HomeMy WebLinkAboutItem 01 Property Tax Exemptions for HousingAGENDA ITEM SUMMARY Meeting Date: 5/7/2018
Meeting Type: Work Session Staff Contact/Dept.: Sandy Belson / DPW
Staff Phone No: 541-736-7135
Estimated Time: 35 minutes S P R I N G F I E L D C I T Y C O U N C I L Council Goals: Promote and Enhance
our Hometown Feel
while Focusing on Livability and Environmental Quality ITEM TITLE: PROPERTY TAX EXEMPTIONS FOR HOUSING
ACTION REQUESTED:
Review and provide direction on potential Low-Income Rental Housing Property Tax Exemption and the Housing Diversity Tax Exemption
ISSUE
STATEMENT:
The City recognizes there is an affordable housing issue within the community and
is working to address the problem. The findings point to a shortage of housing and the expense of housing relative to household incomes. Rental vacancy rates are very
low and it is a seller’s market with a shortage of homes on the market. Only one market-rate multi-family housing project has been built in the past decade.
Based on data from the 2010-2014 American Community Survey (ACS), there are 11,225 renter households in Springfield. Half of those renting households (5575) are cost-burdened, paying more than 30% of their income on housing and basic
utilities; and 27% of renting households (2590) are severely cost burdened, paying more than half of their income on housing and basic utilities.
The Council’s Affordable Housing Strategy includes incentivizing the creation of housing at all levels of the continuum, both market-rate and income-qualified
housing. Property tax exemptions are one tool available to help make it more
feasible for developers to increase the number of new housing units and/or to make those units affordable to Springfield residents.
ATTACHMENTS: ATT1: Council Briefing Memo
ATT2: Main Street Proposed Housing Diversity Tax Exemption Boundary ATT3: Proposed Housing Diversity Tax Exemption Boundaries (Citywide)
DISCUSSION/ FINANCIAL IMPACT:
This memo is a follow-up to the 4/2/2018 Council work session on a potential property tax exemption program for Low-Income Rental Housing, and the
2/12/2018 council work session on a potential tax exemption for multi-family
housing, the Housing Diversity Tax Exemption.
Staff is seeking direction on how to move forward concerning the two property tax
exemption programs. The Council Briefing Memo includes policy questions with regard to the Low-Income Rental Housing exemption. For both programs, Council
could set a cap or other limits on the total property tax that could be exempted that
would impact General Fund revenues. In the case of the Housing Diversity Tax Exemption, it is anticipated that in the long term, the City would benefit from the
property taxes collected over the life of the development that may not otherwise have been built.
M E M O R A N D U M City of Springfield
Date: 5/7/2018
To: Gino Grimaldi COUNCIL
From: Tom Boyatt, Development and Public Works Interim Director
Sandy Belson, Comprehensive Planning Manager
BRIEFING
Subject: PROPERTY TAX EXEMPTIONS for HOUSING MEMORANDUM
ISSUE:
The City recognizes there is an affordable housing issue within the community and is working to address the problem. The findings point to a shortage of housing and the expense of housing
relative to household incomes. Rental vacancy rates are very low and it is a seller’s market with
a shortage of homes on the market. Only one market-rate multi-family housing project has been built in the past decade.
Based on data from the 2010-2014 American Community Survey (ACS), there are 11,225 renter households in Springfield. Half of those renting households (5575) are cost-burdened, paying
more than 30% of their income on housing and basic utilities; and 27% of renting households
(2590) are severely cost burdened, paying more than half of their income on housing and basic utilities.
The Council’s Affordable Housing Strategy includes incentivizing the creation of housing at all levels of the continuum, both market-rate and income-qualified housing. Property tax
exemptions are one tool available to help make it more feasible for developers to increase the number of new housing units and/or to make those units affordable to Springfield residents.
COUNCIL GOALS/
MANDATE:
Promote and Enhance our Hometown Feel While Focusing on Livability and Environmental
Quality
BACKGROUND:
This memo is a follow-up to the 2/12/2018 and 4/2/2018 Council work sessions on two
residential property tax exemption programs the Council is considering adding to its toolbox to
encourage housing development: one to incentivize market-rate multi-unit housing in certain areas of Springfield, and one to incentivize low-income rental housing.
Property taxes and property tax assessments are complex, especially after the passage of Measures 5 and 50 in the 1990s. This memo only provides information directly related to
Council’s policy decisions. It is not intended to explain our property tax system.
Some property tax exemptions are enabled directly by state statute without first requiring
support from local jurisdictions. In these cases, the property owner applies for exemption directly to the County Tax Assessor’s Office. Some examples of state-enabled residential
property tax exemptions include:
Non-profit owned residential facility for the elderly
Attachment 1, Page 1 of 6
Non-profit owned student housing
Home of a veteran with disabilities or a surviving spouse of a veteran
Home of a surviving spouse of a public safety officer
Home of an active duty military service member
Housing/land owned by a public housing authority (e.g. Homes for Good, formerly
HACSA)
Other residential property tax exemption programs are made available by state statue only if a
local jurisdiction agrees to formally adopt and administer the program. These programs include:
Vertical housing property tax exemption – This program aims to incentivize mixed-used
residential/commercials properties in a designated zone. Springfield adopted this program in 2007 for the downtown area.
Market-rate multi-unit property tax exemption – This program aims to incentivize
market-rate multi-family properties in certain urban areas. Springfield has not adopted this program but is currently consider this program under the name, Housing Diversity
Tax Exemption.
Low-income rental housing property tax exemption – This program aims to incentivize
low-income rental housing throughout city limits. Springfield adopted this program in
1993, but the ordinance is now outdated and the program would need to be updated.
Locally-driven tax exemptions are the subject of this work session.
LOW-INCOME RENTAL HOUSING PROPERTY TAX EXEMPTION:
At the April 2, 2018 work session, Council indicated support for reinstating the low-income
rental housing property tax exemption program. The availability of this tax exemption has
become more critical in leveraging other resources and establishing a reasonable pro forma for low-income rental housing projects because one common tax exemption that has been used by
local non-profits and religious organizations is no longer allowed. Religious, fraternal, and non-
profits can receive a property tax exemption when the property is used for a charitable purpose. Up until recently, low-income housing was viewed as a charitable purpose. However, given that
other exemption programs exist or could be adopted, low-income housing no longer qualifies as a charitable purpose under this exemption. Housing projects that received a property tax exemption under the non-profit charitable designation will continue to receive the exemption,
but no new low-income housing properties will be eligible for a tax exemption under this program.
Policy objectives
The state statute provides some requirements of the program, but also leaves some policy
objectives up the local jurisdiction:
What types of properties are eligible for a tax exemption?
Per state statute, this program is only available for rental properties for households earning 60%
or less of the area median income.
Q 1: Does Council want to limit this program to new housing, or make it available to existing multi-family housing?
Discussion: Both new developments (including conversion of properties to residential use), as
well as existing residential properties, are eligible for this program. If Council’s primary focus
is to increase the supply of housing, Council may limit this program to new developments (including conversion). Or if affordability is also of concern, Council could make existing
residential properties eligible for this program. For an existing residential property to be eligible, all current residents must be low-income. For example, a residential property built with tax
Attachment 1, Page 2 of 6
credits or government funding is required to charge rents at a rate affordable to low-income residents for a given period of time, known as the “affordability period.” When a property
reaches the end of its affordability period, the property owner has the option to now charge
market-rate rents, often exceeding what current residents can afford. Alternatively, the property owner may want to keep the project affordable to current residents by seeking an exemption of
the property tax.
Q2: Does Council want to set a minimum number of units for a property to qualify for this
program? If so, how many units?
Discussion: To align with the city’s administrative capacity, Council may set a minimum number of units (such as four units) for a property to qualify for the program.
Who can own the property?
Q 3: Does Council want to limit property ownership? If so, how?
Discussion: State statute indicates that property ownership is not restricted for program participation. Council could restrict this program to certain applicants if there is a public policy basis for that restriction. From previous Council discussion it sounded like Council may want to
choose to limit applications to those from one or more of the following groups: private corporations, private citizens, and/or non-profits. Regardless of the owner, the program would
still require that any tax exemption be reflected with lower rents.
How might this property tax exemption affect city revenue?
Although cities implementing the state statute for the low-income rental housing property tax
exemption program must offer the tax exemption for a period of 20 years, cities may limit the
amount of lost tax revenues through this program. The effect on city revenue for low-income properties is not the same as the exemption on a market-rate property due to special assessments.
Some properties are taxed at a reduced value through a special assessment program. In that case, the lower assessed value results in a reduced tax liability. Low-income housing is one type
of property that can receive a special assessment, thereby reducing – though not exempting – its overall property taxes.
In order to qualify for a special assessment, the property must be multi-family housing (four or more units) and must have a government restriction on rents (e.g. low-income housing tax credit,
or federal funding). Most low-income housing developments rely on a government subsidy at
some level, which includes this restriction. When calculating the forgone taxes under a low-income rental housing property tax exemption program, one needs to consider that a special
assessment would be applied to a property, and that the tax “lost” is measured from the lowered assessed value, not what the property would be valued at market-rate.
As an example, staff put together a scenario to determine the amount of lost property taxes for a
35 unit low-income housing development. In this scenario, the property would be receiving a
special assessment, reducing their tax liability:
Attachment 1, Page 3 of 6
Example A: 35 unit, Low-Income Rental Housing
Real Market Value (Land and Improvements) $3,500,000
Special Assessed Value (Low-Income Housing) $580,160
Tax Exemption Impacts 1 year 20 years*
City of Springfield $3,783 $101,647
Lane County (includes Lane Community College and Lane ESD) $1,431 $38,465
Willamalane Parks & Recreation District $1,138 $30,566
Springfield School District $2,667 $71,663
Bonds $1,274 $34,220
Total Taxes Levied $10,292 $276,560
*The estimate for 20 years assumes a 3% annual increase, the maximum increase allowed on the assessed value.
If this property were to qualify for a property tax exemption, the City would be foregoing an estimated $3,783 in the first year and $101,647 over 20 years. If at least 51% of the total combined tax rate of taxation from taxing bodies agree, then all taxing districts will be included
in the tax exemption program.
Although an individual property owner may be exempt from paying property taxes through an
exemption program, the value of taxes owed towards bond payments is evenly redistributed among the other taxable properties in Springfield; as a result the total dollar of the bond payments will still be collected each year.
State statute stipulates a 20-year exemption, as long as the property continues to meet the
guidelines of the program. The property owner does not need to re-apply every year, but
jurisdictions are required to monitor properties for compliance. If a property is no longer compliant with the rules of the program (e.g. residents are not low-income, and/or rents are not
set at a low level), then the property would no longer qualify for a tax exemption.
Q 4: Does the City want to cap the annual amount of tax revenues exempted through this
program? If so, at what amount?
Discussion: The city could place an annual cap of lost tax revenues on the program which would be a cumulative total based upon all property owners receiving the exemption. Other cities have determined that since there are not that many properties receiving the exemption that
the benefit of affordable housing exceeds any need for a cap.
Application fee
Q 5: Does Council wish to charge an application fee?
State statute allows cities to establish an application fee in an amount sufficient to cover the cost
to be incurred by the city and the county assessor in administering the program. The Lane County Assessor’s Office does not charge a fee for administering this program. Springfield did
not charge a fee under the program instituted in 1993. Other cities have similarly waived fees
for affordable housing development as the exemption is intended to incentivize the development and maintenance of affordable housing.
HOUSING DIVERSITY TAX EXEMPTION PROGRAM:
Attachment 1, Page 4 of 6
Council Follow up - Maps
During the work session on February 13, Council provided direction on the geographic areas to
include in the Housing Diversity Tax Exemption Program. The attached maps (Attachments 2
and 3) reflect the Council directed revisions to Main Street area, including only those properties in the East Main Refinement Plan. Per Council’s direction to require ground floor commercial
along Main Street, the Eden East development at the northwest corner of Main Street and
Highway 126 has been excluded from the program area as the East Main Refinement Plan does not allow for commercial uses at that site.
The Roy Gray property north of Fred Meyer to the east of 5th Street that Council designated to allow for medium and high density residential has been included in the Q Street area.
Council Follow-up – Financial Impact
Council requested some additional information on the financial impact of the Housing Diversity
Tax Exemption Program. Different from the low income rental housing property tax exemption, the housing diversity tax exemption program only exempts the increase in improvement value of the property - property owners will pay the full taxes on the land value
and any improvements on the property that existed prior to additional development. Commercial use may be included in the tax exemption if commercial development is included as
a public benefit.
As an example, staff put together a scenario to determine the amount of lost property taxes for a
35 unit market rate housing development.
Example B: 35 unit, Multi-Family Market Rate Housing
Real Market Value (Land and Improvements) $3,500,000
Land Value* $300,000
Assessed Value $2,072,000
Tax Exemption Impacts* 1 year 5 years 10 years
City of Springfield $12,352 $65,580 $141,605
Lane County (includes Lane Community College and Lane ESD) $4,674 $24,816 $53,585
Willmalane Parks & Rec $3,714 $19,720 $42,581
Springfield School District $8,709 $46,235 $99,834
Bonds $4,158 $22,077 $47,671
Total Taxes Levied $33,608 $178,428 $385,276
* Properties receiving the Housing Diversity Tax Exemption are not exempt from paying property taxes on the land value.
In this example, a new market-rate multifamily development with a real market value of
$3,500,000 and a land value of $300,000 would be exempted from about $33,608 for the first year of tax exemption, but would pay about $3,151 in land property taxes.
The City of Springfield would forgo about $12,352 in property tax revenue from the new multifamily development in the first year of exemption. Over a five year period, the City of
Springfield would forgo about $65,580 and $141,605 over ten years. If at least 51% of the total combined tax rate of taxation from taxing bodies agree, then all taxing districts will be included in the tax exemption program.
Attachment 1, Page 5 of 6
As stated above, although an individual property owner may be exempt from paying property
taxes through an exemption program, the value of taxes owed towards bond payments is evenly
redistributed among the other taxable properties in Springfield; as a result the total dollar of the bond payments will still be collected each year.
Q6: Does Council want to set any limits on the amount of property taxes exempted through the Housing Diversity Tax Exemption?
Discussion: Council can limit the property tax exempted in various ways. As previously
discussed, Council could limit the potential exemption to five years instead of the ten allowed by statute. Council could set an annual cap and/or set a cap by area.
RECOMMENDED ACTION: Provide direction on how to move forward concerning the two property tax exemption programs.
Attachment 1, Page 6 of 6
Attachment 2, Page 1 of 1
Attachment 3, Page 1 of 1