At its August meeting, the Minnesota Housing Finance Agency board took action on a proposal to convert historic Fort Snelling buildings into affordable housing, heard highlights of the 2018 draft Affordable Housing Plan, and considered modifications to the Public Housing Grants Request for Proposals. The board also approved $23 million in grants to administrators to provide rental assistance through the state housing trust fund program and $632,000 in Enhanced Financial Capacity Homeownership Initiative grants.

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Commissioner Mary Tingerthal opened the meeting by thanking Northwest Area Foundation for the temporary use of their meeting space as the Agency moves to an office space across downtown St. Paul. Tingerthal added that the Agency should be set up in its new space by September 8.

Fort Snelling Upper Post

First, the board took action on Dominium’s request for several policy waivers for the Upper Post development at Fort Snelling to access tax exempt bonds from the Agency’s entitlement allocation. Building on his presentation to the board in July, Paul Sween, Principal at Dominium, described the benefits of the proposed conversion of historic Fort Snelling buildings into 176 family units of tax credit housing. Sween said that these homes would provide accessible transit to the approximately 30,000 jobs related to the airport and Mall of America. He said that Dominium’s request is less than 7 percent of the state’s federal tax exempt bond allocation and that the fees his company would pay offset any financial loss to Minnesota Housing should they forgo the use of tax exempt bonds for other purposes. Sween referred to a letter of support signed by seven members of Minnesota’s Congressional delegation and pointed to a list of projects in other states also being financed through a combination of housing and historic tax credits.

Minnesota Housing staff member Ryan Baumtrog countered the Dominium proposal by pointing out to board members that the waivers requested run counter to not just Agency policy but also state statutes establishing priority for use of tax exempt bonds for preservation of housing with federal rent subsidies. Baumtrog added that if the amount of tax exempt bonds requested for Upper Post were spread across rental projects in other areas of the state, 500 units of affordable housing could be created, in contrast to the 176 units proposed by Dominium. He added that the Agency was currently reviewing proposals submitted through the consolidated RFP that would use $120 million in tax exempt bonds to create 1,400 units of housing.

Minnesota Housing Chief Finance Officer Kevin Carpenter referred to his own memo, in which the Agency’s financial advisor asserted that using bonds for homeownership, instead of rental, provides more financial benefit to the Agency than Dominium suggests. Because of the Agency’s ability to recycle bonds, the financial benefit to Minnesota Housing is actually $4.8 million — substantially more than Dominium’s estimated $1.2 million benefit to the Agency.

Board Chair John DeCramer reminded his fellow board members that they comprised an independent decision-making body. Board member Rebecca Otto said that she found the Dominium presentation offensive because it implied that the board members did not understand the financial ramifications of Dominium’s proposal. Member Craig Klausing said that, to justify taking action that’s inconsistent with Agency policy, he would want to see how that action would move the needle in advancing the Agency’s mission. He hadn’t seen that in Dominium’s proposal. Klausing said that letters from the Governor and members of Congress were not relevant to his analysis. Chair DeCramer said it appeared to be a good project but not something with which MHFA can get involved. The board voted to deny Dominium’s request for a waiver of the preservation requirement in the Agency’s debt management policy. Because of the board’s denial of that waiver request, the board did not need to address the other requested waivers.

Enhanced Financial Capacity Homeownership Initiative

In other business, the board approved $632,000 in grants to support 13 agencies through the Enhanced Financial Capacity Homeownership Initiative. Through this program, the Agency supports an integrated approach to successful homeownership, combining asset building, credit report education and repair, consumer protection training, and tax filing. The Agency expects the grants to assist 637 households. The Agency set aside additional funding for program administrator training and for incentive funds. Under the Agency’s program design, awardees are eligible to receive an incentive bonus of up to 25% of their grant amount should an awardee exceed its original program goal. Staff said that in the past year, five of the thirteen grantees qualified for the bonus.

Draft 2018 Affordable Housing Plan

John Patterson, Director of Planning, Research and Evaluation at the Agency, introduced the Agency’s draft 2018 Affordable Housing Plan (AHP) to the board. Patterson said that the process to create the Agency’s annual program funding plan started nearly five months ago with an intensive outreach effort undertaken by Agency staff. Patterson highlighted several sections of the plan. In the “need” section, the AHP states that a major housing concern is falling incomes in the face of rising housing costs. Patterson said that he expects this trend to continue. Patterson also pointed out the extremely short supply of homes priced below $250,000 – the market for first-time homebuyers. Only 1.6% of homes in this price range are on the market in the Twin Cities.

Concerning the loss of low-end market apartments, Patterson said that the Agency needs to work with its partners to consider next steps. In the AHP, Patterson also highlighted the statewide report on impediments to fair housing to be released in the coming year and the Agency’s interest in using its Capacity Program to focus on the problem of evictions.

Regarding funding, the Agency expects to allocate $1.1 billion in 2018, up $46 million from the current year. In response to Patterson’s presentation, board member Terri Thao asked about the impact of Airbnb on the supply of housing. She said that this loss of housing to the temporary marketplace was an increasing concern.

Board member Stephanie Klinzing appreciated the Agency’s focus in the AHP on preserving manufactured home parks. She asked how frequently that topic had come up in the public comments. Patterson responded that during the initial outreach, there had been a lot of interest in the Agency’s role in park preservation. Commissioner Tingerthal added that the Agency was uncertain about the most effective strategies for park preservation. The Agency is considering several preservation approaches: one that supports resident buy-outs of parks and another that supports a secondary market for manufactured home loans. A third strategy calls for infrastructure investment. The state needs more data on successful strategies, Tingerthal said. The allocation of resources in the AHP will provide an opportunity for the Agency to support a couple of pilots and generate data on park preservation.

Staff stated that comments on the AHP were due September 5 and that the board would have a program committee meeting September 11 to consider the comments before taking final action at its September 28 regular meeting.

Modifying Public Housing Grants RFP

Next, the board heard initial recommendations on modifications to the RFP for public housing grants. These grants will be funded by the general obligation bonds recently authorized by the legislature. The Agency reached out to a number of stakeholders, including many housing authorities, in its effort to improve program functionality. In response to concerns about smaller agencies having the capacity to submit the substantial applications currently required, staff is proposing to change the Agency’s process to require simple initial applications that require applicants to identify the scope of work and the consequences of not doing the work and provide information about any other funds used in the project. If an applicant receives preliminary approval for funding, Agency staff will assist the applicant with architectural and design work and in preparing the final project budget. The new application process is intended to minimize the cost and time needed for applications. Board members complimented staff on their responsiveness to partner concerns.

Rental Assistance Grants

Under its consent agenda, the board approved $23 million in grants to administrators to provide rental assistance through the state housing trust fund program. The two-year grants will assist nearly 1,500 households, most with incomes below 30% of area median, said Agency staff in its report. According to staff, administrators will take different approaches in providing assistance. For instance, some will follow a Section 8 model of subsidizing rents down to 30% of tenant incomes. Others will provide flat amounts of assistance per apartment. Staff said that in the current tight rental market, most program administrators have difficulty accessing eligible households. Owners are less willing to accept households with rental subsidies or to maintain apartments to acceptable standards. Staff stated that in the coming biennium they would explore ways to increase utilization of the Agency’s rental subsidies.

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