Wednesday, January 31, 2007

City Council Nixes Tax Break Break

The Tacoma City Council yesterday shot down a staff proposal to drastically limit the kinds of projects eligible for the multifamily tax exemption often credited with helping to revitalize downtown.

The proposal, discussed at an afternoon study session, would have restricted the tax break downtown and near the Tacoma Mall for one year to projects with at least 30 units built densely enough to accommodate 80 units per acre. Several Councilmembers told Planning Division Manager Peter Huffman they wanted to explore ways to push developers to build urban housing that puts more units on small lots, but none was in favor of the proposed interim change. City Manager Eric Anderson said the proposal would be removed from next week’s City Council agenda.

1 comment:

  1. Nice to see the city council's actions rejecting the proposal and supporting downtown.

    Anyone who is interested in the issue can read a piece I wrote about it below. It gives some background and the reasons the measure would have been injurous to the efforts to re-build downtown Tacoma.

    Also, it appears that neither Seattle, Bellingham or Olympia has any density or project requirements for the incentive program.

    Here it is:


    On February 6th, the Tacoma City Council will consider enacting a one year moratorium (Agenda Item 11277) on the multi family tax exemption for new and restoration projects in downtown Tacoma for projects less than 30 units or have a lower density than 80 units per acre.

    Unfortunately, the moratorium would ban many legitimate projects in downtown Tacoma including Prium Companies’ Foss Waterway project on 1933 Dock Street.

    In order to implement the proposed moratorium, the council would have to declare an “emergency” permitting the ordinance to be adopted first without public comment until Tuesday, April 10, 2007, over a month after the ordinance is adopted. (See the city managers dated January 25 describing the process “[s]imilar to the procedures for enacting moratoria. . .” with a suggested “duration of 1 year.” Page 10).

    Because the moratorium would result in hampering the restoration of historic buildings, “infilling” of downtown lots and other desirable projects, the council should decline to vote for the moratorium. Finally, there are several viable alternatives that the council has to address their concerns with the units near the Tacoma mall that do not have such an adverse impact on other beneficial projects downtown.

    Q1: How has the multi-family tax incentive helped Tacoma and other cities around Washington State like Seattle and Bellingham revitalize their downtown.

    A.1 The tax incentive is used by many Washington cities and is largely credited with much of the progress toward the revitalization of downtown Tacoma. The incentive has been repeatedly described as one of the few tools Tacoma has to encourage investment downtown and to revitalize the city.

    Progress has been made to rebuild downtown Tacoma. Yet Tacoma has dozens of empty, dilapidated buildings, many which have sat empty for decades. The downtown is still strewn with many empty and underutilized land parcels which need to be infilled with residential, commercial and retail to make the city more functional and attractive.

    At the current pace of development downtown, it will still take many years before it has any where near the attractiveness, density and functionality of any other west coast cities.

    If the proposed moratorium is implemented, Tacoma would be in the strange position of having which is most vacant (least dense) and with the highest number of empty buildings in Washington State. Yet, it will have the most restrictive measures on the use of the multi family tax incentive which could assist it.

    Downtown Tacoma needs to create many more incentives for investment, not less.

    Q2: Why is the City of Tacoma considering implementing the moratorium for residential buildings downtown?

    A2: There is a concern about the “manner of construction” of some projects within the Tacoma Mall center and that they have a “lack of pedestrian access improvements.”

    The city is also concerned that the tax exemption should be “reserved for projects of more significant scale.”

    Yet, the tax incentive does not affect sidewalk or construction requirements at all.

    Q3: What harm would the moratorium do to the efforts to restore historical and existing buildings in downtown Tacoma?

    A3: The proposed moratorium would hamper efforts to restore historic buildings by banning many of them from ever qualifying for the tax incentive.

    Many historic buildings are not of a sufficient size to house 30 units. They often cannot build additional units on the building.

    A recent example is The Bridge Lofts (Macourt) at 744 Market Street which has been touted as a great restoration project by the city through print literature extolling positive activity downtown. The former medical building has been converted to residential with commercial and retail on the first floor.

    The building took extensive work and expense to restore and is located in an area with empty storefronts and very little activity. However, because The Bridge Lofts has only has 14 units and only 54 units per acre, this model restoration and re-use would not have qualified under the proposed moratorium which requires a project size of 30 units and 80 units per acre.

    Thus, if the moratorium had been enacted previously, the Bridge would likely still be sitting vacant.

    The nearby Vintage Y, a historical restoration with only 17 units would have been barred as well if it had applied for the multi family tax incentive rather than for historic tax incentive.

    Q4: What harm would the moratorium do to the efforts to fill in empty lots in downtown Tacoma?

    A4: The Growth Management Act, the City of Tacoma’s policies, and City Manager Eric Anderson, have consistently emphasized the important of filling in empty and underutilized lots downtown.

    Filling lots between buildings is important for the functionality, enjoyment and attractiveness of the downtown and adds additional residential and retail space.

    Unfortunately, the size or layout of the space may prevent 30 units of residential space from being built, especially if the first floor houses retail, a critical component. Being located in a historical district may also limit the height and the number of residential units which can be constructed.

    The moratorium would take away a much needed incentive to fill these spaces which are still very prevalent in downtown even with the tax incentive. The moratorium would simply encourage large projects at the edge of downtown where the lots are large.

    Thus, the moratorium would hamper one of the best uses of the multi-family tax incentive : filling in dead zones downtown.

    Q5: Would the proposed moratorium increase the cost of housing?

    A5: Yes, quite considerably. Of the multi family projects built in Tacoma between 2000 and 2005, the moratorium would have kept 14 projects from receiving the tax incentive which would have eliminated 202 units (12 percent) from the housing supply downtown.

    Given a set demand, the price of the remaining units sold would have increased.

    In addition, the smaller projects have been far more affordable than the largest high end projects such as the Esplande and Thea’s Landing.

    Thus, the proposed moratorium would raise housing costs by 1) reducing the housing supply, and 2) eliminating the smaller multi-family projects which are more affordable than units in the larger projects.

    Q6: What specific projects would have been barred from receiving the multi family tax exemption had it been enacted several years ago?

    A6: The proposed moratorium would have barred the below projects from receiving the tax incentive during 2000 – 2007:

    The Galleria (13 units 2520 Jefferson)
    Hunt-Mottet Lofts (20 units by UWT, historic restoration)
    Bridge Lofts (14 units 744 Market – Historic Restoration)
    McCarver Village I (27 units S. 23rd – 25th Yakima)
    Prium project “Nineteen Thirty-Three Dock Street” (90 units - 1933 Dock Street)

    Nearly all of the projects were built in areas which had been blighted and empty in Tacoma for decades before construction started. Many remain relatively isolated.

    The above projects have generally been seen as well designed, pedestrian friendly, and an attribute to Tacoma.

    Future Projects Affected

    The moratorium’s 30 unit minimum project limitation would have likely barred an application from the former Mecca on Broadway and the Luzon Building on Pacific Avenue.

    Prium Companies Foss Water project “Nineteen Thirty-Three Dock Street” would also fail to meet the moratorium’s requirement. The project is currently designed to have 90 units on 1.35 acre lot, only giving 66.7 units per acre, far short of the moratorium’s requirement of 80 residential units per acre. The Prium project fails the moratorium’s requirement as much of the space of the project is currently designed to be commercial and retail. The moratorium only courts residential units in its density calculation.

    There are certainly other many meritorious projects planned and will be planned in the next year which will be impacted.

    Thus, the proposed moratorium would stop some of the best restoration projects and new buildings which are proposed downtown.

    Q7: What tax revenue benefits are there for offering the multi family tax incentive to buyers who agree to locate downtown?

    A7: The City of Tacoma, Chamber of Commerce and many private individuals have gone to significant expense and efforts to encourage people to move downtown.

    All studies which have been done on the issue show that tax incentive program brings in more revenue than if it were not offered. With this knowledge, many Washington cities like Seattle and Bellingham use this tool. These cities continue to vigorously use this tool even though their downtown areas are in far better shape than Tacoma’s downtown.

    The program increases the tax revenue different ways:

    First, the overall assessment of the land greatly increases when a condo or townhouse placed on it it. Land is taxed at full value which means more funds for the city. In the cases a building is removed, the building typically has very little assessed value.

    Second, significant excise tax revenue is gained when the land is originally purchased and when the condominiums are sold. Millions of these additional funds have been used to repair the city streets in Tacoma.

    Third, sales tax must be paid to the city for all of the material purchased for the property which is significant. Significant city B&O tax is paid by the builders, contractors and realtors working on the project.

    Fourth, after 10 years pass, all of the condominium units are taxed as fair market value which invariably will be a extremely high in comparison to the original lot. A lot originally worth $500,000 could likely be worth $10,000,000 when the buildings are taxed.

    Q8: Would the moratorium deter the “mixed use” of properties?

    A8: Yes. By requiring 30 units to qualify, smaller buildings may be forced to place residential living on the first floor when they might have located commercial or retail.

    The proposal moratorium could also have the effect of limiting commercial space downtown. Ironically, an ideally designed 8 story building downtown with retail, commercial and residential units may be forced to alter their design to make sure they meet the moratorium’s residential density and unit requirement.

    The lower threshold is ideal for buildings to be able to use their space most efficiently.

    Q9: What alternatives can the city of Tacoma implement to solve the problems that have been identified without impinging on the positive efforts to rebuild the city and restore the existing buildings?

    A9: There are a number different options the city could implement which would address the concerns raised and not undermine the efforts to restore downtown Tacoma:

    1) Modify and/or enforce the current building code to require street improvements, sidewalks and address other “construction issues” that have been a concern in the Tacoma Mall area.

    2) Require a minimum height requirement for downtown and the Tacoma Mall centers through the building code. This solution would have the benefit of making sure that there was a sufficient sized building on the lot while encouraging a mixed use with retail on the first floor.

    3) Limit any moratorium to the Tacoma Mall area where the substandard buildings were made. The new and restored buildings downtown appear to have adequate sidewalks.

    These measures would satisfy the concerns raised while not impinging on meritorious projects nor hampering the efforts to restore historic buildings.

    VI. Conclusion

    The many detrimental effects of the moratorium have not been analyzed sufficiently for the City of Tacoma to declare an emergency and affect numerous meritorious projects downtown. Nor have the downtown groups that would be most effected been consulted to learn what a one year moratorium would be.

    The cities’ goal of having sidewalks and “pedestrian access improvements” and other “street improvements” can be remedied by a modification and or enforcement of Tacoma’s current building code. They have no relation to the existence of the multi family tax incentive whatsoever.

    Where sidewalks are required, the requirement is not diminished by the presence of the multi family tax incentive.

    The moratorium, as currently proposed, would impede many of the efforts to restore historical buildings, fill in smaller lots, increase the cost of housing, reduce the housing pool, and consequently impede the ability for more residents and businesses to locate downtown.

    The imposition of a year long moratorium would also thwart much of the momentum that has grown over the last 2 years to invest, build and re-locate in downtown and create significant distrust as to the predictability of the city actions. Locating a building downtown takes years to plan, design, acquire the land, permit, build and lease or sell.

    The council should consider the many alternatives to address their concerns which are more narrowly tailored to accomplish their goals without impinging on legitimate projects.