COVID aid commission approves $15 million affordable housing financing program

A state commission formed to guide the expenditure of federal COVID-19 aid has recommended approval of a $15 million affordable housing gap financing program, one of several housing and rental assistance initiatives that state officials have greenlit thanks to money from the American Rescue Plan Act and other pandemic assistance packages.

The ARPA Economic Transformation and Stabilization and Workforce Development Advisory Commission gave unanimous approval to the proposal, which will still require final authorization from Gov. Greg Gianforte. The state’s Department of Commerce said Thursday that COVID-related economic turmoil has increased costs for affordable housing developers, identifying more than a dozen projects comprising almost 1,000 affordable homes that are stuck in development purgatory.

The department surveyed 17 developers who indicated a total financing need of $19.5 million, but said other funding sources could account for the remaining need beyond the $15 million that would be allocated. Eligible projects for the program must have already received housing tax credits or housing trust funds, and their developers must explain their shortfalls, their attempts to find financing elsewhere and their outstanding financial need.

“These funds will provide critical gap financing for projects experiencing significant development cost increases due to COVID-19 related worker shortages, supply chain disruptions, and price escalations in key building materials like lumber,” reads a memo from Department of Commerce Housing Division administrator Cheryl Cohen. “These cost escalations have jeopardized the financial feasibility of these projects, and gap funding is critically needed to ensure affordable housing developments that the state of Montana has already invested in will be successfully completed and placed in service.”

The maximum allowable grant under the program is $2 million, and can only cover costs incurred beginning March 3, 2021, according to the text of the American Rescue Plan Act. Cohen said she hopes the department can start getting funds out by the end of the year, pending approval.

“The margins on these projects are incredibly tight, making the additional debt of loan structures unworkable,” Cohen told the commission. “Private market project investors will likely be unable to approve the addition of a new loan.”

Financing for affordable housing projects was a focus for the Legislature early in the 67th session. House Bill 21 would have doubled the amount of money from the state Coal Trust Fund that Montana could lend to developers of affordable housing projects, potentially allocating $30 million over the biennium. However, the bill was quietly tabled and killed in the Senate late in the session.

“We have projects that were awarded tax credits last year that are seeing the impacts of increased construction costs and the hit on the equity market with the low-income housing tax credit program,” said Heather McMilin, project development director with Homeward, an affordable housing developer and advocacy group. “We have already increased our mortgages to the maximum our investors will allow and that long-term operational sustainability can handle.”

Housing affordability has emerged as one of the state’s foremost issues, and has only been exacerbated by the pandemic. From June 23 to July 5, around 7,000 families reported they were likely to face eviction or foreclosure in the near future, according to the U.S. Census Bureau Pulse Household Survey.

The Department of Commerce also operates a federally-funded emergency rental assistance program, which has fulfilled 2,768 applications for COVID-related emergency rental assistance totaling around $15.5 million. And on Thursday, Commerce provided more detail on a homeowner assistance loan fund that it first proposed in the commission’s last meeting in July.

Montana is set to receive $50 million for the program through ARPA, though the federal government has only released 10% of that sum for the state to launch a pilot program with the funding. Montana can access the remainder once it submits a formal homeowner assistance fund plan to the U.S. Department of the Treasury, which Commerce said it would do by the end of September. The initial $5 million will pay for program administration and a first batch of assistance.

The department is electing to create a loan program with the money, a decision that garnered some consternation from Democrats on the commission and others who prefer a straightforward grant. The maximum loan would be $25,000 per household, last for the life of the initial mortgage, and is intended for homeowners who need the money to pay delinquent mortgage, property taxes, HOA fees and other expenses that might lead to utility shutoffs, foreclosure and displacement. The program will also offer  a maximum $5,000-per-household grant for more immediate expenses, which can be awarded either with or instead of the loan.

Eligible homeowners must have a combined household income at or less than 150% of the area median income, and must attest to financial hardship.

At Thursday’s hearing, housing advocates commended the state’s efforts but asked the commission to consider allowing Montana Housing the flexibility to award either loans or grants. Others pointed out that these investments are a start, but that more money is needed.

“We could do a lot more with housing in Montana if we had a little bit more state support,” said Sheila Rice, the executive director of NeighborWorks Great Falls.