Port Orchard council hears strong public opposition to proposed multifamily tax exemption

City staff presented a proposed multifamily property-tax exemption program at the Port Orchard City Council's Oct. 28 meeting and opened a public hearing that drew multiple speakers urging the council not to adopt the measure as drafted.

The MFTE proposal would allow property owners to avoid property tax on the value added by residential development for eight or 12 years (the 20-year option is not available to Port Orchard, staff said). The 12-year option would require 20% of units in a project to be rented at reduced rates below published HUD fair market rents; the draft ordinance proposes 25% below HUD FMR for those units but the Kitsap Home Builders Association told staff that target may be too deep and urged lowering it to 20%.

Staff emphasized that the program is discretionary: state law authorizes cities to adopt MFTEs but does not require them. City staff presented eligibility criteria intended to encourage higher-value development and downtown revitalization, including one of the following: a mixed-use building with at least 40% or 4,000 square feet of ground-floor commercial, a four-story building with a minimum density of 40 units per acre, —middle housing— on small lots, or structured parking within the building footprint. For the 12-year exemption the draft would cap income tiers for the affordable units at levels tied to area median incomes and place audit and annual reporting obligations on the city.

Opponents said the program shifts taxes to existing property owners and to other taxing districts. Roger Gay, a long-time South Kitsap resident, said: "An MFTE can shift most or even all of the exempted tax obligations to other properties. Basically, we as the taxpayers pay some of the developers' property taxes for 8 or 12 years." He urged the council to ensure all affected taxing districts and county residents are informed.

Other residents urged the council to avoid a "back-door" tax increase. Amy Durgan said rents have not fallen where new apartments were built and asked the city to pursue other ways to improve affordability rather than shifting costs to taxpayers. Russell Warrenton warned the exemptions could deprive schools, the fire district and county services of needed revenue and said recent studies show MFTE is not an efficient way to create affordable family-sized units.

Council members questioned whether the program would deliver the intended public benefits and raised infrastructure concerns. Several members said Port Orchard is already in a period of rapid growth and that incentivizing more units without addressing transportation and public-service capacity could impose higher long-term costs. Council discussion also noted the administrative burden of monitoring and auditing affordability requirements.

Mayor and several council members said they would not forward the ordinance for a vote at this time. Nick Bond (city staff), who led the presentation, said the council had requested the discussion and that any decision to adopt an ordinance would return to council for a vote only after council direction.

What happened next: The public hearing was held and closed. Council members asked staff questions and indicated they would not place the current draft on an immediate vote.

Why it matters: MFTEs are a common tool to stimulate housing construction, but they reduce near-term property tax receipts and shift tax burdens across jurisdictions. The testimony and council reaction indicate the Port Orchard council is wary of that tradeoff without firmer guarantees of deeper or family-sized affordability and stronger safeguards for local services.