What defines a housing trust fund is securing a dedicated revenue source. This means that the funding source is committed by law to generate funds for the housing trust fund. Thus, a certain percentage or amount of public funds is automatically deposited in the housing trust fund each year by resolution, ordinance, or legislation. The dedicated revenue source guarantees a regular, but possibly fluctuating, source of funds.
While some funds are truly dedicated, such guarantees are not always possible. In some instances, funds may be committed to the housing trust fund, but an elected body must still appropriate the funds each year. For example, a certain percentage of real estate transfer tax revenues may be committed to the trust fund by law. However, the state legislature must still appropriate the funds during the budget process. So work for the most secure commitment of funds you can win. And remember that whatever a legislative body enacts as law can be undone similarly, with a new law. So while we like to think of housing trust funds as permanent, they actually are not. Nonetheless, they are far more reliable than most of the alternatives. And, to date, only one housing trust fund with a dedicated source of revenue has been undone.
There will be numerous pressures to go for something other than a dedicated revenue source, such as bonds, foundation, and corporate support, voluntary contributions, and/or general revenue funds. These ideas may strengthen an existing housing trust fund, but they do not create a housing trust fund. Searching for foundation or corporate support or seeking voluntary contributions is just like fundraising and will take as much, if not more, work than seeking funds through a budget process, but probably with even less success. Bonds have provided and continue to provide significant resources for housing, but they are neither long-term nor guaranteed. General revenue funds can be an excellent way to capitalize a housing trust fund (that is, get it underway), but they are only a one-time infusion of funds.
To determine the dedicated revenue source to pursue, start by setting an annual amount of revenue you believe necessary to create a responsive housing trust fund. A funding goal will be the bottom line against which you measure each revenue source you consider. If you have a $5 million per year goal and consider a revenue source that brings in $1.5 million a year, you know what is left for you to do. And as the process moves along, and some people suggest substitute revenue sources, these can be measured against your goal to determine their acceptability.
This figure can be based on many factors:
- Estimate the housing needs of the trust fund’s target population. Then determine how much it would cost to address these needs. The result will likely be shocking. You may need 10,000 units of affordable housing at $50,000 each, totaling $500 million. Of course, stating such a need would scare everyone off. But remember that the housing trust fund does not provide all the money needed to address housing needs. Federal funds, other state funds, and many other sources of money can be leveraged by a trust fund. So the total you determine can realistically be divided by anywhere from five to 10 to achieve your goal.
- Estimate how much money your community’s housing providers would need to fund the projects they can complete. This means surveying all potential developers for their best guess about how much money their proposed projects would require annually.
- Look at the funding applications received by other programs, such as the HOME program or the Community Development Block Grant program, and build on this information. A good estimate of need will be what was not funded by these agencies.
Your goal should be reasonable, but it need not be so precise. Obviously, housing needs far exceed the revenues you are likely to win, so it will help if you make the goal both understandable and pragmatic. Other tips:
- Do not make securing the revenue source the center of your housing trust fund effort. Securing needed revenue is difficult because providing decent, affordable housing is not a priority. Once it becomes a priority, the revenues will follow.
- Keep the issue of where the money will come from within the larger context of why the housing trust fund is needed and what it will accomplish. The theme of your campaign will determine how you do this — housing is good for the economy, safe homes for a healthy community, etc. For more, see the section on Making Your Case.
- Always use your dollar goal to evaluate alternative revenue sources.
Revenue Options
There are not unlimited possible revenue sources for housing trust funds, but there are more than most people think. More than 40 revenue sources have been committed to housing trust funds, and more possibilities are uncovered yearly.
Be creative in looking for revenue sources. No two situations are the same, and you may uncover an idea no one has thought of. The mark of a good revenue source campaign is a willingness to search. Those who begin by thinking nothing will usually find nothing.
There are always reasons for not going after a particular revenue source. Do your due diligence before accepting reasons not to pursue your options. Don’t rely on hearsay when considering possible revenue sources. If someone suggests that a revenue source is already committed to another purpose, ensure this is legislatively mandated, not just a historical assumption. Check the facts before rejecting a source that may appear promising.
1. Look at revenue sources committed to other housing trust funds
Look at what other housing trust funds have been able to secure as dedicated sources of revenue, because then you will know what is possible. Be careful to pay attention to which resources are available to cities, which counties can tap into, and which are controlled by states. There is no point in a city considering a document recording fee, for example, if the city does not collect this revenue source. In researching other trust funds’ funding sources, remember that states, cities, and counties vary widely. Laws governing sources of public revenue differ considerably from state to state.
2. Brainstorm all possibilities
Start with a group of energetic, positive people listing every possible revenue source they can think of. Make no initial judgments, so no one’s creativity will be inhibited. You may be surprised at what can come from such a session. The results are seldom disappointing, and folks often discover a great deal.
When you’ve exhausted your group’s creative suggestions, look closely at what’s been suggested. A few ideas will be dreams and can be taken off the list. But don’t eliminate something unless you are positive it won’t work. An argument that “Oh, this will never fly,” or “This is already committed to the general fund,” isn’t usually sufficient to eliminate an idea. Only eliminate a potential source if it is legally impossible to use it, it is so politically explosive that no campaign could secure it, or it is so regressive that its overall impact would be negative.
Think outside the box. New revenue sources are often debated and occasionally added to a housing trust fund's list of possible revenue sources. Examples of innovative revenue sources include electronic filing fees for property sales disclosure forms (Indianapolis, IN); penalties on the failure to pay transfer taxes (WA); tax on smokeless tobacco products (IN); unexpended funds from the utility services low income assistance program (Tucson, AZ); casino revenues (Duluth, MN); the New Jersey Special Needs Fund backs bonds with moving traffic violation fines; and credit enhancement program revenues (King County, WA). Just a reminder to leave no stone unturned.
3. Make your list of potential revenue sources
A search for revenue sources should include at least the following:
- Taxes and fees, particularly those associated with real estate. These include real estate transfer tax, document recording fees (typically applied to more than real estate documents), developer fees (linkage and inclusionary zoning ordinances), permit fees (for development, conversions, demolitions, etc.), property taxes, tax increment financing districts, and payments in lieu of taxes as well as sales taxes, hotel/motel taxes, restaurant surcharges on meals, wheel taxes, etc.
- Interest on market and government accounts. Market account interest includes interest on real estate escrow accounts, interest on title escrow accounts and interest on tenant security deposits. Interest on government accounts is an increasingly popular revenue source. It includes interest from a rainy day fund; interest from the unnamed, unclaimed property fund; and interest from many other funds.
- Government-owned property and repayments. The sale of government-owned property may not be a regular source of income, but it can be a very useful one, in combination with other sources. Income from the lease or operation of government-owned property like parking garages, or development funded through federal CDBG, UDAG or HOME funds, can add up. Repayments from government loan programs such as CDBG or HOME, unclaimed lottery winnings, and reserve funds from bond issuing agencies are other options.
4. Evaluate the revenue sources
Your work so far is likely to yield a handful or more potential revenue sources. You will probably not know everything you need to know about them to evaluate their potential accurately. Putting together a good list of possible revenue sources is one thing. Still, it is quite another to know how feasible it is to get these revenue sources committed to the housing trust fund and whether they are the best sources to go after.
Folks always seek a revenue source that will not create any opposition.. Such a source probably does not exist and when it does, it is already being used for something. A search for it may take the hunt in the wrong direction. Opposition accompanies almost every potential revenue source and is simply part of the equation you must consider.
To narrow your list of revenue sources, answer the following questions:
- How much income does this revenue source generate in any given year? Study the revenue source over several years to see how much the revenue fluctuates yearly.
- Who collects the revenue, and how is it regulated? Is it collected at the local level, regulated at the state level? Are there options for increasing the tax or fee at the local level? Is there a cap on how much this tax or fee can be increased?
- What is required to increase the tax or fee? Does an increase require a majority vote of elected officials? Does it need a public vote? Must it be approved at the state level?
- Can revenue from this source be dedicated to a specific purpose and, if so, to what? What other general laws govern the dedication of public revenues to specific purposes?
- Where do the revenues from this source go now? Have they already been committed to a specific purpose in law or through tradition? Do they go into the general fund?
- Who will be affected by what you propose? You need to understand who pays this tax or fee, whether it is progressive or regressive, and what specific industries or individuals will be affected if it is directed to a housing trust fund. If it currently funds specific other programs, know what these are.
Pointers
New money. If you go after funds that are already committed to another program or issue, you make it harder to secure a source of revenue. It is wiser to seek a new source of revenue, either by increasing an existing source or by identifying funds that are not currently dedicated elsewhere. If you find a tax or fee increased for another purpose that will expire on a sunset date (even if it is a few years away), it may offer an excellent opportunity to switch the revenues to the housing trust fund. Or consider tapping the growth in revenue from a tax or fee that is experiencing expansion.
Multiple sources. Do not get stuck on the idea that a single revenue source can provide sufficient resources for your housing trust fund. There are important advantages to securing more than one source:
- You can bring in more money.
- Multiple sources mean fewer fluctuations in revenues.
- You involve more elements of the community in an issue that is community-wide.
Help In Identifying Revenue Sources
Look for friendly help in identifying revenue sources. It may be possible to get a government staff person—someone in the budget office or elsewhere, a supportive elected official, or a retired or ex-staff person from a previous administration to collect this information for you. Most organizations undertaking housing trust fund campaigns do their research into revenue sources, but there are other ways to explore and identify them:
- The official task force. Elected officials appoint a task force to recommend potential sources of revenue for a housing trust fund. Since the task force has official status, it can more easily gain access to information. Still, once the recommendations are made, the task force plays no role in ensuring that they are enacted. And all too often, individual members represent special interests that foreclose consideration of some options.
- A consultant study. In some cases, a consultant has been hired to investigate potential revenue sources. The reports are as helpful as the consultants are good.
City, County and State Revenue Sources
For more information on which revenue sources fund housing trust funds, click here.
Example Documents
Here are some sample revenue source studies from housing trust fund campaigns. Look at what these campaigns considered, how they evaluated alternative revenue sources, and what information they presented.
Louisville, Kentucky: An Assessment and Recommendations for the Creation and Funding of an Affordable Housing Trust Fund
Portland, Oregon: Welcome Home’s Revenue Survey
Richmond, Virginia: Affordable Housing Trust Fund: Revenue Options Analysis
Milwaukee, Wisconsin: A Discussion Paper: Funding Strategy for a Milwaukee Housing Trust Fund