Low Income Housing Tax Credits & Preservation in Minnesota, 2018

Minnesota's 2018 Qualified Allocation Plan has threshold criteria and awards points for the preservation of affordable housing.

Set-Aside:

In Round 1 of the application, Minnesota establishes a preservation award ceiling of 2/3 for each Geographic pool -- Metropolitan and Greater Minnesota -- not including the RD/Small Project Set-Aside or the Nonprofit Set-Asides. The ceiling can be exceeded if qualifying new construction proposals are not available or do not rank competitively. Round 2 funding, all of which is allocated by Minnesota Housing, will be selected based on the selection point system, with the thresholds requirements and set-asides no longer applying. Projects that have previously received tax credits and have an annual tax credit shortfall of at least 5% but not greater than 33.33% will receive priority in Round 2.

Threshold Criteria:

Minnesota's 2018 QAP requires applicants to meet at least one of the thresholds requirements, one of which is for properties preserve existing subsidized housing if the use of tax credits is necessary to prevent conversion to market rate use or to remedy physical deterioration of the property which would result in loss of existing federal subsidies. If a project in in the metropolitan area, one of the threshold types are substantial rehabilitation projects in neighborhoods targeted by the city for revitalization.

Additionally, Minnesota’s 2018 QAP requires developers to demonstrate that the project meets at least one of several Strategic Priority Policy Thresholds, one of which is preservation (defined as existing federally assisted or other critical affordable projects eligible for points under Scoring Criterion 4 of the Self-Scoring Worksheet -- Preservation)

Points Criteria:

Up to 30 points for preservation. All applicants claiming these preservation points must submit dual application (if the development contains 40 units or greater) and pre-application. Applicants must also participate in mandatory technical assistance session. A Dual Application is an application for financing structured with 9% tax credits and a simultaneous application structured with 4% tax credits, or, in certain circumstances, deferred loan funding only. Minnesota Housing will review the application and score it as a 9% proposal per the respective criteria and priorities as outlined in the QAP and RFP Guide. If Minnesota Housing determines that a 4% structure would be appropriate, the Agency will work with the developer to adjust the proposal accordingly. Some funding sources do not work with 9% credits, so being able to structure proposals under either scenario allows more resources to be deployed and more developments to be funded in the funding round.

To receive these points, applicants must meet on of the following 3 thresholds:

  1. Risk of loss due to market conversion
    • Expiration of contract/use restrictions
      • Existing property at risk of conversion to market rate housing within five years of application date, and conversion is not prohibited by existing financing or use restrictions; OR
      • Existing tax credit developments eligible to exercise their option to file for a Qualified Contract, and have not previously exercised their option; AND
    • Market for conversion evidenced by low physical vacancy rate (4% or lower) for market rate comparable units (comparable units to be validated by Minnesota Housing at Minnesota Housing’s discretion); AND
    • The property’s ability to command market rents as evidenced by direct comparison to local market comparable units and amenities. Conversion scenario must result in sufficient additional revenue to fund improvements and amenities necessary to match market comparable units as evidenced by Market Conversion Model and market study (market comparable and improvement cost estimates to be validated by Minnesota Housing at Minnesota Housing’s discretion); AND
    • Location in a jobs growth or household growth area as defined in the Agency’s community profiles interactive mapping tool; AND
    • Fifteen (15) or more years have passed since the award of the existing federal assistance and the tax credit placed in service date (if applicable) for projects claiming points under Existing Federal Assistance, or 15 years must have passed since the closing of the loan that created rent and income restrictions or the most recent tax credit placed in service date for projects claiming points under Critical Affordable Units.

        2. Risk of loss due to critical physical needs

    • Fifteen (15) or more years have passed since the award of the existing federal assistance and the tax credit placed in service date (if applicable) for projects claiming points under Existing Federal Assistance, or 15 years must have passed since the closing of the loan that created rent and income restrictions or the most recent tax credit placed in service date for projects claiming points under Critical Affordable Units; AND
    • Critical physical needs identified by third party assessment to support the following conclusions: 
      • i. Repair/replacement of major physical plant components have been identified that will result in 15+ years sustained operations; AND 
      • ii. Identified scope of critical physical needs exceeds the available reserves by at least $5,000 per unit, as evidenced by the Three Year Critical Needs Model; AND
    • Location in one of three geographic priority areas: jobs growth area, household growth area OR an area designated as having a large affordable housing gap, as evidenced in Minnesota Housing’s community profiles interactive mapping tool, or as evidenced by a tribal housing authority waiting list.

       3. Risk of loss due to ownership capacity

    • Fifteen (15) or more years have passed since the award of the existing federal assistance and the tax credit placed in service date (if applicable) for projects claiming points under Existing Federal Assistance, or 15 years must have passed since the closing of the loan that created rent and income restrictions or the most recent tax credit placed in service date for projects claiming points under Critical Affordable Units; AND
    • Existing conditions created by the current owner such as bankruptcy, insolvency, default, foreclosure action, unpaid taxes and assessments, on-going lack of compliance with lenders or terms of federal assistance, or self-determination by non-profit board are severe enough to put the property at significant risk of not remaining decent, safe, and affordable AND
    • Ownership must be transferred to an unrelated party; AND
    • Location in one of three geographic priority areas: jobs growth area, household growth area OR an area designated as having a large affordable housing gap, as evidenced in Minnesota Housing’s community profiles interactive mapping tool, or as evidenced by tribal housing authority waiting list.

For projects meeting one of the three thresholds above, choose points under either Existing Federal Assistance or Critical Affordable Units at Risk of Loss below.

1. Existing federal assistance - Any housing receiving project based rental assistance or operating subsidies under a HUD, Rural Development, NAHASDA or other program that is not scheduled to sunset or expire. Properties that have converted their type of federal assistance through the Rental Assistance Demonstration program, Component 2 (RAD 2) are eligible. Such assistance must have been committed to the property 5 years prior to the year of application.

In order to obtain points for existing federal assistance, the owner must continue renewals of existing project based housing subsidy payment contract(s) for as long as the assistance is available. Except for “good cause,” the owner must not evict existing subsidized residents and must continue to renew leases for those residents.

Developments with qualified existing federal assistance and which have secured additional federal rental assistance (including through an 8bb transfer) should count the total number of assisted units below. Such units are not eligible to be counted under Rental Assistance.

Choose either a or b and c below:

a) Existing federal assisted units:

  • Less than 25% of units are federally assisted – 4 points
  • 25.01 – 50% of units are federally assisted – 8 points
  • 50.01 – 75% of units are federally assisted – 12 points
  • 75.01 – 99.99% of units are federally assisted – 16 points
  • 100% of units are federally assisted – 20 points

OR

b) For partially assisted projects with existing federally assisted units in economic integration census tracts:

  • Less than 25% of units are federally assisted – 10 points
  • 25.01 – 75% of units are federally assisted – 15 points
  • 75.01 – 99.99% of units are federally assisted – 20 points

AND

c) Score for the appropriate number of federally assisted units currently under contract for preservation

Metro or Greater Minnesota MSA (Greater Minnesota MSA (Metropolitan Statistical Area) as defined by HUD: Duluth, St. Cloud, Fargo/Moorhead, Rochester, Mankato, Lacrosse, Grand Forks, Minneapolis/St. Paul MSA outside of the 7 county metro (including Chisago, Isanti, Sherburne, and Wright Counties) Greater Minnesota MSAs are found on Minnesota Housing’s website: Preservation Methodology.)

  • 12-30 units – 1 point
  • 31-60 units – 3 points
  • 61-100 units – 7 points
  • 101+ units – 10 points

Greater Minnesota/Rural

  • 8-20 units – 3 points
  • 21-40 units – 5 points
  • 41+ units – 10 points

2. Critical Affordable Units at rock of loss – 6 points.

Any housing with a current recorded deed restriction limiting rent or income restrictions at or below the greater of 80% of statewide median income or area median income. Includes existing public housing units, including converting through Rental Assistance Demonstration Program, Component 1 (RAD 1), tax credit units, Rural Development funded units without rental assistance and existing federal assistance not described in paragraph 1. above (e.g., 202, 236) or other programs limiting income and rent restrictions as stated above.

AND

Must also claim and be awarded points under Serves Lowest Income Tenants/Rent Reduction for either Option 1 OR Option 2, AND Option 3.

Minnesota’s 2018 QAP awards between 2 and 21 points to an owner who submits with the application fully executed binding commitment for project based rental assistance or are effectively project based by written contract. New or transferred federal rental assistance contracts that were executed within the past 15 years are eligible. This includes transfers of existing Section 8 contracts under the 8bb notice to new construction projects or existing developments that currently have no Existing Federal Assistance. For the purposes of this scoring category, project based rental assistance is defined as a project-specific funding stream that supports the operations of the property, reduces the tenant rent burden, and provides for the tenant paid portion of rent to be no greater than 30% of household income. Site-based Group Residential Housing and awards of project based McKinney Vento Continuum of Care funding, will be considered project based rental assistance. A development that has existing rental assistance meeting the definition of federal assistance under the Preservation scoring category is not eligible for an award of points under Rental Assistance. Specific points under this category are awarded based on the percentage of units having the required binding commitment.

Projects that have previously received tax credits and have an annual tax credit shortfall of at least 5 percent, but not more than 33.33 percent of the total qualified annual tax credit amount, subject to Minnesota Housing approval, will have priority over other applicants at the start of Round 2. Suballocators may recommend one of their partially funded projects for additional credits, if more than one applicant applies to Minnesota Housing.

Basis Boost:

MN Housing may provide a basis boost for housing tax credit developments, including preservation properties, on a building by building basis to obtain financial feasibility.

Community Revitalization: 

For applications submitted in Round 1, all applicants statewide must meet one of several threshold types. In the Metropolitan Area, this includes the requirement that substantial rehabilitation projects be located in neighborhoods targeted by the city for revitalization. Outside of the Metropolitan Area, threshold options include the requirement that projects meet a locally identified housing need and that are in short supply in the local housing market, as evidenced by credible data such as a local council resolution. 

Minnesota's 2018 QAP awards between  and 28 points for "Supporting Community and Economic Development." Of these points,  is awarded to projects that are located in a Qualified Census Tract and are part of a concerted plan that provides for community revitalization consistent with a Planned Community Development. In addition to submission of evidence of Planned Community Development, evidence from local community development partners that the housing proposal contributes to the objectives of the plan must be provided. 

 

Note: Minnesota’s Consolidated Request for Proposal provides a means of "one stop shopping" by consolidating and coordinating multiple housing resources into one multifamily application process. Applicants do not apply for a specific funding source, but rather the applicant requests funding for a specific housing development and/or activities that meet a specific housing need.

Minnesota Housing, in conjunction with its funding partners, will select developments and award the most appropriate funding sources. The funding partners include Metropolitan Council, Department of Employment and Economic Development (DEED), Family Housing Fund (FHF), Greater Minnesota Housing Funding (GMHF), Mankato Economic Development Agency (Mankato EDA) and the Metro Housing and Redevelopment Authority (Metro HRA).

Hennepin County, Ramsey County, City of Minneapolis (CPED), City of Saint Paul, Minnesota Department of Human Services (DHS), United States Department of Housing and Urban Development (HUD) and United States Department of Agriculture (USDA) participate in the review of proposals.

Minnesota Housing offers two methods to apply for multifamily resources: the Consolidated Request for Proposals (Consolidated RFP) and Pipeline. Pipeline allows applicants to apply for funding at any time, subject to certain restrictions and funding availability.

The Housing Tax Credit program offers two application rounds per year with the primary round taking place in conjunction with the Consolidated RFP, and the second round having a priority for supplemental tax credits.

Offering housing resources through the Consolidated RFP accommodates applicants as follows:

• Allows applicants to apply for funding for a housing development and/or activity rather than applying for specific funding sources over a series of application rounds; therefore, shortening and simplifying the application process.

• Creates an environment where applicants focus on housing needs and market rather than focusing on specific program availability and requirements.

• Allows applicants to apply for multiple funding sources by using one common application with similar requirements.

• Eliminates the burden of applicants having to know numerous funding program details.

Contributed By: 
National Housing Trust

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