For affordable housing advocates, Feb. 26 might have been the high-water mark of the Minnesota Legislature’s 2019 session. That was the day Gov. Tim Walz released plans for a bonding bill — a proposal for capital spending projects around the state — that called for a record-high investment in both new and renovated affordable housing.
Walz used an affordable housing project built for veterans at Fort Snelling as a backdrop for detailing his $1.27 billion bonding bill proposal, which includes $150 million in housing and general obligation bonds. “Our goal is to become the fourth state to eliminate veterans’ homelessness,” Walz said. “But our next goal is to be the first state to eliminate homelessness in general.”
Almost immediately, however, Republicans who control the state Senate said Walz’s proposal was going nowhere, arguing that the Legislature would address capital construction needs next year, and that if there was a bonding bill, it would be much smaller.
The conflict between Walz and Senate Republicans puts housing advocates in a spot. While not giving up hope for a larger bonding bill, affordable housing activists have also focused on a different approach. It’s a proposal that isn’t nearly as lucrative as the bonding plan, but it does have a feature Minnesota has never had before: a permanent and regular pool of money that would allow the state and affordable housing providers to better plan projects over the next decade.
That proposal, modeled on a program begun in North Dakota in 2011, is outlined in two bills, Senate File 404 and its companion in the House, HF 1156. It would allow donors to affordable housing projects to take a dollar-for-dollar credit off of their state income tax bill. The credit would be capped at $25 million a year and would be managed by the state Housing Finance Agency.
“It is, humbly, an awesome bill,” said Rep. Brad Tabke, DFL-Shakopee, who is lead sponsor of the House version of the legislation.
Even so, why are activists expending effort to pass a bill that would make $25 million available for affordable housing — when Walz’s bonding bill would provide six times as much as money?
The politics of affordable housing
The answer appears to practical politics. Without giving up on a bigger bonding package, affordable housing advocates are now trying to get something out of this session, knowing the prospects for any significant bonding bill aren’t exactly rosy. “We need to go after all sources of funding,” said Libby Murphy, deputy policy director for the Minnesota Housing Partnership.
Murphy said the bills have bipartisan sponsorship and the endorsement of local government and business leaders from around the state. “We do feel that this session there is a path forward for this particularly piece of legislation,” Murphy said.
Housing advocates estimate that for every $25 million, about 350 new units could be built or 1,000 units of naturally occurring affordable housing (NOAH) could be preserved. (If that sounds like a lot, it’s not: 350 units represents just half of the units lost when Richfield’s Crossroad apartments were purchased and renovated for much higher rents in 2016.)
The money from the tax credit proposal wouldn’t cover the costs of projects, but would be part of often complex funding structures put together by local governments and low-income housing developers. Those funding mechanisms can include grants from the Met Council, cities and counties, and foundations — as well as from the federal low income tax credit — to make up the bulk of the cost.
“What an investment from the state does is round out a pretty complicated financing deal,” said Jennifer Ho, commissioner of the state Housing Finance Agency. “It takes a lot of different funding streams and a lot of partners to pull off a housing deal. We come in and fill the gap to perhaps make a project viable, especially when you’re targeting people at the lower-levels of income.”
The housing partnership just released its updated State of the State’s Housing report, showing that one of four Minnesota households are “cost-burdened,” in that they pay more than 30 percent of their household income for housing. The percent of people of color who pay more than they can afford is 40 percent, the study said.
It also notes the gap between increasing housing costs and falling wages between 2000 and 2017. While there are 179,400 households in Minnesota that have “extremely low income,” there are just 68,104 units statewide that are affordable at that income level. “The lack of affordable homes impacts every county, every sector, every household in Minnesota,” said Anne Mavity, the executive director of the housing partnership.
At a hearing before the Senate Taxes Committee, the Senate’s lead on the housing tax credit bill, Sen. Carla Nelson, R-Rochester, said that according to a housing task force commissioned by former Gov. Mark Dayton, the state needs 300,000 additional housing units by 2030, 70 percent of which need to be affordable.
Nelson told the committee that the jobs that are growing fastest in Minnesota do not pay enough to let many people afford to cover their rent or mortgage. In fact, only one of seven of those jobs pays enough to buy a median-priced home, while only two of the seven pay enough to rent a two-bedroom apartment.
Yet the ability of governments to provide relief through rent subsidies or public housing projects is limited, she said. “This is an all-hands-on-deck moment,” Nelson said. “And I believe that getting the private sector involved rather than just the government sector is what we need. This leverages those state dollars.”
What the affordable housing tax credit would do
The program as laid out in the bills would let donors contribute between $100 and $5 million to a general statewide pool or to specific projects in their communities. Developers would apply to the state for money, and the Housing Finance Agency would determine which projects would get allocations each year.
There some skepticism among both Republicans and DFLers on the Taxes Committee about different aspects of the proposal. Among others, Sen. Tom Bakk, DFL-Cook, said that if employers can’t find workers who can afford housing, the answer shouldn’t be to subsidize rents; it should be for the companies to increase wages.
“I don’t know that we have a tax credit problem,” Bakk said. “I think the problem we have, maybe as a society, is clearly wages haven’t kept up with the increased cost of housing. If wages had been keeping up, we wouldn’t have this problem of having to come to the government looking for a subsidy.”
Department of Revenue legislative director Joanna Bayers also raised concerns with the bill during testimony before the Taxes Committee. “We can all agree the need for affordable housing is important, but the proposal provides a tax benefit for contributions that are not available for other charitable organizations, limiting the benefits of this bill to specific groups and communities,” she said. “In contrast, the proposal put forth by Gov. Walz includes a comprehensive approach in his budget to be sure every community thrives across Minnesota by preserving and expanding access to affordable housing and insuring homeowners stay in their home.”
On Friday, Walz’s communications director, Kayla Castañeda, said Walz doesn’t oppose the Senate housing tax credit bill. “The Department of Revenue testified that the governor’s proposal is the Administration’s preferred approach as it makes significant investments in affordable housing, but we are open to considering the Senate bill,” she said.
GOP reluctant to pass bonding bill
Another Senate bill, SF 2571, would change the property tax classification for low-income housing, which would allow for lower taxes and lower rents in those buildings. The sponsor of that bill, Sen. David Senjem, R-Rochester, is also the chair of the Senate Capital Investment Committee.
Senjem said Senate Republicans have been supportive of affordable housing funding in bonding bills in the past. In 2018, a bonding bill signed by Gov. Mark Dayton had $90 million for housing. Senjem said he expects the 2020 bonding bill to have around $100 million.
But the GOP wants to stick to the traditional approach at the Legislature, with odd-year sessions focused on the budget and even-year sessions on large bonding bills. (The Legislature has adopted bonding bills every year for the last three decades, though the odd-year totals have been much smaller than the even-year packages.)
“There are no immediate plans to do a bonding bill this year,” Senjem said. “If I were to do one, I’m limited to $168 million. That would have to be a bill that is pretty narrow, restricted to state capital projects, state agencies.” He says the dollar amount is defined by the amount of debt service the state can manage given the February revenue forecast.
Of the governor’s housing request, Senjem said it would be difficult, “given all the other demands on the bonding bill.”
Jennifer Ho, the commissioner of the state Housing Finance Agency, said Walz’s budget proposal would also boost funding for the dozen or more programs that already help with housing affordability, while the $150 million in the bonding bill, a record amount, would both build and preserve housing for low-income residents.
Of Senjem’s support for at least $100 million next year, Ho said it shows his appreciation of the problem, but that: “All we need to do is have it be 50 percent higher and one year earlier.”
“We need more housing all across the state and at all income levels,” said Ho, who previously served as a senior policy advisor in the U.S. Department of Housing and Urban Development. “It impacts people at the lowest income levels the most, but we have a housing shortage the is affecting the whole housing market.”
“We have an opportunity right now to play the long-game and start investing and building up capacity to get back ahead of it,” she said.
Ho also said that the state programs already in place, including regular investments via the bonding bill, are proven to work. “Housing infrastructure bonds have been very effective,” she said. “There’s no reason not to use tools that we have. The only reason that we’re sending the advocates looking in a thousand different corners for funding is because some folks won’t acknowledge that the tools that we have work — and now is the time to invest.”
Ho expressed some frustration at the resistance to adopt a larger bonding bill that would have room for Walz’s affordable housing push. “Every senator that I talk to, no matter what part of the state, tells me they need more homes in their community,” she said. “If the Senate decides not to invest in housing, I don’t know how the housing is going to show up.”
“It’s not like you get money and snap your fingers and the homes go up overnight,” she said. “These deals take time. I don’t know how you go talk to a homeless family and ask them to wait three years for a home.”