While December Minnesota Housing board meetings are typically memorable for the quality of holiday cookies and punch, this one appeared to be all meat. The board heard an auditor’s report on organizational risk facing the Agency due to staff discontent. Board members also weighed in with substantial comments on the Agency’s budget and the Consolidated Plan. There were important staff reports on the Affordable Housing Plan, the Agency’s pilot block grant program and the demonstration temporary rental assistance program.
Controversial Agency Audit
Minnesota Housing’s financial auditor made a report on staff turnover, morale and related issues to determine if such issues threaten the work or finances of the Agency. As a follow up to the Agency’s strategic planning process, the board had requested that LarsonAllen, financial auditors, produce the report. The auditors found that the Agency was not at risk, though there could be problems if additional key employees departed. The auditors did express concerns about the process by which recent changes in staff structure were carried out, and about the role of the board in the organization. A number of recommendations were made concerning board and staff practices.
Board members discussed at length the issues raised in the auditor’s report and their own role in leading the Agency. Newest member Barbara Sanderson said that this was the most confusing board situation she has experienced. Chair Mike Finch gave a historical perspective, and answered questions such as why the Agency structure, by statute, includes an independent board, but a Commissioner who is a gubernatorial appointee. Member Marina Lyon suggested that the board consider whether to recommend that the Agency be restructured outside of state government. Board members concluded this discussion by asking Commissioner Bartholomay to respond to the auditor’s report and agreeing to discuss issues raised in the report prior to its January meeting.
Agency Budget in Lean Times
A normally routine look at the Agency’s administrative budget turned into a lengthy discussion about the position of Minnesota Housing in a climate of public agency downsizing. The budget brought forward by staff showed both an increase in personnel and a 2% increases in salaries in a budget with overall annual operating costs of about $26 million. In a budget period of sharply declining net revenues (due to contributions to loan loss reserves), Board members strongly cautioned the Agency against adopting a budget with increased staff and operating costs, acknowledging that these costs are paid from the net earnings of the agency, rather than state appropriations. Board members warned that the budget, as proposed, would not be well-received by legislators.
Where Will NSP 3 Funds Go?
The board adopted a plan for distributing the Agency’s allocation of $5 million in NSP 3 (Neighborhood Stabilization Fund, third round) funds it is receiving from HUD. Instead of holding an open competition as it had done in the first round, several factors have led the Agency to make direct allocations only. First, the $5 million received from HUD for round three is far smaller than the $38 million in round one. Also, HUD is encouraging NSP recipients to treat a minimum of 20 percent of foreclosed properties in selected target areas for maximal impact. This requires the Agency to identify areas for investment of NSP3 funds which are both very compact and in which homes are likely to resell quickly.
Negotiations for NSP 3 funding will now proceed with seven local governments (six in the metro and one in Greater Minnesota), all of which are past NSP recipients. Funding amounts will be based on strength of proposed local strategies, leverage of other funds, and applicants’ readiness to implement proposed strategies. After a public comment period, the board will approve final amounts in February.
Board Directs Greater Commitment Funds to Aid Greater MN
In a show of support for rural nonprofits, board members overturned a staff recommendation by directing the Agency to commit five percent of its expected federal HOME funds to CHDOs (Community Housing Development Organizations). In the Consolidated Plan 2011 Action Plan, which is a spending proposal by the Agency to HUD, the Agency planned to exclude CHDOs as recipients when it allocates the approximately $10 million in HOME funds it expects to receive to a variety of housing programs.
In response to its draft plan for HOME allocations, the Agency received several comments asking that funds be made available to help cover the costs that rural and suburban CHDOs have in helping communities develop housing plans across large, multi-county areas. In response to these comments, Agency staff proposed studying this situation over the coming year. Board members did not accept this delay, and supported a motion by Barb Sanderson and Lee Himle, two rural board members, to allocate 5% of the HOME funds for CHDOs for the 2011 year. Sanderson said that the recently adopted strategic plan called for greater Agency sensitivity to regional differences, and that this investment was an important way to support work in rural areas. Member Gloria Bostrom added that this action reflects how much the Agency appreciates the work of its nonprofit partners.
Program and Progress Reports
Agency research director John Patterson presented the midway report on the on the Agency’s 2010-11 Affordable Housing Plan. Of interest in the report: 1) based on use of Agency funds, the number of rental units preserved (4,293) greatly exceeds the number of new rental units constructed (645); 2) So far this period, 31% of Agency mortgages are reaching emerging market households, far exceeding the Agency’s goal of 17.5%; 3) After the last round of RFP and tax credit selections in October of 2010, Minnesota Housing has committed or disbursed 84% of the rental production funding made available under its two-year Affordable Housing Plan which ends September 30, 2011. As expected, most of the RFP and tax credit funding decisions have been made, with roughly $800,000 of tax credits still available for a second round of allocations in 2011.
Board members also heard the interim review on the “performance pilot program”, designed as a compromise between the Agency and a number of local housing agencies which sought more flexibility in using Agency funds to meet local housing needs. Under the leadership of Tim Marx, the Agency’s pilot program selected three local governments for a demonstration of the value of this “partnership” approach. The three selected, Brooklyn Center, Dakota County, and Willmar/Kandiyohi County, received a total of $5.7 million in Agency funding. In a report to the board, Patterson said that this new approach neither leveraged any significant additional funding, nor produced housing more quickly than the standard RFP-based fund distribution. Chair Mike Finch concluded that this “block grant approach” did not provide any added value.
The board was updated on the Temporary Rental Assistance for Families program, created in 2008 at the height of the recession to respond to a spike in the number of homeless families. The $3.9 million rental assistance program built from Agency and Pohlad Family Foundation funds was meant keep people out of shelters and increase housing stability, incomes, and educational achievement. This program has served 264 households, including 516 children. In the continued tough economy incomes have not increased as expected, but 86% of those assisted were able to retain their housing. Of those who exited the program, a third successfully moved to other subsidized or unsubsidized housing. 95% of families believe that the assistance positively contributed to their children’s school attendance. In addition, the Agency identified several best practices, such as the value of close coordination between program case managers and schools.