It took Minnesota Housing Finance Agency Commissioner Mary Tingerthal at least 15 minutes of patient explanation of federal tax credits and tax-exempt bonding authority to even get to the issue that’s drawn pointed criticism from the real estate development industry.

It turns out that it’s only the financing tools that are hopelessly complex. The story here sure isn’t. It seems there is no longer enough bonding capacity to go around, and people have reacted to this scarcity the way people usually do. That includes those who have banded together to form a new advocacy group that has dubbed itself Haven.

Haven is fighting for a bigger slice of bonding capacity to finance what the founders of the group build.

While the Haven group has sent around some suggestions for state law, Tingerthal said her office knows of no new legislation that’s been introduced at the legislature. She characterized recent pointed advocacy from the apartment building industry as “a discussion, as people are wrestling with new facts and new circumstances.”

The one basic fact that hasn’t changed is the need for more places to live for people at the lower end of the income scale. Using government-subsidized financing to build more of them has generally been broadly supported across the political spectrum.

One tool to finance new housing is a federal tax credit program, created more about 30 years ago. Affordable housing deals are generally not profitable without the tax credits, in the sense that there’s not going to be enough cash rent collected to pay all the operating costs and the cost of capital to build the place and still deliver a return to the owners.

What makes them financially viable is the value of the tax credit, maybe sold for cash to investors who want to offset their future tax liability, with the cash then put into the project.

Low income housing tax credits come in two basic types, and the ones called 4 percent tax credits aren’t enough of a subsidy to build without having to line up a lot more money.

In one recent project, of 168 housing units, the tax credits came to less than $10 million on a project that cost almost $34 million. As is common, tax-exempt bond proceeds filled most of the gap.

The problem is that Minnesota, like every state, only gets to issue so many tax-exempt bonds for housing. Here that bond capacity gets allocated to more than half-a-dozen buckets. Yet as Tingerthal described it, there have often been years when there weren’t enough good projects eligible for the bonds.

Tingerthal then slid a bar chart across the table that showed that the unused balance of a state housing bond pool was $224 million in 2012, slipped to about $150 million for each of the next three years and then it fell to nearly zero in 2016. Any unused capacity in that pool falls to what’s called the “unified” pool and is then generally available for other projects, but beginning last year the unused capacity at the state was gone. What was once plentiful had become scarce.

The agency staff saw this day coming, Tingerthal said. What drove the recent surge in demand for a piece of the bond allocation wasn’t a sudden bump in demand for low-cost places to live. What changed were low interest rates and other circumstances in the markets, making 4 percent tax credit projects more financially feasible.

As one response to the scarcity, the MHFA proposed raising the bar for projects to qualify, a possibility that seemed to please no one. The agency responded by pulling back on some of those changes, yet the problem of not enough bonds to go around remains.

Among the people dismayed by this were the principals of the real estate development firm Dominium, effectively the founders of the nonprofit Haven group formed late last year. Based in Plymouth, Dominium has deep experience, here and across the country, in using tax credits and other complex forms of financing to build affordable housing. I’ve got family members in the industry who have had a good experience working with Dominium.

Lots of others signed on to Haven, too, said Dominium Vice President and Project Partner Owen Metz, with a list that included contractors, accountants and consultants. Haven only wants greater “efficiency” in the use of tax-exempt bonds, he said, stating his case about as gently as anyone could. Indeed, anyone listening in on the line may not have realized there’s been any real disagreement at all.

The flier the Haven group has sent around wasn’t quite as diplomatic, stating that “the main purpose of the proposed legislation is to maximize the use of tax-exempt bonds for multifamily production,” meaning building more apartment buildings.

Dominium actually makes a fair point, that when conditions are right for the construction of lots of apartment units that’s probably what should be built. That would generate more federal tax credits and could put more capital into housing. But instead of seeking ways to expand the overall supply of money available, Haven is going after the money from bonds that now finances low-cost mortgages.

Financing housing ownership has long been part of state policy, too. In the last five years, only in 2016 did the amount of tax-exempt bonds sold for rental housing far exceed bonding authority used for homeownership. It’s one reason why Minnesota is one of only a relative few states that has always been able to find a good use for all of its tax-exempt bond authority for housing, as owner-occupied house deals still seem to close during market downturns when investors aren’t so keen on putting money into a big apartment project.

More apartments and less single family could be a choice the state makes, but Tingerthal said the current process of divvying up tax-exempt bonding capacity maybe looks messy but it’s actually worked pretty well. It’s made sure money goes into low-cost housing of various types and across the state, and through the ups and downs of an economic cycle, too.

In a push to change the allocation system, she said, “we don’t understand the urgency.” 612-673-4302