III.2. Local Affordable Housing Aid; NeedhamElverum
CITY OF HOPKINS
Memorandum
To: Honorable Mayor and Council Members
Mike Mornson, City Manager
From: Revée Needham, Community Development Manager
Kersten Elverum, Director of Planning and Development
Date: May 21, 2024
Subject: Presentation on Local Affordable Housing Aid
_____________________________________________________________________
PURPOSE
Staff will provide an overview of the Local Affordable Housing Aid (LAHA) program
passed in 2023, as well as an update on housing trust funds and the low-income rental
classification program, also known as the 4d program. This item is informational only
with no formal action requested, however, staff is looking for guidance on the preferred
use of LAHA funds.
INFORMATION
Affordable Housing Background
According to the Department of Housing and Urban Development (HUD), housing is
considered affordable when people spend less than 30% of their income on housing
costs. Across the nation and Minnesota, the housing production has not met demand,
rent prices are climbing, and housing is becoming increasingly unaffordable,
particularly for renters. In Hennepin County, 52% of renter households earn less than
60% of area median income (AMI), and of those, 78% are cost-burdened and pay more
than 30% of their monthly income on housing. Communities of color are
disproportionality impacted by rising housing costs, as households of color are far more
likely to be renters than homeowners in the Twin Cities and across Minnesota. In
Hopkins, rent prices have risen by 16% from 2010 to 2018 according to the Minnesota
Housing Partnership.
Affordable housing policies are multi-layered and generally address tenant protections,
the preservation of existing affordable units or creation of new affordable housing units.
Hennepin County has a visual representation of the varying levels of affordability and
affordable housing policies ranging from home ownership to emergency shelter:
Planning and Economic
Development
Affordable Housing in Hopkins
Hopkins has a unique housing market and housing stock compared to other cities within
Hennepin County. In Hopkins, over 65% of people rent their homes and less than 35%
own the home they live in. Much of Hopkins’ housing stock is considered naturally
occurring affordable housing (NOAH). NOAH is subject to market conditions and does
not have a legal requirement to remain affordable over time. Compared to other cities in
Hennepin County, Hopkins has the third largest amount of NOAH units according to the
Minnesota Housing Partnership, with approximately 67% of our housing stock being
considered NOAH. Approximately 7% of affordable housing in Hopkins is legally binding
to remain affordable for a set amount of time.
While much of the housing in Hopkins has been affordable, market pressures and the
economy can cause housing costs to rise. As Hopkins grows and redevelops, ensuring
that affordable housing options continue to be available is a priority of the City Council
as documented in Cultivate Hopkins, the City’s comprehensive plan and 2024 City
Council goals. The City Council held work sessions on September 13, 2022 and March
14, 2023 to discuss affordable housing. At the March 2023 work session, the Council
discussed three affordable housing policy options: inclusionary housing, the low-income
rental classification (also known as the 4d program), and affordable housing trust funds.
On May 16, 2023 Council passed an inclusionary housing policy.
2023 Legislative Policies
The 2023 Legislative session included an unprecedented investment in affordable
housing including the creation of a new direct local housing aid. LAHA was funded with
a new 0.25% metropolitan area sales tax on retail sales, taking effect October 1, 2023.
The sales tax proceeds will be distributed as follows: 25% to metropolitan cities over
10,000 in population, 50% to the seven metropolitan counties, and 25% to state rent
assistance. For cities, the funds will be distributed based on the percentage of cost-
burdened households in each city. A cost-burdened household is defined as households
where gross rent is 30% or more of household income or where homeownership costs
are 30% or more of household income. Similarly to the local government aid, the
Department of Revenue will distribute the funds in two installments per year, with the
first installment to be paid on July 20, 2024. Initial estimates propose that Hopkins will
receive approximately $360,000 per year. The actual amount to be received will be
posted on July 1, 2024.
In the 2024 legislative session, there are two proposed amendments to the LAHA. One
amendment is minor and proposes changing the distribution date to once a year on
October 1st. The other amendment would require metropolitan cities receiving LAHA to
provide an annual report to certify that they are using their local affordable housing aid
to supplement, not supplant, their existing locally funded housing expenditures. Both
amendments are currently being debated in conference committees and staff will
continue to monitor the pending changes.
In addition to the LAHA funding, $4.8 million was allocated to the Local Housing Trust
Funds Grant Program to encourage local governments to create or fund local housing
trust funds. The program uses state funding to match a portion of new housing trust
fund dollars to encourage local investment in affordable housing across Minnesota.
These funds may come from any source other than the state or federal government.
Minnesota Housing released a program guide but is still working on setting up the
administration of the grant program. Staff will continue to monitor the program updates
and will return to Council when more information is available.
Included in the 2023 omnibus tax bill was changes to the low-income housing rental
property, 4d(1) tax classification. Under previous law the first $100,000 of value had a
class rate of 0.75%, while value above $100,000 had a class rate of 0.25%. The new
law makes several changes, including reducing the 0.75% rate on the first $100,000 of
value to 0.25%, creating one flat rate on 4d(1) property. This change makes the 4d(1)
program more enticing to owners of low-income rental properties. In addition, the
changes allow community land trust property that is owned and used as a homestead
by the occupant to qualify for the newly established class 4d(2), which is taxed at a
0.75% flat rate and is eligible for the homestead credit refund.
An additional $150 million was allocated for down payment assistance for first
generation homeowners with the premise of reducing the homeownership disparity gap.
The First-Generation Homebuyers Community Down Payment Assistance Fund will be
launching soon, and those interested can sign up for updates on the website. Hennepin
County also has a downpayment assistance program that is now accepting applications.
Additional investments for affordable housing passed during the 2023 legislative
session can be viewed in this summary document.
LAHA Overview
LAHA funds must be used for affordable housing production and preservation. Funds
must be spent by December 31st, four years after the funds were distributed. Funds will
be considered spent if used on a qualifying project or if the city can demonstrate the
inability to spend the funds due to factors outside the control of the city.
The program is flexible and qualifying projects include:
• Emergency rental assistance for households earning less than 80% of area
median income (AMI) as determined by the HUD.
• Financial support to nonprofit affordable housing providers in their mission to
provide safe, dignified, affordable and supportive housing.
• Construction, acquisition, rehabilitation, demolition or removal of structures,
construction financing, permanent financing, interest rate reduction, refinancing,
and gap financing for:
o Homeownership projects, 115% of the greater of state or AMI as
determined by HUD.
o Rental housing projects, 80% of the greater of state or AMI as determined
by HUD.
Starting in 2025, cities are required to report annually on the uses for LAHA funds and
any unspent funds. A complete overview of LAHA can be found on the Department of
Revenue website. A summary of LAHA frequently asked questions is also attached.
Hennepin County
Hennepin County is estimated to receive $29 million per year in LAHA. The County
intends to use funds to meet their existing strategies such as NOAH Preservation,
Homeownership Assistance, Emergency Renter Assistance, etc. The County will use
the funds to create a new permanent eviction prevention fund, fund the capacity building
of affordable housing developers, add to the Human Services budget, and work on
increasing affordable housing production. The county’s memo on their implementation
plans for LAHA is attached for reference.
Staff reached out to neighboring cities within Hennepin County to inquire about their
plans for use of LAHA funds. While cities have not yet formally adopted a spending
plan, staff indicated that funds would likely be used to supplement their existing
programs.
LAHA Options for Hopkins
Given the flexibility with the funds, Hopkins could use the LAHA for a variety of
programs. Below is a non-exhaustive summary of potential options in the areas of
protection, preservation, and production of affordable housing. Based on direction from
the Council, staff will return with more detailed policy and program options in the future.
• Emergency Rent Assistance. Hennepin County and ICA both offer emergency
rent assistance programs. Additional assistance could be offered with the use of
LAHA funds. It is unclear if a portion of the LAHA funds can be used for
navigation, services, and administration related to emergency rent assistance. If
these costs are excluded, this could limit this as an option. Staff have received an
inquiry from a local nonprofit initially advocated for additional emergency rent
assistance.
• Financial Support for Nonprofit Housing Providers. Staff have received an inquiry
from a local nonprofit supporting the use of LAHA in line with the Hennepin
County implementation plan.
• Gap Financing for New Construction. The funds could also be used for gap
financing for new construction affordable housing projects. Notably, the recent
adoption of Hopkins’ Inclusionary Housing Policy could create financing gaps for
new construction projects. However, the amount of LAHA funding that Hopkins is
anticipated to receive is much less than recent project subsidies given through
other means such as tax increment financing. LAHA funds could be saved over a
few years to increase the amount of assistance available for one project.
• Homeownership Assistance. There are multiple options to support
homeownership for Hopkins residents, such as downpayment assistance, home
repair assistance, and community land trusts. The state and Hennepin County
are both offering new first-generation homeownership downpayment assistance
programs this year, which are likely to be popular and fill up quickly. Hennepin
County also administers Hopkins’ Community Development Block Grant (CDBG)
funds with the Housing Rehab Deferred Loans program. As of 2024, there are 13
people on the waiting list for the rehab loan program. The community land trust
model is an option to create and preserve affordable homeownership for families
by removing the market value of the land from the mortgage. Homes within
Reach, the West Hennepin Affordable Housing Land Trust, operates near
Hopkins, but a significant initial subsidy is needed for each home purchase, with
per-house subsidies in the Minneapolis land trust now topping more than
$200,000.
• Rental Rehabilitation. LAHA could be used to fund modest repairs of existing
affordable units and maintain affordability through the establishment of a local
low-income rental classification program 4d(1) program. As many rental buildings
in Hopkins are older, repairs and maintenance are necessary and increasingly
cost-prohibitive. Additionally, the funds could be used to assist with the upcoming
repairs needed with the maintenance of Dow Towers, such as the sprinkler
system.
o As mentioned, the rehabilitation of rental units could be tied to the 4d(1)
program, a State-wide program that reduces the tax rate on affordable
housing. Due to the changes to the tax classification program, the
program is receiving more interest and staff have received several
inquiries into taking advantage of the program in Hopkins this year.
Property owners could reduce their tax burden on rental units from 1.25%
to 0.25%, an 80% change, by enrolling in the program. To qualify, at least
20% of units in a building are subject to rent restrictions. If Hopkins
established a 4d(1) program, this would decrease the city’s overall tax
capacity and slightly shift the tax burden to the other tax classifications. To
buffer these impacts, the City could limit the number of 4d(1)
units/applications approved over time.
Given the housing stock and housing market within Hopkins, staff view the preservation
of NOAH as a higher priority than other options, and the 4d(1) program is the most
utilized tool for affordable rental housing preservation. However, staff are cognizant of
the time and resources required to set up and administer new programs, as well as the
overall tax impacts on all properties not eligible for the 4d(1) class rate. Finally, LAHA
funding does not cover administrative costs, resulting in a need to reprioritize the work
of existing staff.
FUTURE ACTION
Based on the direction from the Council, staff will work on drafting policy options and
return for feedback on the LAHA spending plan. At this time, staff do not anticipate
expending the funds before 2025.
SUPPORTING INFORMATION
• Hyperlink to LAHA Website
• LAHA Frequently Asked Questions
• Hennepin County LAHA Memo
• Hyperlink to March 2023 Council Discussion
o Hyperlink to Video
• Hyperlink to September 2022 Council Discussion
o Hyperlink to Video
• Hyperlink to Low-Income Rental Classification Website
1
Local and Statewide Affordable Housing Aid:
Frequently Asked Questions
In 2023, the Minnesota Legislature authorized aid payments to counties, cities and Tribal Nations. The
goal is to fund affordable housing projects and help organizations provide affordable and supportive
housing.
Local Affordable Housing Aid (LAHA) is aid to metropolitan local governments. LAHA is funded through
a new dedicated sales tax in the seven-county metropolitan area. As sales taxes will vary, the amount
of LAHA distributed will also vary.
Statewide Affordable Housing Aid (SAHA) is funded by state funds appropriated to the Department of
Revenue. All Minnesota counties, seven Tribal Nations and 37 cities will receive this aid.
Aid payments are made directly to local governments. In the metro, aid is funded by the sales tax for
housing. Statewide, aid is funded by state appropriations.
Throughout the document, “housing aid” is used when the response applies to both LAHA and SAHA.
Note: The information provided in this document does not constitute legal advice and is subject to
change. If there are questions regarding how program requirements or criteria apply in specific
circumstances, please consult with your own legal counsel.
Overview and Requirements
Why is there a difference between SAHA and LAHA?
The primary differences between LAHA and SAHA are the way they are funded, when funding will be
disbursed and to whom.
Both aid projects have the same eligible uses and requirements except for market rate housing. This is
only available in certain non-metropolitan areas using SAHA.
What are the eligible uses of housing aid programs?
Qualifying projects are:
2
• Emergency rental assistance for households earning less than 80% of area median income
(AMI) as determined by the U.S. Department of Housing and Urban Development (HUD)
• Financial support to nonprofit affordable housing providers in their mission to provide safe,
dignified, affordable and supportive housing
• Development of market rate residential rental properties outside of the metro area if certain
conditions are met
• Projects designed for the purpose of construction, acquisition, rehabilitation, demolition or
removal of existing structures, construction financing, permanent financing, interest rate
reduction, refinancing and gap financing of affordable housing
For more information, Minnesota Statute has the complete list of LAHA qualifying projects (see
subdivision 4) and SAHA qualifying project (see subd. 4).
What is gap financing?
Gap financing is the difference between the property costs (including acquisition, demolition,
rehabilitation and construction) and
• The market value of the property upon sale
OR
• The amount the target household can afford for housing (based on industry standards and
practices)
What are the affordability requirements of LAHA and SAHA?
Specific income requirements are provided for:
• Emergency Rental Assistance
o Less than 80% of AMI
• Homeownership
o At or below 115% of the greater of state or area median income
o Priority for those at or below 80%
• Rental Housing
o At or below 80% of the greater of state or area median income
o Priority for those at or below 50%
State and area median incomes are determined by HUD.
While there are no income requirements or income qualification for projects supporting nonprofits,
organizations should be providing affordable or supportive housing.
3
Some non-metropolitan communities may be eligible to spend aid on market rate developments.
There are no income requirements for market rate housing under this category.
Are there other requirements if using these funds?
Yes. If LAHA or SAHA is used for new construction or substantial rehabilitation of a building with more
than four units, the building must be constructed, converted or otherwise adapted to include
accessibility features, such as sensory-accessible (see subd. 4). Documentation will be required for
reporting and compliance.
State Agency Roles and Reporting Requirements
What roles do the Department of Revenue and Minnesota Housing play in distributing and
tracking local housing aid?
The Department of Revenue calculates and distributes the amount of aid available to each
government. Revenue also accepts applications from eligible Tribal Nations.
Minnesota Housing’s statutory role relates to reporting and compliance. First reports are due by
December 1, 2025. While not required by the legislation, Minnesota Housing is hiring staff to support
housing aid programs with technical assistance and coordination.
Does a city, county or Tribe need to apply to receive the funds?
For cities and counties there is no application process. Revenue will distribute aid according to
statutory requirements.
Tribal Nations eligible for SAHA must apply to receive funds annually. Tribes should work with Revenue
to meet this annual requirement.
Does a city, county or Tribe need to seek preapproval before spending the funds?
No. Approval is not needed before spending funds. However, funds must be used on qualifying projects
and expenditures should be documented to avoid repayment or recapture.
Will Minnesota Housing be developing a program guide for housing aid?
No. Housing aid is not a grant or loan program and is not subject to a program guide.
Minnesota Housing will support housing aid programs through guidance and staff support.
4
What are the reporting requirements for the funds?
Beginning in 2025, housing aid recipients must submit a report to Minnesota Housing every year by
December 1.
The report must include documentation (see subd. 6(b)) of:
• Qualifying projects completed or planned with the funds
• Location of unspent funds
• Inability to spend on a qualifying project prior to the deadline (if funds deposited into a local
housing trust fund)
• Accessibility requirements (for project of four or more units)
• Relevant resolution and certifications for market rate developments in non-metropolitan
communities
Additional guidance on the report’s format will be provided in the future.
Do metropolitan counties need to submit a report for LAHA and one for SAHA?
Minnesota Housing is determining if the reports must remain separate. However, if they do, the report
format will be the same or substantially similar for LAHA and SAHA.
What happens if a city, county or Tribal Nation does not submit a report or does not spend
the funds?
Reports are due by December 1 every year. The first report is due on December 1, 2025.
If the aid recipient fails to submit a report, does not spend funds during the required timeframe, or
spends funds on an ineligible project, they must repay the funds. Revenue may also suspend payments
to these entities.
Find details on LAHA timelines (see subd. 6) and SAHA timelines (see subd. 6).
What happens to the aid funds if they are returned or recaptured?
If returned, aid funds would be deposited with one or more of Minnesota Housing’s programs. This
includes Family Homeless Prevention and Assistance Program (FHPAP), the Economic Development
and Housing Challenge Program (Challenge), and the Workforce and Affordable Homeownership
Development Program as specified in law.
5
Will Minnesota Housing be monitoring the use of housing aid prior to the reporting deadline
for cities and counties?
Minnesota Housing will not require reporting prior to December 1, 2025, when the first report is due
from cities and counties.
However, Minnesota Housing will be checking in with local governments to offer support and track
spending progress.
Definitions and Clarifications
What is a Tier I and a Tier II city?
The terms Tier I and Tier II are used to determine cities that will receive aid.
A Tier I city is a statutory or home rule charter city that is a city of the first, second or third class. For
LAHA, it must be in a metropolitan county. For SAHA, it must not be in a metropolitan county. Read the
full definition of cities and classes.
A Tier II city is a statutory or home rule charter city that is a city of the fourth class and not located in a
metropolitan county (see subd. 4).
The bill requires aid be spent on a qualified project. What is the definition of spent? If a
project is started but not completed, are the funds considered to be spent?
Minnesota Housing is seeking clarification on the definition of spent.
Is SAHA funding from appropriations ongoing?
The following table reflects amounts appropriated to SAHA through the fiscal year ending in 2027. The
appropriations are set at a base level with one-time increases in the first two years.
SAHA Appropriations Fiscal Year Ending
6/30/24
FYE
6/30/2025
FYE
6/30/2026
FYE 2027 and each
year after
To the 87 counties in
Minnesota
$ 13,050,000 $ 13,050,000 $ 5,550,000 $ 5,550,000
To the 37 cities in
Greater Minnesota
$ 4,500,000 $ 4,500,000 $ 2,000,000 $ 2,000,000
To the 7 eligible Tribal
Nations
$ 2,700,000 $ 2,700,000 $ 1,200,000 $ 1,200,000
To Minnesota Housing
for the Tier II Cities
Grants program
$ 2,250,000 $ 2,250,000 $ 1,250,000 $ 1,250,000
6
SAHA Appropriations Fiscal Year Ending
6/30/24
FYE
6/30/2025
FYE
6/30/2026
FYE 2027 and each
year after
TOTAL $ 22,500,000 $ 22,500,000 $ 10,000,000 $ 10,000,000
How were the funding allocations determined?
Revenue determined allocations based on distribution formulas.
For counties and cities, these formulas consider cost-burdened households and total population. For
Tribal Nations, funds are divided equally between eligible Tribes that apply by the deadline.
Will Tier II cities receive a disbursement of SAHA?
Tier II cities will not receive a direct disbursement of SAHA.
However, the Legislature appropriated $4.5 million for Tier II cities. Funds will be available as grants in
the competitive process for a range of rental, homeownership and housing stability activities with a
minimum award size of $25,000.
Minnesota Housing will be preparing a program guide, a list of eligible Tier II cities and a request for
proposals (RFP) in 2024.
Qualifying Projects and Expenses
What portion of the housing aid funds can be used for staffing costs and administrative
costs?
Administrative costs and staffing costs are not listed as a qualifying project. Therefore, the funds are
not able to be used for these costs.
If funds are used for Emergency Rental Assistance (ERA), what portion can be used for
navigation, services and administration related to ERA provision and programs?
Minnesota Housing is seeking clarification on how funds for ERA can be used.
If aid funds are used for demolition or removal of existing structures, does affordable
housing need to be constructed on the site?
Yes. The expense must be tied to affordable housing for eligible households. Demolition or clearing of
land alone, including for speculative or future development of eligible housing, is not a qualifying
project.
7
Can funds be used for planning activities (soft costs) for new construction and preservation
affordable housing projects?
Soft costs are only eligible as part of a qualifying project. General or speculative planning activities
unrelated to a qualifying project are not an allowed use of funds.
Can funds be used for downpayment assistance for homebuyers?
Qualifying projects include homeownership projects for income-eligible households.
Downpayment assistance may be provided as permanent financing or gap financing, depending on
program requirements established by the aid recipient.
Can the housing aid funds immediately be deposited into a Local Housing Trust Fund?
Funds can be held in a local housing trust fund while recipients determine if a project qualifies.
Funds must be spent on a qualifying project by the deadline in statute. Funds remaining in a local
housing trust fund past the deadline will only be considered “spent” on a qualifying project if the aid
recipient demonstrates that it could not spend funds by the deadline due to factors outside their
control.
Can funds be transferred to a county or regional Housing and Redevelopment Authority
(HRA) if they are spent on qualifying projects?
Yes. Funds can be transferred to a county or regional HRA if they are spent on qualifying projects.
The original aid recipient is still responsible for all requirements related to the funds, including
reporting.
Can funds be used for developing new infrastructure, such as utilities and roads, or
upgrading existing infrastructure if the infrastructure serves affordable housing?
Potentially. The infrastructure would need to be part of a qualifying project. All requirements related
to project type, income affordability and other accessible requirements would also need to be met.
Speculative site and infrastructure development would not be eligible.
Infrastructure development or improvement for sites that include development uses not allowed
under this aid program would not be eligible.
What are some examples of expenditures ineligible for housing aid?
Housing aid should be used for projects that create and preserve affordable housing or stabilize the
housing of low-income people. This does not include:
8
• Shelter and other non-permanent housing options for people experiencing homelessness,
including operating costs and services
• Conducting a housing or zoning study
• Costs to create a Housing Improvement Area
• Staff and services related to general housing quality and licensure, such as code enforcement
• Staff and administrative costs for operation of an HRA or county or city housing department
• Commercial, industrial or public space development projects
• Projects located outside of Minnesota
If funds are used to support a nonprofit organization, do they need to be tracked to
qualifying projects?
Housing aid can be used to provide financial support to a nonprofit affordable housing provider in their
mission to provide safe, dignified, affordable and supportive housing.
If aid is used in this manner, providing support to the eligible nonprofit is the qualifying project. The aid
recipient should document that the funds were used to support the organization’s mission.
Can a county or city use other state or federal funding as part of a development financing
package that includes housing aid funds?
Yes. State and federal funding can be used as a part of the project’s development financing package.
If the funds are held in a Local Housing Trust Fund, can they be used as a match in Minnesota
Housing’s Local Housing Trust Funds Matching Grants program?
No. Housing aid cannot be used as matching funds in the Local Housing Trust Fund Grants program.
Only new public revenue, defined as local income committed to the Local Housing Trust Fund on or
after June 29, 2021, can be used as matching funds.
Can a county use its funds within cities that have also received housing aid?
Yes. Counties can spend the funds on qualifying projects anywhere in the county, including cities that
directly receive aid. Regional collaboration is encouraged to maximize the aid’s impact.
A county receiving aid should consult with the cities where projects are planned (see subd. 7).
Will the aid funds trigger other state funding requirements, such as prevailing wage?
For questions on labor and wage requirements, contact the Department of Labor and Industry.
For questions on the use of sales tax proceeds, contact the Department of Revenue.
DATE: October 11, 2023
TO: Hennepin County Board of Commissioners
FROM: Kevin Dockry, Chief Housing and Economic Development Officer
David HewiƩ, Housing Stability Director
Julia Welle Ayres, Housing Development and Finance Director
SUBJECT: ImplementaƟon plans for Metro Area Sales and Use Tax for Housing proceeds
This year, the 93rd Minnesota Legislature approved historic levels of new state funding for housing, including a
first-ever tax dedicated to affordable housing. The new 0.25% Metro Area Sales and Use Tax for Housing,
established with support from leadership from Hennepin County and other local jurisdic Ɵons, will raise an
esƟmated $29 million per year for Hennepin County. While state agencies con Ɵnue to develop required
guidelines/regulaƟons for the use of sales tax proceeds, we understand that Commissioners may also be
receiving outside inquires. This point-in-Ɵme memo outlines staff’s best understanding of eligible uses for the
sales tax proceeds, as well as an implementaƟon plan tailored to leverage Hennepin County’s unique strengths
and strategies to address our deepest racial dispariƟes in housing.
Background
Hennepin County administers over $146 million annually to address the full spectrum of housing needs.
In 2020, the county pushed harder on some of these tacƟcs most needed for emergency response: vastly
increased emergency rental assistance, property acquisiƟon for emergency and long-term use, and shelter
system improvements.
In March 2021, staff presented the key tacƟcs and results of this housing strategy. First, to grow our impact on
housing dispariƟes, we must minimize the number of people entering homelessness, and maximize the
number of people exiƟng homelessness, always in partnership with people with lived experience of
homelessness. We minimize entries through emergency rental assistance, homeless diversion, and naviga Ɵon
JWA
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and legal support for renters. We maximize exits by lowering barriers and improving services in emergency
shelters, providing housing-focused case management, expanding project-based subsidies , implemenƟng the
supporƟve housing strategy, and re-introducing single room occupancy (SRO) housing to the market.
In 2022, with the appropriaƟon of State and Local Fiscal Recovery Funds from the American Rescue Plan Act,
the county was able to allocate $91.35M to housing and homelessness. Once again, these funds were
programmed into our exisƟng strategy for greatest impact, namely: homeless case management and
employment services, addiƟonal shelter improvements, conƟnued operaƟons of low barrier and 24/7 shelters,
evicƟon prevenƟon, SRO conversion, and financing the pandemic-related increases to create affordable
housing, preservaƟon of naturally occurring affordable housing, acceleraƟng the producƟon of high-priority
affordable housing, and new homeownership opportuniƟes.
Hennepin County’s housing strategy focuses on households with the lowest incomes to reduce racial
dispariƟes in homelessness and housing cost burden, and to increase access to greater economic
opportuniƟes. This includes targeƟng funding to most affordable housing units, as well as creaƟng new
financial and development models to fill gaps in the housing con Ɵnuum. This naƟonally recognized strategy
has worked for Hennepin County’s residents, and we conƟnually seek opportuniƟes to sustain and grow it.
Metro Area Sales and Use Tax for Housing
The Metro Area Sales and Use Tax for Housing will be distributed within three pools:
25% to the new state rent assistance program
25% to the metropolitan city porƟon of the new Local Affordable Housing Aid program (distributed by
share of cost-burdened households to ciƟes with populaƟons over 10,000)
50% to the metropolitan county porƟon of the new Local Affordable Housing program (distributed by
3% to each of the seven counƟes, plus as a share of cost-burdened households)
The 93rd Legislature also approved a Statewide Local Housing Aid program funding through appropriaƟons.
Both programs have the same criteria for metro-area jurisdicƟons, and so are treated as a single program for
this memo.
Funding anƟcipated 2023-2026
Source 2023 2024 2025 2026
Statewide Local Housing Aid $1,721,9441 $3,913,5092 $3,913,509 $1,721,944
Local Affordable Housing Aid $22 million3 $29 million $29 million
1 Amount to be disbursed December 26, 2023
2 Amount yet to be confirmed; half disbursed July 20, 2024, half December 26, 2024
3 Amount to be announced by August 1, 2024, based on revenues collected through June 1, 2024, and disbursed
December 26, 2024
Qualifying projects
Statute outlined three categories of eligible projects:
Emergency rental assistance <80% AMI
Financial support to nonprofit affordable housing providers in their mission to provide safe, dignified,
affordable and supporƟve housing
ConstrucƟon, acquisiƟon, rehabilitaƟon, demoliƟon or removal of exisƟng structures, construcƟon
financing, permanent financing, interest rate reducƟon, refinancing, and gap financing of affordable
housing (homeownership projects <115% AMI; rental < 80% AMI)
In addiƟon, statute defined how funds should be prioriƟzed:
affordability (homeownership <80% AMI, rental < 50% AMI);
reduce dispariƟes in homeownership;
reduce housing cost burden, housing instability, or homelessness;
improve the habitability of homes;
create accessible housing; or
create more energy- or water-efficient homes.
Eligibility for our proven strategies
Several of Hennepin County’s proven strategies (highlighted in the Background sec Ɵon above) meet qualifying
project definiƟons under Local Affordable Housing Aid.
Hennepin County’s proven strategies Local Affordable Housing Aid
Shelter diversion
Financial empowerment
24/7 shelter
Case management
Employment services
Low barrier shelters
Project based operaƟng assistance
Emergency renter assistance
SupporƟve housing capital
SupporƟve housing operaƟng
Single room occupancy
NOAH PreservaƟon
Affordable housing accelerator
Homeownership assistance
ImplementaƟon plan
The primary intent of this new funding source is to increase producƟon of affordable housing in the
metropolitan area. To do so, staff propose applying new Local Affordable Housing Aid funds to the proven
strategies eligible under the statute. This strategy implements our dispariƟes reducƟon framework and goals,
and uses the program infrastructure already tested through the pandemic.
Since this is a new permanent source, staff recommend a mulƟphase approach to both meet immediate needs,
and to pave the way for long-term impact.
First, the iniƟal funds to arrive in late 2023 will launch a new permanent evicƟon prevenƟon fund. This will
conƟnue the successes of the COVID-era evicƟon prevenƟon, providing assistance at Housing Court where it is
needed most.
Second, funding will repair and build the capacity of affordable housing developers. We will need a healthy
ecosystem of developers and owners to truly expand affordable housing producƟon, but our partners are sƟll
struggling to keep exisƟng projects open. Over the pandemic and recession, projects experienced tenants
unable to pay rents on top of the increase in operaƟng costs due to inflaƟon and workforce issues. From 2024-
2026, new funding will go to shore-up our developers and owners who have shown a long-term commitment
to creaƟng and maintaining affordable housing in Hennepin County, but who are at significant financial risk due
to the pandemic.
Third, funding will support and augment the Human Services budget to ensure conƟnuity of high-impact
programs. Specifically, sales tax funds will support our community partners to deliver the wrap-around services
that residents need to be successful in the projects receiving HRA’s SupporƟve Housing capital funds. Staff
esƟmate that half of the 1,000 supporƟve housing units we finance from 2020-2030 will require a 15-year
service or operaƟng subsidy to cover unique operaƟng and service gaps. StarƟng in 2025, new funding will be
provided as up-front capitalized reserves to replace exisƟng property tax commitments. Going forward, future
commitments will not require ongoing annual property tax funding for these wrap-around services.
Fourth, once developer capacity is restored, we will work toward producƟon (and not stop). Our pandemic
recovery funding outcomes demonstrated that we make the biggest impact when developing a healthy pipeline
of housing projects, while also providing strategic investments to finish high priority projects quickly. To that
end, a porƟon of funds will expand the HRA’s Affordable Housing IncenƟve Fund, and a porƟon will resume the
pandemic era “Affordable Housing Accelerator” fund that provided higher funding amou nts to projects meeƟng
key county prioriƟes.
And finally, modest appropriaƟons starƟng in 2026 will advance disparity reducƟon and climate impacts in
homeownership creaƟon and preservaƟon.
ImplementaƟon years 2024 2025 2026 2027 2028
Emergency rental assistance $$ $$ $$ $$ $$
Affordable rental housing:
repair + grow capacity $$$ $$$ $$$
SupporƟve housing operaƟng $$$$ $$$ $$ $$
Affordable rental housing: increase
and accelerate producƟon $$$ $$$$$ $$$$$
Homeownership opportuniƟes $ $ $
Homeownership preservaƟon $ $ $
Once normalized, staff projects the following impacts:
Projected resident impacts by 2026
Program Implementation Annual funding Annual impact
Emergency rental
assistance
$6000/household; 100% <30% AMI;
$500K admin
$5,000,000
(operating) 750 households
ImplementaƟon phases
New permanent evicƟon prevenƟon funding
Build developer capacity
Support / augment HHS budget Expand producƟon
Affordable rental
housing pipeline
Gap deferred financing for capital costs of
creating/ preserving long-term affordable units;
25% < 30% AMI; $200K admin
$5,000,000 270 units
Affordable rental
housing accelerator
Deferred financing for capital costs of creating/
preserving high-impact long-term affordable
units; 50% units < 30% AMI; $200K admin
$11,250,000 90 units
Supportive housing
operating
Capitalized reserves for unique services and
operating costs for supportive housing projects;
100% < 30% AMI; $200K admin
$3,750,000 50 units
Homeownership
opportunities
Deferred financing for capital costs of building
long-term affordable homes;
100% <80% AMI; $200K admin
$2,000,000 60 units
Homeownership
preservation
Leverage other funding sources for low-barrier
climate resiliency and home health and safety
improvements; 100% <60% AMI; $40K admin
$500,000 24 units
Total $32,000,000 1,244
households/units
This implementaƟon plan will be advanced for Board affirmaƟon at an upcoming meeƟng. Please do not
hesitate to contact David, Julia, or Kevin with any quesƟons.
Thank you.
Cc: David Hough, County Administrator
Dave Lawless, Chief Financial Officer
Kareem Murphy, Intergovernmental RelaƟons Director