State legislature weighs reforms to Multifamily Tax Exemption
Olympia is not the only city where the Multifamily Tax Exemption (MFTE) has prompted questions about equity.
Tacoma also has used the eight-year exemption liberally, granting tax breaks to over 200 projects totaling 8,963 units, only 335 of which are affordable.
According to data provided by Debbie Bingham, a project manager for Tacoma’s Economic Services Department, the city has exempted $4.9 million in property taxes in 2020 and $3.4 million in 2019.
Even where cities that have attracted 12-year exemption projects, which require at least 20% “affordable” units, the final product often ends up priced above market-rate.
According to a Joint Legislative Audit and Review Committee study, every “affordable” unit built in King County outside of Seattle is actually priced above market-rate. Part of the reason is because the Area Median Income (AMI) limits are set at the county, not the city level — so Seattle’s high wages push the definition of “affordable” up for apartments in Kent and Federal Way, where incomes are significantly lower.
Meanwhile, other cities have stretched the definition of “affordable” by setting the limits at the maximum that the program’s statutory rules permit. In Spokane, properties with 12-year exemptions set their affordability threshold at 115% of Area Median Income, which would be $71,000 for a two-person household.
Since the JLARC study came out, some state lawmakers have pushed for stronger mechanisms in the MFTE to ensure that cities’ tax dollars are actually producing affordable housing. But attempts to introduce higher affordability requirements met significant resistance in the state Senate this year.
The opposition came not only from developers, but from city planners, who want to retain flexibility over what incentives they offer.
“I would say it was carefully negotiated language that took many, many, many hours to work through,” said Sen. Mona Das D-Kent, who introduced SB 5287 to reform the MFTE.
In its original form, it aimed to ensure all projects that receive the tax credit contain a minimum number of affordable units, adding a 15% affordability requirement for eight-year exemptions, upping the 12-year requirement from 20% to 25% affordable, and lowering the income thresholds that dictate maximum rent prices developers can charge.
At a January hearing, city planners from Vancouver, Redmond, Renton, and other cities pushed back on the increased affordability mandates, arguing that they view (and use) the MFTE primarily as an economic development tool, not an affordable housing tool.
Judged by that metric, it would appear that cities are getting what they want: dense, mixed-use housing in downtown cores.
But if the program’s goal is to spur affordable housing development, it’s come up short in South Sound. In Olympia, it’s produced only one 12-year project: Merritt Manor, with 82 units reserved for people making under 60% of Area Median Income.
At a committee hearing for the bill, several developer representatives referred to the increased affordability requirements as “contentious.”
Das’ bill eventually passed the Senate by a vote of 43-5, but it was stripped of its added affordability requirements for eight-year exemptions and the lowered maximum rent prices. It also lost a provision that would have required cities such as Olympia to do a profitability analysis of projects before approving them.
The new version focuses mostly on setting terms for extending exemptions if they meet the minimum 20% affordability requirements; it also allows municipalities to peg affordability to city AMI rather than county, which could help correct the distorted rents in South King County. Finally, it creates a new 20-year exemption for permanently affordable housing, so that organizations such as Habitat for Humanity and Community Land Trusts can participate.
Das said the bill that passed out of the Senate was a compromise, and “everything we didn’t agree on” will be examined in a commissioned study, the results of which will inform another bill next year.
“I know that folks see this as a giveaway to developers, but here’s the thing, we need developers to build, we have to incentivize them to do so,” Das said. “In order to get out of a housing crisis, we need more housing stock.”
This story was originally published March 7, 2021 at 5:45 AM.
.jpg)