable to make the calculations they asked to make! 

Sadly, California’s slipshod administration of its housing subsidies may trigger a sizable Federal tax liability for some unsuspecting California state employees who enjoy an in-kind housing benefit.  IRS rules state that unless the employee must stay in the house as a condition of employment (for instance, a lighthouse keeper), they may have to pay income tax on the value of the subsidy.  Currently, fewer than 300 employees have their housing allowance subsidy reported to the IRS as taxable income.  This leaves about 1,500 state workers potentially at risk in a tax audit.  Many of these employees enjoy a tax-free housing benefit worth more than $30,000 a year. This is a great perk, until the tax man comes calling.