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Council reopens multifamily tax‑exemption discussion; staff to refine map, program options and costs
Summary
Council and staff reviewed how the city’s previous multifamily tax exemption (MFTE) performed, examined examples and tax‑shift impacts, and directed staff to continue work. Council asked staff to pursue targeted 8‑year MFTE options now and to refer a fuller 12‑year affordability analysis to committee and future council sessions.
City staff led a detailed discussion of the multifamily tax exemption (MFTE) program and how an updated policy might be used to encourage specific types of housing in Port Orchard. Staff reviewed how MFTE works: a certificate exempts property tax on the added assessed value of qualifying residential units for a fixed period (8, 12 or 20 years), and county assessors commonly administer those exemptions by shifting the tax benefit across the local tax base rather than permanently reducing tax receipts for taxing districts.
Why it matters: MFTE can be a targeted tool to encourage dense mixed‑use or structured‑parking projects that otherwise might not be financially viable, but it also shifts tax burden during the exemption period to existing taxpayers and requires ongoing contract administration and auditing. Council members asked for targeted program design to avoid subsidizing garden‑apartment projects that market forces are already producing.
What staff presented: planning staff (Nick) reviewed past and current local projects and MFTE outcomes. He reported that 656 units were approved under MFTE rules previously and that 889 units had been built without MFTE; he used two local projects for illustration: the Overlook Apartments (39 units, earlier MFT approval) and the Payno Apartments (57 units, no MFT). Using assessor data pulled for the meeting, staff said the Payno property’s total tax bill across taxing districts was about $126,000 in the most recent year and that the Overlook’s assessed‑value tax payment reflected the predevelopment base (about $2,000 in the same statement), illustrating how a certificate shifts tax on new value. Staff estimated the owner savings and tenant rent relief from a recent MFTE structure but cautioned that exact amounts vary by assessor practice and the program’s administrative rules.
Council discussion and concerns: council members raised equity and fiscal questions — whether existing residents should shoulder short‑term tax shifts and whether MFTE primarily subsidizes building owners rather than producing substantial tenant benefits. Staff and council discussed refining eligibility so the program incentivizes mixed‑use, taller buildings, projects with structured parking, small infill redevelopments and ownership‑opportunity projects (condos/townhomes) that are not otherwise emerging in the local market. Council also flagged administrative capacity; the 12‑year MFTE requires annual reporting and auditing that would increase staff workload.
Direction: council agreed there is value in targeted incentives and asked staff to return with focused options. Staff recommended pursuing an 8‑year targeted MFTE for specific building types now (mixed‑use shopfront, structured parking, small infill) and to compile a more detailed analysis for a potential 12‑year option that carries affordability requirements (higher tenant discount and income‑limit design). Council asked staff to refer the issue to Economic Development and Land Use committees for mapping eligible areas and to return to full council with refined program language and a cost estimate, including an estimate of likely tax‑shift impacts per household in Port Orchard.
