As rents rise in Portland, city and state officials are racing to find public dollars for people on the edge of homelessness.

City Hall is trying to pass a $258 million property tax bond to fund affordable housing. State legislators pledge to consider a temporary cap on rent increases next session.

Yet the vast majority of subsidies for housing come from the federal government—most of them in the form of tax breaks.

Low-income housing advocates are now wondering why Oregon's senior U.S. senator has proposed a brand-new public housing subsidy that wouldn't help the people who need it most.

Sen. Ron Wyden (D-Ore.) this September introduced a housing tax credit worth upward of $3 billion over 10 years that would encourage real estate developers to build units for the middle class.

Wyden's suggested use of coveted federal resources has low-income housing advocates bristling—and Portland housing officials saying they don't need the subsidy.

"[Wyden's] proposal is misguided at best, and wasteful at worst," says Diane Yentel, executive director of the Washington, D.C.-based National Low Income Housing Coalition. "There are literally more children living in homeless shelters throughout the country than there are severely cost burdened middle-income renters."

The policy fight pits the poor against the middle class in a scramble for scarce federal housing resources. At the center of the fight is Wyden, who is expected to sail to re-election next week and is the ranking Democrat on the Senate Finance Committee. He may take on an even more powerful role as head of the Senate Finance Committee if the Democrats gain control of the chamber.

Wyden's office says his bill is intended to help everybody who is seeking affordable housing, not just the most rent-squeezed residents.

"Sen. Wyden introduced his middle-income housing tax credit proposal because one of the most common issues that comes up in conversation with Oregonians statewide is the struggle to find affordable homes," says Wyden's Finance Committee staffer, Ryan Carey. "Nearly 30 percent of middle-income renters in Oregon are rent-burdened, meaning that they spend around a third or more of their income in rent."

The legislation would create tax credits to be allocated to each state based on population. In turn, state housing agencies would award the credits to interested developers who would create units affordable for anyone making between 60 and 100 percent of the local median income. Unused credits could be rolled over into the existing Low Income Housing Tax Credit program the following year.

Yet statistics pulled from U.S. Census data by the National Low Income Housing Coalition show the people at the very bottom of the economic ladder are facing the worst of the housing crisis.

Portland housing officials say tax breaks for the middle class—such as a single person making the median income of $51,310—aren't a priority in a city where 81 percent of very low-income residents spend more than half their income on rent.

"It's not a citywide problem in Portland," says Portland Housing Bureau director Kurt Creager, though he notes some neighborhoods have become unaffordable for median-income households. The city hasn't taken a position on Wyden's bill—and Creager says he's reluctant to criticize Wyden.

"We'd like to work with Sen. Wyden on a creative solution," he adds.

Already, federal and state tax codes assist home-owners with the mortgage interest deduction, the largest public subsidy program for housing in the country.

In Oregon, the tax filers who claim the largest bulk of that subsidy are those that need it least. In all, 34.4 percent of the $500 million spent each year on the deduction goes to households earning more than $119,000 a year.

But a tax incentive to create housing for middle-income earners would be new.

Portland's housing crunch has certainly hit middle-income residents hard.

Nearly a quarter of Portland residents earning from 81 to 100 percent of the median are spending upward of 30 percent of their income on rent, according to National Low Income Housing Coalition.

The advocates acknowledge Wyden has championed low-income housing, including an expansion of the Low Income Housing Tax Credit program. Yet they argue Wyden's bill isn't directing federal aid to the people who need it most.

Tom Cusack, a retired federal official from the Department of Housing and Urban Development in Portland, agrees with Wyden's critics.

"With limited resources," Cusack says, "you ought to do the most to help the people with the greatest need."