For many years, Alliance and other nonprofit owned affordable housing organizations were able to claim property tax exemption status as 501(c)(3) organizations. However, when the City of Minneapolis unexpectedly revoked this status in 2019, we found ourselves scrambling to respond. Property tax exemption provides an important reduction in expenses for Alliance, especially crucial as property operating expenses rise quickly. It allows us to keep rents affordable even without subsidies and allows our fundraising dollars to go towards paying for rent, maintenance, and staffing, as opposed to property taxes.

We’ve been fortunate to have the assistance of Faegre Drinker Biddle and Reath LLP and Larkin Hoffman in appealing this decision. Earlier this year, their hard work paid off when the issue made it all the way to the Minnesota Supreme Court. The court ruled in favor of Alliance, reinstating our property tax exemption status. This was a significant victory not just for Alliance, but for many organizations like ours.

Yet, our work was not done. Following the Supreme Court’s decision, Hennepin County pursued a legislative change that would remove property tax exemption for some nonprofit and charitable organizations providing only housing. You may have seen our outreach earlier this spring, asking you to contact your legislators to oppose this change. While we understand the importance of property taxes in providing revenue for the city, we opposed this change due to its unknown implications and the affects it would have on nonprofit housing providers who are already struggling to keep up with rising costs.

As of the end of the legislative session in late May, Hennepin County’s effort was unsuccessful. This was a relief, but we recognize that there will be continued attempts to pursue the issue. We will continue to advocate on behalf of our tenants and our ability to provide low-cost housing and hope you will join us.

Our hope is that going forward, the county will be open to discussion with nonprofit housing providers and others affected by this change to determine a solution that works for all. We believe in the power of dialogue and collaboration and hope that future discussions will lead to solutions that balance the needs of both the city with the critical role of nonprofit housing providers. Alliance Housing is committed to its mission of providing affordable housing and will continue to advocate for policies that support this goal.

Even though it’s been over a year since COVID-19 public health emergencies were lifted, the affordable housing landscape remains unstable. Inflation, skyrocketing maintenance costs, as well as increased security costs have caused major financial hardship, especially for organizations like Alliance who keep our rents low to serve those left out of market rate housing opportunities.

As highlighted by a recent Federal Reserve Bank of Minneapolis study, “Talking ‘toilets, taxes, and tenants’: Challenges mount for apartment owners in the Twin Cities area”, the costs of maintaining properties for not only nonprofits and affordable housing, but for-profit and market rate managers as well, have skyrocketed. From maintenance to taxes, insurance premiums to building security, costs have increased in nearly every corner of the industry.

In response to these ongoing struggles the Minnesota Legislature introduced a lifeline for many organizations – the Stable Housing Organization Relief Program (SHORP). This one-time $50 million grant is designed to support non-profit affordable housing owners like us who are facing rising costs on all fronts. Alliance applied for this grant last fall and were awarded funds to go towards maintaining and stabilizing our properties.

These temporary relief measures like SHORP and RentHelpMN are crucial for nonprofit housing providers to maintain stability as we move out of COVID-19 and into the “new normal”, however, in many ways they are band-aid solutions. The bigger structural issues driving these financial challenges remain unsolved. For big for-profit owners, hiking up rents hasn’t been enough to patch the holes in their cash flow. And for affordable housing providers like us, raising rents often isn’t an option as it doesn’t align with our mission of providing affordable and deeply accessible housing.

Emily, an Alliance tenant who recently graduated with a master’s degree in Healthcare Management, expressed her concerns about the potential rent increase. “A rise in rent would be a significant challenge for our household, especially as I’m starting a career in my field,” she said. Emily believes that stable rents provide the foundation for stable housing, which in turn “offers a platform for a successful life where dreams become reality.” She added, “We’re just getting by as it is, so any increase in rent could bring unwanted stress.”

We need comprehensive, lasting solutions to address the long-term challenges this sector faces. The Minneapolis Fed report drives this point home further. It notes how owners both big and small, for-profit or nonprofit, affordable or market-rate, are all struggling with these financial strains. As the report puts it: “Owners large and small, for-profit and nonprofit, affordable and market-rate, locally based and national, all face significant challenges that, if left unaddressed, could endanger the region’s housing supply.”

While Alliance is grateful for support like SHORP, these measures provide only temporary relief. We need to keep advocating for policies that truly bolster affordable housing providers for the long haul. And it’s going to take a united effort to preserve affordable housing providers in not just Minnesota but across the country.

Over the past four years Alliance has provided updates related to our effort to maintain property tax exemption status after being denied exemption by Hennepin County in 2020. After several years of advocacy, Alliance prevailed and the Minnesota Supreme Court affirmed our exemption status according to state law. This was a win not only for Alliance, but for nonprofit-owned affordable housing across the state.

Alliance successfully brought an action in the Minnesota Tax Court to retain these exemptions. Hennepin County then appealed to the Minnesota Supreme Court, which affirmed the tax court’s decision. The Court held that the properties in question should be tax-exempt since they are owned by a 501(c)(3) nonprofit organization and rented to fulfill its charitable purpose of providing affordable housing. Hennepin County is now advocating for legislation in the Minnesota Legislature that would deny tax exemption unless “a portion of the property is permanently used by the charitable organization to provide services to the intended beneficiaries of the organization’s work.

Hennepin County is seeking legislation as part of the omnibus tax bill (SF 5234/HF 5247) that would effectively eliminate tax exemption for some nonprofit-owned affordable housing rented to low-income and formerly homeless Minnesotans.

The change proposed by Hennepin County would effectively eliminate the property tax-exempt status for nonprofit housing providers across Minnesota, many of whom serve Minnesotans facing the greatest risk of homelessness. Organizations like Alliance operate at a loss and must seek charitable donations to help pay the cost of operating these properties, as rental revenues fall well short of operating expenses.
Eliminating tax exemption for these properties would require Alliance to either seek significant additional donations or subsidies, or to raise the rents charged to tenants who are already struggling to afford housing. This would have a $100,000 annual impact on Alliance alone.

Alliance and its peers hope to work with Hennepin County to meet their shared goals of preventing homelessness and ensuring a range of housing options. Alliance supports a change to Minn. Stat. § 273.19 to clarify that individuals residing in nonprofit-owned affordable housing should not be subject to tax as a result of the property’s tax-exempt status, as they are its intended beneficiaries.

Learn more about Alliance’s position on the new legislation.