For decades, public housing has been underfunded by the federal government. For MPHA, the agency’s public housing (Section 9) receives funding for about 90 percent of its operating costs and only 10 percent of its capital needs each year. Compounding over time, this chronic lack of federal funding has created the agency’s current capital backlog of $260 million in needs.

As the problem has worsened with little to no congressional action to address the inadequate funding, the U.S. Department of Housing and Urban Development (HUD) has developed programs and specialized initiatives to help public housing authorities attempt to address these funding shortfalls. Locally, MPHA has used HUD’s Rental Assistance Demonstration (RAD) program for the Elliot Twins and HUD’s Section 18 program to transfer its family homes to its wholly controlled nonprofit Community Housing Resources (CHR). With both these transfers, the agency moved units from Section 9 to the better-funded Section 8 (Housing Choice Voucher, HCV) program.

But while MPHA has reduced its number of Section 9 units, the agency remains authorized to revive the per-unit subsidy should it seek to build new Section 9 units. This authorization is known as MPHA’s Faircloth Authority. A public housing authority’s Faircloth Authority is the number of Section 9 units the agency is entitled to receive operating and capital subsidy for. This number is based on the number of Section 9 units a public housing authority owned or operated as of October 1, 1999.

For MPHA, the agency’s Faircloth Authority is 6,393 Section 9 units. Currently, the agency receives Section 9 funding for 5,494 units, meaning the agency has 899 units of funding it is entitled to but not receiving funding for. The nearly 900 units of unused subsidy is a result of the Elliot Twins RAD redevelopment, the CHR transfer, and a small loss of units over time for a variety of reasons, including insufficient capital funding to maintain habitability.

Shifting units out of Section 9 is not unique to Minneapolis. In fact, across the country, there are an estimated 250,000 units of unused Faircloth Authority. Recognizing this pattern of moving away from the inadequately funded Section 9, HUD has recently developed a tool to help agencies attempt to recapture that unused but entitled subsidy, Faircloth-to-RAD (FTR).

At its most basic, FTR enables housing authorities to unlock unused Faircloth Authority to help build and sustain deeply affordable housing. However, because the FTR subsidy closely resembles the still inadequate Section 9 funding, the FTR subsidy needs to be supplemented with additional funding to be viable.

Recently, MPHA has been studying FTR and its feasibility for the agency, its residents, and community partners. Working with HUD and a team of consultants, the agency has determined that the agency’s upcoming 809/828 Spring Street RAD redevelopment project presents a strong opportunity to pilot this new program and deploy some of MPHA’s unused Faircloth Authority.

By piloting FTR as a part of the larger 809/828 Spring project, MPHA can blend the lower FTR subsidies for the 15 new deeply affordable units with the higher RAD/Project-based voucher (PBV) subsidies it will receive when it completes the rehabilitation project for the other 221 units across the two neighboring buildings. Because the new units only account for a marginal amount of the entire project’s ongoing subsidy, the larger project can absorb the lower FTR subsidy without risking the stability of these new units.

While MPHA was able to overcome the lower ongoing subsidy challenge of FTR by combining it with a much larger project, developing FTR units creates challenge of lower debt capacity because of the lower ongoing subsidy rates. For the 809/828 Spring Street project, MPHA estimates it will lose $1.3 million in debt capacity for the project because of the 15 new FTR units. In lay terms, because the agency would receive less annual federal subsidy for these 15 FTR units than it would using RAD or PBVs, financial institutions will offer an estimated $1.3 million less in loans for the agency to use in covering the project costs.

For context, PBVs are among the best tools MPHA has to deliver federal funding to preserve and produce deeply affordable housing because they offer the highest subsidy rate of MPHA’s various programs. But PBVs are a finite resource, so the agency needs to explore additional tools, like FTR, to help build new deeply affordable housing. And with 899 units of unused Faircloth Authority, that is the opportunity this FTR pilot presents to MPHA, the potential of unlocking millions in new, ongoing federal funding to build and sustain the new deeply affordable housing Minneapolis needs.

Earlier this summer, MPHA presented its plan to pilot FTR to Minneapolis Mayor Jacob Frey and city financial leaders as a part of the city’s annual budgeting process. Specifically, the agency presented the challenge of lost debt leverage capacity and requested a one-time $1.3 million investment from the city to help cover this lost debt capacity and to help MPHA solve an early challenge to move this pilot forward.

Mayor Frey and city leaders understood what this investment could mean for the city should the pilot succeed. And in August, Mayor Frey announced an additional $1.3 million direct contribution to MPHA to support this project on top of the $5 million annual housing levy he first proposed last year alongside City Council and MPHA leadership.

With the help of Mayor Frey to overcome this early challenge, MPHA is moving forward with its FTR pilot to learn more about a program that presents an opportunity to unlock millions in new federal subsidies to build and sustain the new deeply affordable housing in Minneapolis. To date, HUD estimates fewer than 15 FTR projects have been completed across the country, making MPHA one of the earliest adopters of the program.

Through this pilot, the agency is hoping to achieve a variety of goals. First and foremost, can FTR work for MPHA? Can the agency work through FTR compliance and development requirements to build and sustain 15 new deeply affordable units leveraging this new program?

Beyond this primary goal, the agency will explore additional questions with this pilot:

  • Can FTR subsidy rates only be accessed and supplemented when units are self-developed?
  • Could MPHA award FTR subsidies to non-profit developers like it does for PBVs?
  • Are there other unique challenges other developers might face?
  • How can MPHA work with HUD to revise/improve FTR requirements and subsidies to better meet public housing authorities’ realities and capacities across the country?
  • If feasible, what costs would be associated with deploying FTR at greater scale?
  • Is there a place for local and state ongoing subsidy support to enable FTR development across the state?

An important note about the FTR pilot is that it will not impact the MPHA resident experience. While there is complexity with administration and compliance in deploying FTR, from the resident perspective, there will be little if any difference in experience from the other 221 units in the 809/828 Spring Street redevelopment. Residents will maintain all the same rights and protections like any other RAD project, including how their rent is calculated.

Tentatively, the agency is projecting an early summer 2025 closing on the project financing, with construction commencing shortly thereafter. Assuming the project advances as planned, MPHA looks forward to learning more about FTR and its feasibility to build and sustain new deeply affordable housing in Minneapolis. Look for periodic updates from MPHA in future years about its FTR learnings.