Olympia City Manager Steve Hall and his City Council are giving Walker John, perhaps the City’s biggest welfare recipient, another 8-year tax exemption on a new downtown building. This time it is for Mr. John’s 48 unit Annie’s Artists Flats at 322 5th Avenue. The Final Certificate of Tax Exemption is now at the County Assessor’s office.
The City’s Multi-Family Tax Exemption (MFTE) program gives a tax exemption on the residential portion of the building’s cost. Mr. John says this is $8,121,315. Mr. Hall agrees and CP&D’s Deputy Director Leonard Bauer’s office sends it off to the County Assessor.
Who wins from this MFTE program?
Lucky for us, the entire MFTE program in Washington state is under scrutiny and there are some clear winners. They are the owners of tax exempted apartment complexes.
One hundred and two cities in Washington State are eligible to adopt this tax exempt program for Multi-Family Housing in Urban areas. Forty-nine cities have adopted the program. Twenty-six of those cities have actually approved exemptions. The Olympia City Council decided to adopt the program in 2000 and is one of the 26 cities that has actually given tax exemptions to owners of multi-family housing complexes.
According to a 2019 Joint Legislative Audit and Review Committee report (JLARC), the owners of these exempted properties in Washington State are the direct beneficiaries. Between 2014 and 2018, an average of $1.1 billion/year worth of property was exempted. This saves the owner an average of $2,096/unit on market rate housing. In 2018, owners of these exempted properties saved $80 million in taxes. The program is projected to save owners $137 million by 2023. These millions are either made up by other taxpayers or hand a loss to the taxing district.
Who loses from this program?
Let’s calculate the costs to regular taxpayers. What will we (homeowners and renters) be paying as Walker John benefits from this particular exemption? Divide the $8.1 million by 1000 and you get $8,121. Then multiple by the current millage rate of 12.26 and you get $99,563,46. Multiple that number by 8-years and you get $1,194,761. In other words, Walker will NOT have to pay $99,563.46 in taxes each year. Instead, with a 100% tax shift, city residents will be stuck with the tax bill.
Let’s add this to the other tax gifts Mr. Hall and the City Council have already given to Mr. John’s other buildings: 600 Franklin at $20,836/year. 321 Legion at $55,780/year and 512 12th at $64,635/year. So, add those figures to the $99,563 and we have a total annual welfare payment to Mr. John of $240,814/year. Multiple that by 8-years and it totals $1,926,512.
As a friend of mine said to me recently, “Wait a minute. The City, on the consent calendar which is something reserved for birthdays and memorials, is giving away $1,925,512 million to a rich developer like Walker John and wants me to back fill that lost revenue by paying more taxes?” The answer is yes.
New affordable housing is not happening
Some folks mistakenly believe that builders get this tax break because of a public need for affordable housing. Not so. This program’s main product is not affordable housing. This program has exempted 424 developments in 26 cities and Pierce County, a total of 34,855 units. The problem is only 21% or 7,325 units are “affordable.”
We are losing existing affordable housing
There is certainly anecdotal evidence in the City of Olympia that older apartment rentals are experiencing rent increases due to the imagined possibilities of a high end rental market. These rent increases lead to evictions and evictions to homelessness.
In other words, tax exempted, market rate housing for the Council’s high end clientele is more than likely causing rent increases in previously affordable rentals. On October 9th, the Citizen Commission on Tax Preference,which was created by the State Legislature, was reviewing JLARC’s 2019 report. The Commission said this: “public testimony raised the important question of whether the introduction of the MFTE’s in Washington State has had the unanticipated consequences of increasing rental costs and squeezing out existing affordable housing.”
If the Council is actually concerned about homelessness, they should make sure they are not promoting homelessness by giving tax exemptions to wealthy builders.
There is no transparency in the city’s program
The City of Olympia is one of the five cities that has never filed the required report with the Department of Commerce despite having granted five tax exemptions since 2007 when the law came into effect. The required eight-page form asks vital questions necessary for evaluating the effectiveness of the overall program. In August, the City Council was informed of their lack of compliance with state law and the State’s Auditor is investigating the City’s lack of compliance.
The Citizen Commission noted in their October 9th comments that “the lack of reporting means the actual number of low-income units and associated rents are difficult to identify…. Testimony regarding the City of Olympia’s application of the preferences strongly highlights the current reporting problem.”
We have families in need of rentals
Another loser in this program are families with kids in need of rentals. The median household size in Washington state is 2.6 people, yet 75% of the housing units created under this program between 2007 and 2018 are studio or one bedroom.
Taxpayers lose for no reason
It seems quite possible that the Olympia City Council is giving owners like Mr. John tax exemptions for buildings that would have been built anyhow, regardless of the exemption.
One of the key findings of the 2019 JLARC report is that there is no evidence that the MFTE program is the reason owners choose to build multi-family units downtown This is the case with Olympia. The City started its MFTE program in 2000. However, there were no multi-family units constructed in downtown Olympia until 2016.
Owner J. Brent McKinley has asked the City Council to approve an 8-year tax exemption for his 114 unit Harbor Heights building near the Farmers Market, but he did so only in March of this year. Clearly, whether to construct the building did not depend on the tax exemption. The tax exemption appears to be nothing more than a handout to an already wealthy developer with the potential of shifting the tax bill to all the remaining taxpayers in Olympia.
The unit cost for Walker John’s Annie’s Artists Flats is $169,194. You can use this unit cost to calculate the approximate tax exemption Mr. McKinley will be asking for. That exemption would be $19.288 million. That would be a tax gift to Mr. McKinley of $236,472/year or $1.891 million over 8-years.
Mr. McKinley, through his various Vine Street Associates, rents buildings to the State of Washington. Just for his buildings in Olympia, he collects $9.5 million/year in rent from state taxpayers. Now he is asking the City Council for a tax gift of $1.8 million?
Future policy in Olympia
If in fact the City Council is a “policy setting board” that determines what city staff actually do, it has a chance with the new Council members and a new City Manager to reassess their current MFTE policy.
Perhaps, as a first step, they could halt all MFTE decisions until the staff comes into full compliance with state law. This would require ordering staff to fill out the full 8 page questionnaire for each of their past five exempted buildings since 2007 and file those reports with the Department of Commerce. Council members and the public would have some actual data, which the Citizen Commission on Tax Preference sees as vital to an evaluation of this program.
Then, just as the Council chose to enter the program in 2000; they could choose to leave the program in 2020. At a minimum they could substantially modify the program to serve a public need such as affordable housing. That chance will come soon. Walker John’s request for 8-year tax exemptions for Westman Mills and Laurana and J.Brent McKinley’s request for Harbor Heights have already been sent to the Council.
The Council can continue to approve these tax gifts on the consent calendar or they can pull the motion from the consent calendar in order to facilitate a badly needed policy discussion that would be open to the public.
Dan Leahy is a 35-year resident of Olympia’s Westside, a member of the Decatur Raiders and the South West Olympia Neighborhood Association.