Last year our City Council passed a truly bad piece of legislation when expanding the Multi Family Tax Exemption (MFTE) program.
This program was originally created to stimulate construction of low-income apartment units in distressed areas. If a developer sets aside 20 percent of the units and prices them to be affordable to people making below a certain percentage of the citywide median income, then that developer will not have to pay property taxes on the whole building for 10 years. The difference in city revenue is made up by taxing non-exempt properties at a higher rate.
If developers could only take advantage of these tax breaks in genuinely distressed or low-income areas of the city that are not meeting their housing growth targets under the Comprehensive Plan, and if the set-aside rental rates were pegged to say, 50 percent of median or below, then perhaps the rest of us picking up the slack through increased property taxes might feel it was worth doing, in the same way we vote for the housing levy.
However, the council, under the mayor's urging, expanded this program to neighborhoods that are not distressed at all. Developers in areas like Capitol Hill, South Lake Union, Northgate and the U-District, where development is booming, may also receive these tax breaks. In so doing, the council opened the door for the worst sort of corporate give-away. On March 8, Paul Allen's Vulcan development company was one of the first to walk through that door and obtain a tax break for its Alley 24 project.
The Alley 24 project will rise on the site of the former Lillian Apartments, a historic building in the Cascade community with 33 units, all of them at rents between $400 and $500. The new project will provide 35 so-called "workforce housing" units, from $740 for a studio to $1,000 for a two-bedroom apartment, higher than the average rents in most neighborhoods. (The 130 non-subsidized units will run anywhere up to $2,000.) And the city will subsidize this project at a rate of $1 million over the next 10 years with another 1-2 million from the county. What a trade-off!
This should never have happened, especially on a site formerly occupied by truly low-income units. The MFTE ordinance is supposed to bar developers from receiving these tax breaks at all unless they guarantee 100 percent replacement of housing they demolish with the replacement units priced at rent levels at or below 50 percent of median.
Vulcan got around these provisions by obtaining city approval two years ago to raze the Lillian. In 2002, Vulcan employees first evicted the tenants (giving them financial assistance to encourage their speedy departure), then stripped the plumbing and electrical fixtures from the building, tore out some interior walls and, on the basis of that, obtained a declaration of uninhabitability from the Department of Planning and Development (DPD).
Next the company obtained from a compliant DPD an exemption from the city's building code barring demolition of low-income housing in cases when there are no permits approved for a future use of the site. Despite strenuous objections and an appeal by the Cascade Community Council, Vulcan tore down the Lillian.
A cost of tax breaks
Had Vulcan not circumvented these requirements, aided and abetted by DPD, the Lillian would be standing today. When requesting these tax breaks before councilmember Tom Rasmussen's committee several weeks ago, Vulcan and city housing staff acted as if the site was nothing but a vacant lot.
Even with the demolition of the Lillian a fait acompli, the terms of the MFTE ordinance gave the council the discretion to simply not grant an exemption at all unless Vulcan was willing to build replacement units at rent levels comparable to what the Lillian had offered. But our elected representatives voted 8 to 1 to approve this subsidy for Vulcan. Here's what they said:
Rasmussen argued that because demolition of the Lillian had occurred over a year prior to adoption of the new MFTE program and long before Vulcan applied for permits, his hands were tied. He ignored the fact that under the program, the council has ultimate authority to approve or deny these tax subsidies. After all, that's why approval of the tax break for Vulcan even came up for a council vote. He did indicate he might add new provisions to strengthen the MFTE program against this problem when it was up for review in his committee next month, but no promises.
Steinbrueck spoke eloquently about the continuing loss of low-income housing to demolition and gentrification. He pointed out that pressures on existing housing are likely to rise given the mayor's plan to add increased density across the board in our city. He called for an inventory of remaining existing low-income housing in all neighborhoods. Nevertheless, he voted yes along with the others.
Conlin's logic lost us. He based his test of appropriateness on a calculation - whether the city's total giveaway of tax dollars to the developer was outweighed by the total amount of cumulative rent reductions given to tenants on the set-aside units, and the difference between market rents and the rents on the set asides each year for the 10 year period. Forgive us if we didn't quite get that right. At any rate, he voted yes to the giveaway.
McIver barely uttered a peep during the discussion, although he had argued cogently against the MFTE ordinance last year. He, too, voted yes.
Della, who like McIver opposed the MFTE last year, also said nothing and also supported the giveaway.
Godden asked a question of clarification, then voted yes.
Drago was quite pleased with the proceedings and supported the giveaway.
Compton said nothing and voted for the measure.
Licata was the only councilmember to vote no. He made a strong statement that the MFTE program should not have been extended to South Lake Union in the first place. He concluded that in this particular case, "given Vulcan's demolition of the Lillian, and the fact the set-asides aren't even low income at all-the costs outweigh any public benefit."
John Fox and Carolee Colter are members of the Seattle Displacement Coalition. They can be reached at email@example.com.