Two decisions must be made regarding how the funds will be distributed. The first is the form the awards will take, for example as grants or loans. The second is the type of application process that will be used.
The Form of Awards
The vast majority of housing trust funds make awards through a number of vehicles: grants, loans, forgivable or deferred loans, lines of credit or rental assistance. Very few limit the form awards can take; legislation is usually broad, allowing a range of approaches to be developed by the staff.
Increasingly, housing trust funds are experimenting with creative ways to use their funds. Some are providing long-term rental assistance, while others are requiring that a certain amount of leverage be included in the applicant’s financial package. Some trust funds use resources to guarantee other funds, and others have combined funds with bond issuances to extend the reach of these funds. The success of such efforts has been primarily due to the genius of those designing the programs. Most housing trust fund dollars fill the gap in financing needed to make projects work. Some offer their funding up front, enabling the project to seek additional funding from other sources. Others offer “gap” financing, filling in with needed funding when all other sources have been secured.
The Distribution Process
Most housing trust funds have chosen between two options for distributing their funds. The more common is to design a competitive application process for available funds. Requests for proposals (RFP) or notices of funding availability (NOFA) are issued periodically to notify eligible applicants that they can apply for funding.
The less common approach is to channel available funds through existing programs that provide housing for target populations. There are variations of both options. Existing programs can issue requests for proposals for distributing their funds. And notices of funding availability can be designed around specific objectives to create a particular program.
Are housing trust funds coordinated with other funds?
Many jurisdictions have found that their housing trust fund provides an opportunity to coordinate housing activities in new ways. This new coordination has allowed jurisdictions to better use available resources, spending them where they are most needed and can do the most good. Such coordination has encouraged more long-range planning and evaluation and, for those seeking funds, created a system that is more accessible and efficient. The new forms of coordination have most frequently involved one or more of the following:
Synchronizing the dates when applications are due, allowing applicants to organize their own financial packaging.
Allowing submission of a package of applications for different sources of funds, increasing access to all potential funding sources.
Creating a single application process, whereby one application is used for numerous funding sources. This kind of coordination has been easiest where the jurisdiction is responsible for several sources of funding, such as Community Development Block Grant funds and HOME funds, in addition to the housing trust fund. However, in a few jurisdictions, a funding committee has been organized to coordinate these public funds as well as private funds (such as foundation money).
A few state housing trust funds have made a portion of their funds available on an entitlement basis to local jurisdictions. If certain cities and counties meet requirements, such as submitting a plan and establishing a board, they are eligible for a specific amount of funds. Distribution of the funds is based on a formula, which usually includes population, and possibly other criteria. These cities and counties can then use the funds, within certain guidelines, to address their own critical housing needs. They must report on how they used the funds and meet the same kinds of requirements as would an applicant whose project had been approved for funding directly by the state program.
Providing funding to local jurisdictions automatically encourages the support of cities and counties throughout the state. It also guarantees wide distribution of the funds. This approach only works, however, where the housing trust fund can secure sufficient funds to make the entitlement amount significant to participating jurisdictions.
Both the Illinois Rental Housing Support Program and the Nebraska Affordable Housing Trust Fund have distribution systems that legislatively allocate funds based on regions within the state. llinois allocates funds to geographic areas based on an area’s proportionate share of the total number of renter households with annual income of less than 50% of the state median income for a household of four, paying more than 30% of their income for rent. Authorized geographic areas are: Chicago, suburban areas, small metropolitan areas, and rural areas. Nebraska allocates funds to four geographic zones, along with other set-asides.