Are tax breaks for condo owners fair to others?

PETER CALLAGHAN; THE NEWS TRIBUNE
Last updated: March 30th, 2007 03:53 PM (PDT)

The program allows cities to declare certain areas eligible for a tax break. In exchange for building or rehabilitating multifamily housing in those zones, the owners get a generous reduction in their property taxes for 10 years. The savings flow to the owner of a condo and – theoretically at least – lead to lower rents in apartments.

Tacoma brags that it has sparked development in areas of town that hadn’t seen much, especially downtown. It also helps the city meet the state’s growth management goals of denser urban areas.

But it’s raising tax fairness questions. Some of the tax savings go to owners of pricey condos while poorer people pay full taxes. It also has been used to subsidize some lousy developments, especially in the Tacoma Mall area.

When approached by city staff to consider putting restrictions on the program to get better performance out of developers, however, the Tacoma City Council said no thanks.

Other cities in Washington and Oregon demand some affordable housing elements (Seattle, Kirkland and Portland), or design review (Eugene), or protection for historic buildings (Eugene again), or don’t subsidize four-plexes (Everett, Auburn and Portland). Tacoma has no restrictions.

Even schlocky four-plexes around the mall, many without curbs or sidewalks, are deemed by the council to deserve the tax break.

So now comes House Bill 1910, what one sponsor termed “a little shot across the bow” of the cities.

As written, the bill would make cities demand that some of the units in any project be affordable – defined as within the reach of those making 80 percent of the area’s median income. It also would add reporting requirements so that cities couldn’t just claim the program was beneficial. They’d have to prove it.

It isn’t only the cities that lose property taxes during the exemption period. The state, the counties, ports, park districts and schools also sacrifice some revenue now in hopes of gaining it back after 10 years from increased property values. But while all those governments have a stake, only the city councils get a vote.

That fact led the Federal Way School Board to ask the city to repeal its exemption program. The board argued that it will shift tax burdens from exempted property owners to everyone else.

The bill has some clout behind it, including the co-sponsorship of Rep. Mark Miloscia, a Federal Way Democrat and chairman of the Housing Committee in the state House.

“I don’t know if this is working or not,” Miloscia said of the program. “What are the public benefits in this?”

Rep. Jeannie Darneille, D-Tacoma, worries that the program not only fails to boost affordable housing but also might force low-income people out of the city. She helped sponsor the bill to get the city’s attention, the proverbial warning shot across the bow.

“None of us want to look back in 10 years and ask, ‘What happened to housing diversity in our city?’” she said.

Tacoma claims the program helps low- and moderate-income people, not just buyers of expensive condos. But Miloscia wants proof. While a developer could pass the tax savings on to tenants, the city doesn’t require it and doesn’t monitor it.

“I say, ‘Show me the data,’ and they don’t have the data,” Miloscia said.

To get better information, he likely will propose today to amend the bill so it requires only detailed reporting by the cities. If they can prove there are benefits to the public – not just the developers and condo owners – then he’ll be more supportive.

“We’ll know in two years,” he said. “Then we decide whether to expand the program or kill it.”

Peter Callaghan: 253-597-8657

peter.callaghan@thenewstribune.com

Originally published: March 30th, 2007 03:53 PM (PDT)