Sedro‑Woolley hears state overview of Multifamily Tax Exemption as option to spur housing

The Sedro‑Woolley City Council on Tuesday heard a 30‑minute presentation from Catherine Mitchell of the Washington State Department of Commerce on the Multifamily Tax Exemption program, a state-authorized property tax relief intended to incentivize multiunit housing development.

MFTE lets cities or counties exempt property taxes on new residential improvements for 8, 12 or 20 years in exchange for meeting minimum housing requirements, Mitchell said. “In the most basic terms, MFTE is a tax relief in exchange for housing production,” she said, adding the statute creating the exemption is RCW 84.14.

The program can be customized by local governments, Mitchell said. Eight‑year exemptions have no state affordability requirements; 12‑year exemptions require at least 20% of units be affordable to households at up to 80% of area median income (AMI); 20‑year rental exemptions require inclusionary zoning and long‑term affordability covenants. Municipalities must designate Residential Targeted Areas (RTAs) by resolution before exemptions apply.

Council members focused on local fiscal impacts and administration. Councilman Henderson asked how the city would make up revenue the exemption displaces; Mitchell replied the county assessor generally implements a “tax shift,” spreading the value of exemptions across other parcels in the taxing jurisdiction rather than having revenue simply disappear. “The exact implementation of that is up to your county assessor’s office,” she said.

Mitchell also warned communities to account for program administration and monitoring: owners must report annually and properties with affordability requirements are audited every five years. She said conditional certificates typically expire if projects do not finish within three years (with limited 24‑month extensions), and that properties can be penalized or have exemptions canceled for bad‑faith noncompliance.

Council members asked whether the MFTE would be appropriate for Sedro‑Woolley and how much staff time it would require. Mitchell said smaller cities often handle MFTE within existing planning staff: “For a smaller city, you’re likely to only be processing one or two applications a year… You don’t need one full‑time employee just for the MFTE program with a jurisdiction of this size.”

Several councilors raised concerns about developers using an exemption temporarily and then exiting the program. Mitchell confirmed owners can voluntarily cancel an exemption but noted that with 12‑year exemptions the program requires relocation assistance equal to one month’s rent for affordable tenants when a unit leaves the program, and that canceling would forfeit remaining tax benefits.

Tom (city staff) said the slides would be provided to the council and that staff could take the matter to the planning commission if the council asks them to pursue MFTE.

The presentation left open next steps: the council did not adopt an MFTE program Tuesday but directed staff to continue analysis and said they would consider further study with the planning commission.

For background: MFTE programs are reported and tracked by the Department of Commerce; Mitchell said 58 cities and one county statewide have programs and that Commerce maintains sample ordinances and an MFTE workbook to aid jurisdictions.