To build affordable housing, Minneapolis and St. Paul to cash out city-owned properties

Weeks away from approving multimillion-dollar affordable housing plans, leaders in Minneapolis and St. Paul are still figuring out how to pay for them without raising property taxes.

Minneapolis wants to sell a valuable parcel of land downtown to support Mayor Jacob Frey's $40 million affordable housing plan, but the city is still in negotiations with a developer. In St. Paul, city officials considered selling the downtown World Trade Center parking ramp and using the proceeds to create Mayor Melvin Carter's proposed housing trust fund, but officials say they may keep the ramp after all.

Both mayors are staking significant political capital on these plans after making affordable housing investments a key part of their first budgets.

"Our first priority was making sure that this budget has as much support for affordable housing as possible," Frey said in an interview. "To make that happen this year, we need to rely on one-time funding."

Both cities are likely to raise their property tax levies in 2019, though the projected revenue isn't earmarked for affordable housing. The Minneapolis City Council is considering a levy increase of as much as 5.7 percent; the St. Paul City Council is considering a boost of up to 11.5 percent.

Frey's affordable housing plan involves spending $40 million in city money, including a one-time investment of $10 million from the city's development fund, a special revenue fund from city-owned land sales.

The city is negotiating with local developer United Properties to buy the Nicollet Hotel Block, a 1.7-acre surface parking lot bounded by Hennepin and Washington avenues, for $10 million. The sale of the property will close in early 2019, according to city officials.

The proceeds are expected to fund Frey's affordable housing proposals, including building new affordable housing units, preserving existing low-cost housing, increasing homeownership and funding legal help for tenants facing eviction.

Selling while market is hot

Regardless of what happens with the Nicollet Hotel Block land sale, the city will transfer $10 million from the development fund to the general fund to be spent on affordable housing items in 2019, said Budget Director Micah Intermill.

If the sale falls apart, though, the city will have to find other sources to pay for its future affordable housing programs, such as raising taxes, Intermill said.

Council Member Linea Palmisano, who chairs the council's Budget Committee, supports the sale as a way of making quick progress on affordable housing.

"The mayor wanted to put forward a lot of money now while the market is still hot, knowing that is not always going to be flourishing at this rate," Palmisano said.

Selling city-owned assets is a "smart way to help find solutions for the affordable housing crisis," said Council Member Andrew Johnson.

"It's obviously not something that we'll be able to do every year without some sort of significant budgetary changes, but it definitely is a shot in the arm of affordable housing," Johnson said.

Warren Hanson, president and CEO at the Greater Minnesota Housing Fund, said it makes sense for the two cities to use the resources they have now to attract future investment in their affordable housing plans.

"You have to start with what's available in the most immediate short term," he said. "You have to jump-start it somehow, because that will bridge to these longer-term solutions."

The St. Paul housing trust fund would finance the construction of new affordable housing units and preservation of existing ones, as well as a new fair housing coordinator position and services such as landlord training and the downtown Winter Safe Space shelter. Carter has requested $10 million up front and an additional $2 million annually, which according to his budget proposal will be combined with existing city and federal resources for a more than $71 million investment in housing over three years.

The annual $2 million for the housing trust fund will come from cost savings within city departments and money from the STAR program, which provides loans and grants for capital improvement projects in the city, said St. Paul Interim Housing Director Joe Musolf.

St. Paul officials said the housing trust fund will be fully funded up front whether they sell the ramp or not, but declined to provide details — including where the $10 million in startup money will come from — while negotiations are ongoing.

Council Member Rebecca Noecker, whose ward includes downtown, said she learned in late October that the city planned to keep the ramp. Doing so will provide continuing revenue rather than a one-time windfall, she said.

In an interview, Carter said the city hasn't decided yet whether to sell or keep the ramp.

"We've been in negotiations on that for quite a while, with really all options on the table," he said. "And the ultimate bottom line is we haven't signed anything yet, one way or the other, but we're confident we can fund our affordable housing plan either way."

Minneapolis still has to decide how to pay for Frey's plan, which is separate from its housing trust fund, beyond 2019.

"Our office is working on options for more permanent funding," Frey said, "including an aggressive pursuit of regional, state, federal and private sector investments to help provide sustainable budgets in the future."

Different funding models

Cities across the country have housing trust funds and have found different ways to sustain them. Minneapolis funds its housing trust fund with tax increment pooling. Evansville, Ind., relies on fees and rent from a casino located on city-owned land. Milwaukee uses property tax revenue.

Michael Anderson, director of the Housing Trust Fund Project at the Center for Community Change in Portland, Ore., said housing trust funds rarely fail once they've started — the most challenging part, he said, is pulling together money up front.

"Like a plane getting off the ground, the boost that's needed at first is the most substantial," Anderson said. "Before the plane gets off the ground, there are legitimate questions: What exactly is this going to do? Is it going to work?"

Emma Nelson • 612-673-4509