State Housing Aid Programs – What Cities Need to Know

By Keith Dahl and Dan Tienter

Establishment of the Local Affordable Housing Aid (LAHA) and Statewide Affordable Housing Aid (SAHA) by the Minnesota Legislature provides cities with much needed funding for affordable housing. While communities with populations greater than 10,000 will receive funds directly from the Minnesota Department of Revenue (paid in two installments on July 20 and Dec. 26), cities outside the seven-county metropolitan area with populations less than 10,000 may access funding through a competitive grant process with the Minnesota Housing Finance Agency (Minnesota Housing). As cities begin to deploy these resources and navigate reporting requirements, there is essential information you need to know.

Spending requirements

In 2024, the Minnesota Legislature clarified the spending requirements for the two state housing aid programs. Cities receiving direct housing aid must commit the funds to qualifying projects by Dec. 31 in the third year after receipt and spend the funds by the fourth year after receipt. For instance, a city receiving direct aid in 2024, the year of receipt would be Dec. 31, 2024. You would then have until Dec. 31, 2027, to commit the funds and Dec. 31, 2028, to spend the funds.

So, what does “commit” mean? While Minnesota Housing hasn’t released guidance on this question yet, cities should presume it means an action that legally requires payment, such as a contract. If a city council simply passes a resolution to dedicate the aid for an activity, it may not meet the threshold of committing the funds.

Cities must return any unspent funds to Minnesota Housing. Under state statute, absent the funds being spent on an eligible project within the timeline, a city may also consider the funds spent if both of the following conditions are met:

Certifies to Minnesota Housing it is unable to spend the aid due to factors beyond its control.

Deposits the funds into a housing trust fund. Although this process achieves compliance with spending requirements, state statute stipulates that any transferred funds may only be spent on allowable uses for the original housing aid. To prevent the return of funds to Minnesota Housing, all cities receiving funds directly should create a housing trust fund.

Additionally, legislation passed during the 2024 legislative session requires that affordable housing aid under the LAHA and SAHA programs must supplement and not replace any existing resources the city dedicated to affordable housing, such as Community Development Block Grants, the HOME Investment Partnerships Program, and levy dollars of an economic development administration or a housing redevelopment authority (HRA). While many cities may not have existing affordable housing assistance or expenditures, it’s important to be aware of this requirement and determine whether it applies to your organization.

Accounting practices

Given the legal restrictions and reporting requirements, cities should avoid depositing these funds into the general fund. Instead, any city receiving housing aid should establish a special revenue fund such as a local housing trust fund. Communities receiving direct funds should establish the housing trust fund now, while those cities that must apply for housing aid may opt to wait until shortly before the receipt of funds after award from Minnesota Housing. In either case, cities must track allocations and expenditures from LAHA and SAHA on an annual basis to comply with spending and reporting requirements.

When developing the accounting structure, a city may want to establish departments or divisions for ongoing programs (e.g., rental assistance) and project accounts for limited or one-time activities (e.g., housing project assistance), depending upon the capabilities of the accounting system.

Lastly, while the guidance to-date lets cities deposit their housing aid directly into a housing trust fund, they should use a distinct special revenue fund and only transfer funds after receiving approval from Minnesota Housing. Generally, this approach will allow cities to better account for and report on their housing aid allocations and activities.

Reporting

Beginning in 2025, housing aid recipients must submit annual reports to Minnesota Housing by Dec. 1. The report will be required to provide the following documentation:

• Certification affordable housing aid will supplement and not replace.
• Relevant documentation of locally funded housing expenditures in two prior years.
• Qualifying projects completed or planned.
• Location of unspent funds.
• Inability to spend on a qualifying project prior to the deadline.
• Accessibility requirements for housing projects that are four or more units.
• Relevant resolution and certifications for market-rate developments (SAHA only).
• Ineligible costs

While housing aid provides broad flexibility for cities to preserve existing housing stock and construct new housing options, it’s important to be aware of the following ineligible costs:

• Costs to create a housing improvement area.
• Staff and services related to general housing quality and licensure.
• Staff and administrative costs for operation of an HRA or county or city housing department.
• Commercial, industrial, or public space development projects.
• Projects located outside of Minnesota.
• The resources provided by LAHA and SAHA will give cities a powerful tool to respond to the ever-growing need for affordable housing options in their communities. As with any new financial resources, cities will need to use them thoughtfully and thoroughly understand the allowable uses and reporting requirements.

Keith Dahl and Dan Tienter are municipal advisors with Ehlers (ehlers-inc.com). Ehlers is a member of the League’s Business Leadership Council (lmc.org/sponsors).