housing trust funds: overview » introduction » revenue sources

When choosing the revenue source (or sources) that will be used to support a housing trust fund, it is important to look for funding streams that best match local resources to local housing needs. In some of the more stable housing markets that still lack affordable homes for renters and owners, communities may be able to use a document recording fee or real estate transfer tax to capture some of the revenue generated by real estate sales and re-direct it to bridge the existing affordability gap. In areas with less real estate activity, a funding source that is not linked to the real estate market may be more effective, such as a small public purpose charge appended to utility bills. Whatever the local conditions, housing trust funds will yield the most value and have the greatest potential for adoption when funding streams are tailored to respond to local revenue potential and address local needs.

While there is no "one-size-fits-all" source of revenue, according to the Housing Trust Fund Project of the Center for Community Change real estate transfer taxes (also called documentary stamp taxes) are the most popular source of revenue for housing trust funds administered at the state level. County housing trust funds are most likely to be funded with revenue from document recording fees, while cities tend to use developer fees such as inclusionary zoning in-lieu fees (optional payments to exempt new developments from affordability requirements) and linkage ordinances (fees paid by new businesses to help the community keep pace with increases in housing needs related to increased economic activity).

By definition, housing trust funds with dedicated funding sources are not subject to the annual appropriations process, but there is no guarantee that housing trust fund revenues are protected from diversion for non-housing purposes. For example, in 2009, portions of the Florida, Arizona, and Illinois state housing trust fund revenues- all raised from dedicated sources- were redirected to non-housing purposes as a way to relieve state funding shortfalls. The Florida state housing trust fund (previously one of the largest trust funds in the nation) experienced a significant decline in revenues in 2009 because the state legislature diverted almost $531 million from the housing trust fund to general revenue. [1]
From the Forum...

"Housing trust funds that have a dedicated revenue source, such as the documentary stamp tax (transfer tax) that is collected in accordance with state statute, are certainly preferable to trust funds without a dedicated revenue source. But changes in political climate and budget deficits can result in legislative raids on trust funds that are subject to legislative appropriation. Does anyone know of a trust fund with a dedicated revenue source that is NOT subject to appropriation? " See what other people said and sign in to add your response.

The HousingPolicy.org Forum is a place to pose questions, exchange ideas, and learn from the experience and expertise of others. This section of the site features interactive forums organized around policy areas.

In many cases, advocacy efforts have prevented housing trust fund dollars from being redirected to non-housing purposes. During the June 2009 budget session, for example, the Ohio State Senate made several attempts to reduce the state housing trust fund cap to $40 million, down from $53 million to free up funds for non-housing purposes. In the fall of 2009, further legislative action was taken to try to eliminate $30 million from the housing trust fund over a two-year period to balance the state budget. Through a successful campaign organized by a broad coalition of housing advocates in Ohio, in partnership with allies in the state legislature, HTF revenues will remain dedicated to meet the state's affordable housing goals for the time being. [2]

Photo Credit: Rick Keating, courtesy of King County Housing Authority
Click on the links below to learn more about common dedicated revenue sources for housing trust funds:

State housing trust funds

County housing trust funds

City housing trust funds

Using Non-Dedicated Revenues to Pave the Way for a Housing Trust Fund

The real innovation of housing trust funds is the matching of a dedicated and reliable funding source with specific housing needs in the community. In some communities, policymakers and advocates may face significant opposition to dedicating a certain revenue stream for affordable housing, particularly in the face of competing priorities. While identifying a dedicated funding stream is clearly more desirable, some communities have found that initial awards of discretionary appropriations or general obligation bondscan be useful as a starting point for capitalizing a housing trust fund and building momentum for the eventual transfer to a dedicated funding source.

Washington DC's Housing Production Trust Fund, for example, was created without dedicated funding in the late 1980s, and received little revenue until a $25 million one-time contribution was made in 2001, following the sale of a parcel of land owned by the City. In 2002, the City Council established a dedicated revenue source, allocating 15 percent of deed recordation and real estate transfer tax revenue to the Trust Fund. By fiscal year 2007, revenues dedicated to the Trust Fund amounted to $59 million, due in part to tax rate increases and increased real estate development in the city. By fiscal year 2008 and 2009, however, these funding sources declined due to the downturn in the housing market. [3] The Trust Fund's dedicated revenues for FY 2009 were $29 million, highlighting the possible volatility of tying trust funding to real estate development activity.
National Housing Trust Fund

In July 2008, the National Housing Trust Fund (NHTF) was signed into law to preserve and expand the availability of affordable homes for low- and very low- income renters and owners. Ninety percent of NHTF dollars will be used to expand, preserve, and operate rental housing; up to 10 percent will be used to support first-time homebuyer activities. Three-quarters of all funds must serve extremely low-income households. NHTF dollars will be administered by the U.S. Department of Housing and Urban Development (HUD) to states through block grants, which can be distributed to qualifying public, private, and non-profit entities. The NHTF is first new federal rental housing production program targeted to low income households since 1974.

As of December 2009, the NHTF was not operational due to lack of funding. The fiscal year 2010 federal budget commits $1 billion to capitalize the NHTF but the source of funds has not yet been determined. One legislative proposal would transfer $1 billion from the Troubled Assets Relief Program (TARP) to the NHTF.

Click here to leave this site and learn more about the National Housing Trust Fund.

To address this volatility and assure the Trust Fund would have stable funding to keep up with the increasing need for affordable housing in DC, the DC City Council passed the Housing Trust Fund Stabilization Amendment Act of 2008 with the support of several housing and community organizations. The Act changes the allocated amount of funding from a percentage of deed recordation and taxes to a dedication of the first $70 million of deed recordation and transfer taxes to the Trust Fund for fiscal year 2010. The dedicated amount increases to $80 million in FY2011 and this amount will be adjusted by the rate of inflation, as determined by the consumer price index, for all subsequent years. These amounts are, however, subject to appropriation and an ability of the District to balance its budget. [4]

Other housing trust funds use non-dedicated funding streams to augment the funds generated through a dedicated source. Chicago's Low Income Housing Trust Fund, for example, receives a combination of dedicated and appropriated funds from local, state and federal sources. Learn more about Chicago's Low Income Housing Trust Fund.

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Revenue sources for housing trust funds
State and local housing trust funds rely on a variety of different funding sources. Establishing a dedicated source of revenue assures a secure funding stream for the development, preservation, or operation of affordable homes.

Other pages in this section:

PantagesHow housing trust fund dollars are used
Free from the spending limitations associated with federal programs, administrators of housing trust funds enjoy a great deal of flexibility in determining how trust fund revenues can best be used to benefit the community.

Click here to view other resources on housing trust funds.

[1] Personal communication, Mary Brooks, September 21, 2009.

[2] OH Advocates Defeat Multiple Assaults against State Housing Trust Fund. Memo to Members, October 2, 2009. Washington, DC: National Low Income Housing Coalition.

[3] "Washington DC Housing Production Trust Fund Stabilization Act Passes".
Housing Trust Fund Project. Center for Community Change, Winter 2009.

[4] Ibid.