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HomeMy WebLinkAboutCAP 2016-11-14 Item 2E - Policy - Expansion of Multi-Family Tax Exemption Program (MFTE)City of Tukwila Allan Ekberg, Mayor TO: Community Affairs and Parks Committee FROM: Nora Gierloff, DCD Deputy Director CC: Mayor Ekberg DATE: November 9, 2016 SUBJECT: Multi- Family Tax Exemption Discussion ISSUE Should Tukwila's Multi - Family Tax Exemption (MFTE) program be continued, expanded or revised? BACKGROUND The City Council adopted the MFTE program via Ordinance 2462 on December 1, 2014 with a sunset date of December 31, 2016. Under Washington State law (RCW 84.14) new or remodeled residential buildings meeting specific criteria may be exempted from paying property taxes for 8 or 12 years. Market rate projects may apply for the 8 -year exemption while the 12 -year exemption requires that at least 20 percent of the units be available to low and moderate income households. Various cities such as Seattle, SeaTac and Bremerton have MFTE programs. Cities may adopt additional eligibility criteria. Under Tukwila's current rules residential units must meet the following criteria to be eligible for exemption: 1. Be located within the "residential target area," which is defined as that portion of the TUC - TOD Zone of the Southcenter District that lies west of the Green River (see Attachment A); 2. The units must be in a residential or mixed -use structure containing at least four dwelling units; 3. The units in the project must average at least 500 square feet; 4. A minimum of 15 percent of the units must be at least 900 square feet and contain at least two bedrooms; 5. The units must be designed and used for permanent residential occupancy (thus, hotels and motels are not eligible); 6. The units must meet additional criteria related to private bathrooms and kitchens, meeting zoning and other code requirements, meetingtime limits, and the mix and configuration of any affordable units must be configured proportional to the mix of units (e.g. number of bedrooms). Tukwila's MFTE was adopted to incentivize residential development in the Southcenter District and Washington Place, the City's first residential high rise, has applied for the eight -year exemption. Unless extended via Council action, this incentive will sunset for new applicants at the end of this calendar year. 113 INFORMATIONAL MEMO Page 2 DISCUSSION CAP has requested a discussion of future options for extending and expanding the MFTE. It may be helpful to frame the discussion in terms of: What households are we trying to help? For example, what household income levels? What size of households? Renters and /or owners? MFTE could be used as an incentive to create more affordable housing. The minimum requirements for the 12 -year exemption are quite modest, 20% of units available to renters or buyers earning 80 -150% of area median income (AMI). The City has the ability under state law to set the affordability threshold and could lower it to encourage affordable housing for families on the lower end of the AMI scale. Setting limits on the unit mix, minimum square footage or number of bedrooms for all orjust affordable units would help fill the gaps in the City's housing stock. The concern in the past was that studio and 1 bedroom units are generally more profitable per square foot than larger units but contribute less to neighborhood stability and meeting the need for family sized housing. Tukwila could set different criteria for different areas of the City. 2. What geographic areas are we trying to affect? For example, are we trying to stimulate development in certain parts of Tukwila or everywhere? • The program has helped to support one pioneer project in the TUC -TOD but the Comprehensive Plan calls for even more residential development there. We have received interest from other multi - family housing developers and, at this time, we don't know if a property tax exemption is necessary to attract more housing in this area. • Another target area could be created in the Tukwila International Boulevard neighborhood. This could be a tool to incentivize new urban scale affordable housing development near the light rail station. 3. What sort of built environment are we trying to achieve? For example, are we trying to upgrade existing buildings or do we want to encourage new construction? Some cities allow existing buildings to be upgraded, with the added value of the improvements exempt from property tax. MFTE could be a tool to improve the poor housing conditions found in some of Tukwila's older apartment buildings while preserving that existing affordable housing. On TIB the incentive could be limited to only buildings that replace older buildings. To prevent displacement of existing tenants, the property owner could be required to adequately relocate them. The new building could be required to provide more units than the demolished building with at least the same number of affordable units as were previously there. 114 Z: \Council Agenda Items \DCD \MFTE Discussion \11 -14.16 CAP MFTE.doc INFORMATIONAL MEMO Page 3 FINANCIAL IMPACT If an MFTE qualified project was built on a vacant site the City, school district and other taxing districts would not receive property tax revenue for the project during the tax exemption period. If a currently taxable building was demolished and replaced with a building that qualifies for the MFTE then revenues would actually decrease during the tax exemption period by the amount the existing building had paid. RECOMMENDATION Information and discussion only. If there is interest in pursuing a new MFTE ordinance staff will develop language and return with a draft in 2017. ATTACHMENTS A. Map of Current MFTE Targeted Residential Area B. Comprehensive Plan Policy Relevant to MFTE Discussion Z:1Council Agenda Items \DCD \MFTE Discussion \11 -14 -16 CAP MFTE.doc 115 116 - - -------- MUM 3-1 I of Tukwila Iti-Family Property Tax Exemption ;idential Targeted Area ITarget Parcels ingCode j TUC-TOD Zone XEM 117 118 Comprehensive Plan Policy Relevant to the MFTE Discussion Housing Element GOAL 3.2 The City of Tukwila has safe, healthy and affordable homes for all residents in Tukwila. 3.2.4 Work with the owners and managers of Tukwila's new and existing permanent or long -term low - income housing to maximize desirability, long -term affordability, and connection with the community. 3.2.5 Develop affordable housing preservation programs and strategies, including prevention of the displacement of low - income households in areas of redevelopment. • Develop specific statements regarding location,.type and characteristics of desired housing affordable to a variety of incomes, for presenting to local for - profit and non - profit developers. • Partner with non - profit organizations and for - profit developers to acquire, rehabilitate, construct, preserve and maintain permanent affordable housing and support services. • Explore and develop incentive zoning, a housing trust fund, density bonuses, parking exemptions, deferred or reduced payment of impact fees, multi- family tax exemptions, and /or other tools to develop or maintain affordable housing that meets the needs of the community, specifically units sized and priced for low- and very- low - income residents. GOAL 3.3 The City of Tukwila supports and collaborates with other jurisdictions and organizations to assess. housing needs, coordinate funding, and preserve and create affordable housing opportunities. 3.3.2 Ina "State of Housing" report, periodically review regional low - income housing goals to evaluate the City's compliance with regional standards and to ensure that the City's affordable housing units are being preserved and maintained. Adjust policies as needed if affordable housing goals are not being met. 3.3.3 Continue supporting very low -, low- and moderate - income housing as defined by King County income levels, to address the Countywide need by supporting regional affordable housing development and preservation efforts. GOAL 3.4 The City of Tukwila has an improved and continually improving housing stock in support of enhanced neighborhood quality. 3.4.2 Continue to support the maintenance, weatherization, rehabilitation, and long -term preservation or replacement of existing housing for low- and moderate - income residents. • Explore partnerships with non - profits to facilitate the purchase and upgrade of poorly maintained rental housing. Attachment B 119 Tukwila International Boulevard District Element GOAL 8.8 The TIB District has stable neighborhoods, and residents and businesses that are actively engaged in improving the quality of life in the area. 8.8.1 Encourage private landowners to maintain and upgrade their property to protect the neighborhood from adverse impacts of vacant and underutilized sites and blighted buildings and structures. GOAL 8.10 Public and private investment in the TIB District has sparked additional project and business success and increased the overall pace of redevelopment. 8.10.5 Utilize developer incentives and funding strategies that would attract uses desired by the community, improve a project's performance, and make redevelopment financially attractive to developers. • Explore adopting a variety of development incentives and funding tools, such as the Multifamily Tax Exemption program for residential and residential /mixed -use projects; Land Conservation and Local Infrastructure Program (LCLIP) through Transfer of Development Rights (TDR) to add density, preserve developable open space, and fund infrastructure needed for development; pioneer project provisions; access to alternative financing including EB5 and New Market Tax Credits; transportation, concurrency adjustments; and developer agreements. Southcenter District Element GOAL 10.1 LAND USE Southcenter will contain an intense, diverse mix of uses, which will evolve over time. The character and pace of this change will be set by a combination of guidelines, regulations, incentives, market conditions, and proactive private /public actions, which will reinforce existing strengths and open new opportunities. The desire for a high - quality environment for workers, visitors and residents will also drive this character transition. 10.1.4 Tukwila Urban Center (Southcenter) Residential Uses. To preserve Tukwila's existing residential neighborhoods and to provide a diverse set of housing alternatives and locations, a large percentage of the City's future housing needs will be accommodated in the urban center. Residential development is encouraged in proximity to water amenities or within walking distance of the Sounder commuter rail /Amtrak station or the bus transit center, subject to design standards and incentives. 120