by CHRIS ROGERS
Monday was a milestone for the city of Winona’s support of affordable housing. The City Council pledged to consider granting tax-increment financing (TIF) to a proposed affordable housing development on Mankato Avenue. If the project becomes a reality, it will be the first new affordable, low-income housing built in Winona in decades. If the city does grant TIF, it would be the first time the city has offered financial support for new affordable-housing construction in recent history.
Dubbed Water’s Edge by Fond du Lac, Wis.,-based Commonwealth Development, the proposed development would be a three-story, 41-unit apartment building on currently vacant land at 602 Mankato Avenue, just north of Shives Road and next to other large apartment buildings. The company is applying for low-income housing tax credits from the Minnesota Housing Finance Agency. In exchange for the tax credits, the company would have to keep rents affordable for 40 years and rent to low- and moderate-income tenants.
There is a big need for this in Winona, Winona Housing Task Force Chair and Merchants Bank Vice President Jim Vrchota told city officials earlier this month. The city’s 2016 housing study identified affordable housing for low- and moderate-income Winonans as a major need, with virtually zero openings in federal affordable housing programs in Winona. A statewide 2017 study found that Winona County was tied for first place as the Minnesota county with the highest percentage of renters who spend half of their income or more on housing. Thirty percent of Winona County renters fell in that category.
Part of a mayor-appointed task force charged with responding to those needs, Vrchota and his fellow task force members recommended that the City Council promote affordable-housing developments that utilize state and federal funding mechanisms such as tax credits. The task force also recommended that the city offer local support, too, in the form of financial assistance such as TIF. While the city has won funding to refurbish existing affordable apartments and homes, it has yet to provide local financial assistance for the creation of new affordable housing.
“We haven’t had an opportunity for a project like this for a long time,” Vrchota told the city’s Planning Commission before it voted to support a zoning change for the Water’s Edge project earlier this month. While plenty of full-priced, market-rate apartments and luxury apartments are going up in Winona, no new subsidized affordable-housing units have been built in years. The task force discovered that finding developers with the wherewithal to make use of funding tools that make affordable-housing projects feasible, such as low-income housing tax credits, was a challenge. This is something Winona has needed for years, Vrchota said, adding, “We finally have an opportunity for a developer that wants to do this kind of housing.”
Winona’s 2016 housing study estimated that by 2031, the city will need 275 units for lower-income Winonans. “What we’re proposing, at 41 units, is really just meeting a very small portion of the demand for this particular type of housing we’re looking for,” Erin Anderson of Commonwealth Development said.
Vrchota also stressed the potential for developments like Water’s Edge to bring more families to Winona. “Seventy percent of our workforce commutes into Winona because they don’t have a place to live,” he stated. Speaking to the Planning Commission, Vrchota added of the tenants the apartments would serve, “These are going to be police officers, nurses. They’re going to be people that work in the factories. They’re going to be people who are your next-door neighbors. All of us needed this when we were younger … when we weren’t making 50, 60, $70,000 a year.”
TIF is a kind of tax break in which the taxes on new property value a development generates are used to pay back construction loans. The TIF is set at a certain dollar amount and a certain length of time. Once the financing is paid off, the annual property taxes are then distributed to local governments like they normally would be.
The City Council used TIF in 2015 to support Wincraft’s new factory. In 2017, the council approved TIF to help fund Rivers Development’s construction of a higher-end hotel, the new Fairfield Inn by Marriot on Mankato Avenue, and to assist Peter Shortridge’s 102 Walnut project, which restored an historic building into commercial space and market-rate apartments. The city considered offering financial assistance to high-end apartments as part of the 60 Main Street project before that project was put on hold. Most recently, the City Council preserved the option to give TIF to Fastenal for its proposed riverfront office building. TIF was designed to help fund projects that would not be financially feasible without government assistance.
The City Council voted unanimously on Monday to approve a resolution pledging to consider TIF for the Water’s Edge project, but it did not approve any TIF. The city must go through studies and public hearings before TIF for a project could be approved. The purpose of pledging to consider it was to give Commonwealth Development’s tax credit application a boost. The company has to apply for the tax credits, and the competition is fierce, Winona Community Development Specialist Nick Larson explained. Last year, the Minnesota Housing Finance Agency received 70 applications and only funded around 15, he reported. However, when local governments offer to pitch in, the agency looks more favorably on those projects’ applications, Larson explained.
“It’s very important to the project,” Anderson said of the possible TIF. Often, affordable-housing developments require stitching together multiple funding sources. Anderson said winning tax credits for the project is the first step. She expects to find out whether the credits are awarded in November.
Unlike some developments that blend subsidized and market-rate housing, all of the units at the Water’s Edge apartments would have some income restriction, though there would be a range of units for tenants earning under 30 percent of area median income (AMI), under 50 percent of AMI, and under 80 percent of AMI. For a family of four, that means earning under $25,750 a year, under $37,800, and under $60,500, respectively. Additionally, a few of the units would be reserved for people with disabilities or other special needs.
The rental prices are subject to change, but Anderson reported that Commonwealth Development currently plans for the 50-percent-of-AMI units to be priced at $489 per month for a one-bedroom apartment, $645 for a two-bedroom, and $822 for three bedrooms.
Those rents meet state limits for affordable housing prices and the commonly-used metric of affordability that rents should not exceed 30 percent of a household’s gross income. However, they are not much cheaper than the going rate for some apartments in Winona. The housing study found that market-rate rental prices in Winona ranged from $415 to $755 per month for a one-bedroom unit and from $535 to $1,000 for a two-bedroom.
“It’s an unusual dynamic,” Anderson said, referring to the low prices for some existing apartments in Winona. However, Anderson described some of the Winona families her organization hopes to serve, saying, “A lot of them are overcrowded or doubled-up or in poor-condition housing. I think there’s a lot of that … They might be renting a kind of run-down house in the meantime, but this might be better.” Anderson added that while market-rate prices may increase in Winona over time, the Water’s Edge apartments will be locked in at affordable prices for the next 40 years.