Small towns at a disadvantage when applying for housing funding

By: - October 18, 2023 6:00 am

This Itasca County home is listed at twice what the property was worth ten years ago. Photo by Aaron J. Brown.

Bigfork is a city of around 400 people in northern Minnesota, but it’s also home to a 24-hour hospital and a K-12 school district, which both serve an additional 600 people outside city limits. 

“It’s the biggest little town that I’ve ever been to,” said Bigfork Mayor Bryan Boone.  

Many local teachers and hospital employees have to commute from elsewhere, including Grand Rapids, about 50 minutes away, because there are few housing options in Bigfork.

Despite the need, help is not necessarily on the way for Minnesota’s smallest locales like Bigfork. Housing advocates say a bureaucratic footnote buried in Minnesota Housing Finance Authority documents discriminates against the state’s smallest communities. 

The housing shortage in rural Minnesota is getting worse. Construction costs have risen dramatically in recent years, according to a 2022 report from the Greater Minnesota Partnership. Rural areas are home to fewer assisted living facilities, which means elderly Minnesotans are more likely to stay in large homes. That keeps the properties off the market and increases the chances that the houses fall into disrepair.

With so little housing available, employers in rural Minnesota are struggling to attract much-needed workers, according to the report.

Several state and federal programs incentivize housing development where it’s most needed. Developers can apply for many programs on a single application through Minnesota Housing, which uses a scoring system to determine which proposed housing projects will receive funds, tax credits or other incentives.

Projects in areas defined by Minnesota Housing as “need(ing) more affordable housing” receive more points, and are therefore more likely to be selected by the agency. 

That category — “need more affordable housing” — is worth up to 10 points, but excludes all communities smaller than 500 households, according to a footnote in Minnesota Housing’s guidance.

That means some projects proposed in small communities get zero points in the “need more affordable housing” category.

The 10 points are a small fraction of the more than 200 points available on the agency’s self-scoring worksheet.

But sometimes one point can make the difference in a project being accepted or denied development incentives, said Isaac Meyer, housing development director for KOOTASCA Community Action, an antipoverty nonprofit in Itasca and Koochiching counties.

“Smaller communities that would otherwise have an opportunity to receive this funding are simply cut off from a significant portion of points,” Meyer said.

Minnesota Housing spokesperson Anbar Ahmed said the scoring criteria are based on a combination of federal tax credits, state statutes, Minnesota Housing’s strategic plan and a public engagement process.

Boone, the Bigfork mayor, said it’s a baffling rule: “Everything that the state does, there’s the parameters around it where we’re too small to receive the funds.  It doesn’t make sense to me.”

Bigfork doesn’t have the manpower at City Hall to navigate complicated housing issues. Boone makes $1,000 per year as the mayor, and the closest thing the city has to a full-time employee is the clerk, who works 30 hours a week handling administrative duties. 

Many federal and state programs are designed to support large scale projects, and communities like Bigfork struggle to show they’re primed for them.

“Smaller communities generally need relatively smaller projects,” Minnesota Housing spokesperson Josh Nguyen said. “Because of the complexity and overhead cost of the federal low-income housing tax credit, projects tend to be at least 40-50 units in size before the economics work for a developer.”

In the recent legislative session, lawmakers approved $35 million over the next two years for the Greater Minnesota Workforce Housing Development Program, an increase of over $30 million from the previous budget. The program prioritizes communities with fewer than 5,000 residents. 

To qualify, however, the housing developments must be in an area with a joint county-city economic development authority; be in a community with at least 1500 residents within 15 miles of the city limits; or, be in a city with a population greater than 500.

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Madison McVan
Madison McVan

Madison McVan is a Report for America corps member who covers economic mobility for Minnesota Reformer. She previously covered agriculture for Investigate Midwest after graduating from the University of Missouri in 2020 with degrees in Journalism and Latin American studies.