TAX CREDITS & TAX-EXEMPT BONDS: STATE-BY-STATE PREVIEW

MINNESOTA

BY JERRY ASCIERTO

AFFORDABLE HOUSING FINANCE • DECEMBER 2007

St. PAUL—The Minnesota Housing Finance Agency (Minnesota Housing) continues to increase its emphasis on green and sustainable design standards in the 2008 qualified allocation plan (QAP).

In the past, applicants could win optional points in the selection process for meeting at least eight out of the 15 design criteria outlined in the Green Communities Initiative, a group effort developed by the American Planning Association, Enterprise Community Partners, Inc., and other affordable housing- focused organizations.

That criterion was removed from the QAP’s self-scoring worksheet. Instead, the 2008 QAP will make it mandatory for new construction and rehabilitation projects to adopt most of the criteria designated by Green Communities. The new criteria include requirements for:
• Installing water-conserving fixtures in bathrooms and kitchens;
• Using adhesives and sealants with low- or no-volatile organic compounds; and
• Installing Energy Star-labeled bathroom fans that exhaust to the outdoors.

Minnesota Housing’s main point categories— family housing, lowest income, long-term homelessness, leverage, and readiness to proceed—remained the same in the 2008 QAP. But the points awarded for leverage (which measures the extent to which private investment is included as a funding source) were changed to promote more use of outside sources, such as private, federal, local government, religious, philanthropic, or charitable organizations.

The leverage percentage is figured by dividing the state funding award by the total development cost. A higher number shows that state funding covers a larger share of the project’s cost. In the past, developments could win the maximum 10 points if that ratio was 20 percent, but Minnesota Housing found that almost all developments were eligible for the maximum points allowed under this category. So in the 2008 QAP, developments can only win 10 points if the leverage percentage is 5 percent or lower.

Under the new point system, developments with a leverage ratio of between 5.1 percent and 10 percent can win eight points; projects with a ratio of 10.1 percent to 15 percent get six points; developments with a ratio of 15.1 percent to 20 percent can win four points; and projects with a ratio of 20.1 percent to 30 percent can win two points. Previously, developers could win points with leverage ratios as high as 60 percent.

Winning 10 points in this category could make or break a project: Developments must have a minimum of 30 points to be eligible to receive tax credit reservations.

2008 outlook
Minnesota Housing will have slightly more than $10 million in federal low income housing tax credit (LIHTC) authority in 2008. The maximum award in 2008 will be $780,000. In addition to LIHTCs, Minnesota has a state housing trust fund, and Minnesota Housing expects about $621,000 to be available from that source for 2008.

No changes were made to set-asides, threshold requirements, income targeting, or underwriting standards in the 2008 QAP.

Applications for the first round were due in June 2007, and applications for the second round are due Jan. 31, 2008.

2007 recap
In 2007, $10.2 million in 9 percent tax credits was reserved, and $26.7 million was requested. In all, 28 projects received 2007 reservations, constituting 884 tax credit units out of 974 overall units. New construction deals won 80 percent of the reservations. Projects serving homeless populations won about 31 percent of reservations.

The median tax credit award was $335,000, and the median project size was 34 units in 2007. All of the set-asides were oversubscribed except for the rural housing category.

Units targeting those earning up to 60 percent of the area median income (AMI) made up 60 percent of all 2007 tax credit reservations; units targeting those earning up to 50 percent of the AMI constituted another 30 percent; and units serving those earning up to 30 percent of the AMI made up 10 percent of the reservations.

Like many states, Minnesota has seen a decreasing number of units funded through tax credit reservations in the last few years. In 2004, 2,104 tax credit units were funded; by 2006, that figure had dropped to 1,190. Minnesota Housing said the decrease was due to increased costs and less equity received per tax credit dollar, a trend officials expect to increase next year. In 2007, each tax credit dollar fetched 94 cents, but Minnesota Housing expects that figure to drop to 90 cents in 2008.

Tax-exempt bonds
Minnesota Housing expects to have more than $145.2 million in tax-exempt bond volume cap in 2008, though at press time it was unsure how much would be set aside for rental housing. Applications are accepted year-round.

Acquisition-rehab and preservation deals are the favored project types to receive bond financing from Minnesota Housing, the agency said. In 2007, $2 million in tax-exempt bond financing was doled out between 11 projects, constituting 1,534 units, all of which were acquisition- rehab and preservation deals.

2008 LIHTC PROGRAM: