Constructing New Rules

Nonprofits in Detroit say they are afraid that changes adopted by a state agency last week will make it more difficult to build low-income housing in the city. The issue centers on tax credits, which are awarded to nonprofits by the agency and sold to investors for millions of dollars. In this case, the community groups have used the revenue to build affordable housing.

At its meeting last week, the Michigan State Housing Development Authority (MSHDA) changed the way it determines how applicants will be awarded these tax credits to facilitate the construction of more low-income housing outside of Detroit.

But advocates for nonprofit housing groups in the city say that shifts money from the area of greatest need.

Alvin Wigley, executive director of Genesis Community Development Corporation, is particularly concerned about changes in how income criteria are calculated.

Up to now, in planning housing projects and seeking support, Detroit nonprofit groups targeted an income group earning a percentage of the area median; that in turn affects the rent that can be charged and the income the nonprofit group can expect to pay for the development. By shifting formulas to use the statewide median -- which is $6,000 lower than the metro Detroit median for a family of four -- MSHDA forces the groups to target residents with still lower incomes, reduces the rents that can be expected and makes the projects more difficult to pay for.

The income of residents and other factors are computed in a complex system to determine which groups get tax credits.

That, combined with higher construction costs in the city, will remove the incentive and the feasibility to provide housing for people earning more than the state median income, says Wigley. To continue providing housing to those people may force the community groups to rely on city subsidies, which are limited.

"They have lower incomes outstate, cheaper construction costs, and lower rents," he says. "I think this will cause a redistribution of tax credits and this is a concern because there is a greater need for affordable hosing in Detroit than elsewhere."

Detroit does have an affordable housing shortage. Public housing decreased from 10,000 units to about 6,000 units in the last decade, according to the Detroit Housing Commission. There were about 328,467 city residents living below the poverty level at the time of the 1990 census; about 38 percent of Detroit's renters spend approximately half of their income on housing, according to Wayne State University's Center for Urban Studies.

"More people are leaving the city because they can't afford housing in Detroit," adds Detroit City Council President Pro Tem Maryann Mahaffey, who was interviewed earlier this year about the city's affordable housing shortage.

Even Beth Hunter, MSHDA director of low-income housing tax credits, admits that Detroit is one of Michigan's cities most in need of low-income housing. But she says MSHDA revised the point system to make more tax credits available to nonprofits in other cities. Hunter explains that in 1998, Detroit received 86 percent of MSHDA's tax credits and that the state authority needs to disburse them more evenly throughout the state.

"We do serve the whole state," she says. "That's nothing negative about Detroit, but we cannot focus our resources there."

Hunter also says that a MSHDA study showed that only one Detroit nonprofit that received a tax credit in 1998 would have lost out if the statewide median income rule had been in place. Currently, there are eight nonprofit developments under construction, which will produce 283 affordable housing units in the next year, according to the City of Detroit. Leah Vest, executive manager of Detroit's Housing Services Section, says the city met with MSHDA officials and voiced objections to some of the changes. Though MSHDA addressed concerns, Vest says the end result is that there will be fewer tax credits available to community groups.

Pam Martin-Turner, executive director of the NorthStar Community Development Corporation, is critical of two other revisions MSHDA made to the 1999 tax credit policy.

The first is that applicants are no longer given 10 points when a local nonprofit is involved in a housing project. Now, they are given only five points -- and the nonprofit must be the sole sponsor or the controlling party.

Martin-Turner says that MSHDA should do everything it can to encourage nonprofits to support low-income housing, not discourage them. Unlike for-profits which usually are not located in the area where they build, nonprofits are. As a result, they have a vested interest in the entire community. NorthStar's entire board of directors lives in the neighborhood it is trying to develop on the northwest side of the city, she says.

Vincent Tilford, executive director of the Local Initiative Support Corporation, says only time will tell how Detroit nonprofits will fare with the state revisions. "Given all the changes ... we won't know the impact without an analysis and we can't do that until after we go through a cycle."

That won't begin until July when the 1999 tax credit changes will be applied for the first time.

The median is the message

Some of the most controversial modifications Michigan State Housing Development Authority made to its 1999 tax credit plan have to do with income levels. Applicants compete to see which will receive tax credits.

For instance, applicants currently receive a preference if they plan to build housing that serves families earning 60 percent of the area median income. According to MSHDA, the area median income for a family of four in Detroit is $57,200; 60 percent of this is $34,320. When the changes go into effect next year, groups will get a preference only if they serve families earning 50 percent of the statewide median income. The statewide median is $51,200 for a family of four, and half of that is $25,600. Detroit nonprofits say the $8,720 difference between state and area median incomes may affect their ability to build affordable housing. The groups explain that they depend in part on the rent they charge tenants to cover their building costs; under federal rules tenants in these projects can be charged rent which is 30 percent of their earnings. But if nonprofits are forced to primarily target groups who earn less, they may not generate enough revenue to make their projects feasible.

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