Property tax exemption brings life to underused areas

RICK TALBERT AND MIKE LONERGAN
Last updated: April 15th, 2007 01:23 AM (PDT)

Has it outlived its usefulness? Is it giving a break to developers and wealthy condo buyers at the expense of everybody else? Can it be used to accomplish other goals, such as affordable housing? These questions deserve answers.

The program begun 11 years ago has been a great stimulus for smart growth in our city and a tool that has helped transform underused properties into productive housing and mixed-use developments.

Tacoma was the first city to use this tool, created by the state Legislature at our request, to focus residential growth into parts of the city that already have major infrastructure in place, such as our downtown core and neighborhood business districts. The Puget Sound Regional Council tells us that our city should expect to see approximately 3,000 new residents each year for the next 33 years.

The state’s Growth Management Act requires Tacoma to plan for those 100,000 new residents within the city limits, and the construction of condominiums, town homes and apartments provides a way to welcome them while protecting single-family neighborhoods and the attributes that make Tacoma such a good place to live, work and play.

While high-end condos and luxury living in downtown Tacoma have captured the headlines, a number of new developments feature market-rate apartments and town homes that sell or rent below the median price for housing in Pierce County.

From 1996, when the tax abatement program was enacted, through the end of 2006, the program led to the construction of 970 units of housing downtown. During the same 10 years, 270 units have been completed in the Tacoma Mall Mixed-Use Center, and about 230 units in eight other mixed-use centers across Tacoma. More than 20 percent of these units meet the definition of affordable housing – providing rents or mortgages available to households earning below 80 percent of median income.

Those are just the completed projects, with more still on the drawing board. In all, more than 100 projects have been approved by the City Council for the tax abatement program, totaling more than 4,000 units.

If all these projects were to be completed, they would add up to $650 million of new investments in housing and mixed-use retail developments in Tacoma – improvements that may never have been built without the tax exemption program.

Many residents across the city realize that the program has a positive impact on our community, often upgrading underutilized or even abandoned properties. In fact, a number of additional neighborhoods are currently asking to be designated as mixed-use centers so they can benefit from the community and economic development opportunities that accompany the creation of new multifamily housing.

At the request of the City Council, a citywide public process is under way to review the geographies and guidelines for the program. We’ve asked planning staff to involve neighborhood councils and meet with citizens, in advance of a formal public hearing later this year. We’re looking for ideas to improve the mixed-use centers, including the property tax exemption.

Another benefit of the program occurs at the end of the 10-year period, when each property goes fully back on the tax rolls. But throughout each 10-year exemption, Tacoma taxpayers benefit from revitalization of our community, construction jobs, more spending in our local stores and overall economic growth – and even new taxes.

Though temporarily exempt from the property tax on new residential units, these projects do pay sales taxes, business and occupation taxes, real estate excise taxes, utility taxes and even property taxes on the increased value of the underlying land and any nonresidential construction. These taxes help fund essential services across the entire city.

Those who believe the property tax exemption should be linked to developing more affordable housing will be pleased to know that the Legislature is moving toward revising the law. A bill that appears to be moving toward passage allows a 12-year exemption for projects that include at least 20 percent affordable units, and reduces the exemption to eight years for projects without an affordable component. This allows flexibility for market-rate projects, while offering an incentive for affordability.

In addition, city, state and federal governments offer several tools for financing affordable housing development that are far more effective than this tax exemption.

The key message is this: The property tax exemption is working very well to accomplish its intended goals of increased residential density and economic vitality in mixed-use centers. The benefits of this success extend to every resident of Tacoma. We caution against adding requirements to the exemption, which could erase the advantage that is spurring extensive redevelopment.

Rick Talbert is Tacoma’s deputy mayor. Mike Lonergan is a Tacoma City Council member.

Originally published: April 15th, 2007 01:23 AM (PDT)