HomeMy WebLinkAboutWS 2025-04-07 COMPLETE AGENDA PACKETTukwila City Council Agenda
WORK SESSION
Thomas McLeod, Mayor Councilmembers: Mohamed Abdi Armen Papyan
Marty Wine, City Administrator Jovita McConnell Dennis Martinez
Tosh Sharp, Council President Hannah Hedrick Verna Seal
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Monday, April 7, 2025; 5:30 PM
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1.CALL TO ORDER
2.PUBLIC COMMENT Those wishing to provide public comments may verbally address the City
Council both on-site at Tukwila City Hall or via phone or Microsoft Teams for up
to 5 minutes for items both on and not on the meeting agenda.
To provide comment via phone or Microsoft Teams, please email
citycouncil@tukwilawa.gov with your name and topic by 5:00 PM on the
meeting date. Please clearly indicate that your message is for public comment
during the meeting, and you will receive further instructions.
3.BUSINESS ITEMS Discussion on the Multi-Family Property Tax Exemption Program
(MFTE).
Derek Speck, Economic Development Administrator
Pg. 1
4.ADJOURNMENT
If you are in need of translation or interpretation services at a Council meeting,
please contact us at 206-433-1800 by 12:00 p.m. on the meeting date.
City of Tukwila
Allan Ekberg, Mayor
INFORMATIONAL MEMORANDUM
TO: City Council
FROM: Derek Speck, Economic Development Administrator
CC: Mayor McLeod
DATE: April 1, 2025
SUBJECT: Multi-Family Property Tax Exemption (MFTE) Overview
ISSUE
This item is intended to provide an overview of the City’s multi-family property tax exemption
program.
BACKGROUND
Multi-family property tax exemption (MFTE) programs are property tax waiver programs enacted
by cities and counties to support local housing goals. Under Chapter 84.14 RCW, local
governments can give property tax exemptions for new construction, conversion, and
rehabilitation of multi-family residential improvements with at least four units. Under these
exemptions, a property owner does not pay property taxes on the residential improvements for a
given number of years which serves as an incentive to attract the development. The property
owner still pays tax on the land and on non-residential improvements like the commercial
portion of a mixed-use building. See attachment “What is MFTE?” for a brief overview of MFTE.
The State allows an exemption of 8 years for all qualifying projects and up to 12 and 20 years if
the project meets affordability requirements based on Area Median Income (AMI). See
attachment “State Affordability Requirements” for detail on the minimum required criteria based
on duration of exemption.
DISCUSSION
There are a number of benefits, costs, and other considerations a local government should
consider when deciding whether to implement a MFTE program. It is a balance of achieving
certain goals in exchange for accepting some potential drawbacks.
Potential Benefits of MFTE Program
1.Supply of Housing: Our region has a shortage of housing and a city may simply want
more multi-family housing for a variety of reasons. Some new multi-family developments
may not occur without the exemption.
2.Housing Targets: The program could help a city meet its housing targets under the
Growth Management Act.
3.New Affordable Housing: The program could be an incentive to developers to accept
income and rent restrictions to achieve more affordable rental or ownership housing.
1
INFORMATIONAL MEMO
Page 2
4.Rehabilitation of Existing Multi-family Housing . The program could subsidize renovations
to existing multi-family housing to improve the quality of existing housing and accept rent
and income restrictions.
5.Better Design: The program could be an incentive to developers to accept more
expensive project designs such as structured parking.
6.Unit Type and Size: The program could be an incentive for developers to create
residential units with more space or bedrooms.
7.Neighborhood Benefits: Multi -family housing can bring benefits to their surrounding
neighborhood such as additional customers to support businesses, redeveloping
properties that no longer conform to zoning or vision for that area (such as motels),
attracting other development, concentrating development near transit, etc.
Potential Costs of MFTE
1.Forgone Property Tax: Depending on the timing of the construction of the project, a city
may receive less property tax during the exemption period. See attachment “City Tax
Revenues for New Construction”.
2.Cost of City Services: With new construction, there will be more residents who need city
services. Over time, a city’s cost to provide services may exceed the revenues from
residential. State law allows the city’s property tax levy to be increased to reflect the
assessed value of new construction but then property tax growth is limited to 1%
annually. Due to inflation, the cost of city services is likely to grow faster than property
tax.
3.Administrative Cost: It will take administrative time to adopt or revise the program,
process applications, issue exemptions, monitor compliance, submit annual reports. The
administrative time can be very significant to monitor affordability, especially affordable
ownership. If the program includes affordability a City may need to hire or reallocate staff
or contract with a service provider.
Other Considerations
1.Tax Shift: Depending on the timing of the construction of the project, a city may still
receive property tax during the exemption period. In this case, the tax is shifted to other
property taxpayers in the city. See attachment “What is Tax Shift”.
2.Displacement: Depending on how a program is implemented, it can lead to displacement
of residents or businesses.
3.Other Taxing Districts: The multi-family property tax exemption applies the exemption to
property tax from all taxing districts that cover the qualifying project.
4.Adjacent City MFTE Programs: The cities around Tukwila have some form of a MFTE
program. See attachment “Multi-Family Property Tax Exemption Programs”.
5.Sunset Clause: A City may want to limit the application period for a MFTE program so
that it is used to stimulate development and the subsidy does not become a permanent
necessity for development.
Potential Criteria
If a City implements a MFTE program, State law requires the city to determine eligible
geographical areas (“residential targeted areas”). In addition to the State’s criteria for a project
to qualify, the local government enacting the program may set additional criteria. Following are
some examples.
2
INFORMATIONAL MEMO
Page 3
1.Household Incomes and Affordability: The State allows exemptions up to 12 and 20
years if the project meets affordability requirements. See attachment “State Affordability
Requirements” for detail on the minimum required criteria based on duration of
exemption. Cities can adopt more stringent affordability requirements. However,
developments that service populations below 60% of AMI are unlikely to need the
MFTE because they would qualify for property tax exemptions under other State
provisions.
2.Risk of Displacement: Cities can include criteria to avoid displacement or require the
developer to provide relocation assistance in cases of displacement.
3.Rental or Ownership: Cities can include criteria related to either of these scenarios.
4.New Construction, Conversion, Rehabilitation: The City could include criteria related to
any of these scenarios.
5.Design: The program could include criteria for the site or building design such as
structured parking, number of bedrooms, number of units (minimum or maximum), mix
of uses (e.g., retail, small business space, etc.)
6.Financial Necessity: In 2019 the State’s Legislative Auditor completed an analysis of
the MFTE program across the state and was not able to conclude whether the
exemptions resulted in a net increase in housing or affected the decision to develop.
The Legislative Auditor recommended cities include financial analysis as a criteria.
City of Tukwila’s MFTE Program
The City of Tukwila first adopted an MFTE program in 2014. When first adopted, the program
covered the Transit Oriented Development (TOD) portion of the Southcenter District and had a
sunset clause for receiving applications until December 31, 2016. It’s been amended the
following times:
•In 2017 to extend the application deadline to December 31, 2017.
•In 2021 to extend the application period to December 31, 2022 and require the units to be
available to residents of all ages to promote workforce housing.
•In 2023 to extend the application period to December 31, 2028 and expand the covered
area to include all of the Southcenter District and Tukwila South. See attached map of
“Southcenter Residential Targeted Area”.
The following developments have been approved or are pending for the MFTE:
1.AirMark Apartments, 229 Andover Park East
2018 MFTE Effective Date, 8-Year Exemption.
2.Mariblu Southcenter (formerly Marvelle), 411 Baker Boulevard
2021 MFTE Effective Date, 8-Year Exemption)
3.Merrill Gardens (formerly Holden), 112 Andover Park East
2022 MFTE Effective Date, 8-Year Exemption
4.Prose Southcenter (under construction), 130 Andover Park East
MFTE application pending
3
INFORMATIONAL MEMO
Page 4
FINANCIAL IMPACT
No impact because this item is discussion only.
RECOMMENDATION
Information Only.
ATTACHMENTS
What is MFTE?
State Affordability Requirements
City Tax Revenue for New Construction
What is Tax Shift?
Multifamily Property Tax Exemption Programs
Map of Southcenter Residential Targeted Area
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V3.0
SHORT GUIDE FOR COUNCILS AND STAKEHOLDERS
What is MFTE?
MFTE (Multifamily Housing Tax Exemption) programs are
property tax waiver programs enacted by cities and counties to
support local housing goals. Under Chapter 84.14 RCW, local
governments can give exemptions for new construction,
conversion, and rehabilitation of multifamily residential
improvements with at least four units.
Under these exemptions, a property owner does not have to
pay property taxes on the residential improvements for a given
number of years. The property owner still pays tax on the land
and on non-residential improvements like the commercial
portion of a mixed-use building.
Advantages
Cities and counties can give financial incentives to meet
housing goals without the need for direct funding. This can
support affordable housing but can also incentivize
market-rate housing in a way that complies with state
constitutional requirements.
Requirements in state law can be flexible and let cities and
counties tailor programs to meet policies. Some programs
consider on-site improvements, building requirements, or
mandates for services.
MFTEs are commonly used by developers across
Washington, who are often familiar with how they operate
and how to use them with projects.
Who Uses MFTE?
As of 2022, 55 communities in
Washington have active MFTE
programs, and 19 communities
issued final certificates in 2021.
The exemptions issued in 2021
resulted in:
• 67 new rental properties and 97
owner-occupied housing units
• 7,759 new housing units, including
1,058 rent-restricted units for low-
income households
Recently, conditional certificates
have also been issued for the 20-
year MFTE for permanently
affordable housing as well.
Agency contact:
Mary M. Reinbold, AICP
SENIOR PLANNER
Growth Management Services
mary.reinbold@commerce.wa.gov
Phone: 509.638.5449
We strengthen communities
GROWTH MANAGEMENT SERVICES
5
WHAT IS MFTE? 2
Types of MFTE
MFTE programs are usually divided according to the
length of the program:
For an 8-year MFTE program, there are no
requirements for affordable housing, although some
cities provide their own requirements. Many
communities use this to promote market-rate
housing construction in neighborhoods where new
housing investment is needed.
A 12-year MFTE program must set aside at least 20%
of housing units for low- and moderate-income
households. Under the statute, household income is
based on Area Median Income (AMI), with households
with incomes at 80% of AMI or less considered “low
income”, and households at 115% of AMI or lower
“moderate income”. This MFTE is used for providing
affordable rental housing options, including choices
in market-rate private housing projects.
A 20-year MFTE program requires that 25% of units
be sold as permanent affordable housing for
households at 80% AMI or below, with a nonprofit or
government agency sponsoring the sale and
restrictions in place for resale to ensure long-term
affordability. This is a new option implemented in
2021 and is intended to be used to encourage
affordable housing homeownership. There is an
option for permanent affordable rentals (20% of units
for 99 years at 80% AMI or less) but a deadline for
passing this program restricts new programs.
Note that communities can also choose to impose
higher affordability requirements and include other
requirements for MFTE projects as well.
Considerations
MFTEs can result in either a loss of tax revenue
to the community, or a tax shift where other
property owners will pay more in taxes.
MFTE programs require staff time to conduct
regular monitoring, oversight, and reporting.
Regular updates can be necessary to make sure
the program provides a sufficient incentive to
maximize public benefits.
6
City of Tukwila
State Affordability Requirements
For Multi-Family Property Tax Exemption
8 Years 12 Years 20 Years
Rental Ownership Rental Ownership
Minimum Set Aside % None 20% 20% 20% 25%
Maximum Income
% AMI None 80% - 115% 115% 80% 80%
1 Person Household None $75,440 $104,000 $75,440 $75,440
2 Person Household None $86,160 $119,000 $86,160 $86,160
3 Person Household None $96,960 $134,000 $96,960 $96,960
4 Person Household None $107,680 $149,000 $107,680 $107,680
Note:
1. The 20-year exemption requires affordability for 99 years and a non -profit or government agency sponsoring
the transaction. The 20-year rental option may no longer be available.
2. AMI = Area Median Income. Most incomes shown above were based on Washington State Housing Finance
Commission Income Limits effective 4/18/22.
3. Incomes for ownership and 12-year exemption were calculated by Economic Development staff.
7
City Tax Revenues for New Construction
With Eight Year Multi-Family Property Tax Exemption
The example estimates City revenue on a new $30 million development, if the project receives an eight year property tax exemption.
Tax Revenues Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Property Taxes 3,750$ 3,788$ 3,825$ 3,864$ 3,902$ 3,941$ 3,981$ 4,021$ 4,061$ 95,008$ 95,958$
Utility Taxes - 7,200 7,416 7,638 7,868 8,104 8,347 8,597 8,855 9,121 9,394
Sales Tax on Construction 191,250 - - - - - - - - - -
B&O on Construction 18,488 - - - - - - - - - -
REET 7,500 - - - - - - - - 190,016 -
Total 220,988$ 10,988$ 11,241$ 11,502$ 11,770$ 12,045$ 12,327$ 12,618$ 12,916$ 294,144$ 105,352$
Tax Shift/Forgone Revenue
Property Taxes -$ 71,250$ 71,963$ 72,682$ 73,409$ 74,143$ 74,884$ 75,633$ 76,390$ -$ -$
Assumptions
(1) Land value is $1.5 million (5% of total project cost). City property tax levy rate is $2.5 per thousand ($0.0025). Annual levy increases 1%.
(2) New residents spend $100 per month for their utilities increasing 3% annually. City utility tax rate is 6%.
(3) Construction starts and is completed in year 0. Property tax exemption starts in year 1.
(4) City sales tax rate is $.0085. Taxable construction is $22.5 million (75% of the $30 million total project cost).
(5) Real estate excise tax (REET) assumes a rate of 0.5% and that the property is sold in year 0 and year 9.
(6) Property market value increases 3% annually.
Notes
(1) This example is a general estimate of a new 100 unit apartment building built over one level of parking.
(2) The property taxes on the land would likely be paid even without the development or the exemption.
(3) The additional residents may generate additional tax revenues for the city such as sales tax on their purchases.
(4) The project may generate parks, fire, and transportation impact fees to be used for capital projects related to new development.
(5) Tax Shift/Forgone Revenue shows the amount of property taxes that would either be shifted to other property taxpayers or would be
revenue the city would not receive. It assumes $9 billion total assessed value. If fully shifted, the example project would increase
property taxes on other properties by approximately $0.79 per $100,000 annually (approximately $5 for a $600,000 house).
(6) This example only shows revenues. It does not show the city's costs of providing services to the new development.
Office of Economic Development 2023-4-11
8
SHORT GUIDE FOR COUNCILS AND STAKEHOLDERS
What is Tax Shift?
MFTE (Multifamily Housing Tax Exemption) programs can be
an effective way of incentivizing market-rate and affordable
housing options. To understand how it works stakeholders
often ask, "Where does the money come from to pay for the
exemption?"
This question can be hard to answer because of how property
taxes work in Washington State. When making decisions about
an MFTE program, it is important to consider possible tax and
revenue impacts.
Generally, these impacts can be distributed in two ways:
Foregone tax revenues that are not collected, which reduce
total revenues for a city and other taxing districts (e.g., the
port, county, school district, state, etc.).
A shift of tax obligations to all other payers of property
taxes in these districts, where there is an increase in taxes
collected to offset the losses from the exemption.
How these costs are distributed depends on two things:
Levy limits provided under RCW 84.55.010 mean that
property tax levies are restricted to no more than a 1%
increase in revenue from the assessed value from the
previous year. This restricts how much cities and other
districts can raise property taxes on these properties to
make up this difference and can mean that deferred taxes
will be foregone revenue for these jurisdictions.
However, projects that receive MFTEs could still increase
that total levy. Under WAC 458-12-342, county assessors
must assess building value during construction and add it
to these levy limits, which may not be removed from the
total levy amount before the final certificate for exemption
is received and the exemption begins.
The amount of tax shift versus deferred revenue depends in
part on the practices of the county assessor. However, there
are currently no requirements for assessors to consider MFTE
in these levy limits. If cities do not consider these effects, an
MFTE can shift most or even all of the exempted tax
obligations to other properties.
What is MFTE?
MFTE (Multifamily Housing Tax
Exemption) programs are property
tax waiver programs enacted by
cities and counties to support local
housing goals.
Under Chapter 84.14 RCW, local
governments can give exemptions
for new construction, conversion,
and rehabilitation of multifamily
residential improvements with at
least four units.
These exemptions can be provided
for different lengths. The eight-year
exemption does not require
affordable housing, but the 12- and
20-year options have additional
requirements to provide on-site
affordable units.
Agency contact:
Mary M. Reinbold, AICP
SENIOR PLANNER
Growth Management Services
mary.reinbold@commerce.wa.gov
Phone: 509.638.5449
We strengthen communities
GROWTH MANAGEMENT SERVICES
9
Tax Shift Considerations
If an MFTE is supported through tax shifts, there are
some important policy considerations:
Communities may be less likely to support
incentives for market-rate development that use
property tax increases, especially for high-end
projects that do not seem to provide public
benefits.
Shifted tax obligations are not usually calculated,
meaning that the full impacts of this program may
not be transparent, especially to affected property
owners.
Depending on the popularity of the program, the
total increases in property taxes could be
equivalent in magnitude to affordable housing
levies that would require voter approval and have
tighter requirements (RCW 84.55.150).
Foregone Revenue Considerations
On the other hand, if a city foregoes tax revenue to
support MFTEs, there may be other policy concerns:
Communities will have reduced long-term tax
revenues from the MFTE program, especially if
they will be foregoing most or all of the exempted
tax revenue. This can have a significant fiscal
impact on local budgets.
Other taxing districts may be impacted by tax
exemptions but are not in a position under the
statute to object to a community’s MFTE program.
This can have some significant effects on special
districts that cannot make up for this lost revenue
in other ways.
The total budget impacts may be more
unpredictable, especially without limitations on
the number of exemptions issued by the
community. However, placing limits on the
number and value of exemptions could affect the
ability of the MFTE program to meet housing
goals.
10
Multi-family Property Tax Exemption Programs
Cities Adjacent to Tukwila
The chart below provides a very basic comparison of multi-family property exemption programs in the
cities that are adjacent to Tukwila.
Burien Kent Renton SeaTac Seattle
8 Year
Exemption
Yes Yes Yes Yes No
12 Year
Exemption
Yes Yes Yes Yes Yes
20 Year
Exemption
No No Yes No Yes
Geography Downtown
commercial
zone
Portions of
downtown
and Midway
Downtown,
Rainier/Grady,
South Lake
Washington,
Sunset
Urban Center All areas
zoned multi-
family
Additional
Affordability
Criteria
No Yes Yes No Yes
Additional
Criteria
Yes Yes Yes Yes Yes
Displacement
Protections
Yes No No No No
Relocation
Assistance
No No No No Yes
Sunset No No Yes No No
Certificates
Issued in
2021
0 0 1 0 21
Certificates
Issued in
2020
0 1 1 0 9
Certificates
Issued in
2019
0 0 0 0 32
Notes:
1. The number of certificates issued data is taken from the annual reports on MFTE issued by the
Washington State Department of Commerce. In 2019 through 2021 Tukwila issued three certificates.
2. Examples of additional criteria are larger units (more bedrooms), higher density (units per acre),
larger developments (minimum number of units), public benefits, mixed-use structure, age of
residents (55+), structured or underground parking, 24-hour onsite management, other financial
subsidy programs, replacement of residential units, and more.
4/7/2023
11
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City of Renton, Bureau of Land Management, Esri Canada, Esri, HERE, Garmin,
INCREMENT P, USGS, METI/NASA, EPA, USDA
Parcels
Zoning Overlays
City Limits
TUC Streets
TUC Zoning
Pond
Regional Center
Transit Oriented Development
Commercial Corridor
Workplace
12