Council reviews draft multifamily property-tax exemption, residential targeted areas to spur housing

City staff presented a draft multifamily property-tax exemption (MFTE) ordinance to the Shelton City Council on April 8 that would give developers a temporary exemption from the city’s portion of property taxes in exchange for long-term deed-restricted rental units.

Economic development director Jay Hill described two tiers: an eight-year exemption and a 12-year exemption that comes with deeper affordability requirements, and he said state law (RCW 84.14, as referenced in the meeting) sets eligibility rules and program limits. “We forego the property taxes for a defined period of time, but we get the affordability for the life of the project,” Hill said.

Key provisions discussed

- Eligibility areas: Hill said the draft limits exemptions to properties inside the council-designated residential targeted areas (RTAs). City staff proposed two initial RTAs — a downtown RTA and a Wallace/Neyland-interchange area near K Street and the Walmart/Hall Equities property — and noted the city could add others.

- Unit and affordability thresholds: The draft includes a minimum-size threshold (a minimum of 10 new dwelling units) and a percentage of units required to be deed-restricted affordable. Hill described the more generous 12-year term as tied to deeper affordability in a second tranche of units, and the eight-year term as a lower-threshold option. (Staff presented a matrix in the ordinance text outlining term lengths, percent-of-units, and affordability levels.)

- Covenants and monitoring: Units subject to the exemption must carry deed restrictions enforced by the city, and staff acknowledged the city will need administrative capacity to monitor and audit compliance. Hill referenced past abuses elsewhere and said the city holds the covenant and must ensure restricted units are rented to qualifying households.

- Geographic and statutory limits: Hill said the state statute requires that RTAs be urban, compact growth areas; for some extended exemptions (20-year tiers discussed in state guidance) additional transit proximity and other criteria apply. He told council members that the state has limits on where and how local MFTE programs may be used.

Implementation considerations and council reaction

Council members generally supported the concept as an incentive “arrow in the quiver’’ but several said an MFTE alone might not be enough to attract multifamily developers. Members suggested combining the exemption with zoning changes that remove the planned-development hurdle, density bonuses or other incentives to improve project feasibility.

Hill acknowledged trade-offs. He said the city would forgo some of its property-tax revenue for the exemption period but could gain sales tax, system development charges and other revenues as development occurs. He also flagged administration and enforcement costs and recommended the council include an application fee in the city fee schedule to recover staff time; staff estimated an initial application and ongoing monitoring workload for eligible projects.

What’s next

Staff will refine the ordinance text, return with a recommended application fee for council consideration, and bring the ordinance back for further study and possible action. Hill said the city could also pair the MFTE with a local density-bonus or mandatory inclusionary program in later policy work if council chooses to pursue a broader housing package.

Ending: Staff will polish the draft ordinance and come back with fee language and any proposed changes to RTA boundaries before a formal ordinance reading.