Council reviews construction excise tax, low‑income rental tax exemption ahead of Wednesday vote

Albany City Councilors on Aug. 11 reviewed two housing tools the city is scheduled to consider for a second reading: a construction excise tax (CET) on added building value and a low-income rental housing property tax exemption for qualifying affordable projects.

Planning staff member Anne Caitlin walked councilors through state law parameters for the CET, which the memo noted was added to state statute in 2016 and allows a one-time excise charge on the value of residential or occupiable commercial improvements at the building-permit stage. Caitlin said the CET’s proceeds must be used under specified allocations: for example, roughly half of residential CET funds must support developer incentives and 35% must go to affordable housing programs as the city defines them. The memo in the council packet included example revenue estimates using five years of building-permit history: a residential CET at 1.0% paired with a 1.5% nonresidential rate could generate several hundred thousand dollars annually, with the packet’s scenario ranges roughly $185,000 (0.25% rate) to about $800,000 (1%/1.5% scenario) depending on chosen rates.

Caitlin explained that the taxable base is the value of improvements calculated at building-permit valuation (not the sales price or land value) and that state law includes mandatory exemptions (public buildings, schools, nonprofit, certain affordable housing and others). The staff memo also proposed a local exemption option to exclude the first $50,000 of construction value from the CET as a local discount and noted that jurisdictions may phase in rates. Caitlin recommended using the Community Development Commission to help define qualifying incentives and programs that CET revenues would fund.

On the low-income rental housing property tax exemption (a 20-year tax exemption tied to long-term rent restrictions), Caitlin explained eligibility is limited to newly created affordable units meeting a 60% area median income threshold (or 80% when complementary federal funding is present). She presented sample 20-year tax‑exemption revenue‑foregone calculations from projects in Albany: a 40‑unit example showed roughly $350,000 in forgone tax revenue over 20 years (about $435 per unit per year); a 147-unit market-rate example (converted to affordable) showed an estimated $1.9 million over 20 years (about $650 per unit per year). Caitlin said the city’s current tax-exemption program for nonprofit projects requires annual renewal and may sunset; the 20‑year exemption would remove the need for annual renewal during the exemption period.

Councilors pressed staff on two recurring points: how the city would ensure the tax-exemption savings are passed through to renters, and whether conversions or renovations that add affordability would qualify. Caitlin said applications would require demonstration that savings are passed down and that recipients would provide annual reports demonstrating compliance and income verification; she said projects that add new affordable units or convert units to affordable housing might qualify if they result in “new inventory.” The council asked staff to clarify statutory language (ORS 307.533 was cited during the discussion) and to provide detailed application and compliance language for the second reading packet.

There was no formal final vote during the work session. Staff said both items are on the council packet for Wednesday’s meeting for second reading and that staff will bring back a resolution with blanks for the council to fill in the rate choices if council elects to adopt the CET. Councilors asked for additional detail about revenue projections, potential local exemptions and a clear explanation of how awards would ensure savings reach renters; staff said they would return with that information.