Photo credit: Todd France Photography |
Legislatures and Executive Branch officials should work collaboratively with HFAs to reach a consensus on optimal reserve levels and the appropriate uses for funds that may exceed those levels. As part of this process, it may be useful to regularly review the current level of HFA reserves, how those reserves have been used and have changed from the prior year, and how the HFA's reserves compare with those of other HFAs. HFAs should be invited to identify the optimal level of reserves needed to ensure good bond ratings and support the HFA's ongoing operations. To the extent reserves reach and exceed this optimal level, an opportunity may be available to channel additional annual income into affordable housing programs. |
This dialogue can build productive working relationships across government branches, helping legislators and the executive branch better understand the necessary reserve levels, the negative effects of diverting HFA reserves for non-housing uses, and when HFA reserve funds may be available to expand affordable housing programs.
An example from
Iowa illustrates how increasing cooperation between state legislatures and state housing finance agencies can prevent the raiding of HFA reserves for non-housing purposes. In 2004, Iowa faced a shortfall in Medicaid funding and considered appropriating $15 million of the Iowa Finance Authority's (IFA) reserves to fill this gap. Working with key legislators, IFA was able to demonstrate the negative effect this transfer would have on its ability to leverage millions of dollars in
bonds for affordable housing. To further build understanding, IFA provided information on the impact of its current services, including associated cost savings, and educated the legislature about the remaining unmet affordable housing needs within the state. As a result, the legislature not only declined to raid IFA's reserves, but also unanimously approved an additional appropriation of $7 million to allow IFA to establish two revolving loan funds financing supportive housing for seniors and people with disabilities. [
1]
The
Pennsylvania Housing Finance Agency (PHFA) has tapped into its reserve funds for affordable housing each year since 1987. In 2003, PHFA committed $15 million of its reserves for the Homeownership Choice Program, which finances new construction of single-family homes in distressed neighborhoods. This program both revitalizes communities and provides affordable homeownership opportunities. [
2]
PHFA also uses reserve funds to provide downpayment assistance to low-to-moderate-income homebuyers, and to fund affordable rental homes for people with SSI-income
levels. [
3]
[1] Reversal of Fortune: From Scoop to Support. [PDF] Iowa Finance Authority 2004 NCSHA award submission.
[2] Second Set of 'Economic Stimulus' Programs Passed. May 1, 2004. Northeast Pennsylvania Business Journal.
[3] Three-Year OLMSTEAD V L.C. Progress Report. 2002. Washington, DC: National Association of Protection and Advocacy Systems, Inc.
Avoid diversion of HFA reserves or income for non-housing uses 
Monitor reserve funds to ensure they are used productively
