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Developers of affordable housing in the Twin Cities are bracing for the worst as Congress reconciles tax reform proposals that they fear will stifle renovation and construction of apartments and houses for low- to moderate-income families.

Though the fate of the change is unclear, several Twin Cities developers have been scrambling to line up financing commitments before year’s end. Fast-tracking those projects is expensive and complicated, but many worry that projects that don’t close before the end of the year won’t happen at all.

“There’s a ton of uncertainty,” said Chris Barnes, vice president and senior project partner at Plymouth-based Dominium, one of the nation’s largest rental developers and owners. “People are scrambling like mad to get everything closed.”

Barnes said 27 new and existing projects, encompassing 5,355 units, on the company’s drawing board are at risk of not getting built or preserved.

That doesn’t include a plan to transform a compound of historic buildings at Fort Snelling into housing for low-income veterans that was stalled earlier this year when a state agency decided not to allocate bonds to the project because they weren’t willing to grant policy waivers. What happens in Washington over the coming days will determine the fate of this project and many others.

Though the Senate voted this weekend in favor of a version that’s friendlier to affordable housing developers than one passed last month by the House, both versions will alter the historic tax credit programs that would be used to redevelop Fort Snelling. “We have to prepare for the worst-case scenario,” Barnes said.

Since the last major tax overhaul in the 1980s, developers, nonprofits and a variety of agencies have built income-restricted housing using two types of low-income housing tax credits that reduce the cost of financing and allow them to charge below-market rents.

The 9 percent tax credit is used for about half the affordable projects, but such funding is limited and the process for awarding them is competitive. That program is likely to stay in place. A 4 percent credit is much more popular because it’s more widely available, but it can only be claimed if 50 percent or more of the project is funded using tax-exempt private-activity bonds (PABs).

The Minnesota Housing Financing Agency says that those private activity bonds have supported the construction of more than 15,000 affordable rental homes worth nearly $2 billion during the past decade, and 12,000 first-time home buyers have used these resources to become first-time buyers. Eliminating those tax-exempt bonds would result in a loss of 3,400 affordable rental units.

The House version of the bill eliminates the tax exemption on those PABs, which are also used by hospitals, schools and other institutions to finance construction and rehab projects. Without those PABs, the 4 percent credit essentially becomes unavailable. That tax credit has been used to create the vast majority of affordable housing in the Twin Cities.

An analysis by Novogradac & Co., an accounting firm that specializes in real estate, says that if the tax bill becomes law, about 700,000 fewer affordable housing units would be built during the next decade. In the Twin Cities, housing that’s financed by tax credits must be affordable for households earning 60 percent or less of the area median income adjusted for family size. The four-person median income was $90,400 this year in the Twin Cities metro.

The Senate version retains those private-activity bonds but reduces the historic tax credit (HTC) for historic buildings that developers have relied on to tackle expensive rehabs and conversions of buildings that are deemed historically significant. The House legislation eliminates the HTC, while the Senate bill puts additional limits on use of the HTC that some groups say would erode the breadth of the credit.

Already, there’s been concern that the reduction in the corporate tax rate has weakened demand for those tax credits, which are allocated to state agencies that distribute them to developers who in turn sell them to investors to help finance their projects. Normally, when an investor buys those credits they could get an annual dollar-for-dollar tax write-off for a decade. That means a $1 million investment could translate into a $10 million tax break over 10 years.

When investors are particularly hungry for a tax break, they’ll sometimes pay $1 or more for a single credit. However, when President Donald Trump announced support for a lower corporate tax rate earlier this year, the value of those credits fell.

Todd Urness, an attorney with Winthrop & Weinstine who specializes in real estate and corporate tax law, said he is less worried about the impact of a lower corporate tax rate than the elimination of private activity bonds. “The House version of the bill takes away critical tools necessary to create affordable housing,” he said.

At Twin Cities-based CommonBond Communities, one of the largest nonprofit housing developers, owners and managers in the country, there’s deep concern about how the bills will be reconciled. The group is planning to renovate a large rental complex in Minneapolis using the 4 percent tax credit program.

“Tax policy is housing policy,” said Deidre Schmidt, CEO of CommonBond Communities. “Unintentionally, a primary resource for creating affordable housing could either be eliminated or weakened.”

She said that 3,200 units — half the firm’s holdings — exist because tax-exempt bonds were made possible through the 4 percent program. Those units provide housing for about 4,800 people, Schmidt said, at a time when demand for affordable housing far exceeds supply. She said there are now about 7,800 families on the waiting list for some properties. The wait is so long for others that the company doesn’t maintain a list.

And at the Community Housing Development Corporation (CHDC), financing for three projects is in peril, said its president, Elizabeth Flannery. That includes two rental properties that are in dire need of rehab — and will get refinancing that will maintain their affordability for 40 years — and the to-be-built 169-unit East Town apartments, a partnership between First Covenant Church and CHDC that’s aimed at lower-income people who work downtown.

Developers are also queasy about moving forward on projects they think they might not be able to finance in the coming year, so the kind of work that goes on behind the scenes long before construction begins is in limbo.

Normally, bonds are issued as needed while a project is being built, but in several cases Twin Cities developers are fast-tracking those commitments to make sure funding is secured ahead of time. Doing so is costly because the developer is essentially borrowing that money months, sometimes years, before it is needed to pay for aspects of a project. That can cost developers millions in unnecessary transaction costs and interest payments.

“People are having to get real creative and work in ways to use those bonds by end of year,” Flannery said, “or be left with projects that are unfinished.”

Jim Buchta • 612-673-7376