Muzzling

I wish I would stumble across a history of the use of tax incentives as a means of financing affordable housing (google?). When I first heard about the various tax rebate methods, including tax increment financing (TIF), it felt a little back door. And it probably was. I suspect political appetite for funding housing, which is hands down the largest tranche of a family budget, was chronically weak.

While looking into the Four Seasons Mall project, I discovered that Low Income Housing Tax Credits (LIHTC) have become fungible. This means non-affiliated C-Corporations invest equity by purchasing the credits. In return they receive a reduced tax obligation into the future. Give up cash today and receive a stream of money through the forgiveness of an obligation into tomorrow.

On the one hand I salute the effort to generate more financing partners by detaching the credits from the project. (Originally the real estate developer received the credits in order to make the numbers work despite lower rents on the affordable units.) At the same time, by detaching the credits and allowing a C-Corps to purchase them, the mission motive is eliminated and transformed into a pecuniary one.

Furthermore, the successful projects are decided by a bureaucratically designed scoring system. Projects are given points based on a list of objectives. The scoring may or may not actually prioritize the weighted demands, nor the quality of the potential social outcomes. I have no doubt that the Four Season Mall site was passed over as the pecuniary assessments of income (or lack there of). It’s hard to imagine the complex outcomes from residents interacting with higher quality schools, transit, and associational groups can be condensed into a few points on a scorecard.

An alternative to scoring and progressive tax plotting is for mission focused folks to be the equity partners in on the project. This is what happened at Cranberry Ridge. Construction just started on the three story building on May 25th.

The development by Beacon Interfaith Housing Collaborative (Beacon) features 45 apartments for families who earn less than $52,000 a year for a family of four. Twelve of the homes will be for families who make less than $31,000 a year for a family of four. 

The Plymouth Housing and Redevelopment Authority (HRA) and Metro HRA each awarded 10 rental assistance vouchers to ensure the homes will remain affordable for future residents with the lowest incomes. Capital funders include the local nonprofit Outreach Development Corporation, Minnesota Housing, Hennepin County, Wayzata Community Church, Plymouth HRA, Greater Minnesota Housing Fund, and Wells Fargo. General contractor Shaw-Lundquist, architect BKV Group, and civil engineer Loucks have worked on the planning and development. Many individual donors provided seed funding to support the planning, organizing, and technical work to get Cranberry Ridge approved and fully financed.

The key component in this potpourri of interested parties is Interfaith Outreach (and Community Partners–IOPC), a very successful faith-based social service provider. With forty years of experience helping families in crisis, they are a mainstay in serving those in need. In a sense Cranberry Ridge brings their clients to them, to the neighborhood, making it that much easier to do what they do best.

I much prefer to see the money and the mission be served up in combination. Incentivizing C-Corps to avoid taxes, instead of support the spirit of community, is counter productive. It allows corporations to bypass a progressive tax code. It also gives a general audience a reason to view corporations as tax evaders. Making it all about money is the motivation in the private market, but this is a public good.

And I hesitate to be critical as I realize that “the Low-Income Housing Tax Credit (LIHTC) program is the most important resource for creating affordable housing in the United States today.” However, one result of the process is that the numbers work out more favorably in mixed use projects. This means that more units are built for the moderately poor instead of the desperately poor.

The Interfaith Outreach folks think this is a mistake. The thought is to house to the most vulnerable first and then work up to nicer housing for the less poor later. They want money to be used more efficiently. Here is a statement from the organization made to the Minneapolis city council which summarizes this view, and expresses recent disappointment in the city council’s lack of interest in taking up the conversation.

Housing is expensive and we will always need to provide shelter to those who can’t provide for themselves. It seems we’ve outgrown the need for a back door approach. Matching the appropriate investors with projects, and residents with neighborhoods could further long term objectives.