IT IS TIME TO QUIT PLAYING HIDE-THE-BALL — Multi-family tax exemption (MFTE). A few months ago, two highly different positions emerged with regard to the financial impact related to the multi-family tax exemption (MFTE) program. Asked what the cost of this new program was…

The City said, and we quote: The short answer is – nothing. The exemption essentially masks the value of the residential portion of a new development such that it does not contribute tax revenue during the exemption period. No one pays more in taxes. During the exemption period taxes accrue from the nonresidential portion of the project, from the substantially greater land value after the project has been completed, and the residents and businesses in the project will contribute substantially with sales and utilities taxes. What’s more, without the incentive, development may not occur at all in these areas – or at least be delayed by many years – leaving some sites vacant or substantially under-utilized and contributing very little in tax revenue to the City. Even during the 12-year partial exemption period, new projects on these sites would contribute more in tax revenue than existing conditions.

The Alliance of Citizens for Edmonds (ACE) stated in a letter dated 11/15/2018 regarding hidden costs, and we quote: The loss of revenue related to this relatively new program is substantial. In 2016, the City implemented MultiFamily Tax Exemption Chapter 3.38, (pursuant to 84.14 RCW) providing for an MFTE on the residential component of a qualifying project value of 100% of the value of that residential property (even though the developer is only required that 20% of the residences in the multi-family development be rented at affordable rates). That exemption is for 12 years, after which the units can be rented at market rates and no longer need to be rented at affordable levels.

MFTE – Multi Family Tax Exemption – what does it do?

Multi Family Tax Exemptions are tools that are provided to property developers by municipalities to encourage housing development in underutilized areas of the community.

 The MFTE area has to be defined and included in the local ordinance. Edmonds has 2 areas – Westgate and Highway 99 subarea

 Developers have to apply for the tax exemption with the city

 Only the residential portion of the property tax is exempted. The tax on the land or any commercial activity is not

The MFTE exemption includes all the local property taxes including the portion that would normally go to the school district and other property tax recipients, thus shifting those taxes to the balance of the community.

The City of Edmonds has never done (and refuses to do) a full-cost benefit analysis of the MFTE program, which includes a description of the tax shift to Edmonds property owners. Recent discussions with the City of Shoreline (who adopted the MFTE program in 2015) revealed that it had never done a full cost benefit analysis.

THE TAX SHIFT On the potential revenue side, the City exempts the residential portion of the property taxes, that would be paid by a developer, for twelve (that’s right, 12) years. This is a tax shift from the owner of the MFTE property to the rest of the Edmonds property owners. It also does not mention that when the 12 years is up, there is no provision that the affordable lower priced units remain affordable, thus deleting the generous “advantage” provided to lower income residents.

On the cost side, the City never explains that there is no property tax cost reduction built into the system for the MFTE property owner. School taxes (ESD15 & WA State school taxes) are not reduced because the City provided the tax exemption, but shifted to the other property owners. No State tax reduction is provided to the City because it is providing the tax exemption. Simply stated, the full City taxes combined with the lost valuation of ALL residential multi-family units born by those taxpayers – their individual rate go up, and the more MFTE exemptions allowed, the greater each individual taxpayer / non-exempt multifamily owner pays. Also on the cost side, there is no analysis of the municipal costs that go to the city due to the increase local population. They include costs for:

 Increased City infrastructure, maintenance and support costs

 The added burden for police, fire and emergency medical services

 The community burden of added vehicles combined with a failure to provide adequate on-site parking

 Impacts on traffic, pedestrian safety and density

There clearly are specific benefits from the reduced rents for individuals and families meeting the lower income requirements. However, the failure by the City to provide a complete financial picture of all costs and municipal burdens is inexcusable. ACE proposes that:

1. The City engage an independent consultant to prepare a complete cost / benefit analysis using existing and projected property tax data, and ALL COSTS AND BENEFITS associated with the 12-year developer residential tax exclusion, and

2. The City Council place a moratorium on accepting further MFTE applications or creating any new MFTE zones (alternative language – until that time that all the cost burdens for both the City of Edmonds and its property owning residents is clearly understood.) for an appropriate period of time.

Only then will the City and its citizens fully understand the full financial impact of this program on them.

Respectfully submitted on behalf of The Alliance of Citizens for Edmonds (ACE). John Reed, President