Council backs study of 12-year multifamily tax-exemption for Harbor Hill village area

City housing staff asked City Council on March 13 to direct them to study a multifamily tax exemption (MFTE) program and assess applying it to the Village at Harbor Hill. Shay Smiley, housing, health and human services manager, described MFTE as a state-authorized tool to incentivize multifamily development that can help the city meet state housing requirements.

Smiley said the city’s 2023 area median income (AMI) was $106,042 and outlined the MFTE options under state law: an 8‑year MFTE that requires no affordability covenant; a 12‑year MFTE that requires 20% of units to be affordable (low income defined as 80% of AMI, moderate as 115% of AMI); and a 20‑year MFTE that pairs long-term affordability (typically with nonprofit partners) with a 20‑year exemption. “We would recommend a 12‑year MFTE with an affordability requirement and initially require units to target 80%–100% of AMI,” Smiley said.

Staff presented Sumner as a case study where an 8‑year MFTE spurred downtown multifamily projects and the city later revised boundaries and adopted 12‑year incentives for specific areas. Smiley asked whether council wanted staff to pursue a phased rollout beginning with the Village at Harbor Hill in the second or third quarter of 2025 and to prepare boundary-specific tax-shift estimates with the Pierce County assessor.

Council discussion focused on fiscal effects and local benefit. Councilmember Luke asked who pays the foregone taxes and was told the tax burden is shifted across other property owners in the jurisdiction rather than eliminated. “We’re not getting any money from this developer…the taxes get shifted and they still get paid,” Smiley said. Councilmember Storzzet and others framed MFTE as a tool to increase workforce housing that could let teachers, first responders and city staff live in town.

Council signaled support for staff to prepare a detailed analysis for the Village at Harbor Hill, including estimated tax-foregone totals, projected unit counts, and choices about affordability bands; staff said they would return with numbers once a specific boundary was designated. Staff recommended the city pursue the 12‑year option with a requirement that affordable units be at 80%–100% AMI and a phased rollout beginning with Harbor Hill.

Why this matters: MFTE changes how property taxes on new multifamily residential improvements are treated for a defined period. Local adoption can influence where developers build and how much of new housing is affordable. Council’s direction starts a staff process to quantify the local fiscal impact and program design choices.

What’s next: Staff will prepare boundary-specific estimates, a recommended ordinance and a package for council review if the council approves proceeding.