City Feedback Requested: Bill to Establish Market Value Exclusion for Affordable Housing

March 7, 2022

The bill allows cities to opt in to a market value exclusion program for new mixed-income multi-family housing.

HF 3588 (Rep. Samantha Vang, DFL-Brooklyn Center), a bill that establishes a new market value exclusion program for affordable housing, will be considered March 9 by the House Local Government Division.

The bill would allow cities to opt in by ordinance to allow for a market value tax assessment reduction of 50% on a project-by-project basis to new multi-family construction that provides 20% of its units as affordable at 60% average median income (AMI).

A newly constructed building enrolled into the program would not qualify for any other tax reduction programs. This means it would not qualify for the current 4d Low-Income Rental Classification program, which also provides a tax benefit to property owners that reserve units at or below 60% AMI.

Proponents of the bill maintain that this tool will allow for additional cash flow for new mixed-income multi-family construction. The reduction of property taxes can offset the reduction in revenue from reduced rents.

Unlike tax increment financing (TIF), the new program would allow cities to determine the duration of the value exclusion for each eligible property but must at least last for 10 years and no more than 20 years as long as the property maintains the affordability requirement.

League seeks clarifying language

The League has been working with the bill’s author and proponents, and is seeking to address some questions with an amendment that will:

  • Clarify that notice requirements in the bill only require a city to publish notice at least once rather than twice, which is consistent with current notification requirements for TIF.
  • Ensure that the bill’s language requiring that “20% of the units in a building are available to income-restricted households but only 80% need to be occupied” does not mean the property owner can exclude 20% of the units that need to be maintained as affordable.
  • Clarify that the provision can only be used in a city that has opted in on a project-by-project basis for new construction and cannot be used for remodel or rehabilitation.

The League is also seeking more flexibility in the bill and is continuing to discuss this with the bill’s author and proponents. Cities should be able to tailor the assistance to different levels of tax benefit, depending on the level of affordability.

City feedback requested

The League is requesting city feedback on this bill as we continue to have conversations with the bill authors and proponents of the bill. Please email feedback to prior to the hearing this Wednesday (March 9) if possible.

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