A Billion-Dollar Resource

8 min read

State Affordable Housing Trusts  

State affordable housing trusts provide viable supplemental funding and potential alternatives to federal housing programs, sources that can come in handy if federal budgets are cut. The good news is there are lots of them—one for almost every state, and many more for localities—and they collect about $1 billion a year for affordable housing. The not-so-good news is that funding for many of them can be variable or even non-existent.

Take California. The nation’s largest state started an affordable housing trust back in 1985, but didn’t set up a steady funding source for it until this year.

According to an article in a publication of the San Francisco Federal Reserve Bank, California funded its startup with an insufficient $2 million a year. From bust the Golden State went to boom—a $2.1 billion affordable housing fund courtesy of the state’s voters in 2002. But that was a one-time program.

Just this fall, the state finally adopted a dedicated source of funding: a $75 fee on mortgage refinancings and other real estate transactions, expected to raise $250 million per year to finance the construction of affordable housing.

Idaho, Montana, Alabama and Rhode Island still have no dedicated funding source, according to a 2017 fact sheet of the Housing Trust Fund Project, an effort of the Center for Community Change. Even Massachusetts, which has a thriving state housing fund, experienced a wobble early in its history.

When it started up, the Massachusetts AHTF was funded for $20 million a year for its first three years from the state’s General Fund. But funding for the third year was reduced to $12.5 million. The state then changed the funding structure to tax-exempt bonds, and the trust has had a steady $40 million per year for many years.

What are state funds used for? “Trust funds are meant to blend with other available fundings,” says Michael Anderson, director of the Housing Trust Fund Project of the Center for Community Change. “It’s very rare that they fund an entire housing project on its own.” So they are seen in the financing mix with federal program funds, like the Community Development Block Grant, the HUD HOME program and the Low Income Housing Tax Credit.

State trust funds support that particular state’s housing agenda, especially if there isn’t money for that particular thing in the federal programs. “Say a state wants to do permanent supportive housing for veterans,” Anderson gives for an example—state money can go towards that.

South Dakota’s state trust, for instance, has a goal to support workforce housing in rural areas, young people, and people on the low end of the force. Seventy percent of the South Dakota total is targeted to be used outside major metropolitan areas, like Sioux Falls. The state also has a large population of American Indians living on reservations. While there is no set aside, tribes are eligible to apply for the money, Anderson says.

In all, 48 states and the District of Columbia (we’ll count it as a state for purposes of this article) have affordable housing trusts as of 2017 (with a few states having more than one). Which are the states bringing up the rear? Alaska and Wyoming.

A report by AARP noted funding can be wildly variable, with five states collecting $50 million or more for affordable housing efforts, but another five having less than $1 million apiece. And the variations don’t necessarily correspond to differences in population, it says.

The five states collecting more than $50 million in 2015 were New York, New Jersey, Florida, Connecticut and Washington, DC, according to the Center for Community Change.

More than a dozen states have passed legislation that encourages and/or enables local jurisdictions to dedicate public funds to affordable housing. Many of the trusts are administered through the state Housing Finance Agency, with others by various other state departments.

According to the Center, state housing trust funds collected in excess of $790 million in a single year (fiscal 2015). With California now in the mix for $250 million, that number could top $1 billion. “The most common revenue sources collected by state housing trust funds are the real estate transfer tax and the documentary stamp tax — used by 12 states and the District of Columbia.”

Other sources include a grab bag of the usual and unusual: a State Unclaimed Property Fund (Arizona), general obligation bonds (Connecticut and others), dormant and unclaimed bank funds (Guam), fees from mobile park owners (Nevada),the Marcellus Shale Impact Fee (Pennsylvania) and a smokeless tobacco (Indiana). Hoosiers better hope smokeless tobacco sales stay high!

The state funds’ usefulness in gap financing can be seen by the amount of other money they leverage. “The average amount of public and private funds leveraged for every dollar invested in affordable housing by state housing trust funds is nearly $7.00, ranging from a low of $2.00 to a high of $16.00 for individual trust funds,” according to the Center.

Looking at Massachusetts,  the state’s AHTF is administered by the state housing finance agency, MassHousing, though it is sited within the state’s Department of Housing and Community Development. Its now-steady funding source has paid off. Since inception in 2001, the fund says it has provided nearly half a billion dollars in financing for 557 affordable housing communities totaling more than 25,000 affordable units.

According to manager Lynn Shields, “One of the high points of AHTF is it is very flexible.” It can accommodate area median incomes up to 110 percent, for instance. The fund can be used for both homeownership and rentals and for special needs projects such as, for seniors, assisted living facilities, the homeless and veterans. More than 75 percent of those units are new production, with the balance going for preservation.

“You name it, we can do it,” says Shields. “Because of its flexibility, AHTF gets into markets and housing types that aren’t often done otherwise.”

AHTF has a staff of four full-time employees. Shields says 20 percent of projects they fund also receive a loan from MassHousing. Projects funded can range from as small as two units to more than 600.

Who can get this kind of financing? In Massachusetts a wide array of potential recipients is spelled out in the AHTF guidelines. The funding net there includes “governmental subdivisions, community development corporations, local housing authorities, community action agencies, community-based or neighborhood-based nonprofit housing organizations, other nonprofit organizations, for-profit entities and private employers.”

The Massachusetts AHTF offers these types of assistance:

  • Deferred payment loans.
  • Low- or no-interest amortizing loans.
  • Downpayment and closing cost assistance for first-time homebuyers.
  • Credit enhancements and mortgage insurance guarantees.
  • Matching funds for municipalities that sponsor affordable housing projects.
  • Matching funds for employer-based housing.

Funding threshold criteria include:

  • Minimum term of affordability of 30 years.
  • Affordability of all AHTF units to households earning no more than 110 percent of area median income.
  • Financial feasibility. Preference is given to projects that are most likely to commence development in a timely manner upon approval of funding.

Funding preferences include projects/developments that

  • Produce new affordable housing units.
  • Provide new affordability.
  • Create units affordable to households with a range of incomes, particularly units for households with incomes below 80 percent of area median income.
  • Include affordable units for families.
  • Include affordable units for the disabled and the homeless.
  • Propose the longest term of affordability.
  • Are sponsored by nonprofit organizations.
  • Use private funding sources and non-state funding sources to leverage the least amount of AHTF funds.

How to get funding? In Massachusetts, it matters if you are applying only for AHTF funds, or for money from more than one state agency (there are four in total the Commonwealth has that support affordable housing.) If only for AHTF money, applications can be made directly to AHTF. For money from AHTF and another agency, the application goes to the other agency only, which will forward it to AHTF if it gets that far in the process.

An idea of the impact the AHTF gap financing has become obvious from descriptions of recent fundings. The Bedford Green project, in Bedford, MA, received $1.3 million from the AHTF for construction of 70 one-bedroom apartments in a three-story building at the Edith Nourse Rogers Memorial Veterans Hospital.

According to AHTF, the apartments are for homeless or at-risk veterans age 55 and over. The building also features support services for the residents, community space, a fitness room and computer room. Other financing sources included equity from Federal and State LIHTCs, Federal Department of Veterans Affairs, DHCD, CEDAC, LISC and a Home Depot grant. The AHTF money is gap funding in the form of deferred payment debt that made up about six percent of total costs reported as $21 million.

Story Contacts:

Lynn Shields, Manager, Massachusetts Affordable Housing
Trust Fund, lshields@masshousing.com

Michael Anderson, Director, Housing Trust Fund Project

Mary Brooks, Consultant, Housing Trust Fund Project

Mark Fogarty has covered housing and mortgages for more than 30 years. A former editor at National Mortgage News, he has written extensively about tax credits.