What would happen to affordable housing opportunities under the Governor’s budget

A couple of days ago, attending the House Housing Finance committee, I learned more of the details behind the Governor’s budget proposal when it comes to state housing programs.

Bottom line: There will be fewer state-funded affordable housing opportunities thanks to cuts in funding (a 25% cut compared to last biennium– the decrease is so large because last biennium there was an influx of one-time resources). However, the decisions as to what programs would be reduced weren’t made willy-nilly – I was impressed with both the reasoning and prioritization of funds by the Minnesota Housing Finance Agency (MHFA).

Here’s a run-down of changes to housing funding under the Governor’s FY 2010-11 budget:

  • State funding is basically preserved for housing/supportive service programs that serve the most vulnerable, like the mentally ill.
  • The Governor keeps his commitment to fully fund his plan to end long-term homelessness, by increasing Housing Trust Fund money by $4 million. However, there is a big BUT…
  • Like other areas of the budget, there is a lot of robbing from Peter to pay Paul. That increase in funding for homelessness prevention is paid for by taking money away from the Challenge Program that funds grants and low-cost loans for the development of affordable housing opportunities. Also, the Disaster Relief Contingency Fund (to help victims after natural disasters) would be drained of its reserve dollars – $1.5 million in all – and the money would instead be spent on rental assistance for families living in shelters. Staff from MHFA testified that there’s been a big increase in kids in shelters, and the money should be shifted to address the greatest need.
  • A 5% overall reduction in the MHFA budget (comparing the Governor’s FY 2010-11 proposal to base funding for FY 2010-11) is achieved by a very large cut in grants and low-cost loans for the development of affordable housing opportunities – the Challenge Program. Funding for the Challenge Program is cut by 44% from the FY 2010-11 base, or 69% from FY 2008-09 levels. MHFA staff said this loss is mitigated by two factors: 1) The housing market is weak, and there is less demand for single family homes, so perhaps less demand for these grants and loans. 2) There is $38 million on the way from the federal government to address foreclosures that the state can use to help back-fill the loss of state dollars.  I asked the good folks over at Minnesota Housing Partnershipfor their take on this reasoning, and they pointed out that with so many home foreclosures, there is actually an increased demand for affordable rental housing – and yet the Governor would provide less state resources to address that increased need. MHP estimates that, compared to FY 2008-09, the cuts in the Governor’s FY 2010-11 budget would mean 1,200 fewer rental units and 500 fewer owner-occupied units will be constructed.

OK, now let’s look at the forest for the trees: The issue of housing certainly has been on everyone’s mind over the past year, with the housing market meltdown and record foreclosures. Affordable and safe housing is a foundation for strong families and a healthy economy. That’s why the state puts money into a number of affordable housing and homelessness prevention programs. Read our analysis of trends in state funding in housing in this decade, part of a larger report on key areas of investment.

-Katherine Blauvelt

About Katherine Blauvelt

Katherine Blauvelt served as the Minnesota Budget Project’s policy analyst from 2007 to 2009.
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