University Place considers tax incentives to help boost Town Center

Officials in University Place are weighing whether to give up property tax revenue for nearly a decade as part of a deal with developers that would keep construction activity humming at the city’s slow-moving Town Center.

The University Place City Council will consider offering an incentive to developers of one mixed-use building now under construction in Town Center so the developers can put up a second building.

The state tax incentive is similar to what Tacoma used to encourage condominium development downtown and other multifamily projects near the Tacoma Mall in the last decade.

University Place City Attorney Steve Victor said establishing a multifamily property tax abatement is the “only thing” UP officials could come up with to spur construction of another underground parking garage at Town Center. It would serve as the foundation for a new mixed-use structure envisioned for apartments and retail space.

His presentation to the council last week was an initial briefing; further discussion and any decision isn’t expected until early next year. There was little discussion after Victor’s presentation, but it appeared council members were interested in talking about it more.

For the past decade, the city has been working to develop a walkable downtown on a dozen acres along Bridgeport Way West; so far, the main attraction is a library branch that opened last year.

But UP is unable to borrow more money without voter approval. It owes more than $50 million in bond debt issued to develop Town Center and pay for street and other improvements. It also has spent the bulk of the nearly $5 million made available through a state revitalization program last year.

Here’s how the tax-abatement program works:

Under state law, cities designate areas where there’s a shortage of “available, desirable and convenient” residential housing, including affordable housing. City councils can establish the area only after holding a public hearing.

Developers can then apply for a tax abatement on the residential portion of any development they plan to build in the targeted area.

Those who are granted the incentive don’t have to pay property taxes for eight years, or 12 years if it qualifies as affordable housing. Property taxes continue to be paid on the land and any commercial development.

The incentive is attractive to developers because it gives them an increased ability to secure project financing, Victor wrote in a staff report.

“An eight-year abatement from property taxes provides more flexibility to make projects pencil financially, and financial institutions are more willing to provide development loans,” he wrote.

Victor said he was working for the City of Tacoma when it established its property tax-abatement program that led to multifamily housing primarily downtown and near the Tacoma Mall.

“Wherever you put it, you will see housing go up,” Victor told the council.

City leaders also could choose to make the incentive available to developers beyond Town Center to accommodate population growth. The program would let officials target areas for development of apartments or other multifamily housing so it doesn’t intrude on single-family neighborhoods they want to preserve, the city attorney said.

Councilman Javier Figueroa raised concerns about taking property off the tax rolls at a time when UP is struggling to pay for basic services. But he said he’s interested in exploring this idea because there’s no tax on the rolls now.

The idea behind the incentive is that eventually the properties will go on the tax rolls at full value, producing far more government revenue than the undeveloped or underdeveloped land they were built on.

“If that (the incentive) brings about development sooner rather than later, that’s great,” Figueroa said.

Currently at Town Center, construction is well under way on a five-story mixed-use building atop a publicly financed parking garage on the north side of the civic and library building, known as Lot 8.

Brothers Kevin and Steve Berg of Tacoma-based SEB Inc. are developing the project, which features 100 apartments and 12,000 square feet of retail space. The Bergs paid the city $800,000 for the rights to develop atop the garage.

The brothers, who didn’t respond to a reporter’s phone message or email left at their office last week, are interested in developing a similar mixed-use project on the south side of the civic building, known as Lot 10, Victor said.

The purchase agreement for Lot 8 gave them first right to acquire Lot 10.

But the city doesn’t have the money to construct the planned parking garage that would serve as the foundation for the new building. Officials estimate the project would cost about $10 million, and all they have is $1.7 million remaining from the state revitalization funding.

It’s too soon to tell how much property tax revenue the city would be forfeiting, or whether it would cover the $8.3 million needed for the second project.

Victor and the Berg brothers have discussed the city implementing the tax abatement, with the developer in turn constructing the garage and mixed-use building. The city would then buy parking stalls from the brothers for public use with the $1.7 million in remaining funding.

Lakewood and Tacoma are among the local cities that have taken advantage of the multifamily property tax abatement that state lawmakers established in 1995.

Jim Colburn, who coordinates the program in Tacoma, said officials established the incentive the following year.

“We were lobbying it for some time because we needed more housing in Tacoma,” he said.

Developers have used the incentives to construct more than 2,700 dwelling units in Tacoma, according to data compiled by Colburn. It has removed an estimated $303 million in property value from the tax rolls, the data show.

Lakewood started its program a decade ago, but it’s been used for only two projects: the 254-unit Oak Grove Village on Steilacoom Boulevard and the 24-unit Gravelly Lake Townhomes on Pacific Highway. The projects were completed within the past two years.

Community Development Director David Bugher wrote in an email that he’s not fond of the program because he prefers repair and rehabilitation of existing homes to increase ownership opportunities for residents.

But he did say it’s unlikely the Oak Grove and Gravelly Lake projects would have been built without the incentive.

“I guess in a sense the program created a stimulus,” he wrote.