Minnesota Low-Income Housing Tax Credit (LIHTC) Program

One of the basic tools Minnesota uses in advancing affordable rental housing is the Low-Income Housing Tax Credit program. Funded by the Minnesota Housing Finance Agency, the program offers developers federal and state tax credits upon the development or rehabilitation of rental properties set aside for low- and moderate-income families. These housing developments play a vital role in meeting growing needs in both urban and rural communities in Minnesota.  

 

An Overview of LIHTC in Minnesota 

Minnesota’s LIHTC program is designed to invest in affordable housing for both urban and rural communities. The state receives about $125 million in federal tax credits every year. Of that, 60% are directed to the Metropolitan Area, and 40% are distributed to Greater Minnesota.

 

Such an arrangement protects balanced development across the spectrum of communities-from densely populated urban centers to more modest-sized urban centers.

 

The tax credits are issued through a competitive selection process under which developers submit proposals for housing projects that meet designated state criteria. When issued, developers can sell the credits to investors, thereby creating equity to pay for construction or rehabilitation costs. The program has funded about 25 to 30 housing developments annually, usually in the 40 to 70-unit range.

 

Minnesota’s LIHTC allocation in 2024 will be calculated with a per capita credit volume based on the state’s population basis, set at $2.75, thus ensuring that Minnesota’s needs are proportionally met with an estimated $15.7 million in tax credits available for projects this year.  

 

Minnesota LIHTC Program	Minnesota Affordable Housing Tax Credit
Administering Agency	Minnesota Housing
Enacting Legislation	H.F. 9
Related Statutes and Documents	Minnesota Statute 290.0683
Annual State Cap	$9,900,000
State Contact	Krissi Mills, SHTC Program Manager

 

 

MHFA- Minnesota Housing Finance Agency 

MHFA is also an active player in Minnesota’s affordable landscape. It oversees the implementation of LIHTC at both federal and state levels. Its functions have included reviewing the applications of developers, allocating tax credits, and ensuring compliance at both federal and state levels. 

 

The QAP is another important tool that MHFA employs in fulfilling this role. It is prepared collectively by public and private stakeholders. The QAP discusses the roadmap for allocating tax credits in the state. It identifies the priorities that projects must meet to receive funding, such as providing affordable units in high-demand areas, integrating sustainable building practices, and addressing specific community needs. 

 

Some of the criteria include affording units in areas of high demand, integrating sustainable building practices, or serving other identified needs in communities.  

 

MHFA also ensures long-term affordability through strict LIHTC compliance monitoring. For example, developers are subject to the sternest guidelines—affordable rent and income-eligible tenants must be maintained for at least 15 years—and if any project does not meet these requirements, it stands to lose the allocated credits, hence serving as liability for every step. 

 

Another part of the MHFA’s mission is its commitment to equity. The agency administers both the LIHTC and SHTC programs, an initiative providing housing in areas that significantly lack affordable housing, especially in rural Minnesota. 

 

Core Objectives of LIHTC and QAP in Minnesota 

The QAP delineates state-specific priorities that guide the allocation of LIHTC credits in Minnesota. These priorities mean that projects LIHTC-funded will benefit the greater aims socially, environmentally, and economically than just fulfilling rudimentary needs for affordable housing. 

 

1. Geographic Distribution: The balanced growth of housing inventory throughout the geographic regions of the state, including both Greater Minnesota and the metro area, is another important objective that the QAP aims to meet. In taking this approach, set-asides of a portion of tax credits for Greater Minnesota make an effort to address some of the specific challenges posed by rural environments, such as affordability and construction-related concerns with access to housing. 

1. Sustainability: The QAP emphasizes energy-efficient designs and green construction practices. Projects that incorporate measures for energy conservation, the use of long-lasting materials, and the minimization of future maintenance costs receive tax credits. This is sustainable, besides imposing a burden on the residents’ pockets in terms of fewer utility charges. 

1. Proximity to Services: The QAP will consider this factor of being close to basic services and their facilities, such as public transport services, schools, health services, and employment centers. The development of affordable housing close to such resources facilitates a quality living condition for its residents and reduces their burden on the economy regarding transportation costs. 

1. Health and Safety: The state of Minnesota has implemented healthy-inclined policies in QAP. For example, Dakota County and Washington County require the LIHTC program to have a smoke-free policy, while other areas only award points for projects that opt into them. This further proves that public health and environmental safety concerns are being put into affordable housing constructs. 

 

By focusing on such priorities, the QAP ensures that Minnesota’s LIHTC program supports the expansion of affordable housing in not just expanding the housing but also healthy, more sustainable communities. 

 

Distribution of Housing Tax Credits in Minnesota (Estimates) 

Entity	Amount (Estimate)
GREATER MINNESOTA
Duluth*	$79,240
St. Cloud*	$152,820
Rochester*	$650,901
FmHA Set-Aside (MHFA Administered)	$425,000
MHFA Administered	$4,352,052
GM Subtotal	$5,660,013
METROPOLITAN AREA
Minneapolis*	$1,392,362
St. Paul*	$891,451
Washington County*	$594,301
Dakota County*	$1,027,292
MHFA Administered	$4,584,612
Metro Subtotal	$8,490,018
GM + Metro Subtotal	$14,150,031
NONPROFIT SET-ASIDE ADMINISTERED BY MHFA
Metropolitan Area	$943,335
Greater Minnesota Area	$628,890
Set-aside Subtotal	$1,572,225
Total Tax Credits for State	$15,722,256

 

Note: These are estimates as of March 22, 2023, and final population figures and per capita amounts may change the total credit volume available. Some of the entities (e.g., Duluth, St. Cloud) are expected to enter into a Joint Powers Agreement, and Minnesota Housing will administer the HTC award or allocation and perform compliance monitoring. 

 

Challenges Faced by the Minnesota LIHTC Program  

One of the LIHTC challenges faced here in Minnesota is attracting investor interest in rural areas. Some strong participation occurs in the urban regions that are much more toward the Twin Cities, for example. The smaller towns sometimes just cannot place a lot of investments, which keeps imbalances going on. 

 

Another important concern is the intense competition for tax credits. Excess demand over supply is always present, yet many needed and qualified projects go unfunded, particularly in the more densely populated urbanized areas.  

 

Construction costs going up due to inflation and labor shortages make it difficult for developers to find a balance between cost and quality. This has been a particular concern in rural areas, where construction costs are already high, so the inflationary increase in the construction cost threatens to have a detrimental impact on the whole program. 

 

Despite these challenges, the program offers some essential opportunities. The emphasis on sustainability and energy-efficient design substantially encourages innovative housing solutions that bring lower long-term costs. Smoke-free housing, among other health-conscious policies promoted by Minnesota’s QAP, encourages healthier living environments for its residents. 

 

Above all, with healthy backing from bodies such as MHFA and MEF, developers can tap important resources and technical guidance intended for the successful establishment of the LIHTC program and the realization of the great expansion of the affordable housing program throughout Minnesota.  

 

Conclusion 

The Minnesota Low-Income Housing Tax Credit program remains one of the most effective tools in attacking the state’s affordable housing crisis. The MHFA was entrusted with program oversight, which ensured the continued development of well-conceived affordable rental units for low-income families.  

 

Minnesota’s LIHTC program, through its focus on sustainability, public health, and geographic balance, is proving to be a model for how state-administered tax credits can truly balance social equity and environmental responsibility. 

 

Programs such as LIHTC and SHTC, which have been instrumental in recent years in helping to fill Minnesota’s affordable housing gap, will likely be key in the state’s efforts during times of rising demand for affordable housing in the wake of rising housing costs.