During its December meeting, the board of the Minnesota Housing Finance Agency (MHFA) dedicated most of its discussion to tax exempt financing, while also providing updates on the federal tax credit program, the state's allocation from the National Housing Trust Fund, the Agency's outreach and feedback regarding changes to the 4 percent tax credit and marketing of the Agency's Homeownership Lending Program.
National Housing Trust Fund
Commissioner Mary Tingerthal opened the meeting reporting that HUD had given final approval for the Agency’s plan to use its allocation from the National Housing Trust Fund. In the first year of their availability, these funds are being awarded to the Southwest MHP Solace Apartments development in Saint Peter. (Read our blog about the Solace project here.)
Four Percent Tax Credits
Tingerthal also updated the board on outreach activities the Agency is undertaking in connection to its proposal to prioritize use of tax exempt bonds and the related 4 percent housing tax credits. She said that there were 89 participants in the Agency’s webinar on the topic. In addition, the Agency hosted several meetings with developers and will meet with local government officials in early January at a meeting sponsored by the Urban Land Institute Minnesota and Family Housing Fund. Tingerthal said that staff would summarize the input received and bring recommendations to the board at its meeting in January.
Federal Tax Credit Program
On a recent trip to Washington, D.C., Commissioner Tingerthal met with U.S. Rep. Erik Paulsen (MN-3) to advocate for the housing tax credit program, now threatened under various federal tax reform proposals. Subsequent to that meeting, the House Ways and Means committee, on which Paulsen sits, held a retreat and the majority of representatives voted to retain the housing tax credit in any new tax system that is created.
Marketing Homeownership Lending Program
Communications director Megan Ryan led a staff presentation on marketing efforts the Agency is employing in support of its homeownership lending program. Staff said that realtors were surprised and pleased to learn the breadth of people who can benefit from the Agency’s financing programs. Sixty-one percent of MLS listed properties fell within the $307,000 price limit for Agency funded loans in the Twin Cities, and household income can reach $120,000 for non- first time homebuyers who do not receive down payment assistance. Ryan said that the Agency’s new online lender search tool, launched in April, already had 21,000 visits. This summer the Agency will be implementing a new logo that is aligned with the new “Enterprise Brand” being adopted by state agencies. The Agency will focus some of its marketing efforts in Mankato, Rochester and the Twin Cities based on research for where prospective first time homebuyers are currently most active.
Tax Exempt Bonds
Staff and board participated in what was called the next chapter in its conversation regarding use of Private Activity (tax exempt) Bonds in Minnesota. Tingerthal said that because of the high demand for tax exempt bonds for rental housing and the resulting oversubscription for allocations of these bonds, developers had approached the Agency to see if the Agency would issue “conduit bonds” from the Agency’s entitlement allocation of bonding for their projects. These are bonds issued by the Agency to finance multifamily projects where the obligation of the Agency as an issuer to pay principal of and interest on the bonds is limited to the payments it receives from a private third-party borrower that owns the project. Minnesota Housing CFO, Kevin Carpenter, reviewed the Board’s debt management policy, which states that the Agency will only consider requests for the issuance of conduit bonds for preservation projects, and that such projects would also need to meet several other criteria outlined in the policy. Carpenter indicated that in 2017 the Agency will adopt a more specific process for handling requests for the Agency to issue conduit bonds.
Tingerthal then discussed the possibility that, starting on January 3, applications to utilize bonding authority from the Housing Pool administered by Minnesota Office of Management and Budget (MMB) may exceed the bonding authority available. The Board discussed the possibility of issuing conduit bonds to finance a portion of the costs of certain general occupancy, non-preservation projects. These bonds would utilize some of Minnesota Housing’s annual entitlement authority for private activity bonding, and would help finance projects which could apply to MMB for a bonding allocation but do not receive sufficient allocation to qualify for 4% Low Income Housing Tax Credits. The Board indicated a willingness to hold a special board meeting in January if notified by Minnesota Housing staff that MMB received enough applications to exceed the amount available in the Housing Pool in the first round of applications.
In the course of discussing this proposal a number of comments were made by Tingerthal and board members regarding the broader topic of the Agency’s use of tax exempt financing. Because of the scarcity of affordable rental housing Tingerthal said that in 2015 and 2016 the Agency used more than $100 million of its entitlement allocation of bonding authority for rental projects. She added that since spring, bond issues for homeownership maximized the use of taxable bonds thereby enabling the Agency to invest more of its tax exempt capacity in rental housing and thereby leveraging federal 4% housing tax credits.
Board member Stephanie Klinzing asked what other states were doing to respond to the demand for tax exempt bonds and inquired if they are using their bonding authority to meet the growing senior housing need. Tingerthal responded that not many states are in Minnesota’s situation of having a shortage of bonding authority and those that have a shortage are trying to figure out how to deal with scarcity, too. Regarding senior housing, Tingerthal said some developers in Minnesota are replacing traditional senior project proposals with general occupancy projects that target 80 percent of the units for 55+ year-old households. Tingerthal said that attorneys believe that this type of development conforms to fair housing law (prohibiting discrimination against families) and avoids having to wait until May 15 to submit an application for bonding authority to MMB, which is when Minnesota statute allows exclusively senior housing projects to apply for bonding authority from the state housing pool.
Other board members were concerned that the Agency would not be providing adequate notice of the proposed bond financing option or that there would be backlash if only preservation projects were funded. Tingerthal said that the development community would quickly be alerted to the possibility of accessing the Agency’s entitlement bond authority and would have this information as they consider making application to MMB in January, with the possibility of a special board meeting occurring in early to mid-January, after the first round of bonding allocations by MMB.