HomeMy WebLinkAboutWS 2026-06-01 Item 3A - Overview - Multi-Family Property Tax Exemption ProgramCITY COUNCIL WORK SESSION
JUNE 1. 2026
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• Present overview of the multi -family property tax exemption (METE) program in
preparation for Council consideration and decisions in Q3.
• Council questions
• What additional information woulc Council like?
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Under State law (RCW 84.14) new multi -family residential development (construction,
conversion, or rehabilitation) can be exempted from property taxes for 8, 12 or 20 years
Intended to increase supply of housing (including affordable) and reduce sprawl
Cities decide whether to adopt
Cities decide "residential targeted area" and may include additional criteria
In 2025 State Legislature passed HB1491 which significantly amended RCW 84.14 in
areas near high -capacity transit stops.
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Minimum Number of Units as Affordable
Affordable Includes "Low Income"
Affordable Includes "Moderate Income"
Minimum Term
None
None
None
None
20%
Yes
Yes
12 years
20%
Yes
No
99 years
• "Affordable housing" means 30% or less of household income paid for rent and utilities
• "Low Income" means household income at or below 80% of AMI.
• "Moderate Income" means household income at or below 115% of AMI.
• Area Median Income (AMI) is adjusted for household size.
• Ownership may have slightly different limits and requirements.
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................................................,„......„.„,„...„...„..„,.......„...„,.,.,..........„........x...„.........lki.'„,g.
............ .......„„............................„. ....... .... . ............... ................„„.. ..........„...........„................................„................„.....„„„....„
"„'„........................„...................................,......,..........
„... „..„ . .......... ...... .......... .........................
80%
115%
1-..,:-..........!:::.'Peir'ait)...t1,.....:........„!,..,.......!i....,...........:,....,.J..!::::!..:.,!,,;,117..i1.1.,,,:,........,,,,:„...„.
92,080
132,000
•::::::,::::-.:::!...::::::::.:!...:::::::::,..,....g:::111:,:;..4f1:1......:': "IrSttrIS,;:,':,......;.,,:::;:;:,i.'.......,,,....::::';';:i::.i.......,...........,:•....4.!
105,280
151,000
...................................„„............„,..„„„.„,.........................................„............„ ...... ........„...,„...................
.............................................................,................„,„.,„,„„„„„,„.... --.........
$118,400
170,000
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II;::::!,,,!...!!!..),!.:;.:!:::.:fi..;........i.,;::::':ii:',..::::::4'...:...irecer• "'"..:IticS.':i'..1:::.):4::::,..:::.,...:i...2.!:;;;I:,i,:,',::::,i:
$142,080
S204,000
• This chart is a sample related to the required thresholds in the multi -family property tax exemption program
per RCW 84.14.
• The data for 80% of Area Median Income (AMI) is from Washington State Housing Finance Commission
effective 5/1/2026. Data is available for larger households.
• Data for 115% of AMI calculated by City Economic Development staff.
• "Affordable" rents would be 30% of AMI.
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Adopted in 2014
Revised in 2017
Revised in 2021
Revised in 2023
4:- Expanded residential targeted area
Cap of 800 units
-:.Sunset clause December 31, 2028
Southcenter Residential Targeted Area
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• AirMark Apartments - 2018
• Mariblue (formerly Marvelle) - 2021
55+
• Merrill Gardens (formerly Holden) - 2022
Assisted living
. Prose - 2025
4,:fr all ages
All are 8-year exemptions (no affordability requirements)
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• Prato District
• Alliance Residential
• Westfield Southcenter
. Newporter parcel
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Extend sunset clause
Increase cap on number of units
Add additional residential targeted areas (e.g. Tukwila International Boulevard)
Add 20-year option
Adapt for HB 1491
Revise criteria
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Do we want more or better multi -family development? If so, why and where?
• Meet housing targets
• More affordability
Rehabilitation, better design, unit types and sizes, etc.
• Neighborhood benefits (stimulate more development, etc.)
• Is the tax incentive necessary for new development to occur?
• Neighboring cities programs
• Forgone Revenue or Tax Shift
• Effects on other taxing districts
• Administrative resources
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• Would development occur without tax
incentive?
Cost to provide service
• Forgone property tax or tax shift
After added to property tax rolls, grows
at 1% annually
• Stimulative benefits
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 U Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9
Property Taxes
Utility Taxes
MO on €ncome
Sales Tax on Construction
H&don Construction
REST
5 3,758 $ 3,788 $ 3,325
7,200 7,416
- 22040 2,101
191,250
18,488
7,500
$ 3,864 $ 3,902 $
7,536 7,353
2,164 2,229
3,941 $
8,104
2,296
3,981 $
8,347
2,365
Total $ 220,988 5 13,023 $
4,341
4,021
8,597
2,435
$
4,961
8,855
2,509
$ 95,008
9,121
2,584
Year 10
$ 95,958
9,394
2,662
15,425
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Tax Shift/FerEene 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) 3nn.idents spend $100 per month per unit for their utilities and inflation of 3%. Utility tax rate is 6%,
(3) 0&3 on income assumes gross income on property based on rent of $2,000/unit/month and inflation of 3%. Tax rate $0.00085.
(4) Construction starts and is completed in year 0. Property tax exemption starts in year 1.
(5) Taxable construction is $22.5 million (75%nf the $30 million total project cast). City sales tax rate is $.0085.
(5) Real estate excise tax (RE€T) assumes a rate of 0.5% and that the property is sold in year o and year 9.
(7) 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 project may generate parks, fire, and transportation impact fees to be used for capital projects related to new development.
(4) 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 $500,000 house).
(5) This example only shows revenues. It does not show the city's costs of providing services to the new development.
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Research HB 1491
Present options to Planning and Community Development Committee in 03
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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
B&O on Income - 2,040 2,101 2,164 2,229 2,296 2,365 2,436 2,509 2,584 2,662
Sales Tax on Construction 191,250 - - - - -
B&O on Construction 18,488 - - - - - -
REET 7,500 - - 190,016 -
Total $ 220,988 $ 13,028 $ 13,343 $ 13,666 $ 13,999 $ 14,341 $ 14,692 $ 15,054 $ 15,425 $ 296,728 $ 108,014
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) Residents spend $100 per month per unit for their utilities and inflation of 3%. Utility tax rate is 6%.
(3) B&O on income assumes gross income on property based on rent of $2,000/unit/month and inflation of 3%. Tax rate $0.00085.
(4) Construction starts and is completed in year 0. Property tax exemption starts in year 1.
(5) Taxable construction is $22.5 million (75% of the $30 million total project cost). City sales tax rate is $.0085.
(6) Real estate excise tax (REET) assumes a rate of 0.5% and that the property is sold in year 0 and year 9.
(7) 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 project may generate parks, fire, and transportation impact fees to be used for capital projects related to new development.
(4) 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).
(5) This example only shows revenues. It does not show the city's costs of providing services to the new development.
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Office of Economic Development 2023-4-11