Request for Committee Action
A briefing memo explaining the purpose, background, and impact of the requested action.
Affordable Housing Trust Fund: Legislative directive response (RCA-2025-00321)
ORIGINATING DEPARTMENT
To Committee(s)
| # | Committee Name | Meeting Date |
|---|---|---|
| 1 | Business, Housing & Zoning Committee | March 20, 2025 |
Action Item(s)
| # | File Type | Subcategory | Item Description |
|---|---|---|---|
| 1 | Receive & File | Report | Receiving and filing a report in response to a legislative directive regarding the Affordable Housing Trust Fund (AHTF). |
Ward / Neighborhood / Address
| # | Ward | Neighborhood | Address |
|---|---|---|---|
| 1. | All Wards |
Background Analysis
On December 4, 2024, this Committee assigned staff a legislative directive regarding the Affordable Housing Trust Fund Program (AHTF) seeking specific information related to 30% AMI units. “Pursuant to City Charter Section 7.1(h)(2), the Minneapolis City Council, in support of its official legislative, policymaking, and oversight functions, does request from the Mayor the following information and data”:
- A comprehensive overview and update on the Affordable Housing Trust Fund, including a yearly breakdown, since 2018.
- Total number of units (applied)
- Total number of 30% AMI units (applied)
- Awarded number of units
- Awarded number of 30% AMI units
While the AHTF program has always been oversubscribed and competitive, the number of applications submitted to the AHTF Program has increased significantly since 2018. The total number of units and 30% AMI units in each application round fluctuates year to year based on the projects that apply. However, the Program has also seen an increase in the number of units overall since 2018. The City Council has long supported deeply affordable housing, and began making changes to AHTF scoring categories in 2019 that were designed to increase the number of 30% AMI units funded through the AHTF. The most recent changes were in 2023. Below is a chart with the data requested in the legislative directive, which shows an increase in 30% units in AHTF applications over the years, and particularly in 2024. It is important to note that one project may receive partial AHTF awards across more than one funding round.
On average, two to three projects where 100% of the units serve households at 30% AMI are submitted each year. These projects are typically supportive housing (housing with services) and because they are the most challenging to fully fund -- these projects generally require 9% tax credits which are in limited supply (see below) -- multiple projects are not necessarily awarded in the same year.
2. What it takes to get 30% AMI units or homeless units created/preserved.
Creating and preserving 30% AMI projects is the most challenging because 30% AMI rents are so low they do not generate enough cash flow to support much if any debt service for mortgage financing to construct the building, nor to support ongoing annual operating costs. In addition, 30% AMI units often house the most vulnerable and challenging populations that require supportive services to assist with stable living. These projects also cannot be financed without commitments of project-based rental assistance to support very low-income renters and generate enough cash flow to support building operations. This means developers of projects with 30% AMI units must compete for and assemble capital, supportive service, and rental subsidies to get their projects off the ground. The City of Minneapolis provide capital funding through the AHTF program. Rental subsidies and service funding is available from Minneapolis Public Housing Authority, Hennepin County, MN Housing, the MN Department of Human Services, and other agencies. In order to achieve the most optimal production of affordable housing, the AHTF Program also supports the production of deeply affordable housing units blended with units that have higher affordability levels (50% AMI, 60% AMI and greater). These mixed income projects can typically be built faster because they need less subsidy and can support some first mortgage debt.
Projects with a high percentage of 30% AMI units are typically financed with 9% Housing Tax Credits (HTCs) from the City or Housing Infrastructure Bonds (HIBs) from Minnesota Housing because these sources leverage the highest level of equity financing. These resources are extremely limited (they are allocated by the federal government on a per capita basis) and highly competitive through annual RFP processes. The City’s 9% HTC allocation is typically enough to finance only one project annually. Furthermore, these sources still do not fund 100% of the project’s total development costs. Thus, additional funding sources must be secured to achieve a project closing. On average this process takes two to three years or longer.
The AHTF program prioritizes the development of projects with 30% AMI units serving people exiting homelessness. City staff work diligently to align the AHTF programs with those of MN Housing and Hennepin County to secure as many of these limited 9% HTC and HIB resources as possible for Minneapolis projects.
The exhibit below demonstrates how a 59 unit project (31 0-BR; 28 1-BR) with 100% of the units at 30% AMI has a negative net operating income, based on how much income is produced. This project will require significant additional subsidy to be feasible. The exhibit also provides a comparison of the same project with 100% of the units at 50% AMI. The 50% AMI structure produces more cash flow and can support some debt -- but not enough to finance the total construction costs. The 50% AMI project still requires public subsidy, but to a lesser degree.
3. Options for changes to the Affordable Housing Trust Fund Notice of Funding Availability (NOFA) to increase the number of applications submitted/awarded for the production, preservation and rehabilitation of 30% AMI units and homeless units.
The scoring changes made in 2023 continue to incentivize the production of affordable housing including the increased production of 30% AMI units as shown in the table above. With only two years of numbers to assess, staff believes it’s too early to analyze any trends to propose additional changes. As mentioned earlier, the total number of units and 30% AMI units fluctuates year to year based on the projects submitted.
It is important to point out that scoring is not the only factor in awarding funds to projects. Projects are evaluated based on adopted underwriting standards, financial feasibility, geographic location, project readiness, likelihood to close on the financing within the AHTF timeline, compliance with design guidelines, support service plans, ability to secure necessary funds from other funders, and additional criteria as described in the NOFA.
A comprehensive overview and update of the AHTF Program is being prepared in advance of the 2025 NOFA issuance coming in June. The draft will be published for public comment around March 15, 2025, and presented to Council Committee in May. A preview summary of the proposed changes for the 2025 NOFA is listed below:
- Clarifying the description for supportive service points
- Updating the description for homeless housing points
- Updating the preservation category to incentivize preservation of existing affordable housing and clarify preservation categories
- Updating planning points to be consistent with the Minneapolis 2040 Plan
Staff believes these recommendations will help build on the scoring changes made to the AHTF program in 2023 by improving the program’s alignment with MN Housing and Hennepin County, especially related to how service funding and inclusion of homeless units are prioritized in the program. Additionally, staff will be recommending changes to prioritize preservation of existing affordable projects, many of which include deeply affordable units that are supported by Federal rent subsidies.
4. Other policy recommendations outside of the Affordable Housing Trust Fund Scoring Criteria and Notice of Funding Availability to increase the production preservation and rehabilitation of 30% AMI units and homeless units.
As noted earlier, projects with 30% AMI units are the most challenging to operate. Even if all capital funding can be assembled to construct or preserve units, these projects struggle if revenues do not fully cover operating costs. The AHTF Program has been successful at incentivizing an increased number of 30% AMI units without constraining the production of affordable housing overall by supporting mixed income projects.
To assemble the amount of capital funding to construct or rehabilitate affordable housing requires the collective effort of numerous funding sources both public and private. The AHTF Program and NOFA coordinate with funding programs available from other sources and partners to maximize affordable housing production. In addition, the timing of the annual NOFA is aligned with the release of RFPs from the State and County which are also major funding partners for affordable housing projects. It is critically important that the City’s AHTF program continue to align with capital, service funding, and rental subsidy programs operated by our funding partners. The City cannot produce and preserve 30% AMI units without participation with other funding partners; any changes to the AHTF program need to carefully consider the impact of those changes on Minneapolis project’s ability to successfully compete for other funding sources. Additionally, the City should consider the impact of other development-related requirements of other City programs and regulatory requirements that have the potential to increase the cost of development, thus making the production of 30% AMI units even less feasible.
Attachment 1 is the project data worksheet for the 3030 Nicollet/Opportunity Housing mixed income project which demonstrates the number and amounts of sources secured to complete construction. This project received its first funding commitment in May 2021 and its final funding commitment in March 2024. There are over 20 funding sources involved in the financing of this project that were assembled during that three-year timeframe.
The AHTF program is the City’s primary program to produce and preserve 30% AMI units, but not the only one. Additional programs that incentivize 30% AMI units include Inclusionary Zoning and Low Income Housing Tax Credits.