Dalrymple’s Housing Incentive Fund Is A Transfer Of Wealth From Taxpayers To Property Developers

jack-dalrymple

I’ve written before that Governor Jack Dalrymple’s Housing Incentive Fund, which gives dollar-for-dollar tax credits to individuals and businesses who contribute, is little more than an elaborate taxpayer subsidy for property developers. The idea is that the fund encourages private philanthropists to help fund the building of low-income housing in the state. “The fund was developed to operate this way to avoid out-and-out state funding of affordable housing,” wrote the Bismarck Tribune editorial board earlier last week.

But, in reality, those contributing to the fund get all of their money back in the form of tax credits. And if you need further proof of this, just look at the timing of contributions made to the fund. I’ve received, via an open records request, a list of all contributions made to the fund (see below) and I plotted the contributions on this graph by month. As you can see, the most popular months for contributions by a country mile is December.

Just before the end of the year. Or, more accurately, just in time to buy a big, fat tax credit for the year.

graph (1)

Dalrymple wants to re-up this fund to $30 million ($15 million was the cap for the current fund) for the next biennium. Setting aside the fact that the fund nearly fell short of its goal this time around (they hit the $15 million mark right at the end of the year), and wouldn’t likely hit a bigger target next time around, can we please admit that this is just an elaborate ruse to subsidize property developers (in the middle of a housing boom, no less) by laundering the subsidies through private contributions?

ND Housing Incentive Fund Contributions

Rob Port is the editor of SayAnythingBlog.com. In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters. He writes a weekly column for several North Dakota newspapers, and also serves as a policy fellow for the North Dakota Policy Council.

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  • http://Sayanythingblog.com The Whistler

    What did you expect. Why we need to subsidize housing in one of the highest paid areas in the country seems pretty silly. Everyone can get a job.

  • $8194357

    So is the magic fund and all of the other cronism taxation schemes.
    All pay and a ‘few’ get the benifit………..

  • kent

    Actually I think you are to critical of the program and in all honesty it gives the taxpayer an option of where there tax dollars are going, versus the government saying we are going to give $15,000,000 to low income housing projects.

    A little background. First of all if you are going to build in western ND specifically, you aren’t going to build affordable housing. The main reason is you are going to build market rent housing, and many people can’t afford it. The comment to go work in the oil field and make more money, not everyone can do that. So what has happened in Western ND is affordable housing does not exist currently.

    Since a developer is going to be reluctant to build affordable housing the state or federal government provides incentives to build the housing. Without an incentive, why would a builder provide housing at $600 a month when the market is 1,500/month. You won’t because the unit is the same cost. So to provide affordable housing the state is stepping in.

    What is different about this approach, instead of the state saying we are going to fund the program with general tax revenues, you as the taxpayer can say I want my tax liability to be directed at a specific program. In this case the housing situation. So this isn’t a new subsidy, its giving the taxpayer an opportunity to direct their taxes.

    In my opinion what you need to do to get the cost of housing down is to build more housing. To increase supply you need to make the construction process affordable. For the most part cities west of highway 83 won’t special assess water and sewer on developments. That is the cost and risk of the developer. What has it done? Drive the cost of the project up and increasing the cost to the renters.

    So I actually think it would be interesting if I could look at my return and say I owe $5,000 in ND tax, I would like it to go to flood relief in Fargo, affordable housing in Williston, and the Heritage center. I might feel better about paying taxes.

    • http://sayanythingblog.com Rob

      A little background. First of all if you are going to build in western ND specifically, you aren’t going to build affordable housing. The main reason is you are going to build market rent housing, and many people can’t afford it. The comment to go work in the oil field and make more money, not everyone can do that. So what has happened in Western ND is affordable housing does not exist currently.

      This is what I don’t understand.

      Housing works on the laws of supply and demand like everything else. As more new housing comes on line, whatever the price point, the demand for other housing will reduce.

      The idea that we need to subsidize “low income housing” is ridiculous. We just need to let developers provide housing. The market will find its equilibrium.

      • Roy_Bean

        The housing market, employment levels, and the economy in general do correct themselves over time. There are boom times, like the 1950s, the 1980s and now. There are bust times like the early 1970s, the late 1980s and there will be again. The free market solution is to set aside some of the prosperity in the good time to carry you through the bad times.

        The thing that the central planners hate about an oil boom is that people get the idea that they don’t really need the government to be prosperous. That’s why in the earliest days of the Bakken boom we say Comrade Conrad running around Williston talking about housing shortages and trying to be relevant. That’s to be expected from socialists like Conrad, Dorgan and Pomeroy. I’m sure it will be one of Heitkamp’s first stops. It’s not what we expect from a supposedly conservative governor and legislature.

      • kent

        You are exactly right, but take Watford City for example, 3,4,5000 people living nearby in trailers and man camps. Need for over 2,000 housing units today. How many were built last year? 200, 300 maybe, whatever the number not enough. So what you are seeing is a slow increase in supply for a problem that needs immediate help. Watford City, Dickinson, some of these towns may take 10 years for supplies to catch up to demand. There currently so many inherent barriers to build in Western ND, and small town eastern ND for the matter. So if you are going to try and help provide housing for someone that needs housing because they only make $20,000 a developer, a non profit, needs assistance.

        The program you are talking about is confusing at best.

        • http://sayanythingblog.com Rob

          I think the risk we run by subsidizing housing is over-building some of these communities. As we learned from the election, when a lot of these newcomers didn’t turn out to vote, they’re not really seeing themselves as North Daotans. They see themselves as here temporarily.

          That means a lot of risk in building housing to serve what might be a temporary population.

          Private developers will take those risks as appropriate, but they’re going to take more risks if we subsidize them.

          • kent

            This one I will disagree as I have both lower end and higher housing. First and foremost the deal has to makes sense on its own standing. If tax incentive, credits, exemptions are necessary for a project to move forward, that is red flag number one. As such, I will look at a non subsidized project. In that regard I can do want I want from a rent rate standpoint, quality, etc..

            So if I have going to have an option of building a 2 million building at market rent, or a 2 million building with a $500,000 subsidy in with the tenants have to be income qualified, I have always done the project without the subsidy. The reasons are many. First of all I can hopefully recoup the costs on the higher priced units through higher rents (I am assuming the units are comparable), with market rate units I have a wider pool of potential tenants. Whereas income based housing your potential pool is smaller. with the smaller pool and lower incomes comes issues. Collections, being the main one, there are many others (no different that for market units), but there are issues, along with compliance issues that take time and money. For market units you fill out a credit check/background and you approve or disapprove. Whereas the low income housing is compliance and verifciation.

            Potentially the biggest issue is the fact that its an investment. If I am spending 2 million dollars on a building, I am hoping in 5, 10 years the value goes up. A good property in a good location it will. Historically, low income or subsidized housing in small town ND or large town for that matter won’t appreciate. And a lot of that has to do with stigma of being low income. Is it profiling a property? yes it is. But that is the fact in the marketplace.

            So I don’t see developers builders making money on these projects, that is why you have non profits like LSS taking the lead on these in western ND.

          • http://sayanythingblog.com Rob

            I think you should build housing at whatever price point you want.

            But whatever price point you build, it will help lower the price of all housing by increasing supply.

            What I worry is that we’re going to start subsidizing development, and get to a point where we have a development bubble out west.

          • kent

            I agree. And you should be able to charge what you want and over time the market will adjust to the proper price. But a question I have, what subsidies are you talking about? What other programs are you concerned about aside from this one in the blog? To be prefectly honest there is little to no incentive from the cities and counties to build housing in Western ND, what they done is left it to the private sector. The amount of housing what will be built as a result of this fund for all practical not a material amount versus the housing needs in western ND. This 15 million dollar fund may lead to $50 million in housing when the western half of the state needs billions invested. So this project is not going to lead to a building boom.

            Back to my point, the cities and counties by not offering incentives are actually making the things worse by slowing down development. Maybe offering incentives is the wrong choice of words, maybe its by making development difficult that is causing bottlenecks. Road blocks are everywhere in the process. Lack of planning, lack of city officials to review, inspect, approve projects. Constant changing of plans on what is required and what isn’t. Part of it is the fear of overbuilding and borrowing for the future on the streets, water and sewer systems to help growth more forward. But all this adds time and costs to projects.

            There really isn’t a simple answer.

    • http://sayanythingblog.com Rob

      So I actually think it would be interesting if I could look at my return and say I owe $5,000 in ND tax, I would like it to go to flood relief in Fargo, affordable housing in Williston, and the Heritage center. I might feel better about paying taxes.

      The thing is, they aren’t paying taxes. The cost to the people who contribute to this is zero. They get a dollar-for-dollar reduction in the taxes they would have paid.

      The cost is coming from other people. By making this donation, you aren’t directing your tax dollars to low income housing. You get your money back. You’re directing some of my tax dollars there.

      • kent

        There are tax credit programs in which you can invest in which credits are refundable. So for example your tax liability is $5,000, you’ve invested in Seed capital or ag processing Credits that are ND tax credits, you get the $5,000 back. In this case the money is in your pocket. In the case of the housing fund, your tax is $5,000, you can either have the tax go to the state or have it directed to the housing fund. In this case the you don’t get your money back you have just directed. And you might also be able to direct to a specific project. I would have to check on this. So the taxpayer doesn’t get their taxes back, like a traditional tax credit.

      • kent

        Actually I looked into this, and you are right, I did not think this was a refundable credit, when I had this explained to me I did not see this as a refundable credit. I need to rethink this.

        • http://sayanythingblog.com Rob

          Yeah, it’s a dollar-for-dollar tax credit, meaning that by donating $10,000 to the fund they can get rid of $10,000 in taxes (credits applicable for 10 years).

          So the cost to them is, effectively, zero.

    • http://Sayanythingblog.com The Whistler

      I don’t get the advantage of having “low income housing.” I mean it’s fine if we have low income people, but Western ND doesn’t need indigents. They need workers.

      I get the idea that you want us to build us some slums and then import a bunch of people that want to live in one.

      • kent

        not everyone makes 80k in the oil patch. That is common mispreception. You have the service workers, you have clerical, you have laborers that are making $10/hour. As such you do need affordable housing because you need the services that these people provide. What has happen is a huge disconnect has occurred. $400 a month housing is now 2,000 a month housing. No improvements to the units, just demand. As Rob indicated once supply comes on board the price should navigate back to the lower level. But that will take years. So in the meanwhile you have a very poor working class because of cost of housing. This is just in the working group, people that need subsidize housing due to age, special needs other issues. These people are worse. So its not as simple as get a job and make more money.

        • http://Sayanythingblog.com The Whistler

          Walmart is hiring at $17 an hour. The elderly almost always owned their home since housing was very affordable.

          • kent

            So you are making 34,000 a year if you get full time. You should hope to spend 28-28% on housing. That is 8,840 a year or $736 a month for housing. With family in western ND doesn’t exist. This housing used to exist it doesn’t today. And that is also assuming that Walmart job is fulltime. The Mcdonalds paying 18 and hour in Williston isn’t full time, its during peak hours, the scale varies.

            If the elderly own there house and are on fixed income, property taxes have gone up. Insurance have gone up. Yes the value of the house has gone up but if you don’t have a job, you can’t get a home equity loan to pay the increase in cost. Same issue occurred 5-7 years ago in Minnesota Lake country when lake property went through the roof. Long time owners couldn’t afford the increase in taxes although the value of property increased.

            But along with the cost of housing increasing in western ND, the cost of everything else has gone up as well. So you are a little short sighted with your overall thesis.

          • http://Sayanythingblog.com The Whistler

            Well building “affordable housing” isn’t going to help those on fixed income who have had their property taxes jacked up by the city, county or school district is it? You’d think they’d be happy just with the increased revenue from all of the new businesses, but apparently that’s not enough for them.

            As far as living on Walmart wages I’d recommend they get a roommate and share an apartment. That would cut down on the housing shortage as well.

  • Clint F

    Kinda like the way ND state government rents office space all over Bismarck instead of building necessary facilities. Too many people are growing fat on the rent money paid by the taxpayers. Some of these agencies could have built and paid off new buildings already for what they’re forking over in rent.

    • http://sayanythingblog.com Rob

      Interesting point.

      • Clint F

        Seriously…it’s like the worst kept secret in town.

        • RCND

          Best worst. Its a big reason why the legislature avoids building projects for state government in Bismarck even when it makes fiscal sense to do so.

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