Exit133.com: City to Impose New Limits on Tax Exemptions

City to Impose New Limits on Tax Exemptions (29. January 2007, 16:19 by Derek) ~ What Do You Think?

This just in from Erik and the BIA blog:

Next Tuesday evening, February 6th, the Tacoma City Council will consider enacting a one-year moratorium on the multifamily tax exemption for housing projects in downtown Tacoma with fewer than 30 units or a density lower than 80 units per acre.

Public comment won’t be opened until April 10th. I’m sure you have an opinion…

Link to the BIA Blog

Link to the City of Tacoma (pdf)

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This proposed moratorium is ill advised for many reasons.

Historial and building resotration

Many historic buildings are not of a sufficient size to house 30 units. They often cannot build additional units on the building.

A recent example is The Bridge Lofts (Macourt) at 744 Market Street which has been touted as a great restoration project by the city through print literature extolling positive activity downtown. The former medical building has been converted to residential with commercial and retail on the first floor.

The building took extensive work and expense to restore and is located in an area with empty storefronts and very little activity. However, because The Bridge Lofts has only has 14 units and only 54 units per acre, this model restoration and re-use would not have qualified under the proposed moratorium which requires a project size of 30 units and 80 units per acre.

Thus, if the moratorium had been enacted previously, the Bridge would likely still be sitting vacant.

Infilling of lots

Filling lots between buildings is important for the functionality, enjoyment and attractiveness of the downtown and adds additional residential and retail space.

Unfortunately, the size or layout of the space may prevent 30 units of residential space from being built, especially if the first floor houses retail, a critical component. Being located in a historical district may also limit the height and the number of residential units which can be constructed.

The moratorium would take away a much needed incentive to fill these spaces which are still very prevalent in downtown even with the tax incentive. The moratorium would simply encourage large projects at the edge of downtown where the lots are large.

Thus, the moratorium would hamper one of the best uses of the multi-family tax incentive : filling in dead zones downtown.

Affordable housing

Of the multi family projects built in Tacoma between 2000 and 2005, the moratorium would have kept 14 projects from receiving the tax incentive which would have eliminated 202 units (12 percent) from the housing supply downtown.

Given a set demand, the price of the remaining units sold would have increased.

In addition, the smaller projects have been far more affordable than the largest high end projects such as the Esplande and Thea’s Landing.

Thus, the proposed moratorium would raise housing costs by 1) reducing the housing supply, and 2) eliminating the smaller multi-family projects which are more affordable than units in the larger projects.

Rationale Given

Anyone wanting to read the city’s rationale for the proposal should read the City Manager Report to the City COuncil (Page 8) dated January 25, 2007.

There, a concern is raised concerning some 4 plexes built by the Tacoma Mall with 5 pictures attached. They apparently lack sidewalks.

It would seem logical to require sidewalks and/or enforce the building codes which have no connection to multi family tax incentive program.

1 | Posted by Erik | Jan 29, 04:33 PM

I don’t think putting a one year moratorium on tax incentives will change anything in the long run.

What I read here is a one year moratorium so that the city can look at tweaking the rules. I don’t necessarily see a fatal change in law. There are a lot of developments right now that are already being built and already have the tax incentive. Trying to argue that Bridge wouldn’t happen ignores the fact that Bridge did happen. Our condo project boom started a couple years ago and isn’t close to done. Are there other buildings that may follow? Sure. However, I don’t expect to see many big projects in the short term until the big projects we already have are completed and start selling units.

2 | Posted by Derek | Jan 29, 04:48 PM

Here’s the projects that would not have qualified under the moratorium’s new provisions:

The Galleria (13 units 2520 Jefferson)

Hunt-Mottet Lofts (20 units by UWT, historic restoration)

Bridge Lofts (14 units 744 Market – Historic Restoration)

McCarver Village I (27 units S. 23rd – 25th Yakima)

In fact, even the Prium project “Nineteen Thirty-Three Dock Street” (90 units – 1933 Dock Street) would fail as well. The project is currently designed to have 90 units on 1.35 acre lot, only giving 66.7 units per acre.

Projects similar to the Mecca Theater, Luzon Building would likely not qualify either.

Downtown Tacoma is full of empty buildings, we need more incentives to fix them up, not less. Even with the tax incentive, I don’t see a rush to restore them.

3 | Posted by Erik | Jan 29, 05:00 PM

Before commenting on this item, I’d take a spin down south to the Mall area to see the developments that have sparked the issue.

I think it is wise to assess whether the exemption is getting the city what its policy intends, or getting it a bunch of poorly conceived cheap piles of junk. Why not take a breath, just to make sure we aren’t creating urban blight anew? We must be leading some sort of statistic for the most SF constructed at the lowest SF cost.

Also, the negative impact to historical rehabilitation isn’t a great example of why a moratorium on the MF tax exemption doesn’t make sense, for two main reasons. First, there are other programs for historic projects that actually apply to the existing old building (i.e. the envelope).

Secondly, the Bridge Lofts are an odd one in that there are all these metal clad additions on the roof. The MF incentive only applied to new additional SF, not the rest of the rehab.

Agreed that perhaps the City could do a little better with its enforcement of existing standards and requirements.

But nonetheless, go see for yourself.

4 | Posted by Stroker Ace | Jan 29, 05:12 PM

I don’t buy the argument that the Bridge would still be empty if it weren’t for the abatement. Or, at the very least, I don’t believe that in today’s market that should a similar project arise that the abatement would be the “make or break” between doing it or not.

Here’s the thing. In a condo project the abatement is passed along to the new owners. The developers don’t really profit from it as I understand the system. That means that in a condo project the abatement doesn’t really affect either the cost to build the condo or the final market price. All it does is provide an added incentive for someone to buy (again, as it did me) because of the tax break.

But really. If we didn’t have the tax abatement does anyone think that people wouldn’t pay to live at 1933 Dock Street? Is the abatement going to mean the decision between an empty condo and a building full of people?

Would taking away the tax abatement really put new condo projects in jeopardy?

For me, the abatement made my (modestly priced) condo actually workable. But if the condo is going to cost $500K and up, why do those owners get an abatement?

I can see that the abatement allows for a developer to charge less to rent apartments, but I’m not sure it’s needed anymore for condo projects. The benefits of owning a place downtown and the amenities it offers seems to be enough of a sell.

I must confess Peter Callaghan’s article really got to me. We should be more selective about which projects we want to subsidize. I think a moratorium while the Council evaluates the rationale and qualifications needed to get the exemption might be a good call.

5 | Posted by erikemery | Jan 29, 05:39 PM

Erik EH: The benefit of the abatement is passed along (in part at least) to the developers because they can charge more for a unit if the purchasers will receive a property tax credit than if they won’t be able to. Since the value of the remaining tax credit will decrease over time, the part of the condo value associated with the credit will depreciate over time. Hopefully, other developments in the area will more than outweigh the impact of the consumption of the credits on the condo’s value.

Having said that, I tend to agree with you that the tax credit should at least be targeted more carefully in order for the city to get its (i.e., your) money’s worth. A credit limited to high density, mixed-use or commercial buildings downtown would probably do the city a lot more good than the provision of a subsidy on the production of condos that would probably built anyways given the housing market and would certainly be more useful than subsidizing the $1,200/mo apartments that we’ve heard of near the mall (I keep hoping that the rents were misreported if not they’ll just have to fall).

So, yes, I agree that there is plenty of reason to revisit the particulars of the city’s tax abatement program and therefore plenty of reason to establish the moratorium.

Come to think of it, I often find myself agreeing with you. I should get a membership with your theater.

6 | Posted by Erik S | Jan 29, 06:06 PM

So is this for new projects or new and exsisting?

7 | Posted by rich | Jan 29, 06:37 PM

Note that in Seattle (gasp! he said that Which Must Not Be Named) in order to qualify, a building must have a percentage of the units qualify for “affordable” housing. Those units usually wind up being studios, but it is a different way of looking at the credit.

8 | Posted by Bob | Jan 29, 10:13 PM

Part of the rationale for the mortatorium noted in the City Manager’s report is due to “lack of adequate pedestrian and street improvements” in the Tacoma Mall area. It appears in writing his memo, Mr Petty was unaware that the three different sites referenced in the report (along with photographs) have all of their individual required offsite improvements (storm drains, curbs, sidewalks and street paving) approved under a special LID (Local Improvement District) that is scheduled for completion this spring. So to blame it on lack of new sidewalks and fresh paving is faulty. Bottom line is they don’t like what is being built in the Mall area, and with good reason as some of it is pretty bad. Why not impose some architectural standards and leave the current dwelling unit per acre standard alone? Especially downtown. While both the Mall area and downtown are mixed use residential target areas, they are apples and oranges and to penalize Downtown because of what is going on by the Mall is throwing the baby out with the bathwater.

9 | Posted by Mr Insignificant | Jan 29, 11:39 PM

A moratorium isn’t a bad thing. It is just a time out. Real change may or many not come out of it in the end. It is essentially time to breathe. A good project will still be a good project at the end of the day. Others may require some changes. If nothing else it may cause a shift in the minds of those who want to make money here in Tacoma. Do we really want to let someone build here who isn’t dedicated to the city and the community?

10 | Posted by M.W. | Jan 30, 07:39 AM

Yesterday, the Tacoma City Council took off the agenda the limitation to the tax exemption.

The study session (audio) discussing the issue was pretty interesting.

The issue of the sidewalks and other building concerns were discussed but it looks like they are going to address it through the buildings codes.

Also, the best I can tell, no other city using the program have any density or project size requirements to use the tax exemption:

Bellingham Municipal Code, Ch. 17.82.030

Kirkland Municipal Code, Ch. 5.88

Olympia Municipal Code, Ch. 5.86

Spokane Municipal Code,Ch. 8.15

Wenatchee Municipal Code, Ch. 5.88

Those are the ones I was able to look at through the Municipal Research and Services Center of Washington Web Site.

It makes some sense actually. Zoning codes usually limit the density in an area.

The typical conflict results when developers want to built more units and a greater height than than the neighbors want as developers are trying to maximize the property. Thus, the larger buildings are going to be built when the market supports it.

I think any remaining concerns can be dealt with making the zoning of the city reflect what we want so we are not suprised when we see something.

Some cities have design review in different areas of their cities. We basically do in the historic district. Is Tacoma ready to expand it?

11 | Posted by Erik | Jan 31, 10:07 AM

The TNT reported that the moratorium has been taken off the City Council agenda. If this would have been passed along with the PRD moratorium that might have sent a bad message to developers.

My mother recently purchased a townhome that recieved the tax exemption. This project would not be able to recieve the exemption under the new rules. The tax exemption made all the difference in her purchase, she would not be able to afford the place if it weren’t for it.

12 | Posted by Jake | Jan 31, 02:08 PM

I’m glad that your mother was able to purchase your place, but I think that the benefit provided to her by the credit is speculative. Would the developers have charged as much for the unit if there was no tax exemption program? I would say no. The benefit of the exemption goes (at least primarily) to the developer. That’s okay if the city is making a conscious tradeoff to encourage construction downtown, but it’s not a buyer’s assistance program (and probably should not be evaluated on that basis).