Affordable housing advocates were minutes away from being shut out by the Minnesota Legislature.
After spending months pushing for interventions — proposals that ranged from state bonding to income tax credits to more-generous tax treatment of affordable housing projects — the deadline for a one-day special session that began 21 hours earlier was fast approaching, and lawmakers still hadn’t passed anything to help address one of the state’s most high-profile issues.
It wasn’t until 6:55 a.m. on Saturday, May 25 — five minutes before the one-day special session was supposed to end — that a housing bill, House File 12, was rushed to a vote in the state Senate, which passed it 51-15. Just five minutes earlier, the same bill passed the House 103-23. The bills were the last to be passed in the 2019 legislative session and will provide $60 million in housing infrastructure bonds for affordable projects across the state.
While the total is half of what Gov. Tim Walz and House DFLers had wanted, it’s important because it allows projects that are ready now to move forward ahead of next year’s predicted passage of a much larger state bonding bill. “Better to have come last than never to have come across the line at all,” said Jennifer Ho, the commissioner of the Minnesota Housing, the state’s housing finance agency.
Ho called the bonds “absolutely a big step in the right direction,” adding that the impact of waiting until next year would have disrupted the pace of projects.
“Housing development isn’t a spigot that you can turn on and off,” she said. “Development takes time and developers need to know that we’re going to be funding more projects with more money. We’re so far behind we can’t just do a little now and maybe not do anything later, and then maybe do a little bit more after that.”
The state isn’t the only funding source for projects built by nonprofit developers — but it is often a key source. “We leverage other money,” Ho said. “Because the housing gap is greatest at the lowest end of the housing market, the housing infrastructure bonds were really designed to fill the funding gap and keep these units very affordable.”
The lead on the housing bill, Rep. Alice Hausman, DFL-St. Paul, is chair of the House housing finance and policy subcommittee. She said she was ready to move the housing bill for weeks but was waiting for direction from House leadership. The bill would have passed easily, she said, both because it required fewer votes and because affordable housing has become a nonpartisan and statewide concern. “That’s the good news,” she said. “The bad news is it means the problem is so great all over the state that everybody knows we have to do something.”
A statewide coalition of housing advocates, Homes for All, had been hoping that a 2018 report by a task-force put together by then-Gov. Mark Dayton would build momentum for a sweeping housing initiative this session. And while Libby Murphy, the policy chair of Homes for All and the deputy policy director of the Minnesota Housing Partnership, said she is happy with the results of the 2019 session, she said advocates were hoping for more, given its importance to the state’s business, health care and education communities.
“This was a year with a huge win for affordable housing. There’s a lot to celebrate,” Murphy said, pointing to both increases in operating funds for the housing finance agency and passage of the infrastructure bonds. But: “It’s also a little disappointing for our people in the housing community. Coming off of the tails of the governor’s housing task force, a lot of people went into the session thinking this was the year for housing, the year we were going to see some big, new initiatives.”
Allowing the state to partner with housing nonprofits
Housing infrastructure bonds are a recent form of state borrowing that, while rare, have a few attributes not available in traditional bonds. First, because they are not general obligation bonds — which pledge the state’s full faith and credit toward repayment — they do not require a supermajority vote. Rather, they’re known as appropriation bonds because the Legislature must separately appropriate the money to cover principal and interest payments.
The other benefit is that while general obligation bond proceeds can only be spent on projects owned by public entities, money raised from housing infrastructure bonds can be used to contribute to projects built and owned by housing nonprofits such as Beacon Interfaith Housing Collaborative, Catholic Charities, Lutheran Social Services, Common Bond and Aeon, which specializes in preserving naturally occurring affordable housing as well as new construction projects.
“You ought not use appropriation bonds very often,” Hausman said. “But in this case, there’s a positive in that it allows us to partner with nonprofits that do amazing things.”
Hausman estimates that 3,000 units have been built since the first housing infrastructure bonds were approved in 2012, and says for every $1 the state puts into housing, it leverages $3 in private and non-profit investment.
While it may have seemed as though these bonds were at risk of either running out of time or running afoul of late-session political battles, they probably were going to pass one way or another. Hausman said HF 12 was being held on to while House DFL and GOP leaders tried to make a deal over the larger $440 million bonding bill.
Since that requires a 60 percent majority, the votes of Republicans were needed. Had a deal been struck, the housing infrastructure bonds would have been enveloped into that bill. Only when it became clear that the larger bonding wasn’t going to happen was Hausman’s bill freed to go it alone.
But by then, the self-imposed deadline was 10 minutes away.
Ho said Minnesota Housing wants to put the money to work quickly. The agency is in the midst of its annual request-for-proposals cycle and has gotten indications that as many as 70 projects will be seeking state help. “Now that we know how much money we have to work with, it’s going to allow us to complete that funding,” she said.
The housing commissioner was also pleased with the way her agency was treated in the state budget process, increasing its funding from $105.6 million to $120.6 million.
While $5 million of that is for some one-time spending, the rest went into the agency’s base allotment, which gives some certainty that it will be continued into future budgets.
Among other things, there’s a $5 million increase for the economic development challenge program, what Ho calls “the most highly leveraged, flexible pot of money” the agency gets from the Legislature. That money can go toward both new construction and redevelopment, single-family and multifamily projects.
To try to respond to homelessness, $3.5 million for the agency’s Homework Starts at Home project was put into its base budget rather than flowing in as a one-time appropriation. That gives recipients of the money some comfort that they can hire staff and start projects knowing that the state money won’t go away in two years.
“It’s a partnership between homeless service providers and the schools, so we’re really targeting homeless students and their families in helping stabilize these young people so they stay in school and do better in school,” Ho said.
That money could be spent for short-term rental assistance and support services. The state estimates that there are 8,600 students in Minnesota who are either homeless or what is termed “highly mobile,” susceptible to becoming homeless.
The budget also gets more money for family homeless prevention and an assistance program that helps with rent, deposits or utilities for families trying to get through a short-term crisis. “It allows us to prevent homelessness in the first place or try to make it really brief if it does occur,” Ho said.
The agency will also get an additional $500,000 for its Bridges program, a rental-assistance program targeted at Minnesotans with serious mental illness. Because housing voucher wait lists are so long — just one in four eligible people are currently getting vouchers — this program helps those with mental illness find housing while they wait.
The loss of the larger bonding bill did have a negative impact on housing affordability, as it did on dozens of other capital investments. Some $15 million in general obligation bonds were included in the bill, money that would have helped the state pay to fix up existing public housing across the state. Walz had asked for $30 million. A $25 million income tax credit for contributions to affordable housing projects also didn’t pass.
The 2020 session will likely produce a bonding bill — one much larger than the $440 million that failed this year.
Murphy, of Homes for All and the housing partnership, said the coalition will be back next year seeking much of what they didn’t win this year. She also said that the groups trying to build and preserve more affordable housing are dealing with the same cost pressures that private-sector developers face: higher costs for materials and labor. “Those trends are only going to increase,” she said. “We are in desperate need of more resources to fill those gaps as those gaps are growing.”
There are also new uses for infrastructure bonds that might help more people but will also increase competition for limited state help, namely the authority to purchase mobile home parks that face closure and redevelopment.
“With the expanded use we recognize there is a need for even more resources because more and different types of projects are going to be competing for that pot of money,” she said.