Iowa City leaders outline plan to use $2.8 million HUD grant and local funds for city-owned affordable housing

Iowa City work‑session — City staff told the City Council on Jan. 21 that a $2.8 million portion of a federal “pro housing” HUD grant is earmarked as seed funding for a city‑owned multifamily affordable housing project on North Summit Street, and councilors and staff discussed how that award and a mix of other local funds could be combined, leveraged and spent to increase city‑owned and other affordable housing units.

The memo reviewed at the meeting broke down several funding “buckets” available to the city, including HUD grant dollars, housing authority reserves, tax‑increment financing (TIF) proceeds, city general‑fund set‑asides for LIHTC support and Riverfront Crossings fee‑in‑lieu balances. City Manager Jeff Rowan said the original federal grant was “about a $3,750,000 grant” but that roughly $2.8 million of it is currently slated for construction on the North Summit property the city recently purchased. “This 2.8 is really in staff’s view, spoken for at this time. We've represented to the federal government that that's our intention,” Rowan said.

Why it matters: Council members repeatedly framed the discussion around an acute local housing shortage and high near‑term demand for units. Councilors asked staff how the $2.8 million would translate into completed units, what additional financing would be needed, and whether projects should be mixed‑income rather than exclusively deep‑subsidy units.

What staff said: Tracy Hyshu (city staff) explained federal program requirements and the city’s options for project sizing: “Since we didn't get the full grant, it's prorated, we're minimally required to have 18, but due to the zoning and it's gonna be affordable housing, there are density bonus provisions. So we can get probably up to 36. That doesn't mean we'll have up to 36. We'll also have to package different money because we might not have enough available to do more than 18.” Rowan and staff said the 2.8 million is expected to be one part of a larger financing package that will include private debt and other public funds.

Other funding sources discussed: staff and council reviewed several local pools of money and constraints on their use: - Housing authority capital reserves (restricted for rehabilitation of existing HUD public housing) and housing authority unallocated reserves (can be used for city‑owned permanently affordable housing); - An unallocated “opportunity” fund (~$258,000) for unexpected projects; - LIHTC (Low‑Income Housing Tax Credit) support dollars previously reserved by the city, which are held pending state award applications administered by the Iowa Finance Authority; - A Foster Road TIF‑generated affordable housing balance of roughly $397,000 that state law requires be set aside for affordable housing and which the council may deploy citywide; and - Riverfront Crossings fee‑in‑lieu receipts totaling about $6,400,000 that can be used only within that district, where staff said two large recent projects contributed multi‑million‑dollar payments.

Council priorities and tradeoffs: Councilors pressed staff on whether the city should aim for city‑owned multifamily projects that include a mix of income targets (for example, units targeted up to 80% of area median income alongside deeper subsidies) rather than buildings composed solely of deep‑subsidy units. Several councilors emphasized the goal of dispersion and quality across neighborhoods while others urged aggressive numerical targets (one councilor suggested 100 units over two years as a discussion point). Council members also emphasized that different program goals (permanent supportive housing versus general affordable rental units) imply different costs and service needs.

Pilot project and consultant role: Council and staff said the city will hire a consultant with housing finance and development experience to run a 3–5 month analysis and to help shape a pilot project and the housing authority’s organizational capacity. Rowan and staff described the consultant’s work as including financial modeling, recommendations on organizational structure, staffing needs and technical assistance for the initial pilot project so the city can “operate sustainably.” Rowan said the city has submitted a HUD action plan describing the proposed uses of the grant and is awaiting HUD approval. “We signed a grant agreement. Now we're submitting our action plan … and we're just waiting for HUD approval,” a staff speaker said.

Discussion vs. formal action: Council did not vote on any ordinance or binding resolution during the session. Staff said the housing memo and related items are already placed on the next work session agenda and that future formal approvals (project business plan, site design, financing plan, and council authorization) will be brought to council before construction or major commitments occur.

Next steps and uncertainties: Staff said the city will proceed with consultant selection and further financial packaging, return with a business plan and present specific project proposals for council approval. Staff also noted constraints: HUD program rules tied to the grant, the need to assemble additional financing, and the requirement that certain reserve funds be used only for specific public housing purposes. Rowan told the council the pro housing grant portion for construction is currently accounted for and that staff would advise if the council wished to pursue alternative uses that would require HUD approval.

The council and staff agreed to continue the conversation in upcoming budget and work‑session meetings and for the consultant’s analysis to inform specific targets and staffing recommendations for the city’s housing development work.