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Did tax exemptions bring us Olympia’s downtown apartment boom?

Candidates answer:

The history of Olympia’s downtown property tax exemption indicates that this subsidy has little or nothing to do with the current construction downtown. The City of Olympia has had a tax exemption available since 1997. No strings attached—the only requirement was to build housing in the downtown core.

An exemption that produced nothing for years

Even with the city’s offer of this tax subsidy, no market-rate housing developer was prompted build downtown for 17 years. Only in 2015, almost 20 years later, did investors appear—because they had decided that the market was right new market-rate properties downtown.

Naturally, they are happy to accept a tax contribution from local taxpayers, but that was not their reason for deciding to build. In fact one developer, Rants, cancelled a luxury project after his tax exemption was approved because “there just wasn’t the demand.”

A responsibility to other taxpayers

Should this tax exemption for market rate housing be continued in light of its irrelevance? Add to that the fact that the exemption does nothing for affordability yet shifts millions of dollars onto other property tax payers, and the question is acute.

A chance to evaluate Council candidates’ positions

The South West Olympia Neighborhood Association (SWONA) has for several years asked candidates for the Olympia City Council to state their position on a current issue. This year it was city’s the 8-year tax exemption for multifamily market rate housing downtown.

What they said

Ten candidates responded. Three of the challengers (Booth, Cornell, Humbert) would end the exemption primarily because it shifts more of the burden of an already regressive tax from business to residents—with nothing to show for it. Five (Bateman, Clerget, Jones, Madrone, Selby) attributed the current expansion of market-rate housing to the exemption but thought it could be modified – maybe tied to affordable housing or other benefits. One (Ross) would keep it for a vibrant downtown and one (Goldenberg) would reserve judgement til elected.

What they left out

Only one candidate knew that a 12-year tax exemption has long been available for downtown multifamily housing if 20% of the units qualify as “affordable.” No downtown developer thought that four more years of tax exemption was worth making a fifth of the units affordable. Finally, no candidate other than those who advocated ending the exemption talked about the cost of shifting the burden to other property taxpayers.

Primary Candidate Replies to SWONA Election Question

SWONA asked all candidates to answer this question: If elected, will you pledge to retain or prohibit the use of 8 year tax exemptions to promote market rate apartments in downtown Olympia?

Mayoral Candidates

Brenden Clerget: I will pledge to modify the existing 8-year tax exemption requirements. For 8-year tax exemptions, I would require that a certain percentage, specifically 20%, of the units fall at or below the calculated HUD Fair Market Rent for Olympia, WA. Agreements of this sort are exempted under RCW 35.21.830. For me, these exemptions offer great incentive to developers to help build more units and multi-family housing for residents of the city, which we desperately need. Regardless of our need for more housing to be built, we must be responsible with who we are subsidizing property tax for. If the units are not helping to fill a much-needed housing category for our city, and helping people find more affordable options, then it doesn’t make economic sense for the city to bypass the property tax revenue on a new or rehabilitated property. In general, I am for these types of exemptions and incentives, but they must make socioeconomic sense when taking the current housing needs of Olympia into consideration.

Phil Cornell: The City of Olympia is playing favorites with developers whose only motive is profit.  Tax exemptions do nothing but shift the tax burden to resident taxpayers and I believe that we must all, taxpayers and developers, pay our fair share.  If elected, I will do everything I can to roll back these tax exemptions and send a message to all developers that they are welcome in Olympia IF they pay their fair share to support this community.  A side note; why would any developer want to build in a flood zone?  The city’s sea level rise mitigation plan is not worth the paper it is printed on.  Downtown Olympia will be underwater if the Greenland ice sheet continues to melt.  This is just more proof that the city and developers are not paying attention to the climate crisis that is staring us in the face. (Mr. Cornell dropped out the race)

Nathaniel Jones: It is definitely time to review the costs and benefits of Olympia’s multi-family tax exemption. The incentive was established long ago to stimulate housing development in downtown. But until 123 4th, the exemption was unused. Today, with millions of dollars in committed incentives, we see new buildings going up at a rapid pace.  The exemption worked and now it is due for an overhaul. Olympia can require greater community benefits and can modify the target areas for multi-family tax incentives. We can prompt large multi-family developments to include mixed-income residents.  And we can direct compact development in areas beyond downtown, as called for in our Comp Plan. Generally, we cannot modify state residential energy codes, but with a tax exemption, the community gains new authority. There may be other community benefits that we want to encourage, such as on-site day care, retail space ratios, transit connections, car-share contracts, apprenticeship ratios, green construction, and more. I am not ready to scrap the tax exemption tool, rather I want a thorough review of how it can best be put to use to shape the type of development our community wants and deserves.

David Ross: I would retain the tax exemptions.  I am generally skeptical and critical of “corporate welfare” policies.  But let’s face it, downtown Olympia is constantly struggling.  We badly need market rate housing in our urban core, for many reasons.  People must live, work, and play downtown to regenerate it.  We need downtown residents to spend money downtown and support locally owned small businesses.  We need the ancillary services that supports, and the tax revenue it generates.We also need more housing, but we must build up, not out.  It is not at all progressive to continue to support urban flight, car-based commutes, and national chain retailers who take most revenue out of our community.  Environmentally conscious, sustainable growth happens in downtowns.  It happens with people-oriented mixed-use development and increased walkability.  Our downtown needs much more of that. Our downtown could truly be the heart and soul of our community, instead of somewhere many people avoid.  But we have to spark the rekindling of downtown Olympia, then fan the flame.  Once we have more residents living downtown and it is a proven investment, we could look at changing the tax exemptions.  But we still have lots of work to do.

Cheryl Selby: This question lands at the nexus of our affordable housing and climate crises. The MFTE credits were initially adopted back in the early 2000’s to encourage growth in our Downtown where we have established infrastructure and frequent transit. Welcoming more people to live in our core supports multi-modal options for travel and reduces carbon footprints. Until 2015, it had been nearly 3 decades since a private developer had built market rate housing downtown. Currently council is sensing a shift to confidence in the private market and “proof of concept” projects are filling up quickly. We have less than a 3% vacancy rate in Olympia, so the demand is there. Affordable housing scholars agree that more housing of every type is key to fighting the escalating costs associated with the scarcity of housing (APA 2019 Housing Policy Guide.) The MFTE program helped Olympia gain a diversity of new residents who live, play and work in our downtown. Our LUEC is studying the future of the 8 year MFTE and considering modifications. I support an “inclusionary zoning model” MFTE where a certain percentage of units would be set aside as affordable in perpetuity. Mixed income development creates more resilient and adaptive neighborhoods.

City Council Position No. 2

Jessica Bateman: The structure of the Multi-Family Dwelling Tax Exemption is in the process of being reformed through the land use and environment committee. Although Olympia needs far more housing stock than we’re currently producing to keep pace with projected population growth, our community must remain welcoming to all – not simply to those who can afford market rate or luxury housing. Affordability must be the north star of our housing strategy. I pledge to work with affordable housing experts to reform the tax exemption to incentivize the construction of units that welcome people of all income levels. Some options might include making the exemption contingent on the inclusion of units that will be affordable for low-income residents, shortening the period of the exemption for high-end units and extending it for more affordable units, or applying the exemption only to affordable units. Additionally, Sen. Cantwell has introduced legislation that uses tax incentives to make the construction of affordable units more attractive while keeping big projects in the black. Although it may be some time before that legislation passes at the federal level, I believe we can replicate some of the core elements of that bill at the local level.

Phyllis Booth: I hotly oppose the eight year tax exemptions given to luxury home developers by the City of Olympia.  First of all every year when the City of Olympia explains its budget, they claim they do not have enough money.  On the state level, Boeing has received billions in tax exemptions which leaves little for schools, mental health programs and city needs. For decades, in the City of Olympia, mobile home parks have disappeared and been replaced by expensive apartments.  Where is the planning for housing modest income earners?  Olympia Deputy Planning director Leonard Bauer  said to us that the Missing Middle provides NO AFFORDABLE HOUSING, yet our tax monies were spent on it. Like many cities across the United States, Olympia needs affordable housing.  I will vote NO on luxury tax exemptions,   My husband and I have funded and  Quixote Camp and now Village since 2007 and before that we have helped with wintertime housing in our churches for more than 30 years.   Real estate has become the new “gold mine” across the United States.  Read the new book Capital City by Samuel Stein and find out how the investor class is trying to make your neighborhood their new cash cow.

Alyssa Humbert: Yes, I pledge to prohibit the use of 8 year tax exemptions to promote market rate apartments in downtown Olympia as my commitment to building affordable housing in Olympia. We are in great need of housing in Olympia, particularly affordable housing. Corporations & developers with millions of dollars should not be eligible for tax exemptions, of which taxpayers end up covering the cost. Residents should not be subsidizing luxury & market rate developments in Olympia when affordable housing is needed & wages are not increasing in line with the rise in cost of living. As your councilperson, I will incentivize developers who build affordable housing with tax abatements & exemptions. I want to do my part to ensure a safe, sustainable, & diverse Olympia, so I believe there is a place for market rate housing or luxury housing & I am not trying to exclude these housing units. However, I do not believe these kinds of housing units should be awarded tax exemptions, especially when our city is in such high need of affordable housing. I would like to see tax exemptions, as well as tax abatements awarded to developers who build affordable housing units to encourage more of those.

City Council Position No. 3

Matt Goldenberg: From my research, many other cities in WA use the 8 year MFTE in a similar way that Olympia does, with no affordable housing mandate although there is a mandate of a small percentage of affordable housing to earn a 12 year MFTE. I do not want to make a promise about a way that I will vote when I do not yet have a sense from the council on what projects we think have most benefited our community from their utilization of the MFTE.  I do not feel our greatest need at this time is more market rate housing, but rather I will advocate for mixed income housing and a stronger approach to houselessness.  I have had years of experience as a clinical Psychologist who has worked directly with houseless people and I am aware that there are many paths into houselessness.  I am advocating for expansion of harm reduction-based services which are geared towards reducing the impact of drugs and mental illness on our community.  I support the plan to build another mitigation site as well as the new LIHI site that the home fund will deliver.  We will need multiple approaches to these complex issues.

Dani Madrone: The multifamily tax exemption was allowed through state legislation to encourage dense housing in urban centers. Urban density is important. It protects rural habitat from sprawling development. It creates much needed housing near employment centers. It makes better use of existing infrastructure. It addresses climate change by enabling more walking, biking, and transit.

Tax exemptions exist for other environmental issues that are dependent on a stimulated market. Examples include electric vehicles and solar panels. With these programs, the tax exemptions have an end date. The hope is that the initial stimulation of the market will boost production and bring down overall costs. No tax exemption intended to stimulate a market should exist in perpetuity. The multifamily tax exemption is currently under review by the state, with a report due in December 2019. They will investigate the impact on local revenue, the tax burden on other property owners, and if enough housing would be built without the program. I pledge to determine a timeline to transition the multifamily tax exemption from solely market rate apartments to a program that requires the inclusion of affordable housing units. This study will give the information we need to inform that direction.

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