2012 MFTE Annual Report Reveals Possible Negative General Fund Impact

Home » 2012 MFTE Annual Report Reveals Possible Negative General Fund Impact

Today in my Housing, Human Services, Health and Culture (HHSHC) Committee, OH provided its 2012  Multifamily Tax Exemption (MFTE) Program Annual Report.  The MFTE program, in simplest terms, allows property owners to be exempt from paying property taxes on the residential improvements on multifamily projects in exchange for setting aside 20% of the units to be affordable to moderate-wage workers.

The annual report is required to include, among other things, the estimated total amount of tax exempted annually and cumulatively for individual projects in the MFTE program, as well as for the entire program.  The report is also required to provide an estimated annual impact of the MFTE program on the individual Seattle homeowner.  In the 2011 Annual Report we learned that for MFTE projects receiving an exemption under this program, their owners are estimated to receive about a $170,184,350 exemption for the life of the building’s participation in the project, with a total Seattle homeowner tax impact of $197.50 through 2025.

This year, OH was not ready to provide information on the tax impact of the program and has asked for additional time.  Last year, at my request, the Office of City Auditor conducted a performance audit of the MFTE Program, which is managed by the City of Seattle’s Office of Housing (OH).  One of the findings from the Audit Report was that “OH should…report on actual data, if it is available, rather than estimates. This should include providing actual tax exemption impacts from the King County Department of Assessments…”  My HHSHC Committee is in the midst of a program review.   I support getting accurate information now from the King County Assessor’s Office about the actual tax impacts of the program.

This program was passed in 1998.  There were changes to the program in each 2004, 2008, and 2011.  My emphasis has always been to support increasing the number of rent-restricted units required under the program and making them available to lower income people, for whom the need is greatest.  I voted against the program in 2008 because I believed the changes undermined its effectiveness by 1) subsidizing private developers to build units at essentially market rents, 2) expanded the program to build these market rate units in neighborhoods that have already met growth targets and 3) raised taxes for the rest of us to pay for it.

Each of the times over the last 12 years that program changes were made, the Council and the public was told that there was no general fund impact resulting from the program because the tax reduction developers receive were actually offset with increased property taxes for all other property owners.  Today we found out that this is not the whole story and that some portion of the exempted property taxes is forgone altogether.  In evaluating the project and making future changes it is critical to know what funds we may be foregoing that would otherwise pay for other critical tax-funded services.