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S.F. No. 785 - Workforce housing credit (as proposed to be amended by the A-1 delete-everything amendment)
 
Author: Senator Michael P. Goggin
 
Prepared By: Nora Pollock, Senate Counsel (651/297-8066)
 
Date: March 20, 2017



 

This bill establishes a refundable tax credit for qualified investments in workforce housing projects, effective for tax years 2018 to 2023. Credit certificates and allocations are awarded by DEED.

Section 1

Provision

Subd. 1

Provides definitions for the following significant terms:

“Developer” is the individual or entity who arranges the financing for and construction of a qualified workforce housing project.

“Eligible project site” means the site for the qualified workforce housing project that meets the following criteria:

  • does not require extension of public infrastructure beyond connections to the site;
  • located outside the metropolitan area;
  • a city with at least 500 jobs, as measured by the Quarterly Census of Employment and Wages (QCEW), or within the jurisdiction of an EDA as a joint city/county partnership; and
  • average vacancy rate of four percent or less for any two of the last five years, for market rate residential rental properties located in the municipality and any city within 15 miles or less. 

“Market rate residential properties” are properties rented at market value, excluding properties constructed with financial assistance for flood recovery and financial assistance that requires the property to be occupied with residents that meet certain income limits.

“Qualified investment” means a cash investment or fair market value equivalent for various investment vehicles.

“Qualified workforce housing project” means a project:

  • With a minimum of three dwelling units;
  • With an average construction cost between $75,000 and $250,000 per unit;
  • Located on an eligible project site;
  • With more than 50 percent of funding from non-state sources; and
  • Designated by the commissioner of DEED as a qualified workforce housing project.

“Workforce Housing Undersupply Ratio” means the number of full-time jobs in an eligible project area divided by the number of individuals over 16 that are employed and living in the eligible project area.
 

Subd. 2

Authorizes a qualified project investor in a qualified workforce housing project to claim a credit of 40 percent of the qualified investment, up to $1 million per taxable year. The credit is allowed in the first tax year in which the housing workforce housing projects has units certified for occupancy.

Authorizes the commissioner of DEED to allocate credits for tax years 2018-2023. Credits not allocated may be carried forward to the next year. No more than $2.8 million in allocations may be issued for a project. In tax year 2018, the maximum allocable credits are $5 million; for tax years 2019-2023, up to $7 million may be allocated.   

The commissioner of DEED must make applications available on the DEED website. The application must provide sufficient information for the commissioner to determine that the project meets the requirements of a qualified workforce housing project, the developer has sufficient financing to acquire and construct the project, the financial viability of the project, the total amount of credits applied for, the project’s investors, the amount each has invested or will invest, and the amount of tax credits the developer proposed to provide to each; and any other information the commissioner deems appropriate.

The commissioner of DEED must give preference to projects with the highest workforce housing undersupply ratio, except when the commissioner determines that the investment is circumventing the spirit of the law or little or no economic growth would occur as a result of the investment.

Credit certificates must be issued to the qualified project investor designated in the application and state the amount of the credit. If the project does not have units certified for occupancy within two years of the issuance of the credit certificate, the allocation is cancelled. The commissioner of DEED must notify the commissioner of revenue of credit certificates issued. The commissioner of DEED must charge an application fee for administration of the program.
 

Subd. 3

Provides that credits are transferable. Credits must be repaid by the investor if the commissioner of DEED discovers that the qualified project investor did not meet eligibility requirements. The commissioner of DEED must notify the commissioner of revenue of credits revoked and subject to full or partial repayment.  
 

Subd. 4

Requires the commissioner of DEED to provide a report to the House and Senate Taxes and Economic Development committees on the program, beginning in 2019.
 

Section 2

Authorizes the workforce housing tax credit in the income tax chapter. Pass-through entities (S corporations and partnerships) pass the credit through to their members as provided in the organization documents. Provides that the credit is refundable. Authorizes the commissioner of revenue to audit compliance with the credit requirements.

 
 
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