Lacey holds public hearing on expanding multifamily tax exemption, staff to draft ordinance

City planning staff opened a public hearing Jan. 21 on a proposal to expand Lacey’s Multifamily Tax Exemption (MFTE) program into the Neighborhood Commercial District and to offer additional MFTE term options, including a 12-year option tied to 20% affordable units and a 20-year option tied to 25% permanently affordable homeownership units.

The proposal would make the MFTE—a local tax exemption designed to encourage residential development—available beyond the Woodland District and add incentives intended to increase long-term affordable housing supply. Staff told the council the 12-year option would apply where projects provide at least 20% of units as affordable at the income thresholds set in Lacey Municipal Code chapter 3.64. The 20-year option, as described by staff, would require at least 25% of units to be sold to or developed by a qualified nonprofit or government entity and remain affordable for 99 years under Washington State Department of Commerce standards; staff said Lacey cannot offer the 20-year rental provisions because the city does not meet the statute’s population and high-capacity-transit thresholds.

Why it matters: expanding MFTE eligibility and adding longer exemption terms is a primary tool the city is considering to encourage production of affordable ownership units and to provide developers with options that improve financial feasibility. Council members said they want clear, accessible information for private developers when the ordinance returns for adoption.

Key details: staff reported the council previously directed pursuing three updates at an Oct. 8, 2024 work session: designate the Neighborhood Commercial District as a new residential target area with 12- and 20-year options; add the 20-year option to the Woodland District; and offer a 12-year extension option for current participants in the 8- and 12-year MFTE programs. At the hearing staff outlined three possible directions: proceed with the October direction, recommend modifications based on public input, or propose an alternative.

Council discussion and next steps: council members asked clarifying questions about which unit types and projects can seek extensions, whether the extension can apply to rental projects, and whether existing apartment properties could apply upon resale or redevelopment. Staff said the proposal can be written to allow existing developments to seek the exemption if they meet program criteria and that a 12-year extension can apply to rentals in certain circumstances (e.g., when affordability thresholds are met). No formal ordinance vote occurred that night; staff said it will draft final ordinance language aligned with council direction and return for formal consideration at a future meeting. Several council members urged staff to ensure developers and the private sector receive clear outreach once ordinance language is finalized.

Funding and limitations: staff repeatedly cautioned that the 20-year sale-based program is constrained by state statutory thresholds (population and transit) and that the program’s longer-term affordability requirements would require qualified nonprofit or government partners to secure permanent homeownership affordability.

Public comment: no members of the public spoke at the hearing.

What’s next: staff will prepare draft ordinance language incorporating the council’s direction (option 1 as discussed by the council) and will return the ordinance to the council for a future vote. The council emphasized the need for clear materials and outreach for developers when the ordinance is published.