– Carolee Colter and John V. Fox
In the last legislative session, House Speaker and long-time 43rd District Representative Frank Chopp came under heavy criticism for single-handedly killing a bill (HB2442/SB 6311) that would have extended substantial property tax breaks to owners of existing low-income and affordable apartments.
This was bad legislation and it’s a tribute to Chopp’s leadership that he blocked the bill in spite of high-placed criticism. That’s what real leaders are supposed to do.
The Mayor described the bill as a key piece of his Housing Affordability and Livability Agenda (HALA) designed to help preserve the city’s dwindling stock of unsubsidized apartments by “incentivizing” rehab or renovations of older, lower-cost units. In return for 15 years’ worth of tax breaks, an owner would be required to set aside 25% of their units at rents affordable to those earning at or below 60% of area median income.
But in many cases, older rental buildings (built before 1970) now offer nearly all their units at below market rates, at rents affordable to incomes at 50-60% of median, with some a lot less. Even with the tax break offered in this legislation, the cost of financing these renovations would require owners to raise rents on all but that 25%.
To the extent the bill induces building owners to buy into the program, we’d wind up saving 25% of these units but accelerating loss of the other 75%. Upzoning and growth in Seattle ultimately may spell loss of these buildings later anyway, but the bill would speed up the process by years. And the city (and non-profit housing developers) would lose, not gain, opportunities to secure these buildings in public ownership.
Also, the bill as written would have allowed private owners to set rents on the 25% “set aside” all the way up to 60% of median in high-growth, expensive cities like Seattle. How does this benefit the 30,000 very low-income households whose incomes are below 30 percent of median and another 20,000 with incomes below 50% of median? Given a conspicuous shortfall of subsidized units, these groups rely completely on these older, lower-priced, unsubsidized units that the bill fails to help us preserve.
Offering existing housing a tax break also could drive up the value of owning older buildings. Invariably this leads to more rapid turnover of ownership, which translates directly into higher rents. Speculators likely would jump into the market, bidding up prices as well.
The current statewide “multi-family tax exemption” program allows cities to offer tax breaks now only for new construction. In Seattle alone, over $200 million in tax breaks, more than the value of our current housing levy, was given away to developers over 10 years.
Under our state’s property tax system, most of that amount was “shifted” to homeowners, meaning they made up the difference in higher taxes. Extending an equal or greater amount of tax breaks to owners of existing apartments would dramatically increase the tax shift. Yet the bill’s backers seemed oblivious to how this would affect already overburdened low-income and senior citizen homeowners.
There were numerous ways the bill could have been amended to address its shortcomings. Speaker Chopp proposed limiting the tax break for use only by non-profits. But bill supporters were dismissive, saying non-profits already received such relief. This was a distortion.
Currently, a non-profit must offer all or nearly all its housing units at rents affordable to people earning at or below 50% of median, and tap federal state or other public sources to receive a full tax break. Chopp’s proposal would have extended the full tax break to non-profits that set aside only 25% of their units.
Another improvement would be to provide for tax breaks on a shorter-term basis, renewed, for example, every 5 years, allowing for study of the exemptions’ effects, or set it up first as a limited pilot program.
Or give these benefits only to owners of existing buildings that commit to retaining all the units they currently offer at rents affordable to very low-income people. To prevent speculators from jumping in buying up and reselling these units, offer the tax break only to those who’ve owned their buildings for a minimum of five years.
Still another improvement would be to vary the value of the tax break proportionately. Owners would get 20% of the tax break if they offered 20% of their units at below market rates, 30% of the tax break if they offered 30% of their units, and so on up to 100%.
In sum, the bill was not ready for primetime. But none of the bill’s backers were willing to listen to ideas for amendments. And thanks to Frank Chopp, perhaps next year they’ll have to listen if they want any kind of bill like this to pass.