Port Orchard land use committee reopens debate on multifamily tax exemption, asks staff to set work study

The Port Orchard Land Use Committee resumed a discussion June 18 about whether to reinstate a multifamily tax exemption program aimed at encouraging housing development, directing staff to schedule a work study to present options and data.

Nick Bond, Port Orchard community development director, told the committee the city "asked that we revisit MFTE later in the year once we wrapped up all of our housing mandates," and presented data on growth, vacancy and the program's costs and administrative burdens. Bond said the committee should consider targeted uses of MFTE — for example, encouraging mixed-use redevelopment or small-scale infill — rather than returning the program in its previous form.

Bond told the committee that Port Orchard’s adopted comprehensive plan allocated 10,500 new residents from 2020 through 2044 and that the city has already added 3,675 residents; he said recent growth rates of about 4.6% to 6.6% would exceed the plan’s targets unless growth slows. "At the rate that we are growing, we are gonna blow past our PSRC targets," he said, referring to the Puget Sound Regional Council and countywide planning policies tied to Vision 2050.

Bond and Jim Fisk, principal planner, described how MFTEs were structured under the city’s prior program: an 8-year exemption aimed at increasing supply without affordability strings, and a 12-year exemption that required a share of units rented below market to income-qualified households. Bond said audits and annual compliance reporting instituted by the state after 2020 create a significant administrative workload: "Filling out the paperwork for that ... it's a significant amount of data gathering," he said, summarizing his experience administering a currently active project.

Committee members pressed on how much residents actually save and who bears the cost. Council Member Jay Rosepeppe said previous analysis showed the program’s tax shift was small per household but real; Bond summarized a past example, saying the longer exemption produced roughly $800,000 in tax relief to an owner while tenants received substantially less in rent savings. "The amount of savings on rent to tenants was significantly less than that," he said, noting the supply increase has other benefits such as stabilizing vacancy and rents.

Members discussed program design choices now available under state law, including a newer 20-year exemption Bond said appears to require permanently subsidized units, and whether the city should pursue 8-, 12- or 20-year options or change the share or depth of affordability. Council Member Scott Deener said the 12-year program had been controversial when the council previously repealed MFTE in 2023, citing concerns the program effectively shifted a small subsidy across taxpayers while delivering limited tenant savings.

Several committee members said they supported more study rather than an immediate reauthorization. Bond recommended starting with targeted objectives — mixed-use downtown redevelopment and small-scale middle housing infill — and asked whether the committee wanted staff to prepare options. Council Member Eric Warden and Rosepeppe signaled support for a work study; no formal motion or vote was recorded during the meeting.

The committee asked staff for additional information for a work study, including a clear explanation of the tax shift to individual households, administrative costs for auditing affordable units, and comparative examples from nearby jurisdictions that have streamlined compliance. Bond said staff could provide utility-allowance and rent-limit tables and recommended analyzing whether tax relief or direct rental assistance would deliver a greater benefit to low-income households.

Committee members requested the work study return to the Land Use Committee and recommended staff include concrete alternatives, including: an 8-year exemption targeted to redevelopment and mixed use, a modified 12-year program with deeper discounts for limited units, or examining direct rental assistance as an alternative to tax relief. No formal vote or ordinance language was adopted at the June 18 meeting; the committee’s direction was to develop a staff recommendation and schedule a dedicated work-study session.