Hubbard County HRA: rental portfolio running short; board weighs management change, rent policy and sales

Hubbard County HRA directors spent the largest portion of their meeting reviewing budgets and operations for the agency's rental portfolio and concluded the four multifamily properties are unlikely to generate enough cash to cover debt service under the current management plan.

Directors and staff identified rapidly rising onsite staffing costs and higher-than-expected accounts receivable and vacancy assumptions as the principal drivers of the shortfall. The HRA staff reported the 2026 staffing and management costs for the four properties total about $176,529, up from $148,000 in 2025 and $123,000 in 2024. Agency staff also said a state-level closure of the HRA's revenue-recapture account will require writing off roughly $60,000 of receivables that had previously been counted as potential recovery.

Why it matters: the HRA is legally obligated to cover shortfalls in the enterprise fund and, if operations do not break even, levy or fund-balance support will be required. Board members said they are reluctant to increase levy subsidies long term and said alternatives must be explored.

Most immediate fiscal picture: agency-prepared reworked budgets showed a combined net operating income of about $64,834 against principal-only debt service of $132,701, leaving a shortfall of roughly $67,000 before depreciation. Staff emphasized that depreciation is a noncash accounting entry that can affect reported net income but does not eliminate the current need for cash to meet debt payments.

Board concerns and options discussed - Management and staffing costs: Board members and staff questioned whether the services provided by DW Jones justify the 2026 expense spike. The contract includes a percentage management fee for three properties and a per-occupied-unit rate for Cornerstone; staff reported Cornerstone's unit fee historically was $75 per occupied unit but the billing has increased in recent years to $79 and then requested to $83 without an inflator clause in the contract. - Collections policy: DW Jones reported a conservative collections posture, saying only about 30% of pursued conciliation-court claims are collectible; HRA staff disagreed that routine use of conciliation court is infeasible and suggested a more active collections program could improve cash flow. - Lease and deposit practices: staff noted some new residents were admitted with $99 deposits and 12-month leases; board members said small deposits make future collections and turnover recovery difficult and suggested re-evaluating deposit policy. - Regulatory constraints: one property (501 Gilbert, referenced as "Regency") appears to have been reclassified to Minnesota housing low-income designation (4d1/LURC), which would require occupancy limits tied to income (under 60% AMI) and constrain rent-setting at that site.

Possible actions the board asked staff to prepare for next month included: corrected budgets from DW Jones showing realistic vacancy and interest assumptions; cost comparisons for three management scenarios (stay with DW Jones, hire an in-house property manager, or contract with a different management firm); preliminary cost-sharing scenarios with the county's other housing assets; and an analysis of contract termination language and performance requirements.

Board direction and votes - The board confirmed previously approved rent changes that will take effect: a 5% increase for two- and three-bedroom units was approved earlier in the meeting and will stand for next year. Staff said rent increases will help cash flow next year but will not eliminate the current shortfall for 2026. - The board asked staff to return corrected budgets from DW Jones and to present cost-comparison options next month before deciding on a longer-term subsidy or management change.

Other remedies discussed: refinancing Meadow Edge's variable-rate loan to reduce monthly debt service; selectively selling properties (Meadowview and Meadows Edge were identified as more marketable because their original restrictions have been removed); and limited one-time use of economic development set-asides as a stopgap (board members described that as a last-resort, short-term measure).

Next steps: staff will ask DW Jones to resubmit corrected budgets, produce a side-by-side cost comparison for alternate management options, and provide contract language and termination analysis. The board scheduled follow-up on the rental budgets at the next meeting.

Ending: The board framed the choice narrowly: continue subsidizing operations through fund balance or levy, or change management/operational practices to reduce costs and improve collections; staff will return with numbers to inform that decision.