Will Tacoma move to apply restriction to 8-year tax exemption for developers?
The debate over what to do with a tax exemption option for developers that doesn’t include an affordability requirement has re-emerged in Tacoma, after a previous push was paused at the end of 2019.
This go-around, Council members John Hines and Kristina Walker are picking up a slice of the debate, co-sponsoring a measure to end the use of the eight-year multifamily tax exemption in two mixed-use centers, Proctor District and Point Ruston.
The proposed restriction would affect residential target areas designated “very high” opportunity based on the City’s Equity Index, effective 90 days after adoption, according to the council action memorandum.
For now, the two areas are the only ones fitting the qualifications under the proposal.
The equity index is used by the city to identify disparities in the city based on census block group data, using 29 indicators within five categories based on the Tacoma 2025 Strategic Plan to locate the greatest community needs.
“Given the market-driven high demand for housing in Tacoma, the City does not need to offer incentives in ‘very high’ opportunity areas that do not include affordability requirements because they are the most desirable places for developers to build,” according to the council action memorandum detailing the measure.
“This policy will reduce inequities by increasing the amount of affordable housing in high rent areas of the City, assuming housing developers choose to pursue the 12-year MFTE rather than no tax incentive.”
Other council members on Tuesday didn’t appear as eager to change the tax incentive in this manner, at least without further debate.
“I hate to take any tool out. I’d rather add more tools in,” Council member Robert Thoms said at Tuesday’s council meeting. “To the degree that we can create tools for the people who are actually going in loaning out for the money to go build these units, which cost tens of millions of dollars to put in, we need to be very careful.”
How we got here
As the multifamily tax exemption program works now in Tacoma, two versions, eight-year and 12-year, offer property tax exemptions to developers. The 12-year version requires a percentage of units in a project to be affordable. The eight-year is simply for market-rate development.
In 2019, a proposed ordinance to introduce affordable units as a requirement in the eight-year version was set for final reading and passage that December.
However, as talk progressed, more council members wanted amendments added to the measure, developers raised concerns, and the council wanted to see what action the Legislature would take on the MFTE programs.
Final passage did come this year in the Legislature for reform.
Developers using either the eight- or 12-year version can renew the exemption, if they agree to reserve a percentage of units as affordable. For example, if an eight-year period is set to expire, a developer can continue on the program for another 12 years, but only if rents are reduced on 20 percent of the units to whatever limit the individual city sets.
“At the end of 2019, I believe what we told the community was, ‘We will be back, we’re going to come back with a more comprehensive approach on the MFTE program,” said Council member Chris Beale at Tuesday’s council session. Beale was a proponent to changes in 2019.
“I think that this is just a really good time for us to pause on this ordinance and revive that discussion about the MFTE program in general,” he said.
Other council members also voiced concerns, and cited new pressures involving lumber costs and access to capital, and that the tool remained a motivator for development, though in the past that angle has been questioned by state analysis.
The measure also received a cool reception earlier Tuesday at council’s study session.
“I guess I’m struggling with this one a bit,” said Deputy Mayor Keith Blocker at the study session. “One of the reasons are, we’ve been telling community members for the past … at least four years, why we still needed the eight-year tax exemption. And I believe that to be true, and I understand that the market is changing a bit, but we’ve also been telling community members that we need housing all over the city of Tacoma.”
Hines, at Tuesday evening’s council meeting, said he didn’t want a lengthy delay on the measure.
“My concern is that, you know, I have heard about multiple projects happening in these areas that are coming, that they’re going to be built,” Hines said. “And that if we pause, then those projects will be built and we will miss an opportunity to have some affordability in these neighborhoods.”
He added: “There are very limited ways for us to get the market to help us. … There could be lots of better things out there, and I’m with all of you … let’s push on the state to give us more tools to get more housing in this community.
“This is in my mind, is something proactive,” he said.
Despite the council’s initial comments, Hines remained optimistic.
“I don’t see this as the end of the conversation on the eight- and 12-year MFTEs. This is the beginning,” he told council.
“I’m sure between now and next week, there’ll be lots of conversations happening,” Mayor Victoria Woodards said at the end of the discussion Tuesday evening.
The Olympian’s Brandon Block contributed to this report.
This story was originally published June 23, 2021 at 10:42 AM.
