HomeMy WebLinkAboutItem 01 Housing Diversity Tax ExemptionAGENDA ITEM SUMMARY Meeting Date: 3/13/2023
Meeting Type:
Work Session
Staff Contact/Dept.:
Katie Carroll/DPW
Staff Phone No:
541-726-3660
Estimated Time:
45 Minutes
SPRINGFIELD Council Goals:
Promote and Enhance
CITY COUNCIL
our Hometown Feel
while Focusing on
Livability and
Environmental Quality
ITEM TITLE: HOUSING DIVERSITY TAX EXEMPTION
ACTION Provide direction on the design of a property tax exemption program to incentivize
REQUESTED: development of multiple -unit housing in Springfield.
ISSUE The City recognizes there is a need for more housing choice in the community and
STATEMENT: is working to address this problem through measures in the Housing Strategy.
Springfield has a very low vacancy rate and a third of households are cost -burdened
(paying more than 30% of their income on housing expenses).
A challenge Springfield faces is a lack of diversity in housing types available in the
market. Several multiple -unit housing projects have been built in the last five years,
but Springfield still does not have enough housing to meet demand. The Council's
Housing Strategy identified property tax exemptions as one tool to explore to help
spur housing development. A property tax exemption for multiple -unit housing
could incentivize development of more diverse housing types.
ATTACHMENTS: 1: Council Briefing Memo
2: Draft Tax Exemption Area Maps
3: Property Tax Exemption Scenarios
4: Background FAQ
5: Program Review: Insights from Other Cities
6: Presentation Slides
DISCUSSION/ Council developed the City's Housing Strategy between 2016 and 2017, identifying
FINANCIAL property tax exemptions as one tool that could be used to help meet housing needs.
IMPACT: Council directed staff to explore a property tax exemption for multiple -unit housing
(ORS 307.600-637). Council discussed this exemption and provided direction to
staff during several work sessions between 2017 and 2020. During this work
session, staff is seeking confirmation of the geographical areas that would be
included in the tax exemption. Staff is also seeking direction on if and how to cap
the total tax exemptions available through this program.
A property tax exemption could impact the City's property tax revenues by
exempting qualifying residential multiple -unit projects from paying some property
taxes for several years. The purpose of the tax exemption is to incentivize
construction of housing that would likely not otherwise be built, resulting in a long-
term revenue gain by adding improvement value to the City's property tax rolls. To
address the fiscal impact of the program, Council may decide to institute a cap.
MEMORANDUM
City of Springfield
Date: 3/13/2023
To: Nancy Newton COUNCIL
From: Katie Carroll, Housing Analyst BRIEFING
Jeff Paschall, Community Development Director
Subject: Housing Diversity Tax Exemption MEMORANDUM
ISSUE: The City recognizes there is a need for more housing choice in the community and is
working to address this problem through measures in the Housing Strategy. Springfield has a
very low vacancy rate and a third of households are cost -burdened (paying more than 30% of
their income on housing expenses).
A challenge Springfield faces is a lack of diversity in housing types available in the market.
Several multiple -unit housing projects have been built in the last five years, but Springfield still
does not have enough housing to meet demand. The Council's Housing Strategy identified
property tax exemptions as one tool to explore to help spur housing development. A property tax
exemption for multiple -unit housing could incentivize development of more diverse housing
types.
COUNCIL GOALS/
Promote and Enhance our Hometown Feel While Focusing on Livability and Environmental
Quality
BACKGROUND:
Between 2016 and 2017 Council conducted a comprehensive analysis of housing needs in
Springfield and developed Springfield's housing strategy. As part of the strategy, Council
identified low-income and market -rate property tax exemptions as tools the City is interested in
exploring to incentivize the development of more housing in Springfield.
In an April 10, 2017 work session, Council reviewed a comparison of the City's existing
Vertical Housing Development Program (VHDP) and the State -enabled multiple -unit property
tax exemption. Both offer tax exemptions for development of transit -served multi -unit housing.
At that meeting, Council directed staff to continue developing a potential multiple -unit property
tax exemption program which is being called the Housing Diversity Tax Exemption (HDTE).
Council provided additional direction on the potential HDTE program during work sessions
from 2017 through 2020. Most recently, Council directed staff to continue developing this
program in a May 9, 2022 work session. During tonight's work session and an upcoming
work session this spring, staff is seeking direction from Council on additional aspects of the
potential HDTE program.
For more background on this tax exemption, please see Attachment 4. A summary of other
cities' exemption programs is available as Attachment 5.
Attachment 1 Page 1 of 6
Need for Prooertv Tax Exembtion
In 2018, AARP and LOCUS partnered with the City to assess Springfield's multifamily housing
market and the potential HDTE program. At that time, there had only been one market -rate
multi -unit residential project developed in the previous decade. The findings of that report were
summarized in a February 4, 2019 Council work session. The report determined that high
development fees, lower market rents, and a high capitalization rate' curbed multifamily housing
development in Springfield. The report recommended implementation of the tax exemption to
prepare the City to capture future changes in the market that would encourage multifamily
housing development to occur, and to attract different types of developers that may be interested
in the exemption.
Since the LOCUS report findings, some multiple -unit market -rate housing has been built and
other projects have been proposed. However, rising interest rates and high construction costs
could hamper development and make it harder for projects to pencil without financial incentives
like tax exemptions.
EXEMPTION AREAS:
History
Council must designate areas of Springfield within which the tax exemption would be available.
By statute, these areas must be core areas or areas within one quarter mile of a fixed transit
route. Council provided direction on areas to include in the tax exemption in work sessions on
November 6, 2017, February 12, 2018, and March 9, 2020. Council has directed staff to include
areas around Downtown, Main Street, Mohawk, and Q Street as program areas. Council also
directed staff to not allow projects proposing ground floor residential facing Main Street to
qualify for the exemption. During its March 9, 2020 work session, Council reviewed options for
including Downtown as a program area. Council considered the interaction between the potential
HDTE area and the existing urban renewal district and VHDP zone. It directed staff to include
Downtown as an HDTE area, and to replace the existing VHDP zone with the HDTE program.
Most recently, Council directed staff to include an additional property in the Q Street area, east
of Mohawk Boulevard/ 19' Street, in the areas under consideration.
Since the HDTE area downtown overlaps with the urban renewal district, neither the City nor
the Springfield Economic Development Agency (SEDA) would collect property taxes on any
new residential improvements from approved projects in those areas for the duration of their
exemption. Council has directed staff to allow developers building Downtown to choose
either receiving SEDA's incentives (payment of SDCs on behalf of developer) or the tax
exemption so as to prevent stacked incentives. Staff anticipates developers would generally be
more interested in SEDA's System Development Charges (SDC) assistance because it would
reduce upfront development costs. Tax exemptions do not reduce the cost to develop but do help
balance cash flow once a project is built.
Current Draft Areas
Planning staff have reviewed draft exemption areas maps presented to Council in 2018 and 2020
and made several recommendations for refining exemption area boundaries. The following
' The capitalization rate (cap rate) is the rate of return on a real estate property investment based on the income that
the property is anticipated to generate. It is used as a measure of risk that developers and investors consider when
determining where to build. When indicating market stability, cap rates should be lower than a local project's yield
on costs.
Attachment 1 Page 2 of 6
adjustments have been made to the mapping methodology, which has somewhat altered the
mapped exemption area boundaries included for Council's review as Attachment 2.
Changes include:
1. Based boundaries on plan designations rather than zoning. This approach focuses
the exemption program in areas of Springfield where multiple -unit residential of higher
densities is a desired future land use.2 Applicants would be required to meet all
applicable planning regulations, so if current zoning does not allow for the housing
proposed, an applicant would apply for a zone change so the zoning is consistent with
the plan designation.
2. Simplified boundaries. Individual properties were not analyzed and included or
excluded based on development potential, giving developers flexibility to make site-
specific determinations about redevelopment or infill potential if proposed projects meet
Development Code requirements.
3. Included and excluded properties based on proximity to transit. Statute requires
exemption areas to be within '/4 mile of transit. For exemption areas intersected by that
distance, properties were included in the exemption area when at least 80% of the
property fell within 1/4 mile of transit.
4. Limited southern extent of the Downtown exemption area. This boundary was
refined by only including areas within '/4 mile of the downtown Springfield transit
station to account for the access barrier created by the train tracks. This more accurately
reflects southern areas of Downtown that can access transit with '/4 mile walking
distance.
The exemption area boundaries shown on maps in Attachment 2 may need slight adjustments
before adoption of an HDTE program to match the plan designations adopted during the
Comprehensive Plan Map Clarification Project.
Question: Does Council want to make any changes to the draft exemption areas?
FISCAL IMPACT:
The purpose of the exemption is to spur multiple -unit residential development by exempting
property taxes on residential improvements for approved projects for a number of years. In
exchange, Springfield would benefit from the addition of needed housing, project -related public
benefits (see page 5 for discussion), and an influx of valuable improvements on the tax rolls
once an exemptions end.
The impact an HDTE program could have on the City's property tax revenue depends on several
factors, including:
Individual Proiect Characteristics
By statute, property taxes may only be exempted for new multiple -unit residential improvements
(including residential parking) or commercial improvements approved as a public benefit. Land
and other improvements are taxed during a project's exemption period.
A project approved for exemption that is built on a vacant site would not result in a net loss of
existing property tax revenue for the City. The land would continue to be taxed. If a project were
'Plan designations included: High Density Residential, Medium Density Residential, Commercial Mixed Use (MU),
Downtown MU, Booth -Kelly MU, Medium Density Residential MU, MU/Nodal, MU, MU 2&3, MU 2A&2B.
Attachment 1 Page 3 of 6
built on a site with existing improvements that were razed, the City would lose the property tax
revenue those improvements brought in. If existing improvements were kept, the City would
continue to receive tax revenue from those improvements during the exemption. It should be
recognized that although the City would not "forgo" property taxes under this program, there
would be no additional tax revenues collected during the exemption period to offset the
increased demand on City services by the additional people residing there.
To demonstrate how different projects granted this exemption might impact the City's tax
revenue, Finance staff prepared three scenarios of estimated exempted property tax revenue
based on existing, recently built multiple -unit projects in Springfield (see Attachment 3). These
scenarios assume the actual assessed value (AV) of each project in fiscal year 2023 (FY23) as a
starting AV for the project if it were newly built in FY23. The AV shown includes only the
value of structures, not land, to better represent tax the City would exempt.
The scenarios assume a 3% annual growth in AV, and a constant tax rate over a ten-year period.
The scenarios do not account for more complex taxation scenarios that could impact the tax
collected from a property, such as razing of existing taxed improvements or addition of
improvements that are ineligible for a tax exemption.
The FY33 column estimates the AV of structures and the taxes that would be collected
beginning the year after a ten-year exemption ends. When an exemption expires, the County
Assessor reassess the project's AV which may cause it to increase or decrease. Along with the
tax rate in place that year, the reassessed AV would determine actual taxes collected.
Pro ar m�Cap
Council may choose to set a cap on the program to limit its fiscal impact with greater certainty.
Of exemption programs reviewed by staff, only the cities of Eugene and Portland have program
caps. Eugene has capped the total number of units that can be approved, and Portland has a
rolling five-year cap on the maximum forgone revenue that is approvable.
Two options Council could consider include:
Option A: Include language allowing Council to institute a cap on forgone revenue by
motion at any time.
• Example: At any time, the city council may, by motion or upon request by the Lane
County Board of Commissioners, set a limit on the maximum amount of foregone tax
revenue provided as a benefit of the exemption under this chapter. (via Cottage Grove
Municipal Code, 3.10.010(D))
• Commentary: Council would be required to review and approve or deny each exemption
application. Staff could also provide Council with an annual report on HDTE
applications and approved projects. These touchpoints would allow Council to regularly
check in on the program's fiscal impact. Under Option A, Council could institute a cap
at any point it determines it is necessary based on the level of interest in the program and
budgetary conditions.
Option B: Set a cap on the total taxes exempted for the program.
• Example: This program is subject to a capon total City of Springfield taxes exempted of
one million dollars ($1,000,000), based on the total estimated tax exemption of each
approved project. When cap is reached Council may either extend the cap or sunset the
program.
Attachment 1 Page 4 of 6
Commentary: Based on the three project scenarios and assumptions detailed above and
in Attachment 3, the property taxes the City would exempt over ten years would average
a little less than $3000 per unit. The actual amount of tax exemption per unit would vary
based on project AV and tax rate. Generally, larger projects have lower per unit property
taxes. Using the per unit average calculated, capping the program at one million dollars
in total exempted tax revenue would support the addition of about 350 new units in
Springfield.
Option B would allow Council to set an upfront maximum fiscal impact to the City,
however, given the wide variability in AV, it is not possible to determine how many
units could be built under any given financial cap. If Council moves forward with
Option B and there is significant interest in the HDTE program, the City could institute
an additional per year cap on the program to help spread out the fiscal impact.
Question: Should staff move forward with Option A or Option B? If Option B, what
should the cap be on City of Springfield taxes exempted for the program?
NEXT STEPS:
Public Benefit Requirement
Per statute, projects approved for the tax exemption must provide at least one public benefit in
exchange for the exemption. The City must determine what public benefits qualify for the
program. This is an opportunity for the City to realize certain public benefits in multiple -unit
housing projects that support other City goals and which the market may not otherwise provide.
Staff will review this aspect of the program with Council in greater detail at its next work
session on the HDTE later this spring. Public benefits will likely also be a topic of interest for
Springfield's other taxing districts when the City approaches them about the exemption
program. More information on the public benefit requirements of other cities is available in the
program summary memo as Attachment 5.
Other Program Requirements
In addition to determining exemption areas, whether to cap the program, and the public benefit
requirement, the City will need to set other minimum application requirements and determine an
application review process. Staff will review potential minimum program standards and an
application review process with Council at its next work session on the HDTE later this spring.
Additional Steps Needed to Begin Program
• Notify other taxing districts of intent to move forward with a tax exemption program
• Evaluate program administration costs and determine application fee in coordination
with County Assessor
• Develop program guidelines and code
• Hold a public hearing on the adoption of ORS 307.600-637
• Adopt necessary code changes, exemption area maps, program guidelines
• Develop application materials
• Council review and rule on individual applications
Attachment 1 Page 5 of 6
RECOMMENDED ACTION: Give staff direction on the following questions:
1. Does Council want to make any changes to the draft exemption areas?
2. Should staff move forward with Option A or Option B? If Option B, what
should the cap be on City of Springfield taxes exempted for the program?
Attachment 1 Page 6 of 6
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Attachment Page 5 of 5
ATT3: Property Tax Exemption Estimates
All scenario projects are located in tax code area 01900, which has a tax rate of 18.2578 per $1,000 assessed value (AV). The City of Springfield's
share of this tax rate is 7.0489 (does not include any rate attributable to SEDA). AV shown only reflect structure value (does not include land
value which is not exempted).
5800 A Street
Parcel: 1702343200201
Details: 9 x 2 -bed units, built 2021
Built: 2021
#
1
2
3
4
5
6
7
8
9
10
11
Fiscal Year
FY23
FY24
FY25
FY26
FY27
FY28
FY29
FY30
FY31
FY32
FY33
Assessed
Value $
755,425
778,087
801,430
825,473
850,237
875,744
902,017
929,077
956,949
985,658
1,015,228
Property Tax
$
13,792
14,206
14,632
15,071
15,523
15,989
16,469
16,963
17,472
17,996
18,536
Total Property Tax Exempted 158,114
Total City of Springfield Property Tax Exempted 61,044
1100 Q Street
Parcel: 1703261403 808
Details: 20 x 2 -bed units, built 2019
#
1
2
3
4
5
6
7
8
9
10
11
Fiscal Year
FY23
FY24
FY25
FY26
FY27
FY28
FY29
FY30
FY31
FY32
FY33
Assessed
Value $
1,083,393
1,115,895
1,149,371
1,183,853
1,219,368
1,255,949
1,293,628
1,332,436
1,372,410
1,413,582
1,455,989
Property Tax
$
19,780
20,374
20,985
21,615
22,263
22,931
23,619
24,327
25,057
25,809
26,583
Total Property Tax Exempted 226,760
Total City of Springfield Property Tax Exempted 87,547
Attachment 3 Page 1 of 2
511 Street Apartments (several addresses)
Parcel: 1703262402900, 1703262400902, 1703262400903
Details: 18 x 1 -bed 76 x 2 -bed 4 x 3 -bed units, built 2016 & 2019
#
1
2
3
4
5
6
7
8
9
10
11
Fiscal Year
FY23
FY24
FY25
FY26
FY27
FY28
FY29
FY30
FY31
FY32
FY33
Assessed
Value $
2,698,998
2,779,968
2,863,367
2,949,268
3,037,746
3,128,878
3,222,744
3,319,427
3,419,010
3,521,580
3,627,227
Property Tax
$
49,278
50,756
52,279
53,847
55,463
57,126
58,840
60,605
62,424
64,296
66,225
Total Property Tax Exempted 564,914
Total City of Springfield Property Tax Exempted 218,100
Attachment 3 Page 2 of 2
ATT4: Background Frequently Asked Questions
For the Housing Diversity Tax Exemption, ORS 307.600-637
1. What is the Housing Diversity Tax Exemption?
The Housing Diversity Tax Exemption (HDTE) is a property tax exemption enabled by ORS 307.600-637
which can be used to incentivize the development of multiple -unit housing in transit -served and core
areas. It is commonly known as the Multiple -Unit Property Tax Exemption, or "MUPTE." The program
exempts some property taxes for qualifying multiple -unit residential projects during their first several
years of operation. It can be used for new development or redevelopment.
The tax exemption incentivizes development by lowering a project's operating costs during its first years,
making it financially feasible to build. The exemption can encourage higher quality and/or denser
development than may be feasible without it. It can be leveraged to help cities achieve other local
objectives. Springfield City Council has been considering implementing this incentive since 2017.
2. What are the program requirements?
Every city with this tax exemption must establish program guidelines and standards. All cities must
follow certain requirements, but Springfield has significant flexibility to decide what the tax exemption
would look like here.
A few requirements all cities must follow:
• Can only offer exemption in core areas and areas within '%4 mile of a fixed transit route unless
offering the exemption for affordable housing
• Cannot allow exemption to be used for transient accommodations like hotels and motels
• City Council must review and approve or deny each application for an exemption
Some aspects of the HDTE the City of Springfield would get to decide:
• Specific areas of Springfield where the exemption is available
• Whether the program should be capped, and if so, how
• What public benefits a developer would need to provide in the project to qualify
• Other minimum application requirements, such as the number of housing units a project must add
• What the application review process and application fee should be
3. What is the scope of the tax exemption?
Cities can offer tax exemptions for up to ten years. Taxes may only be exempt for the residential portion
of the improvements (including residential parking) or commercial improvements that are approved as a
public benefit. Land and other pre-existing or new non-residential improvements are still taxed during the
exemption period.
For the exemption to apply to the tax levy of all taxing districts, the City would need support from enough
other taxing districts to equal at least 51% of the total combined tax levy. Otherwise, the exemption
would only apply to the tax share collected by the City.
Attachment 4 Page 1 of 3
4. How would the City's tax revenue be impacted?
If a project is built on a vacant lot or on an unimproved portion of a lot, the City would not lose tax
revenue because the owner would continue paying taxes on the land and any existing improvements. If a
project were built by redeveloping a site and replacing existing improvements, the City would forgo the
revenue the existing improvements may have brought in during the exemption period.
This tax exemption is intended to spur development that might not otherwise happen. If a project is not
built, the City and other taxing districts lose out on the revenue that project would have generated over its
lifetime once its exemption period ends. While exempting taxes can decrease revenue in the short-term,
incentivizing new housing development has potential to generate significant revenue in the long-term by
adding valuable improvements to the tax rolls. Cities may set program caps to limit the impact the
exemption program has on tax revenue.
5. Is there a need for more multiple -unit housing in Springfield?
Springfield's 2011 Residential Land and Housing Needs Analysis estimated the City would need to issue
building permits for approximately 296 new dwelling units annually between 2010 and 2030 to
accommodate Springfield's population projections. The City did issue building permits for 376 new units
in 2022, but this level of development has not been consistent.
The 2011 Needs Analysis estimated that 40% of housing demand would be for multi -family housing. In
2010, approximately 29% of the City's 24,411 housing units were multi -family; by 2020, multi -family
housing made up only 26% of Springfield's 25,754 housing units.' The share of multiple -unit housing has
not changed significantly during last decade, nor has the number of new housing units built kept pace
with Springfield's projected need.
Encouraging the construction of multiple -unit housing in transit -served and core areas supports multiple
adopted housing goals and policies in the Springfield Comprehensive Plan. The exemption:
• Plans for growth and needed housing by encouraging development of denser housing
• Supports livability and transportation planning policies by incentivizing development near
commercial services and transit
• Incentivizes increased housing diversity by supporting development of housing less frequently
produced by the market
6. Can the tax exemption attract new housing development?
At least nine other Oregon cities have adopted or are considering this tax exemption, including Cottage
Grove, Eugene, and Florence in Lane County. Several cities have seen significant success in spurring
multiple -unit housing development since implementing the program.
As of Fall 2022, Cottage Grove had permitted 210 new dwelling units since 2019, and 144 of those used
the tax exemption. The City estimated it was 66 units behind on keeping pace with its projected annual
need, and that it would likely be much further behind without the program. Eugene's program has
supported development of at least 1,500 units since 1978, including 177 built since 2015. No housing has
been built in Eugene's downtown core without this or another property tax exemption for at least twenty
years. Before Florence adopted the program, the city had very few multiple -unit developments built
' U.S. Census American Community Survey 5 -year estimates, multi -family percentages includes 2+ unit structures.
2
Attachment 4 Page 2 of 3
during the last three decades; it approved two projects in the program's first year (2022) which will add
91 units.
Attachment 4 Page 3 of 3
ATT5: Tax Exemption Program Review: Insights from Other Cities
For the Housing Diversity Tax Exemption, ORS 307.600-637
Overview
To inform recommendations for the design of the Housing Diversity Tax Exemption program (HDTE),
staff reviewed the programs of eight cities with this State -enabled tax exemption, including conducting
seven informational interviews with current and former staff. State statute includes several requirements
for the exemption, however, there is significant flexibility for cities to adapt the program to meet local
needs. This memo provides a brief overview of lessons learned from program review and interviews. A
summary table comparing major aspects of each program is available on pages 5-6 as Appendix 1.1
Exemption programs reviewed (adoption date):
• Bend (2022) • Cottage Grove • Florence (202 1)
• Corvallis (2019) • Newport (2017)
(Developing) • Eugene (1978, • Portland (2012)
amended 2015) • Salem (1976)
Key Takeaways
• Setting a low minimum -unit number threshold has not resulted in small projects. Many projects
approved have been of a larger scale.
• Cities have significant latitude to shape the exemption's public benefit requirement to make the
program more or less rigorous. This is also an opportunity to further other city goals and priorities.
• Granting exemptions for fewer than ten years is rare, as are program caps. Requiring applicants to
demonstrate financial need is more common and recommended by multiple interviewees.
• Interviewees recommended seeking feedback from other taxing districts on public benefits, and from
the development community to ensure program requirements are aligned with development realities.
Eligible Areas
Cities must designate areas within which the tax exemption is available. Those areas must be near transit
or in core areas. Cottage Grove and Florence both offer the exemption generally anywhere within a
quarter mile of transit and leave it up to land use approval and Council discretion to further restrict where
the exemption is available. Eugene, Bend, and Corvallis have more targeted programs focused on certain
areas or zoning types. No interviewees reported doing property -level analysis to remove individual
properties from exemption areas.
Program Caps and Applicant Need
Only one program has a cap in place. Eugene is capped at 1,500 units which is tied to the Envision
Eugene Plan. The program's advisory committee has already recommended increasing the cap. Bend has
considered implementing a cap based on input from other taxing districts, but for now is requiring
applicants to individually seek approval from other taxing districts. Cottage Grove and Newport both
have code provisions allowing the City Council or County Board of Commissioner's to set a limit on
forgone revenue by motion at any time.
1 This memo excludes Portland's exemption program which is closely tied to its Inclusionary Housing requirements.
Attachment 5 Page 1 of 8
Four cities require applicants to demonstrate that they could not make the project pencil "but for" the tax
exemption.' Three of those cities require review of the project's finances by an independent consultant,
the cost of which can be included in the program application fee. Interviewees explained that this
requirement can be a valuable tool for weighing the value of the public benefits proposed on a case-by-
case basis and for building the support of other taxing districts for the program.
Applicability to Other Taxing Districts
The tax exemption only applies to the tax levy of the adopting city unless other taxing districts equaling at
least 51% or more of the total combined tax rate approve the exemption. Four cities with adopted program
received sufficient support from other districts to meet this threshold. Applicants in Bend and Salem must
seek this approval on an application -by -application basis. Some cities approached all their local taxing
districts for support, while others only sought it from districts needed to reach the 51 % threshold
(generally a school district or county). The public benefit requirement of multiple cities was shaped by
feedback from other taxing districts.
Exemption Length
Statute limits the length of the exemption to no more than ten successive years, except that a city may
choose to grant a longer exemption for affordable housing. All cities reviewed have codes allowing for
the exemption to be granted for up to ten years (two allow extensions for low-income housing). Salem
staff was aware of one applicant granted an exemption for fewer than ten years for a duplex; that decision
was made at the Council level. No other interviewees were aware of exemptions being granted for fewer
than ten years.
Public Benefits
One significant area of control cities have is the public benefit requirement of the exemption. In exchange
for the tax exemption, approved projects must include one or more design or public benefits specified by
the city. State statute lists open spaces, parks and recreational facilities, common meeting rooms,
childcare facilities, transit amenities, transit or pedestrian design elements, and commercial use of a
portion of the structure as benefits. Cities have flexibility in determining:
• What public benefits are eligible to meet the requirement
• If the city will specify benefits applicants must provide or allow applicants to pick the benefits
from a list of options
• How many public benefits applicants must provide
Several cities' programs include locally important benefits in addition to or instead of the statutorily
named benefits. Public benefits offered generally fall into the categories of housing,
environment/transportation, urban design, employment/workforce, and other community needs (see
Appendix 2 on pages 7-8 for a summarized list of public benefits). While some benefits would be
incorporated into the development itself, such as energy efficiency standards or redevelopment of blighted
property, others may require ongoing monitoring to ensure that they continue for at least the duration of
the exemption period. Several cities' programs include provisions for annual monitoring of approved
public benefits such as affordable units or childcare facilities.
Salem's program offers the most public benefits (19), while Newport's program is very focused and
includes only two. Bend and Newport, have an "other" category that applicants can use to meet their
2 Corvallis, which is currently developing its program, is also looking at requiring applicants to demonstrate need.
2
Attachment 5 Page 2 of 8
public benefit requirement. Interviewees shared that this option provides increased flexibility for
applicants to meet program requirements while still requiring Council approval. Some cities have created
more specific criteria for each public benefit; others have left benefits broader, sharing that this gives
developers flexibility and puts the onus on them to explain how program requirements are met.
Interviewees recommended ensuring that any public benefit offered goes above and beyond what is
required by code or would likely be provided by the market. Another recommendation was to offer
benefits that align with and enhance other city programs, plans, and goals.
Cities can structure this aspect of the exemption program to be more rigid by specifying exact public
benefits an applicant must provide, or more flexible by providing a list of benefits applicants can choose
from. Of cities reviewed, Eugene's program is the most rigid, requiring all applicants to meet the same six
public benefit requirements. Cottage Grove and Salem's are the most flexible, allowing applicants to pick
one benefit from a list. Corvallis is considering a mix of required and applicant's -choice benefits. Salem
has an affordability requirement triggered only for projects of 50+ units. Bend uses a tiered list where
applicants must provide at least one benefit from a priority list, and two from a second list.
Interviewees shared than an overly prescriptive public benefit requirement can be cumbersome for
applicants and create an administrative burden. Cities with flexible programs have found that project
applications usually propose including more benefits than required. One interviewee recommended
offering fewer public benefit choices to focus developers on including those that are the city's highest
priorities, and to reduce the staff effort required to create application criteria for each benefit.
The programs reviewed require applicants to provide between one and six benefits. Florence allows
affordable housing to count as two of its three required benefits, while Bend uses a tiered list to
differentially weight benefits. Multiple interviewees recommended carefully considering how many
benefits to require to balance the value of the tax exemption requested with program requirements.
Minimum Number of Units
Statute requires cities to specify the minimum number of dwelling units a project must add to be eligible
for the exemption. Half of cities reviewed require a minimum of three units. The fewest units required is
two (Newport for remodels and Salem), and the highest is five (Eugene).
Although cities have set low thresholds for the program, exemptions granted have been for large
developments. Cottage Grove granted exemptions for 40- and 80 -unit projects in 2021. Florence granted
exemptions for 24- and 67 -unit projects in 2022. Eugene granted exemptions in 2022 for projects of 95,
130, and 156 units. One interviewee said they have had conversations with smaller developers about
using the program, but that requirements were too complicated to meet for small-scale development.
However, a second interviewee said the program had piqued local developer interest in building triplexes
and quadplexes rather than the single -unit homes they usually build in order to access the incentive.
Review Process
By statute all exemption applications must be approved or denied by Council ordinance or resolution
within 180 days of application. Beyond this, cities have flexibility to set review processes. A required pre -
application conference is a common feature of cities' programs. Interviewees shared that this step is
helpful for reviewing timelines and requirements with applicants, including a preliminary review of
proposed public goods before the application review timeframe starts. Eugene has the most involved
application process, which includes several public engagement components and an application review
Attachment 5 Page 3 of 8
panel. Corvallis is considering requiring application review and recommendation by its existing housing
committee, and Newport has its Planning Commission review applications.
Cities have provisions for monitoring approved projects during and after construction. Eugene's program
committee meets both mid -way through project construction and post -construction to verify the required
public benefits were included in the project. Bend requires applicants to submit proof of public benefits
after the project is completed before it certifies the exemption to the assessor's office. Several cities
require an annual report from developers, generally to certify the ongoing inclusion of public benefits.
Other Program Reauirements
Some cities have set additional program requirements that applicants must meet to ensure they are
incentivizing the types of multiple -unit housing that are most desirable or needed. Eugene does not allow
the exemption to be used for student housing. Florence has limited the exemption to be available only to
new construction (excluding additions and conversions) to focus the program on vacant land. Bend
requires applicants' projects to be a minimum of two stories, or three stories on larger lots. Corvallis is
also considering a minimum height requirement. Other than minimum heights, Eugene is the only city to
have program -specific design requirements in place.
4
Attachment 5 Page 4 of 8
Appendix 1 - Tax Exemption Program Comparison Table
City
Bend
Corvallis
Cottage
Eugene
Florence
Newport
Salem
Grove
Program Name
Multiple Unit
MUPTE
MUPTE
MUPTE
MUPTE
MUPTE
Multi -Unit
Property Tax
Housing Tax
Exemption
Incentive
(MUPTE)
Program
MUHTIP
Adoption Year
2022
Developing
2019
1978, revised
2021
2017
1976
2015
Approved
-
-
6 projects, 144
(Since 2015) 6
2 projects, 91
1 project, 110
9 projects, 588
Projects
units
projects
units
units
units created
approved (2
(706 approved -
built), 177 units
1 project
built, 381 units
canceled)
upcoming
Years Exempt
Up to 10
10
Up to 10
No more than 10,
Up to 10
10, may be
Up to 10
may be extended
extended for low
for low income
income rental
rental subject to
subject to
contract
contract
Applies to All
No
-
Yes
Yes
Yes
Yes
No
Taxing Districts
Minimum Units
3
4
3
5
3
3 (new
2
construction), 2
remodel
Required to
Yes, third party
Yes, third party
No
Yes, third party
Yes, staff
Yes, third party
No
Demonstrate
review
review
review
review
review
Financial Need
Cap
No
No
No, code
Yes, 1,500 units
No
No, code allows
No
allows
Public Benefits
3, pick from tiered
5, 2 required &
1, pick from
6, must meet all
3, pick from list
2, must meet
1, pick from list
list of 16- must pick
pick 3 from list
list of 16
of 16
both, has 'other"
of 19
at least 1 from
of 11
(affordable
option as
priority list (5
housing counts
alternative
choices), has 'other"
as 2)
option
Other
2 story minimum (3
minimum height
-
cannot use for
only new
-
50+ unit
Requirements
story for lots of
(potentially)
student housing
construction
projects must
10,000+ sq ft)
Attachment 5 Page 5 of 8
Appendix 1 - Tax Exemption Program Comparison Table
Attachment 5 Page 6 of 8
provide 15%
affordable units
Application
pre -app, post -app (if
housing
pre -app,
pre -app and
pre -app, council
planning
pre -app,
Review
necessary), staff
advisory
council review
design review,
review & public
commission
council review
review, taxing
committee
pre -app
hearing
review &
district review and
review, council
neighborhood
hearing, council
comment, council
review
contact,
review
review
comment period,
post -app design
review, project
review panel,
council review,
neighborhood
contact, design
review, project
review panel x2
Monitoring
annual report
-
no
annual report,
no
annual report
annual report
review panel
Other Details
allowed in urban
-
change of use
may also receive
change of use to
must be outside
change of use
renewal area, must
to non-
SDC credit of up
non-residential
known hazard
to non -
justify elimination &
residential
to 50% if certain
must be
areas
residential must
mitigate impact of
must be
conditions met
approved by
be approved by
displacing existing
approved by
council & won't
council &
housing/businesses,
council &
be considered
won't be
must deed restrict
won't be
during
considered
transient use during
considered
exemption
during
exemption
during
exemption
exemption
Application Fee
$5,200 (includes
-
$1,504
$3,720 (includes
$970
$4,500 (includes
$1,200
financial review)
financial review)
financial review)
Attachment 5 Page 6 of 8
Appendix 2 - Tax Exemption Program Public Benefits List
This list of public benefits was compiled and summarized from the programs of seven other Oregon cities with this property tax exemption. Bold letters at the end
of each bullet point indicate which cities offer that benefit. Not all benefits listed are required by the city to be publicly accessible. Some benefits serve goals in
multiple areas, but have only been listed once.
Goal: Housing
• Affordable Housing (60-80% of area median income, units subject to low-income housing assistance contract) B C F N
• Middle -Income Housing (100-120% of area median income) BE
• Payment into Affordable Housing Fund (in lieu of providing affordable units) C E
• Units accessible to a broad income range (different values or a range not well represented in market) F S
Goal: Environment/Transportation
• Energy Efficiency and Sustainability (LEED, Earth Advantage, Energy Trust, etc. certifications) B G C E F N S
• Electric Vehicle Charging B
• Open Space B G F S
• Development on existing surface parking lots G S
• Onsite stormwater treatment B G
• Amenities or programs to support use of mass transit B G S
• Bicycle and pedestrian amenities B
• Environmental remediation of site B
• Enhanced landscaping (native, pollinator, water -wise) B
Goal: Urban Design
• Pedestrian -oriented design features G F S
• Special architectural features G C F S
• Compact urban development (minimum densities, development on sites with existing single -story commercial) E F S
• Wrapped parking or parking within the structure B S
• Placemaking or Active Public Spaces C
• Connectivity Improvements C
Goal: Employment/Workforce
• Commercial ground floor B G C F S
• Meeting Rooms — G F S
• Use of local, minority, women -owned businesses, or local ownership C E
Attachment 5 Page 7 of 8
Appendix 2 - Tax Exemption Program Public Benefits List
• Economic Catalytic Effect C
Goal: Other Community Needs
• Parks and recreation facilities G F S
• Childcare facilities B G F S
• Advances priority public infrastructure projects C
• Facilities for people with disabilities G C F S
• Dedication of land or facilities for public use G F S
• Development on underutilized property (blighted, abandoned, vacant, etc.) G C F S
• Extra costs associated with infill and redevelopment (land assembly, demolition, infrastructure replacement or expansion) G S
• Retrofitting (seismic, historic) G C
• Facilities supportive of the arts or public art F S
• Tenant amenities (laundry, storage, covered parking on-site) F
Key
Bend
Cottage Corvallis
Grove
Eugene
Florence
Newport
Salem
B
G C
E
F
N
S
Attachment 5 Page 8 of 8
Housing Diversity Tax
ORS 307.600-637
emption
Exemption Overview
State -enabled incentive (ORS 307.600-637)
■Multiple -unit housing near transit
Application -based incentive
Adopt program standards
Council decision to grant
9 cities have adopted or considering
Attachment 6 Page 2 of 15
Past Council Work
2016-2017 —Housing Strategy work, identified tax exemption as tool
to explore
2017 —Housing Diversity Tax Exemption vs. Vertical Housing
Development Program
2017-2020 —Discussed eligible areas
2022 —Directed staff to continue exploring
Upcoming: May 1 work session
Attachment 6 Page 3 of 15
Tax Exemption Eligible Areas
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Attachment 6 Page 9 of 15
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Attachment 6 Page 9 of 15
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QU ESTI ON
Does Council want to make any changes to the
draft exemption areas?
Attac �� 10 of 15
Fiscal Impact
Exemption in exchange for:
New units
Public benefit
Can be exempted (for up to 10 years):
New residential improvements
Residential parking
Commercial (if public good)
■Only City's tax share unless supported
by other taxing districts (51% of levy)
Variables affecting fiscal
impact
1. Individual Project
Characteristics
Program Cap?
Attachme�11 of 15
SEG
Example Project — 1100 Q Street
Units: 20 x 2 -bed
Built: 2019
#
1
2
3
4
5
6
7
8
9
10
11
Fiscal Year
FY23
FY24
FY25
FY26
FY27
FY28
FY29
FY30
FY31
FY32
FY33
Assessed
Value ($)
1,083,393
1,115,895
1,149,371
1,183,853
1,219,368
1,255,949
1,293,628
1,332,436
1,372,410
1,413,582
1,455,989
Property Tax
$
19,780
20,374
20,985
21,615
22,263
22,931
23,619
24,327
25,057
25,809
26,583
Total Property Tax Exempted 226,760
Total City of Springfield Property Tax Exempted 87,547
Attach 'JL=R 12 of 15
�EGON
Cap Options
Option A - Include language allowing Council to
institute a cap on forgone revenue by motion at any
time.
Option 6 - Set a cap on the total taxes exempted for
the program.
Attachme�13 of 15
SEG
QU ESTI ON
Should staff move forward with Option A
or Option B7.
If Option B, what should the cap be on City
of Springfield taxes exempted for the
program?
Attachme� 14 of 15
�EGON
Attachment 6 Page 15 of 15
Next
Discuss public benefit
requirement
Develop minimum program
standards
Talk to other taxing districts
Create code