The St. Paul City Council last year unveiled a $750,000 program to upgrade rental housing in St. Paul’s poorest neighborhoods.

Zero-interest loans of up to $30,000 would allow landlords to rehab small, low-grade properties throughout the East Side, Frogtown, the North End and Summit-University. Mailers were sent to 1,500 property owners who met the criteria.

Six months later, how the is program faring? Poorly.

From August through January, the St. Paul Housing and Redevelopment Authority’s Rental Rehabilitation Loan Program drew eight applications. The program has closed on three loans with a fourth in the works, and only two of them for the maximum loan amount of $30,000.

None of the four loans, which mostly covered overdue or “deferred” basic maintenance, have resulted in properties moving up a grade within the city’s rankings.

Meeting as the HRA, the seven city council members discussed the lackluster results at length last week.

Their conclusion? Mend it, don’t end it.

Over the objections of council member Dan Bostrom, the council voted 6-1 to continue and expand the pilot program as originally planned. As of Feb. 1, rental rehab loans will now be available citywide.

“These people are in business. This is their business,” said Bostrom, before voting against continuing the program. “And we’re subsidizing them. And now we’re not even fixing the worst of the worst. I can’t support it.”

City council President Amy Brendmoen, who was chair of the Housing and Redevelopment Authority when the program rolled out, said the city uses low-income housing tax credits and other tools to rehab large properties all the time, and it’s time to shift resources to smaller rentals.

“We do subsidize businesses. We do facade improvements. We do incentives. We do quite a bit of subsidizing of small and large businesses in the city,” said Brendmoen, whose ward includes areas of the North End and the East Side. “There’s also a restriction on the rent, so we’re also preserving affordable housing. … I don’t think there’s a lot of other cities that do this. We’re kind of learning as we go.”

Council member Russ Stark, who was council president when the rental program started, said the basic concept was sound, even if the details needed fine-tuning.

“One way or the other, the tenants feel the impact of the lack of maintenance,” Stark said.

There are several restrictions to the rental rehab program.

The loans are available exclusively to owners of small rental properties — single-family, duplex, triplex, or fourplex buildings — and landlords must agree not to raise rents more than 3 percent per year for the life of the loan. They must also get letters of recommendation from their local district councils.

City staff from the Department of Planning and Economic Development said the original intent of the program was to boost the declining housing in areas of racially-concentrated poverty — low-income census tracts where racial minorities make up the majority of residents. Related Articles St. Paul PD highlights surveillance photos of looting suspects, seeks tips

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In those neighborhoods, however, some owners of “Class A” or “Class B” properties — the highest conditions within the city’s rankings — felt they were being unfairly excluded after spending sizable sums to keep their rentals up to date.

Following staff advice, the city council on Wednesday agreed that the rental rehab program will now be available to landlords of Class C and D properties — the poorest conditions within the city’s rankings — anywhere in St. Paul.

The requirements will be looser in low-income, high-minority neighborhoods, where loans will be available to owners of A, B, C and D small rental properties alike.