Taxpayer Donations Bolster Affordable Housing
Minnesota State Housing Tax Credit Program and Contribution Fund
By Pamela Martineau
8 min read
Minnesotans hoping to bolster the state’s affordable housing stock may donate to affordable housing projects, requesting to have their donation allocated to a specific project or a general affordable housing fund and receive a tax credit of 85 percent of their donation through a new state program.
Minnesota’s State Housing Tax Credit Program and Contribution Fund, created by state legislation in 2021, opened in October 2023 and received nearly $7 million in contributions for affordable housing by December 13, the deadline for applications for the 2023 tax credit. Donations for 2024 opened February 1 and as of mid-March, $1.237 million in contributions have been received this year.
“I can’t say it enough: We need to Go Big so all Minnesotans can go home,” says Jennifer Ho, commissioner of Minnesota Housing. “We need as many creative financing solutions as possible to address our housing needs. The State Housing Tax Credit Program is one of them.”
Affordable housing leaders in Minnesota say the new tax credit program could bring in as much as $70 million in contributions to affordable housing before the new credit sunsets in 2028.
“If the maximum level of contributions is received every year for the six years that the program is currently authorized for…this will mean that an additional $70 million in flexible resources will be available for affordable homeownership and rental housing,” explains Anne Mavity, executive director of Minnesota Housing Partnership.
Mavity adds that the program received bipartisan support in the Minnesota Legislature.
“The fact that it was a bipartisan effort to get passed reflects how housing investments continue to gain support and to rise in priority across Republican- and Democratic-led legislative majorities,” she says.
How it Works
The fund is administered by the Minnesota Housing Finance Agency (MHFA). Contributions to the fund can be as low as $1,000 and as high as $2 million per tax year per donor to receive a state tax credit of 85 percent of the donation. Minnesota Housing can issue $9.9 million in tax credit certificates per year, which equates to nearly $11.65 million a year in annual contributions to the fund.
People and businesses that meet eligibility requirements can contribute to the fund. They may designate their donated funds for a specific project or donate the money to the General Contribution Account. Projects eligible for funding must be available to households making no more than 80 percent of area median income (AMI) for rental properties or no more than 115 percent AMI for homeowner properties.
Eligible recipients of the funds include for-profit and nonprofit companies, as well as government agencies. The funds may be used for new construction, rehabilitation, acquisition and permanent or gap financing.
Funds donated to the General Contribution Fund are awarded to developers who submit proposals through competitive requests for proposal rounds administered by the MHFA.
The Housing Finance Agency will notify developers of projects that have been targeted for designated funds. The developer of the designated project will have up to two years to claim the contribution. They must also meet the eligibility requirements for affordability and have secured all other financing to close the project within that time frame. They must execute a regulatory agreement ensuring that the affordability requirements will be met during the required term. Funds targeted for designated projects that fail to meet this criterion will be transferred into the general fund.
History of the Fund
The Minnesota Legislature passed legislation in 2021 that created the tax credit program and contribution fund. Implementation of the fund began in October 2023.
Mary Tingerthal, president of the Tingerthal Group, an affordable housing consultancy, also served as former commissioner of Minnesota Housing. She says the new contribution fund is modeled after a similar program in North Dakota that is no longer in operation. She says she knows of no other similar programs in the United States.
The North Dakota program came to fruition seven or eight years ago during a rush in oil field production. Workers in the oil fields could not find affordable housing near the job sites, so the North Dakota legislature created a similar tax credit program to help fund affordable housing through donations. The program was successful but ended when population growth in job site areas decreased.
“That is what inspired the folks who advocated for this in Minnesota,” says Tingerthal.
Mavity’s group, Minnesota Housing Partnership, lobbied the state legislature for a similar program. The group is made up of housing developers, construction companies, attorneys, investment bankers and others working in the affordable housing space.
Impact
Tingerthal says she believes the new contribution fund will be especially helpful for projects that don’t always compete as effectively in the state’s qualified allocation plan. She also believes the funds could be a particularly powerful boon to workforce housing.
“Workforce housing is often less likely to receive funding (from other programs), so this fills the gap,” she says.
Tingerthal says the project is also unique in that it includes home ownership, which does not qualify for Low Income Housing Tax Credits (LIHTC). These funds can be used for homes that will be purchased by those making no more than 115 percent of AMI.
“This could be used by something as small as a single-family home being developed by a local chapter of Habitat for Humanity…,” she says. “Let’s say someone has a relationship with a local Habitat for Humanity chapter. If they know the chapter is building a house in their town, they can contribute and designate it for that project, even though it may not receive any other state funding.”
Tingerthal says that about 75 percent of the money donated thus far to the fund has been designated for specific projects. The ability to designate funds to a specific project allows neighbors who support a certain project in their neighborhoods to “go to their neighbors and say – ‘We want to get this house built; can you contribute?’”
Tingerthal says that a few organizations have designated donations to existing affordable rental housing projects that need renovations.
“There are very few dollars available for that type of activity,” she says. “They decided that this is a gap they wanted to go after.”
Tingerthal says one older project-based Section 8 housing community received over $4 million in designated contributions. Donors to both the designated fund and the general fund range from individuals donating to organizations like Habitat for Humanity and banks that have Community Reinvestment Act requirements.
“It’s been a wide range,” she says.
The Logistics of Donations
Steven Warren, CPA, MBT, of the Minneapolis firm Schechter Dokken Kanter CPAs, has assisted clients in making donations to the fund.
“Some clients already had an interest in helping with low-income housing,” Warren says. “They were excited to learn about this because the tax credit allows them to contribute more than they usually could.”
He says he has other clients who hadn’t thought of donating to affordable housing projects, but when they learned of the tax credit, they wanted to do it. He expects more will donate as “the word gets out.”
Contributors need to fill out an online application with MHFA. It will be reviewed by MHFA, and the taxpayer will be sent a signature form, payment submission instructions and the due date via DocuSign. The signature form and donation must be received by MHFA by the due date, which is typically around 30 days from when the agency sent the signature form and payment instructions. MHFA will issue the taxpayer a certificate within 30 days of receiving the signature document and funds.
Donations are irrevocable.
Warren says he believes donors also can receive a federal tax deduction for the remaining 15 percent of the donation that is not eligible for the 85 percent tax credit if they itemize their deductions and proper substantiation is received from the MHFA promptly. He also warns taxpayers looking to make donations to the state fund to be mindful that there is an annual $9.9 million limit on the amount of credits that Minnesota Housing may award. That’s an annual limit of $11.5 million in contributions that will be eligible to receive tax credits. For that reason, it may be prudent to make donations earlier in the year or at least track the progress if a later donation is desired. Also, donation totals may be tracked on the MHFA website and the Minnesota Housing Partnership website. (Tax Credit Contribution Fund Projects – Minnesota Housing Partnership (MHP) (mhponline.org.))
Warren points out that when a pass-through entity is donating, the credit is only available to the owners who are still an owner on the last day of the year.
Donors may also carry over portions of any unused tax credit for the next ten years.
Tingerthal says she hopes the word will spread about the program and plans to get the word out about the amount of money donated thus far.
“After the legislative session, we will look to do some media outreach,” she says.
Commissioner Ho says she is “excited” to have the program up and running.
“I’m excited to see how individuals and companies are taking advantage of this opportunity to build new rental units and homeownership opportunities across the state,” says Ho.
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