Milwaukie council probes states middle-income revolving loan program, asks staff for more study

Milwaukie City Council members spent the bulk of their March 17 meeting reviewing the states middle-income revolving loan (MERL) program and asking staff for more detail before deciding whether to adopt an originating ordinance that would allow projects in the city to use the program.

The council president summarized recent changes to state guidance and a House bill, saying the states rulemaking "allows for jurisdictions to provide the funding for the property tax deferral through other means," and that the legislation "requires an affordability covenant on all these projects" and permits jurisdictions to levy "a 20% fee for non-compliance." The council president said those changes address concerns many cities raised about enforceability.

Why it matters: MERL can lower the effective cost of building middle-income and affordable housing by deferring taxes tied to new improvements, but it also raises questions about who administers long-term covenant compliance and which taxing districts lose revenue when an increment is waived. Councilors repeatedly pressed staff for clarity on the programs mechanics, the citys legal and financial exposure and possible partnerships to reduce local administrative burden.

Councilors asked several technical and policy questions during the discussion. One councilor asked, "20% of what and at what trigger?" and the council president replied that the 20% non-compliance fee is calculated as 20% of the loan amount and can be applied for failure to meet agreement terms, not solely for affordability breaches. Staff also explained that the program typically treats the waiver as the tax attributable to improvements (the new building), not the preexisting land tax, which affects how much revenue is deferred.

Several council members described the citys limited capacity to run a long-term compliance program and explored options to reduce that burden. "We don't have the staff capacity right now in our system to be able to administer a robust affordability program," the council president said, and staff and councilors discussed alternatives, including requiring developers to carry monitoring responsibilities, partnering with a county housing authority, or arranging a regional consortium to centralize verification for small cities.

Fiscal risk was a recurring concern. Councilors repeatedly asked who would be on the hook if a project defaulted or a property was foreclosed. Staff said the city would enter a loan agreement with the state and grant funds to developers; in such cases the city remains the obligor to the state. Liens and repayment covenants are available as recovery tools, but staff cautioned that foreclosure and eviction processes can be lengthy, creating near-term cash-flow exposure for the city.

The council also stressed the difference between county adoption and city action. While Clackamas County has expressed interest in a countywide MERL ordinance, councilors noted county approval does not automatically cover projects inside Milwaukie; the city would need its own originating ordinance and project-level approvals.

Next steps: Rather than advance an originating ordinance immediately, council members agreed to compile a focused list of questions for staff, seek out partnerships (county housing authority, regional partners) and ask staff to return with answers and recommended compliance approaches. The council president proposed a targeted May 5 work session to review staffs findings and the compliance options before a draft ordinance is circulated for formal consideration.

What was not decided: No ordinance or project was approved at the meeting. Councilors did not take a roll-call vote on MERL adoption; instead they approved the direction to gather information and return with analyses. Council members emphasized the need for additional study and county input before any formal action.

Council members said they remain supportive of affordable housing in principle but cautious about moving forward without clearer protections and administrative plans. "If we don't find someone else to administer the continuing verification of affordability, that would probably be a hard no for me," one councilor said, reflecting a widely expressed concern about the city taking on a new, long-term monitoring burden.

The council also approved the consent agenda earlier in the meeting and recognized Milwaukie Academy of the Arts student Levi Reich for academic and civic achievement. The meeting adjourned after scheduling follow-ups on MERL and other committee business.