HRA Meeting Date: August 1, 2024
To: Members of the Housing and Redevelopment Authority
From: Melissa Hanson, Housing Coordinator
Title
HRA to Approve Implementation of the City of Northfield 4d Program.
Body
Action Requested:
HRA to review and approve implementation of a 4d Program in the City of Northfield.
Summary Report:
The Northfield HRA’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
Low Income Rental Classification (LIRC) Program - Attachment 1, Minnesota Housing Finance Agency LIRC Program Guide
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(1).”
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.
Initial LIRC Program Application - Attachment 3
Minnesota Housing releases a new LIRC application in November of each year. The application 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.
In order for owners to take advantage of the LIRC 4(d) program and apply to Minnesota Housing for a tax rate reduction, local county or municipal jurisdictions must establish the following mechanisms:
• 4(d) 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.
Alternative Options:
The HRA could choose to not offer a 4(d) 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.
Tentative Timelines:
August - Introduction of 4(d) Affordable Housing Incentive Program
January - February Applications accepted by HRA
March - Applications due to MN Housing Finance Agency