Request for Committee Action

2020-00484 - Year 2021 Housing Tax Credit Program Qualified Allocation Plan (QAP) and Procedural Manual

The Low Income Housing Tax Credit Program (HTC) is a federal program that provides a reduction in tax liability to owners and investors of qualified low-income rental housing. The program can be used for new construction or rehabilitation/preservation and provides investors with an annual tax credit for a ten-year period, in exchange for an equity investment in a qualified project.

CPED assists the Minneapolis/Saint Paul Joint Housing Finance Board (the Joint Board) with allocating HTCs in Minneapolis. For Year 2022, Minneapolis is expected to receive $1,393,270 in 9% HTCs for allocation.

Federal law requires tax credit allocating agencies to adopt a Qualified Allocation Plan (QAP) and Procedural Manual, which set forth selection criteria for the allocation of HTCs to qualified rental housing developments. Program changes in State and Federal law are also made from time to time, and must be incorporated in the QAP and Procedural Manual. Minnesota has a state-level allocating agency (Minnesota Housing) and four suballocators, including Minneapolis (through its participation in the Joint Board).

This year, staff is proposing several procedural changes to the QAP and Procedural Manual to conform with current Federal and State regulations and national best practices in HTC allocation, to establish greater consistency with Minnesota Housing, and to further align the City's HTC program with City goals. Racial equity is centered in this program as assessed in the attached Racial Equity Impact Analysis.

The most notable of the proposed changes for Years 2022-2023 are:

• Increasing the minimum affordability period on 4% HTC projects from 20 years to 30 years, maintaining incentives for longer affordability terms, and adjusting the minimum scoring threshold accordingly.
• Adding a new scoring category to incentivize 30% AMI units in 4% HTC projects.
• Combining the homelessness and supportive housing 9% HTC scoring categories, with a new unit range to incentivize additional units designated for persons experiencing homelessness.
• Updating the Procedural Manual to strengthen anti-displacement language regarding HTC proposals in existing buildings.
• Adjusting the methodology of assessing cost reasonableness to eliminate disincentives to housing production that meets important needs and City goals (e.g. large family housing, sustainability and energy efficiency features).
• Adding a new scoring category to incentivize projects that demonstrate a commitment to equity and inclusion through meaningfully involving community members most affected by housing instability and disparities.
• Adopting a 2-year QAP, consistent with Minnesota Housing’s adoption of a 2-year QAP for 2022-2023, to provide scoring consistency for developers proposing HTC projects. Accordingly, the next planned revisions to this document will occur in 2023.

Staff sent the draft QAP and Procedural Manual out for 45-day community and neighborhood review, with comments to be returned no later than May 2, 2021. Multiple written comments were received, which are attached to this report. Several commenters provided support for many of the scoring changes proposed by staff. Two commenters suggested reducing points provided for 9% HTC projects located outside ACP50 areas. Staff notes that while the 9% HTC scoring does incentivize 9% HTC projects to locate outside of ACP50s as part of the City’s strategy to locate affordable housing throughout the City, across all its housing programs, it is not impossible for 9% projects in ACP50s to receive a HTC allocation (as the 3301 Nicollet project did in 2020). Staff is not recommending this proposed change.

Staff received comments supporting doubling the points for 30% AMI units in 9% projects, which is also not being recommended. Current 9% HTC scoring strongly incentivizes the inclusion of 30% AMI units through a dedicated point category, which is weighted further when combined with substantial homelessness and supportive housing points (which is often the case). While inclusion of 30% AMI units is a top City priority, staff is concerned that further increasing points in this category would dilute the influence of other scoring priorities (such as existing funding commitments, transit proximity, intermediary (soft) costs, locational choice, etc.).

Comments were also received in support of strengthening non-smoking requirements and changes to the disability category, both in the 9% HTC scoring. Staff is not recommending either change at this time. The City’s current scoring language in both categories is aligned with Minnesota Housing’s QAP. Staff also believes that the proposed changes require additional research and may require a legal opinion; both proposals will be reviewed again as part of the next QAP update.

Staff also presented the proposed program changes to the Housing Advisory Committee on April 8, 2021. The drafts were also reviewed by the Joint Board’s HTC counsel - Kutak Rock.

Below is a summary of all the proposed changes:

Changes to the 2022-2023 Housing Tax Credit Qualified Allocation Plan (QAP)

• General: A two-year QAP is proposed
• Article VII – F: Require a minimum affordability period of 30 years and waiver of Qualified Contract requirements for new 4% HTC applications.
• Article VII: Change minimum point threshold for 4% HTC projects to 30 points.
• Attachment 1 - Selection Criteria - 9% Tax Credits:

• A1 and previous A3: Combine homelessness and supportive housing scoring criteria, add minimum threshold requirements, and create a unit range
• A2: Clarify non-profit participation language
• Previous A4/new A3: Revision to eligibility range
• Previous A9/new A8: Increase lowest point category from one to three years
• Previous A14: Remove Cost Containment scoring criterion
• New A13: Create new Equitable Development scoring criterion

• Attachment 3 - Selection Criteria - 4% Tax Credits:

• General: Reset scoring minimum threshold and add ‘has an existing City funding award’ to selection criteria priorities
• 2: Reset long-term affordability scoring criterion for 40 or more years of affordability restrictions
• 7: Clarify non-profit participation language

• Previous 9: Remove Cost Containment scoring criterion

• New 9: Create a new scoring criterion to incentivize 30% AMI and below units in 4% HTC projects

Changes to the 2022-2023 Housing Tax Credit Procedural Manual:

• Section III – E: Delete Cost Containment category from Unacceptable Practices and create a new Displacement of Tenants in Non-HUD-Assisted Units in Acquisition/Rehabilitation Projects category.
• Section III – new K: Permit non-awarded applicants to the Year 2022 9% NOFA the ability to use Census-tract-based maps from the Year 2022 9% NOFA for purposes of the Year 2023 9% NOFA. Census tract boundaries are expected to be updated by the Census Bureau later in 2021. An updated ACP50 map was included with the draft documents for public review.
• Section III – new M: Reset scoring minimum threshold and add ‘has an existing City funding award’ to selection criteria priorities
• Section IV – D: Delete language regarding project-based rental assistance from the Average Income minimum set-aside.
• Section IV – G: Add new language prohibiting leasing of HTC units to related parties.
• Section IV – K: Require a minimum affordability period of 30 years and waiver of Qualified Contract requirements for new 4% HTC applications. Deletion of similar reference language from prior years’ HTC Manuals.
• Section VII – Submission Requirements: Minneapolis will transition to the 2021 Green Communities Overlay (in coordination with MN Housing) with this proposed QAP update.

Redlined copies of both the QAP and Procedural Manual are attached to this report. The Joint Board is scheduled to meet in June to finalize and approve the QAP and Procedural Manual for Minneapolis and Saint Paul. The Joint Board meeting includes a public hearing. Staff anticipates releasing the Year 2022 9% HTC Notice of Funding Availability (NOFA) in mid-June.