City Council Meeting Date: January 18, 2022
To: Mayor and City Council
City Administrator
From: Melissa Hanson, Housing Coordinator
Mitzi Baker, Community Development Director
Title
Presentation on Potential Local Housing Trust Fund including State Matching Grant Opportunity.
Body
Action Requested:
Discussion only.
Summary Report:
In 2017, Minnesota became the 14th state to pass legislation to formally recognize local trust funds for housing development (Minn. Stat. 462C.16: Housing Trust Funds for Local Housing Development). In July 2021, Minnesota passed the Omnibus Housing Finance bill that includes $1 million over the next fiscal year for state matching grants (to be administered through Minnesota housing Finance Agency) for Local Housing Trust Funds (LHTF) up to $150,000. A grantee is eligible to receive a grant amount equal to 100 percent of the new public revenue committed to the LHTF from any source other than the state or federal government, up to $150,000. And, depending on funding availability, an amount equal to 50 percent of the new public revenue committed to the LHTF from any source other than the state or federal government that is more than $150,000 but not more than $300,000.
Local Housing Trust Funds (LHTF) are established via an official action by local government. Minn. Stat. 462C.16 says that “a local government may establish a local housing trust fund by ordinance or participate in a joint powers agreement to establish a regional housing trust fund.” Public revenues from one or more sources must be dedicated to the LHTF. The allocated revenues are protected for housing uses in the community (they are held in “trust”). Money in a LHTF may only be used to pay for authorized expenditures which are:
a) Administrative expenses (not to exceed 10 percent of the fund’s balance);
b) The making of grants, loans, and loan guarantees for the development, rehabilitation, or financing of housing;
c) Matching other funds from federal, state, or private resources for housing projects; or
d) Provide local down payment assistance, rental assistance, and homebuyer counseling services.
A local government may finance its LHTF with any sources of revenue available to the local government, including private donations from individuals, employers, or charitable organizations that are accepted by the local government. Public Revenues are dedicated and recur each year to replenish the funds awarded by the LHTF. A LHTF may also be used to match other non-governmental sources of funding.
Characteristics of a LHTF:
• The most popular characteristics of a LHTF is its flexibility to respond to local community needs. Communities are able to identify funds to support their local housing trust funds, and how they select housing priorities for their trust fund;
• Provide a consistent, dedicated revenue stream for housing - be it affordable, workforce, or other special housing need;
• Serve as local leverage for affordable housing programs and developments;
• Be an economic multiplier by supporting investments in housing construction and rehabilitation, including redevelopment sites, leading to job creation and increases in the community’s property tax base;
• Catalyze revitalization of a community via reinvestment in the existing housing stock;
• Support public health by increasing housing options for vulnerable populations in the community; and
• Improve educational outcomes for children by promoting housing stability.
Establishing a LHTF requires action by the City or County to adopt an Ordinance to establish a LHTF. If the Council supports proceeding, there are a variety of policy and administrative decisions that will need to be made related to programming, allocations and governance. Some of these decisions relate to housing trust fund sustainability and awards including:
• LHTF eligibility is based on area median income as determined by the United States Department of Housing and Urban development for the area. Council will need to decide if eligibility will be based on the Minneapolis-St. Paul-Bloomington, Minnesota-Wisconsin Metropolitan Statistical Area, as adjusted for smaller and larger families, or will eligibility be based on Rice County’s Statistical Area? This is highlighted on the draft ordinance;
• How might other community partners contribute to a LHTF? How will the LHTF be structured in relationship to existing City financial structures? (Ordinance-Section 5- highlighted);
• How will awards be structured - as grants, low-interest or forgivable loans, credit guarantees, or in some other form? This decision will be guided in large part by the activities to be funded (Ordinance-Section 6- highlighted);
• How will the application process be structured? Some cities, towns, and counties allow application to be submitted on a rolling basis, while others issue an annual or semi-annual request for proposals, often in coordination with other funding programs. Alternatively, some jurisdictions automatically allocate housing trust fund proceeds to designated housing and service providers to fund existing programs;
• How will applications be evaluated? Will priority be given to any types of projects, or projects with certain characteristics?
From a practical standpoint the Housing Trust Fund functions very similar to how HRA funds have been used for projects. It simply would include some accounting changes and added restrictions for the specific use of proceeds for that fund. The Northfield HRA has done many projects in the past with type of use of funds. The City of Northfield and the HRA can easily implement this program and has the staff and organizational capacity to implement. The main benefit of the fund is to gain access to additional state matching dollars.
Attachment #1- Local Housing Trust Fund Basics presentation
Attachment #2- Minnesota Housing Partnership 1-page hand out explaining Local Housing Trust Funds.
Attachment #3- A list of current Minnesota cities with adopted LHTFs and shows primary uses of funds.
Attachment #4- Template Draft Local Housing Trust Fund Ordinance.
Staff will provide a presentation at the meeting.
Alternative Options:
The City of Northfield could decide not to establish a Local Housing Trust Fund via ordinance, therefore making the City ineligible to apply for matching state funding when available.
Financial Impacts:
If a LHTF is established by the City of Northfield, HRA would be eligible to apply for matching state funds up to $150,000. IF no LHTF is established, there is no financial impact.
In order to complete this establishment of this fund and matching dollars, the City would create a designated accounting fund for the City. This is very similar to what has been done with the EDA. However, in this case we’d recommend at least the initial minimum contribution would come from designated HRA funds.
City Administrator Martig and Finance Director Angelstad have been in past discussions about establishing a similar fund or funds of the HRA. Public funds would need to be kept within the City of Northfield and may not legally be transferred elsewhere for an ongoing purpose. In the future, the Council, HRA or EDA could contribute to the funds. Additionally, the City is eligible for tax deduction benefits as a public entity.
Tentative Timelines:
One million dollars was set aside in 2021for the upcoming fiscal year by the state for Minnesota Housing Finance Agency to administer grant funding to agencies with a Local Housing Trust Fund to incentivize the creation of LHTFs. An application for the grant funding is currently in development and not yet available. A LHTF must be established first.