The Vancouver City Council made its first concrete changes to an oft-debated tax exemption program meant to increase housing stock within the city, following more than a year of discussion and at least one postponed vote.
The tweaks to the program are minor, a precursor to a broader overhaul city staff plan to undergo later in the year.
“We are planning on coming back,” said Chad Eiken, Vancouver’s community and economic development director. “The current proposal can I guess be considered an interim measure.”
Following the vote at Monday evening’s city council meeting, Vancouver’s Multifamily Tax Exemption program will now require apartment developers to meet more stringent requirements for the public benefit projects that allow them to qualify for a tax break.
The MFTE grants developers an eight-year break on their property taxes if they agree to complete a project with some sort of public benefit, such as a public plaza, a park or additional parking spaces.
According to the city council, that option has historically been poorly defined, with inconsistent parameters that allow developers to avoid taxes with all kinds of projects. On Monday, the city council narrowed the “public benefit” option so that developers will need to meet stricter requirements to qualify.
In a significant change, the upfront cost of a public benefit project must amount to at least a quarter of the developer’s savings over the life of the tax exemption. The value of the public benefit project must be “substantial,” the document reviewed by city council Monday stated.
Some past applicants wouldn’t have qualified. For example, in March 2019, a housing developer received a $2.78 million tax break on a market-rate apartment project in exchange for a $500,000 upgrade to the Esther Short Park Playground.
“I am in favor of that quantification of 25 percent,” Councilor Sarah Fox said.
In another change, in order for extra parking to be considered a public benefit the developer will have to provide the additional spaces within a garage — surface parking doesn’t count anymore. They’ll also have to provide at least 10 percent more spaces above and beyond minimum parking requirements.
For a public plaza to qualify, the council decided Monday, it needs to be at least 1,000 feet, and remain open to the public even after the tax exemption expires.
The changes adopted Monday also slightly expanded the boundary of which neighborhoods qualify for the MFTE. A 2-acre parcel downtown that lies just outside the existing border will be permitted to apply to the program for a 200-unit building proposed by Kirkland Development.
Fox was the only councilor to vote against the resolution Monday, on the grounds that expanding the boundary of a program still under such heavy revisions seemed premature.
“Expanding the boundary feels not right nor ready,” Fox said. “Here we are expanding a boundary, not clear of what we’d really like to see even as criteria.”
Skirting the affordability issue
A few applicants pursue the “public benefit” option when applying for the MFTE program. But most developers qualify by agreeing to keep rents below a certain threshold, with an eight, 10 or 12 year break on their property taxes if they agree to price a portion of their units so that they meet local affordability metrics.
However, the tax exemption program has often been criticized by members of the community as a futile tool for keeping rent in check. The longstanding issue stems from how Vancouver defines affordable housing.
The formula is linked to the area’s median family income as defined by the U.S. Department of Housing and Urban Development. The HUD data groups Vancouver in with the Portland metro area, where income is much higher. A median family of four, for example, makes $64,900 annually in Vancouver; for the greater Portland area, that figure is $92,100.
As a result, developers were receiving tax breaks on projects that technically qualified as “affordable,” even if rents remained out of reach for the typical Vancouver household.
In December, the city council had planned to revise the income data used to calculate median income so that it better aligned with Vancouver. However, they ultimately decided to postpone that vote after hearing from housing developers that the change would price them out of the program.
With Monday’s decision, they circumvented the affordability debate altogether.
Rather than adjust the income parameters, councilors elected to change the language used in the program — housing built under the MFTE is no longer billed as “affordable,” but as “income-based.”
The surface-level change attracted some criticism during Monday’s public hearing.
“It is not clear to me the objective of what ‘income-based’ means in this context,” said Terence Ibert, a citizen who testified before the vote. “Why are we not instead for this interim adjusting down this bracket 30 percent?”
Vancouver leaders plan to continue studying the MFTE’s parameters and could potentially still decide to cap qualifying rents so that they more closely align with the city’s income data. According to City Manager Eric Holmes, that analysis will likely take the rest of 2021 to complete.
“Council is very much aware of the current issues,” Eiken said, adding that a more comprehensive rewrite of the MFTE’s requirements will ideally address affordability in a way “that will not result in a significant decrease in the program” among housing developers hoping for a break on their property taxes.