The Michigan State Housing Development Authority has extended its reach into the messy business of state economic development policy, which includes the Cool Cities Initiative.
Government agencies that were created to accomplish lofty civil
objectives often end up functioning as little more than political machines. The
Michigan State Housing Development Authority, for example, was established to
increase the supply of affordable housing for low-income Michigan residents.
Today the agency is engaged in activities well beyond its scope and mission.
MSHDA needs to be reformed and some of its functions privatized to realign the
agency with its stated objectives.
MSHDA was created in 1966 to increase the supply of low-income
housing in the state. While it now administers a number of other programs with
various aims, its core purposes are spelled out in its enabling legislation.
According to the legislative findings, the purpose of MSHDA was to address "a
seriously inadequate supply of, and a pressing need for, safe and sanitary
dwelling accommodations within the financial means of low income or moderate
income families or persons."
To carry out this function, MSHDA administers a number of
federally authorized programs, including loan programs and the Low Income
Housing Tax Credit.
The Low Income Housing Tax Credit administered by MSHDA allows
developers to take a federal tax credit for a portion of the money they invest
in the project. MSHDA is limited in the amount of credits it is authorized to
offer, and each year more projects request these credits than MSHDA can
allocate. State housing authorities are allowed to award $1.75 in credits for
each state resident, which means that MSHDA can offer roughly $18 million a
year. To allocate those credits, MSHDA has developed a way to pick which
projects get funded.
One would expect that the projects that are best-financed and
offer the most housing using the least of the limited federal resources
available would receive the agency’s highest ranking. But there are other
criteria for the tax credit, including "walkability," environmental impact and
whether the developers have a plan to encourage greater ethnic diversity.
Projects also score points if they receive other government incentives.
Michigan also sets aside some of its credits specifically to be
used for "Cool Cities," a state-run program designed to encourage younger
workers to reside in Michigan cities. MSHDA designates 5 percent of its credit
cap, or about $600,000, to Cool Cities projects.
In addition to questionable spending priorities, the program
suffers from excessive complexity. In fact, developers score points by simply
being able to jump through all of the application hoops within four months of
Outside of the tax credit, MSHDA devotes considerable resources
to projects that have little to do with low-income housing. Instead, the agency
seems more and more interested in getting into the game of economic incentives.
Last year MSHDA started a Southeast Michigan Development division and Urban
Revitalization division. According to its five-year action plan, MSHDA also
envisions itself as being the "convener" of state incentives.
These divisions are costly. There are four divisions within
MSHDA that can be considered part of the economic development scheme. The 67
employees working in these divisions cost MSHDA approximately $5.2 million
In fact, with pressure building on state finances, MSHDA adopts
employees laid off in other agencies. When the state cut positions from the
Michigan Economic Development Corporation last year, MSHDA picked them up. As a
result, MSHDA’s general operating expenses ballooned by 25 percent in fiscal
MSHDA has its hands in projects that have little to do with
increasing the stock of low-income housing. For example, MSHDA provides
financing to the Michigan Broadband Development Authority. Last year, MSHDA had
to write off $8.6 million from its line of credit to the MBDA because of MBDA’s
Whether MSHDA can ever effectively provide affordable housing
through central planning is dubious. But it certainly won’t be successful if it
continues to digress from its assigned mission. Federal policy allows for MSHDA
to administer rental assistance programs and lending programs geared toward
increasing the stock and quality of low-income housing and helping people with
low incomes to pay for housing. This is where MSHDA’s focus should lie. How
MSHDA can use a degree of privatization to advance its objectives will be
discussed in the next edition of Michigan Privatization Report.
James M. Hohman is a fiscal policy research assistant at the
Mackinac Center for Public Policy.