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Stenehjem says state revenue, housing needs will dictate program’s future; Becker would end ‘scam’ program if elected governor

BISMARCK - A housing development fund that has allowed contributors to claim more than $33 million in income tax credits since 2011 could face more scrutiny as North Dakota's tax revenues tumble with crude oil prices and the governor's office cha...

BISMARCK – A housing development fund that has allowed contributors to claim more than $33 million in income tax credits since 2011 could face more scrutiny as North Dakota’s tax revenues tumble with crude oil prices and the governor’s office changes hands next year.

Attorney General Wayne Stenehjem, who serves on three-member Industrial Commission that oversees the Housing Incentive Fund, said he still supports it, but only if the state can afford it and a housing needs study deems it necessary.

“I supported the program from the beginning because it did address a direct and immediate need that we had,” said Stenehjem, who is seeking the Republican Party’s nomination for governor in 2016.

State Rep. Rick Becker, R-Bismarck, a plastic surgeon and commercial developer who also is seeking the GOP nod for governor, said he opposes the Housing Incentive Fund and would cut it from the governor’s proposed budget if elected.

“It’s very anti-free market. The aspect of tying it to charitable donations, if you will, it’s a scam. It’s a shell game,” he said, adding, “Every one of these donations is really a payment by the taxpayers of North Dakota.”

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The Legislature established the Housing Incentive Fund in 2011, in part to address the lack of affordable housing for law enforcement and other essential service workers in western North Dakota’s oil patch.

The fund provides up to $3 million or 30 percent of the cost of new apartment and rental units to reduce developers’ debt so they can set cheaper rental rates. Individuals and businesses who support the projects receive a dollar-for-dollar state income tax credit for contributing to the fund.

“It’s an incentive for local people to invest back into their community,” said Jolene Kline, director of the North Dakota Housing Finance Agency, which administers the fund.

Lawmakers authorized $15 million in tax credits for the 2011-13 biennium and $20 million in tax credits for 2013-15, while also providing $15.4 million from the state’s general fund.

During those first four years, more than 1,000 individual taxpayers, banks and other businesses contributed $35 million to fully capitalize the fund.

In turn, they claimed $33,050,937 in tax credits through the 2014 filing season, state Tax Commissioner Ryan Rauschenberger said. The program allows the donor to carry the credit forward for up to 10 years if it’s not used up in the first year.

Rauschenberger said it’s the only state program to offer a dollar-for-dollar tax credit.

“It is by far the most advantageous and most utilized credit,” he said.

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This year, lawmakers raised the tax credit authorization to $30 million and provided an additional $5 million in profits from the state-owned Bank of North Dakota. Another $5 million becomes available if the bank’s profits for this year exceed $130 million, and that money would be set aside for projects in communities of fewer than 12,500 people.

As of Tuesday, nearly $24.9 million had been contributed to the fund, Kline said. She expects the $30 million goal to be reached in 2016.

Housing projects are chosen through quarterly competitive funding rounds, with scoring based on factors such as project readiness, local housing need and how many essential workers and low- and moderate-income households it will serve. Kline said the agency received $52 million in requests in May for the $35 million available.

Since the program started, the agency has allocated more than $84 million to projects, leveraging nearly $425 million in construction financing to support 2,500 new housing units.

Kline defended the dollar-for-dollar tax credit approach.

“The reason that the Legislature does it that way is they want that local support for the projects. It would be easy to do a general fund transfer, instead of doing the $30 million in credits, but this gives buy-in,” she said. “The state is losing $30 million in tax collections, but it is forcing the local businesses, the local individuals, to have some say in that project.”

While companies receive the benefit of public recognition for large contributions, Kline noted they’re also prepaying taxes that otherwise wouldn’t be due until April, which comes at a cost to them. Tesoro Corp. has provided the largest contribution, at $5.3 million.

“Some of those are employers, and they know how difficult it is to recruit or retain employees if they don’t have affordable housing for their workers,” she said.

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Becker said the fund incentivizes development beyond the actual demand and locations where it’s truly needed.

“I’m all for good, affordable housing, and the best way to get to that is to let the free market take care of itself,” he said.

Kline said the roughly 500 units a year that have been built with the fund’s support is significantly less than the need identified in a 2012 study. A new statewide housing needs assessment by North Dakota State University should be completed in June and will help the agency determine the appropriate funding level, she said.

Stenehjem said the state’s revenue picture will determine whether it can continue to afford the program. State revenues fell $152 million short of projections from July through November, prompting the state budget office to order a new revenue forecast that’s expected in mid- to late January.

The up-to-$40 million authorized for the Housing Incentive Fund is money that otherwise would go into the general fund, Stenehjem noted.

“Now, as we’re seeing the price of apartments go down and vacancy rates go up, we have to assess what the housing needs are,” he said, adding, “I know there are some apartment owners who are saying we don’t need it anymore.”

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