MN Housing board update: HAVEN proposal, partially funded bond projects, and falling value of housing tax credits
During it’s February board meeting, the Minnesota Housing Finance Agency (MHFA) discussed the possibility of allocating Agency resources to “top off” partially funded bond projects, the drop in value of housing tax credits, how the HAVEN proposal could change the way the state’s tax exempt bonding authority is allocated, potential administrators for the Bridges rental assistance grants, and amendments to the 2018 tax credit Qualified Allocation Plan (QAP).
Partial bond allocations
Housing Commissioner Mary Tingerthal began by explaining that the Agency was not yet moving forward on a proposal to make available tax exempt bond financing to developers whose projects received partial allocations through MMB (the state budget office). Because a developer had obtained a temporary restraining order against MMB regarding a bond allocation, MMB was holding back on allocating the contested bond amount until the court acts. Minnesota Housing would not know whether projects need more funding until the court action has concluded and the Agency learns what MMB does with the held back allocation.
$20M funding gap
Tingerthal expressed concern about project viability due to the approximate 15 percent drop in prices now being paid for federal housing tax credits. From Agency staff’s review of 2016 awarded projects, this price decline could create a new funding gap of up to $20 million. The Agency is working with developers to determine if there are gaps, and the board might receive a request to provide supplemental funds for some of these projects at its March meeting. Tingerthal said she hopes to close the gap for these stalled projects so that they would not have to reapply in the 2017 funding round.
Tingerthal alerted the board to proposed legislation that would amend the state’s tax exempt bond statute. The proposal is being sponsored by a group called HAVEN. Tingerthal said that Agency staff has discussed the proposal extensively and concluded that the proposed legislation would be unnecessary. While the current statue does not allow senior projects to apply for bonds until May, Tingerthal noted that these projects are getting their requested allocations.
Bridges rental assistance grants
The board adopted the staff recommendation to fund White Earth Nation as an administrator for Bridges rental assistance grants. These grants cover a portion of rents for individuals affected by mental illness while they wait to be approved for mainstream rental assistance programs such as Section 8. Board chair John DeCramer said that it was worth noting that this was the first time a Bridges grant was awarded to a tribal nation.
2018 tax credit QAP amendments
The board also adopted proposed amendments to the 2018 tax credit QAP (Qualified Allocation Plan). Initially Agency staff brought a set of proposed QAP amendments to the board in October 2016. The proposal was in response to significantly increased demand for tax exempt bonds to fund rental housing projects. Incorporation of tax exempt bond financing is required to leverage federal 4 percent tax credits. The amendments to the QAP would raise the bar on requests for the 4 percent credits and therefore ensure tax exempt bonds were used in rental developments that are more consistent with the Agency’s tax credit ranking structure than had been required previously.
In response to staff’s presentation on the QAP proposal, board member Craig Klausing asked when the board would want to approve a development whose cost exceeded the Predictive Cost Model threshold (compliance with the cost model would be one of the new requirements of 4 percent tax credit projects). Tingerthal responded that it would be a situation where there were “unusual expenses.” She added this could be where unexpected soil correction expenses were required, or materials of exceptional durability were used in a supportive housing development. Tingerthal added that, if asked to approve a waiver to the Predictive Cost Model, the board would be provided with rationale from staff explaining why the costs were in excess.
In passing the QAP amendments board chair DeCramer noted that with this round of comments, as compared to what occurred in response to the Agency’s initial QAP proposal, there were only eight comments and most of them were positive. Board member Klausing added that in this situation it would be easy for the Agency staff to be defensive, and he was impressed how the comments were accepted and changes to the initial proposal had been proposed by staff based on those comments.