09-10-19 HRA Worksession Agenda PacketWORK SESSION AGENDA
Pages
1. 4d Affordable Housing Incentive Program 2-6
2. Adjournment
Sept 10, 2019 – 6:30 pm
Council Conference Room
Golden Valley City Hall
7800 Golden Valley Road
Executive Summary
Golden Valley HRA Work Session Meeting
September 10, 2019
Agenda Item
1. 4d Affordable Housing Incentive Program
Prepared By
Emily Anderson, Planning Intern
Summary
Minnesota Statute 273.128 allows qualifying low-income rental properties to be eligible for a
class rate reduction in property taxes from the 1.25% classification rate to the .75% Class 4d rate.
There are 418 units in seven buildings in Golden Valley that currently have 4d property tax status.
The statute specifies the type of properties that are eligible, which includes buildings in which at
least 20% of the units have rent and income restrictions at or below 60% Area Median Income
AMI) placed on those units by state, federal, or local unit of government as evidenced by a
document recorded against the property.
If the City or HRA provides financial assistance, staff’s preliminary analysis shows that it is
possible for an additional 532 NOAH units in 9 apartment complexes to qualify. Several NOAH
properties in Golden Valley could feasibly restrict rents at 60% area median income in order to
qualify for the tax rate reduction since their rents are already equal to about 60% area median
income. Providing this tax break would have an impact on the City’s tax base distribution but the
collective tax impact of this type of program could potentially be absorbed by the rest of the tax
base in a way that results in little impact to an individual property owner. Edina, St. Paul, St. Louis
Park, and Minneapolis have launched programs in the last year that utilize this incentive. Three of
these four programs include energy efficiency incentives as well. A program for energy efficiency
tied to the 4d program for Golden Valley is still being explored and can be brought to the HRA if
there is interest in such a program.
Benefits to Property Owners
10 years of eligibility for the 4d property tax rate, providing for a 40% tax rate reduction
on qualifying units.
City paying the first year application fee to the State of Minnesota for certification of the
4d. This would be $10 per affordable unit being registered with a cap of $150 per
property.
The City would also pay for the recording fee of the declaration of the restrictive covenant
against the property.
Grant of $100 per affordable unit capped at $1,000 from the City to each 4d property for
property upgrades and/or reapplication fees for 4d program after the first year.
Reduced renter turnover due to tenant stability.
A 2015 study by the Housing Justice Center suggested that 4d property tax status would
directly result in a property tax reduction of approximately $40 per unit per month. The
number varies based on the value of the property, the tax levy, and the number of units
enrolled in the program, but as tax bills tend to go up every year, the value of the 4d
reduction would likely continue to increase in value.
Benefits to City of Golden Valley
This program could help make homes available to qualified tenants who struggle to find
affordable options in an overheated regional housing market, specifically targeting a
bracket of the population that faces extremely limited options for affordable, safe, and
sanitary housing.
This program could represent a strong effort on the City’s behalf to address the issue of
housing affordability and the preservation of naturally occurring affordable housing.
Financial Impact to City
Payout of 4d grants for first year only
Payment application fees for first year only
Payment of the recording of the declaration against the property for first year only
Forfeited property tax income over 10 years
Process
1. Property Owners submit a 4d program application and rent roll, and sign a Participation
Agreement with the City.
2. The City drafts and records a declaration against the property that limits the rents and
incomes on the qualified units for 10 years (a recorded document is required for 4d tax
classification status). The declaration also limits rent increases for tenants in affordable
units to 5% or less annually, unless the unit is turning over to a new tenant or the owner
provides evidence that a larger rent increase is needed to address deferred maintenance
or unanticipated operating cost increases. City staff must approve an alternative schedule
for rent increases.
3. The City provides a grant to each 4d property. This funding is intended to help property
owners cover the cost of 4d administrative and reporting requirements associated with
the program, as well as to help owners make health, safety and energy efficiency
improvements to properties. Additionally, the state requires financing tied to the
recorded document and this grant would fulfill this qualification.
4. Property owners select the percentage of their building to restrict, with a minimum of
20% and a maximum of 100%. If they select more than 20%, after 5 years and upon
request, the City may approve a reduction of the percentage of restricted units to the
minimum level of 20% of the units per building.
5. Property owners sign a 4d application once declaration is filed.
6. The City submits a signed 4d application, application fee, and declaration to Minnesota
Housing on behalf of the property owner for their first year only. Owners are responsible
for submitting annual applications to Minnesota Housing to renew 4d tax status and an
annual report on a form provided by the City.
Differences between Cities
Length of
Declaration
on Property
Rent can
increase each
year if below
60% AMI
Maximum*
Grant to
property owner
Energy
programming
Required # of
units
Minneapolis 10 years 6% or less
annually
100 per
affordable unit
capped at $1000
per property
Yes At least 2
St. Paul 10 years 3% or less
annually
100 per
affordable unit
capped at $1000
per property
No At least 2
Edina 15 years 6% or less
annually
100 per
affordable unit
capped at $5000
per property
Yes At least 4
St. Louis Park 10 years 5% or less
annually
200 per
affordable unit,
capped at $6000
per property
Yes At least 3
Golden Valley
proposed)
10 years 5% or less
annually
100 per
affordable unit,
capped at $1000
per property
No At least 10
Unless unit is turning over to a new tenant or the owner provides evidence that a larger rent increase is needed to
address deferred maintenance or unanticipated operating cost increases
Sample Timeline
Fall 2019: City should advertise and market the program to eligible properties through a
variety of means such as the STAR program, sending program information to applicants
for City rental licenses, or program information being featured on the City website.
Mid-December 2019 – January 2020: City begins accepting applications for the program.
The timeframe for application varies from City to City, but a wider timeframe could be
more beneficial for the program.
Mid-March 2020: Deadline for applicants to submit signed Minnesota LIRC application,
signed City participation agreement and affordability declaration (PDF), and Supplier
Application, including Form W-9 (required for grant payment) to the City of Golden Valley.
March 31, 2020: City submits LIRC applications to Minnesota Housing Finance Agency on
behalf of all selected applicants.
April and May of 2020: Applicants receive City of Golden Valley 4d incentive grants.
August 2020: Minnesota Housing Finance Agency certifies 4d classifications.
November 2020: 4d program participants receive a notice of proposed levies and taxes
for 2020. This notice will reflect the 4d classification.
March 2021: Each year until the end of the 10 year declaration, Golden Valley 4d
participants will be required to submit compliance forms to the City prior to submitting 4d
re-application paperwork to Minnesota.
March 31, 2021: Property owners submit Minnesota 4d re-application paperwork to
Minnesota Housing. Re-application paperwork must be submitted annually to retain 4d
status.
Request
Staff is looking for direction from the HRA on:
1. If a 4d property tax program is appropriate in Golden Valley, and
2. If the HRA is interested in designating funds for the launch of a 4d property tax program in
2020 and if so, how much should be designated for this program.
Attachment
4d Program Estimates (1 page)
Building Name Crosswoods Copacabana Colonial Trentwood West End Valley Village Valley View Valley Creek West End Trails Total
Number of units 35 49 36 54 79 112 72 37 58 532
Grant 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 9,000.00
MHFA Application Fee 150.00 150.00 150.00 150.00 150.00 150.00 150.00 150.00 150.00 1,350.00
Record Declaration 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 414.00
Total 1,196.00 1,196.00 1,196.00 1,196.00 1,196.00 1,196.00 1,196.00 1,196.00 1,196.00 10,764.00
Difference in Property Tax 6,846.00 11,660.00 7,255.00 11,867.00 19,974.00 23,012.00 20,393.00 12,286.00 12,084.00 125,377.00
Upfront Costs and Property Tax 8,042.00 12,856.00 8,451.00 13,063.00 21,170.00 24,208.00 21,589.00 13,482.00 13,280.00 136,141.00
20.23 in up front
costs per unit
Loss of $196.30 in
City tax revenue per
unit
210.89 total per unit
Building Name Crosswoods Copacabana Colonial Trentwood West End Valley Village Valley View Valley Creek West End Trails Total
Number of units 35 49 36 54 79 112 72 37 58 532
Number of units in this calculated
scenerio 17 25 18 27 40 56 36 19 29 267
Grant 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 9,000.00
MHFA Application Fee 150.00 150.00 150.00 150.00 150.00 150.00 150.00 150.00 150.00 1,350.00
Record Declaration 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 414.00
Total 1,196.00 1,196.00 1,196.00 1,196.00 1,196.00 1,196.00 1,196.00 1,196.00 1,196.00 10,764.00
Difference in Property Tax 3,423.00 5,830.00 3,627.50 5,933.50 9,987.00 11,506.00 10,196.50 6,143.00 6,042.00 62,688.50
Upfront Costs and Property Tax 4,619.00 7,026.00 4,823.50 7,129.50 11,183.00 12,702.00 11,392.50 7,339.00 7,238.00 73,452.50
40.31 in up front
costs per unit
Loss of $234.78 in
City tax revenue per
unit
275.10 total per unit
Building Name Crosswoods Copacabana Colonial Trentwood West End Valley Village Valley View Valley Creek West End Trails Total
Number of units total 35 49 36 54 79 112 72 37 58 532
Number of units in this calculated
scenerio 7 10 7 11 16 22 14 7 12 106
Grant 700.00 1,000.00 700.00 1,000.00 1,000.00 1,000.00 1,000.00 700.00 1,000.00 8,100.00
MHFA Application Fee 70.00 100.00 70.00 110.00 150.00 150.00 140.00 70.00 120.00 980.00
Record Declaration 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 46.00 414.00
Total 816.00 1,146.00 816.00 1,156.00 1,196.00 1,196.00 1,196.00 816.00 1,166.00 9,494.00
Difference in Property Tax 1,608.40 2,571.20 1,451.00 2,612.60 4,234.00 4,602.40 4,078.60 2,696.40 1,816.80 25,671.40
Upfront Costs and Property Tax 2,424.40 3,717.20 2,267.00 3,768.60 5,430.00 5,798.40 5,274.60 3,512.40 2,982.80 35,175.40
89.56 in up front
costs per unit
Loss of $206.85 in
City tax revenue per
unit
294.49 total per unit
This is an estimate prepared as requested. Actual tax liability may be different and is dependent upon many factors.
This estimate assumes as much value as possible fits within the 1st value tier of $139,000 per unit for taxes payable in 2018.
Tax estimates are based upon assessed values and tax rates payable in 2018.
2018 Pay 2019 Estimated Tax in Golden Valley
100% of buildings, 100% of units, first year only (estimate)
100% of buildings, minimum of 20% of units, first year only (estimate)
100% of buildings, 50% of units, first year only (estimate)