City Council Meeting Date: January 21, 2025
To: Mayor and City Council
From: Melissa Hanson, Housing Coordinator
Jake Reilly, Community Development Director
Title
Consideration of City Council Policy 10.04 Low Income Rental Classification (LIRC) Program, 4d Affordable Housing Incentive Program.
Body
Action Requested:
The City Council approve a resolution approving Council Policy 10.04 Low Income Rental Classification (LIRC) Program, 4d Affordable Housing Incentive Program.
Summary Report:
Thanks to state enabling legislation, the City of Northfield can implement 4d Affordable Housing Incentive Program so property owners within the City may access the State of Minnesota’s Housing Finance Agency’s LIRC Program to support the rehabilitation and continued affordability of existing housing units (Attachment 1).
The Northfield Housing and Redevelopment Authority’s mission is to be a partner in providing a sufficient supply of affordable, adequate, safe and sanitary dwellings in Northfield. Our goal is to create a community with housing opportunities available along the entire housing spectrum: from renters to homeownership, first-time homeowners, to senior living, workforce housing and empty nesters. We strive to create affordable housing opportunities and strengthen our neighborhoods utilizing:
• Sustainability
• Innovation
• Partnerships
• Community Input
Properties in Minnesota are assigned a property use classification based on the primary use of the property by their local assessor. The property use classification determines the tax class rate that applies to the property, and the tax class rate is determined by Minnesota law. The tax rate is a component of calculating property taxes.
Minnesota Statutes 273.13, subdivision 25 and 273.128 (Attachment 2) provide that qualifying low-income rental properties are eligible for property use classification that has a lower tax class rate thereby reducing the property tax obligation for a given property. This property use classification is commonly referred to as “4d.”
The LIRC Program is a tool to aid in the preservation of affordable rental housing in the State of Minnesota. These statutes define the eligible property type, eligibility criteria, and eligible uses of the savings resulting from the class rate reduction.
Enrolling in the LIRC Program reduces the property’s tax class rate thereby reducing the property tax amount that would otherwise be due. Minnesota Statute 273.128, subdivision 1(b) requires that the Property Tax Savings be used on one or more of the Eligible Uses:
• Property maintenance.
• Property security.
• Improvements to the property.
• Rent stabilization.
• Increases to the property’s replacement reserve account.
For the purposes of the LIRC Program only, rent stabilization is the cost of reduced rent revenue as a result of holding rent increases on some or all of the rental units below the inflation rate as published by the United States Bureau of Labor Statistics All Urban Consumers Price Index (Current Series) from the prior year. The All-Urban Consumer Price Index Data can be accessed by vising the Federal Reserve Bank of Minneapolis’ website. For example, if the All-Urban Consumer Price Index was 5% in 2024, a rent increase in 2025 would need to be less than 5% to be considered rent stabilization in the LIRC Program.
Rent and income limits will apply. For 2024-2025, the income limits based on 60 percent of the area median income as determined by the Federal department of Housing and Urban Development (HUD). For 2024-2025 the program rent and income limits, based on 60-percent of area median income, are:
Minnesota Housing releases a new LIRC application in November of each year. The application (Attachment 3) is due by March 31 for the next tax year. For example, the attached LIRC application was provided in November 2023 and due March 31, 2024, for taxes payable in 2025.
For owners to take advantage of the LIRC 4d program and apply to Minnesota Housing for a tax rate reduction, local county or municipal jurisdictions must establish the following mechanisms:
• 4d participation agreement.
• Restrictive Covenants or Affordability Declaration (if applicable).
• Rent verifications.
• Annual compliance.
Attachment 4 is the proposed City of Northfield’s 4d Affordable Housing Incentive Program describing those mechanisms.
Alternative Options:
The City of Northfield could choose to not offer a 4d program.
Financial Impacts:
MN Housing charges a $10 per unit application fee, capped at $150. For the first year of program participation, the application fee will be paid by HRA. In subsequent years, the application and renewal fees will be the responsibility of the property owner. Other financial impacts include staff time needed to verify rent, draw up necessary documents including covenants, and program compliance. There is a financial implication to the 4d tax classification which reduces the tax rate applied to the property. It does not reduce the city’s tax capacity.
Tentative Timelines:
August - Introduction of 4d Affordable Housing Incentive Program to HRA
January - City Council reviews and adopts Policy 10.04, LIRC/4d Affordable Housing Program
February - Applications accepted by Northfield HRA
March - Applications due to MN Housing Finance Agency