At its January meeting, the board of the Minnesota Housing Finance Agency (Minnesota Housing) discussed the allocation of 2018 funds for the Minnesota City Participation Program, potential changes to the 2020 Tax Credit Program Qualified Allocation Plan (QAP), highlights from the recently released Key Trends in Housing, work plan priorities for the coming year and the progress of the Governor’s Task Force on Housing.

Opening remarks

In her opening remarks, Commissioner Mary Tingerthal shared that the Governor had released his public works proposal, which includes $100 million for Housing Infrastructure Bonds and $15 million for General Obligation Bonds. The most ever requested for housing by the Governor, Tingerthal said it was a good place to start and that Minnesota Housing will be carrying that strong recommendation into the session. (The Homes for All coalition is asking for $140 million in HIB and GO bonds this session; read the full agenda here.)

Tingerthal also noted one policy item in the Governor’s package: a change to the Manufactured Home Trust Fund, which levies an assessment on owners of manufactured home parks of $15 per lot per year that goes into a trust fund that is then available for relocation costs for low-income households that have to move when parks are closed. Previously, that fund was capped at $1 million, but, with two parks’ closing nearly wiping out the whole fund, the proposal is to increase the cap to $3 million.

Allocation of 2018 funds for the Minnesota City Participation Program

Under the Minnesota City Participation Program (MCPP), Minnesota Housing sells tax-exempt private activity bonds on behalf of local governments to assist them to meet local housing goals. Cities, counties and consortia of local government units applied for 2018 participation in MCPP by January 15 and the total amount available — $60.1 million — was allocated on a pro rata basis according to the population of each community that applied and met the program requirements.

Changes considered in the 2020 Housing Tax Credit Program Qualified Allocation Plan (QAP)

Devon Pohlman, Supervisor of the Multifamily Programs Team at Minnesota Housing, opened discussion about changes considered in the 2020 Housing Tax Credit Program Qualified Allocation Plan (QAP) by emphasizing that the agency understands that developers are already thinking about 2020 and beyond, and wanted to ensure that the concepts and changes considered in the QAP were brought forward earlier in the process. She also noted that given the significant changes in the 2018 QAP, the agency is taking a “focused approach” with proposed changes for the 2020 QAP only recommended for critical policy or clarification purposes.

Key changes are identified below in three categories based on their impact on: projects with 9% tax credits allocated through the competitive RFP process; tax-exempt bond/4% projects selected through the competitive RFP process; and projects receiving tax exempt bonds through the Minnesota Department of Management and Budget (MMB) and seeking an allocation of tax credits through the 4% only (42M) process.

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Clarify the tie breaker criteria by making long-term affordability a preference priority, which is given weight in the first round of a tie breaker. This change is in line with Internal Revenue Code preferences. Cost containment is removed as a preference priority and will become a selection priority.

Increase the per-developer or general partner tax credit limit to the greater of: the amount representing 10 percent of the state’s per capita volume limit in tax credits, or the amount needed to support two developments in the case that two developments selected are being developed by the same developer or general partner. Such projects are subject to the per development limit shown below.

Increase the per-development tax credit limit from $1.2 million to $1.25 million, based on an annual inflation factor.

Increase the rural development/small project set-aside from $300,000 to $350,000. This set-aside was last adjusted in the 2013 QAP. Minnesota Housing intends to apply an annual inflation adjustment factor in future QAP rounds.

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Revise the State Designated Basis Boost to apply to developments that meet one of the following two strategic priority policy thresholds: Supportive Housing or Preservation. Allocating agencies are allowed to award a basis boost of up to 30 percent to HTC buildings, and allocating agencies are authorized to determine their individual policy objectives for projects eligible for the basis boost. Minnesota Housing seeks to ensure that the boost continues to advance critical state housing priorities through targeted and strategic use. Note that many projects qualify under more than one strategic priority; for example, many projects meet the Greater Minnesota Workforce Housing strategic priority policy threshold in addition to the Supportive Housing strategic priority threshold.

Reform the Planned Community Development Strategic Priority into the Community Development Initiative Strategic Priority to streamline this strategic priority and to facilitate use of the priority by communities with active community development initiatives that include affordable housing as a key strategy. Clarify what additional information is required by federal regulations for developments in a Qualified Census Tract (QCT) for a plan to be considered a concerted community revitalization plan.

Clarify and Revise Unacceptable Practices, as outlined in the 2019 Housing Tax Credit Program Procedural Manual, which result in negative points on future application submittals or the inability to apply for future HTC rounds in severe cases. Minnesota Housing is recommending clarifications or changes that impact three areas: transfer of ownership, cost containment and compliance.

• Transfer of Ownership: Clarify that approval for transfer of ownership (more than 50 percent interest in a general partner or member, or a change in a nonprofit partner) is required for the duration of the Land Use Restrictive Agreement (LURA), and that if a transfer of ownership occurs, a fee is required throughout the term of the LURA. Also clarify that a failure to notify Minnesota Housing of a transfer of ownership constitutes an unacceptable practice for which a negative point penalty is assessed.
• Cost Containment: Clarify how penalties will be assessed for future projects. The penalty will be assessed against a future tax credit request of the same type of funding round for which the points were initially awarded. Specifically:
  • Projects awarded cost containment points in a competitive funding round (HTC Round 1 or Round 2) would receive a penalty on the next competitive HTC funding round application if costs exceed the benchmark.
  • Projects requiring points to reach the minimum score and that are awarded such points under the 4% Only (42M) allocation process would receive a penalty on the next 4% Only (42M) application if costs exceed the benchmark.
• Compliance: Add an unacceptable practice provision for failure: to comply with critical life, safety and/or compliance and monitoring procedures; or to correct or submit an acceptable timeline for correction of non-compliance after repeated notices.

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Community Development Initiative: This selection category is being streamlined to better clarify the eligibility criteria. Developments seeking these points must continue to provide evidence of a targeted geographic area for the initiative, a current implementation plan with goals or outcomes specific to the need identified by the initiative, and developments should demonstrate that affordable housing is a key strategy and there is active local stakeholder involvement.

• In addition, in order for a plan to be considered a concerted community revitalization plan, as defined in federal guidance, for purposes of the statutory preference, plans in a QCT should include a demonstrated strategy for obtaining a commitment of public or private investment (or both) in non-housing infrastructure, amenities or services.

Greater Minnesota Workforce Housing: Currently, to meet this strategic priority, projects must demonstrate need based on a low vacancy rate, have employer support and have a cooperatively developed plan. Minnesota Housing proposes to change one of these requirements and clarify a second:

• Cooperatively Developed Plan: Remove the cooperatively developed plan requirement because it is redundant of the existing strategic priority and scoring criterion focused on community development initiative efforts.
• Employer Support: Clarify that a letter of employer support is required. An employer with 20 or more Full-time Employees (FTEs) must provide a description of the difficulty employees have had obtaining affordable housing in the jurisdiction of the proposed project. A description of local wage levels and affordable rent levels must be provided. Minnesota Housing will provide a sample letter that applicants can use.

Supportive Housing: High Priority Homeless and People with Disabilities. Both of these scoring criterion are being modified to specify that, for units occupied by households without rental assistance that are seeking these points, the gross rent, including an allowance for tenant-paid utilities, cannot exceed the greater of 30 percent of the household’s monthly income or the most current supportive housing standard for the unit size as published by Minnesota Housing. Owners must establish and implement policies and procedures to specify the calculation method used to determine the appropriate rent amount and the periodic income recertification used when adjusting rents.

Preservation: Threshold Requirement: Risk of Loss Due to Market Conversion. We currently require projects that meet this threshold requirement to provide proof of a market for conversion as evidenced by a low physical vacancy rate (4% or lower) for market rate comparable units and one of three of the following: a market study commissioned by Minnesota Housing, an appraisal commissioned by Minnesota Housing or a Rent Comparability Study (for properties with project-based Section 8 contracts).

• Clarify that one option for demonstrating a market for conversion is a market study as deemed acceptable to Minnesota Housing instead of one commissioned by Minnesota Housing.

Preservation Scoring: Critical Affordable Units at Risk of Loss. Preservation projects are currently eligible for points under this scoring criterion only if the development also satisfies the Serves Lowest Income Tenants/Rent Reduction criteria, which requires that rents be restricted to 50 percent Multifamily Tax Subsidy Projects (MTSP) limits. Properties that convert through RAD 1 may not satisfy the 50 percent MTSP rent restriction as the project-based Section 8 contract on the converted property may be above that limit.

• Minnesota Housing proposes to modify this scoring criterion to provide that a RAD 1 development is eligible for these points if 50 percent or more of the units in the development are covered by a project-based Section 8 rental assistance contract.

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John Decramer, board chair, asked for clarification on the cost containment penalties; specifically if they would fall in the next application from that developer. Commissioner Tingerthal confirmed and explained that the reason for the proposed change is that, in a competitive process (or in a noncompetitive process that requires a score of 40 points or higher) cost containment points could result in a project getting funded and, if those costs are exceeded, that funding might have gone to another project, constituting a serious error.

Staff emphasized that there may be additional modifications to the 2020 QAP, including addressing concerns and suggestions that arise from public comments. Public comments will be received from February 22 to March 14 with an in-person session at Minnesota Housing on March 5 and public hearing on March 14. More information will be released soon. In the meantime, questions or comments can be directed to Tamara Wilson at tamara.wilson@state.mn.us or 651-296-4451.

Housing Trends

John Patterson, Director of Planning, Research and Evaluation, presented on the agency’s recently released Key Trends in Housing, which included data points in the following areas:

Members of the board reflected on several areas of the report, including:

• Concern that the state is losing affordable units as fast, if not faster than, new units are being built
• Cities are using the frequency of police reports at a particular property as a rationale for upscaling
• In addition to accessibility and availability, there needs to be more focus on affordability, especially as property taxes trend upwards
• More production and increasing the inventory of multi-family units is imperative
• More attention needs to be paid to the “missing middle” — households making $50,00 or $60,000 who can afford market rate but only at the lower price range

Read the full report here.

Work Plans

As part of Minnesota Housing’s 2016-2019 Strategic Plan, each division develops an annual work plan that identifies funding and production levels, key division/section activities, responsibilities, expected outcomes and program level measures. While not an exhaustive list, highlight for 2018 for each division include:

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• Complete evaluation of the Agency’s Home Improvement Programs and implement program changes;
• Maintain strong production of low-interest mortgages and enhancements (Start Up, Step Up, Deferred Payment Loans, Monthly Payment Loans) to support $630 million of lending and an estimated 3,663 households;
• Achieve the goal of 35% of first-time homebuyer loans going to households of color or Hispanic ethnicity;
• Continue implementation of the new single‐family loan origination system to improve operations and customer service;
• Develop a new single-family compliance management system in accordance with Consumer Financial Protection Bureau and other regulations.

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• Implement revised multifamily underwriting standards and program guidelines to respond to customer needs, and increase first mortgage production (goal is 10 first mortgages in addition to loans generated through the consolidated RFP);
• Assess the loss of naturally occurring affordable housing, identify Minnesota Housing’s role in addressing the issues, and build partnerships;
• Investigate strategies for preserving and improving manufactured home parks, including a potential new pilot program to augment existing agency activities;
• Address workforce housing through Economic Development and Challenge Fund and Greater Minnesota Workforce Housing Development Programs;
• Continue carrying out the Multifamily Remodel Project, a multi-phased business process and technology improvement effort, focusing on the post-selection-to-closing processes and implementing a new business development function; and
• Secure the new HUD PBCA contract once a procurement process is announced.

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• Pursue a larger $115 million request for Housing Infrastructure Bonds (and include senior rental housing as an eligible use along with supportive housing, rental preservation and community land trusts) and General Obligations Bonds to improve publicly-owned housing;
• Manage the Agency’s cash, debt, investments and liquidity;
• Continue pursuing a best-execution policy that weighs the costs of selling tax exempt mortgage revenue bonds compared with selling mortgaged-backed securities backed by Agency mortgages; and
• Monitor and manage issues and activities related to tax-exempt bond cap allocation and capacity.

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• Serve in multiple key roles for the Governor’s Task Force on Housing that will recommend policies and practices to help alleviate Minnesota’s housing challenges;
• Complete and begin implementation of the new State Plan to Prevent and End Homelessness, with a focus on a multi-sector, multi-organizational approach to implementation and on families and youth when financing supportive housing;
• Continue to implement the Olmstead Plan to provide increased housing options for persons with disabilities in integrated community settings;
• Assess Minnesota’s rural delivery networks for housing resources and work with partners to support and improve those networks;
• Participate in the Homework Starts with Home Initiative to support community partnerships that create targeted responses to end homelessness for students and their families;
• Continue to work with DHS to develop and implement strategies to more effectively serve housing-related needs of seniors; and
• Continue to support and strengthen the Homeownership Opportunity Alliance, an industry-wide collaboration to reduce the homeownership disparities in Minnesota.

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• Release new Analysis of Impediments to Fair Housing Choice, and develop and begin implementation of its action plan;
• Build the capacity of local organizations to identify, create and implement housing solutions through technical assistance, capacity building grants, and other efforts;
• Continue to strengthen the capacity to work in partnership with Minnesota’s Indian tribes and urban Indians to meet their housing needs through consultation, work sessions, training, technical assistance, program development and housing investments; and
• Implement the approved work plans related to the Governor’s Diversity and Inclusion Executive Order, including procurement practices, State workforce, and civic engagement.

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Update on Governor’s Task Force on Housing 

Commissioner Tingerthal updated the board on the progress of the Governor’s Task Force on Housing, noting that the first full meeting occurred on January 22 (pictured right) but the engine of the process will be the three work groups on Home Ownership, Rental Housing and Housing Stability (description and co-chairs below). Over the next several months, those group will be seek public input, conduct analysis on opportunities and gaps, and explore and form consensus opinions on recommendations that will come back to the larger task force for consideration.

Terri Thao, board member and co-chair of the Task Force Work Group on Home Ownership, shared that the first meeting had good attendance and creative engagement, featuring a mapping exercise with a visual facilitator who helped the group sketch out the landscape and come to shared problem definitions. The meeting also included individual stories from impacted community members, she added, which helped to put a name and face to the urgency and immediacy of the work ahead. She emphasized that people are really hungry to get to solutions and strategies given the short six-month timeframe, but also eager to do a lot of learning along the way. 

All meetings of the task force are public and listed here.  

The next meeting of the Minnesota Housing board will be February 22 at 1 p.m. More information here.