(c) Housing Assistance Council, July 1998

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V.   CASE STUDY: SOUTH DAKOTA

South Dakota’s 1990 population was 696,004. The population of South Dakota’s rural counties was 439,845, and the state’s remote rural counties had a population of 201,313. South Dakota had 259,035 occupied housing units statewide, 161,472 in rural counties, and 73,876 occupied units in remote rural counties. Rural residents accounted for 63.2 percent of the state’s population, and remote rural counties made up 28.9 percent of South Dakota’s population. Rural areas had 62.3 percent of the South Dakota’s occupied housing units, and remote rural counties had 28.5 percent of the occupied units in the state.

In 1990, 76.6 percent of people living below poverty lived in South Dakota’s rural counties. South Dakota’s 1990 poverty rate was 15.3 percent. The poverty rate for rural counties was 18.5 percent, and 21.8 percent for remote rural counties. Statewide, 3.4 percent of occupied housing units were in substandard condition. Rural counties had a substandard housing rate of 4.2 percent, while remote rural counties had a substandard housing rate of 5.1 percent. A large percentage of the state’s substandard housing units are located in rural areas. South Dakota’s rural counties had 76.7 percent of the state’s substandard units in 1990.

The South Dakota Housing Development Authority (SDHDA) administers the state’s HOME program. The HOME database indicates that SDHDA awarded almost $3.1 million to rural counties from FY1992 to FY1995, which is 57.8 percent of the $5.3 million in total it awarded during those years. Remote rural counties have received $1.2 million, which is 22.5 percent of all HOME awards and 38.9 percent of awards to rural counties in general. Rural areas had 55.2 percent of all HOME-assisted units, and remote rural counties accounted for 19.5 percent of statewide units and 35.4 percent of rural units.

SDHDA staff note that the state’s rural areas have a number of pressing housing needs. The staff observe that the lack of affordable single-family housing is a significant problem in South Dakota, and the need to rehabilitate existing single-family housing is also a state priority. SDHDA is also focusing the HOME program on construction of multifamily rental properties, which meet the needs of households with incomes too low to afford homeownership.

Program Design

South Dakota awarded approximately $3 million in HOME funds each year from FY1994 through FY1996. This figure does not include HOME funds set aside for use by Native American tribes. SDHDA uses an open application process throughout the year, rather than a competitive system. Applications are processed and evaluated as they arrive at SDHDA, and projects which meet the program’s threshold criteria are given awards until the HOME allocation has been drawn down for the year.

Project applications must meet a minimum point threshold in order to receive HOME funds. The project must be financially sustainable, and ongoing need for that kind of project in the area must be documented. The two most important criteria are if the project meets pressing local housing needs and whether the project has leveraged other funding. Applications also receive points if the period of affordability is extended beyond 20 years, and for targeting the project affordability to the lowest income groups. South Dakota does not list low-income rural residents as a special needs population in its Consolidated Plan, although persons with developmental disabilities are listed, some rural projects have served this group, and these applications receive additional points when determining HOME awards. There is no single uniform HOME application. Each type of project authorized under HOME, such as new construction or rehabilitation, has its own application form.

CHDOs receive approximately 15 percent ofthe state’s HOME awards, all of which has been for project awards. South Dakota does not use HOME funds for CHDO capacity grants. However, the state used its own funds for this purpose, providing approximately $300,000 for capacity grants between 1994 and 1996.

SDHDA provides technical assistance to organizations preparing applications as needed. Once awards have been made, SDHDA staff also perform program monitoring.

Program Use

South Dakota has experienced great demand for its limited HOME resources. In FY1994, 14 applications were received and seven were not funded. In FY1995, eight out of 17 were funded. In FY1996 17 applications were received, with 12 not funded.

SDHDA staff cite new construction as the most common project funded in rural areas under HOME. HOME data indicate that 131 rural new construction units have been produced through HOME, which is 72.4 percent of all rural units supported through the program. Rural new construction projects have received over $2.5 million in HOME awards, representing 82.3 percent of all rural HOME funds awarded. The new construction funded by HOME in South Dakota’s rural areas is almost entirely rental housing. Out of 247 total new construction units, 245 have been rental units. Moderate rehabilitation is the next most common rural HOME activity, accounting for 41 units, or 22.7 percent of HOME units in rural counties. HOME has been used for the acquisition of nine units in rural areas, or 5 percent of the rural total.

Individuals own 48.3 percent of South Dakota’s rural HOME units, and nonprofits own 17.8 percent. Partnerships own 27.2 percent of rural HOME units, while corporations own 6.7 percent in rural areas. The rates of ownership for partnerships and corporations are well above the rate for rural areas nationally. In rural areas nationwide, partnerships own 9.5 percent of HOME units and corporations only 0.9 percent.

HOME has been used primarily with two other affordable housing funding sources. The LIHTC program is the most common source combined with HOME. A number of projects have also used HOME in conjunction with RHS Section 523/524 site development funds. While the state allocates tax credits, the LIHTC program requires a separate application in addition to the application for HOME funds.

South Dakota does not require a local match, although SDHDA does request that applicants try to secure a small match and leverage other major sources of funds. South Dakota has a waiver of the match requirement on the basis of significant need. Additionally, match requirement waivers are in force, as the entire state was declared a federal disaster area due to flooding in spring 1997.

South Dakota’s HOME program has not undergone any significant changes since the program’s inception. However, SDHDA is pursuing a new use for HOME in the state by developing a lease/purchase program. The program would subsidize the lease of detached single-family units or townhouses by low-income clients. Clients would lease the properties for three years, with a portion of their rent earmarked to cover downpayment and closing costs. After three years, the renting households become homeowners and assume the mortgage on the property.

SDHDA staff believe that the strength of South Dakota’s HOME program rests with its flexibility in meeting local housing needs. Interlakes Community Action, Inc. (ICA) is a CHDO that has received HOME awards from both the state and a local PJ to serve low-income clients in both rural and urban settings. HOME has provided funding for a number of housing activities pursued by this organization.

Interlakes Community Action, Inc.

ICA was founded in 1966, and has a service area covering 12 counties in east-central South Dakota. ICA provides a wide variety of housing services. The organization was sponsoring a mutual self-help development at the time of this study, with four single-family homes completed, seven under construction, and seven more planned. ICA weatherizes approximately 25 homes per month, does rehabilitation work on about 40 houses per year using RHS Housing Preservation Grants, and has done rehabilitation with HOME on 12 units. ICA has also received HOME funds to provide homeless assistance in Sioux Falls, with the HOME awards granted by the Sioux Falls PJ.

ICA has a variety of human services and housing resources in its capacity as a community action agency. The organization has sought to merge shelter provision with its services, while aiding clients scattered across a large area with much open countryside.

In addition to its housing activities, ICA also provides a number of other community services. ICA runs Head Start and Early Head Start programs, manages a revolving loan fund that provides gap financing to new businesses run by low-income persons, and provides gasoline vouchers to help low-income households commute to work. ICA also provides counseling for low-income clients, manages an elderly nutrition program, and provides public transportation with a small fleet of buses.

ICA has eight full-time housing staff. Three staff are involved with transitional housing for the homeless, and oversee supportive services and case management. There are three staff involved in weatherization and housing rehabilitation. ICA also has one group coordinator for the self-help venture, and an executive director.

ICA relies on a wide range of funding sources to finance its housing activities. The group receives funding from the U.S. Department of Health and Human Services (HHS) for weatherization work, and funding through the RHS Housing Preservation Grant program for housing rehabilitation. ICA has also used CDBG in some of its projects, and has received HOME funds for housing rehabilitation and transitional housing assistance for the homeless. Other funding sources include the Federal Home Loan Bank’s Affordable Housing Program, funding from counties and cities in the group’s service area, foundation money, and donations from local banks meeting their Community Reinvestment Act obligations.

ICA has received three HOME grants from the Sioux Falls PJ to provide homeless assistance, and one more HOME grant from Sioux Falls for transitional housing for homeless individuals and households. SDHDA awarded one HOME grant to ICA, in 1995, for rehabilitation of housing for the elderly. This grant is the first from the state PJ, and it was extended through FY1997. South Dakota lists the elderly and disabled as a special needs population in its Consolidated Plan. ICA has not received any CHDO capacity grants or operating funds through the HOME program.

ICA’s Transitional Housing Program includes services and counseling for homeless clients. Additionally, the Homeless Assistance Program provides the first month’s rent for homeless individuals and households. ICA’s rehabilitation grant from SDHDA is also being used in conjunction with HHS weatherization funds and RHS Housing Preservation Grants. ICA is not required to obtain a local match for its HOME funds, since its service area falls within a federal disaster area.

ICA staff note a number of challenges to using HOME in a rural area. One of the primary difficulties in serving a predominantly rural area is the distance involved in reaching clients in the open countryside. For example, the state requires that elderly clients of ICA’s HOME rehabilitation program pick their own contractors through a bidding process. Many of these clients had difficulty doing their own bidding, so SDHDA allowed ICA’s weatherization and rehabilitation manager to oversee the bidding process for rehabilitation work. However, many of these clients are scattered throughout the open countryside of ICA’s 12-county service area, which has meant time-consuming and costly travel for the rehabilitation manager. Additionally, ICA has had difficulty getting contractors to bid on projects located in remote areas.

Rural Challenges and Improvements

SDHDA staff feel that the strength of the HOME program lies in its flexibility. The state has been able to tailor the program to meet unique local housing needs across the state. SDHDA and ICA staff suggest a number of ways in which the HOME program may be made more accessible to rural housing organizations. While not specifying any particular reforms, SDHDA staff assert that any program changes at the federal level that further increase the program’s flexibility and reduce regulatory and oversight burdens on PJs will allow South Dakota to better meet local housing needs. ICA staff experienced difficulties when first receiving the rehabilitation grant from SDHDA, finding the state regulations on use of the funds burdensome. After consultation with SDHDA staff, these burdens have been reduced. ICA staff also feel that innovative project proposals that merge a variety of housing and human services do not receive full consideration in the state application process, and suggest that the process be adjusted to grant these kinds of proposals additional weight when considering applications. This would allow HOME to supplement successful community service initiatives and emphasize continuum of care approaches to affordable housing provision.

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