Leavenworth City Council grapples with controversial Multifamily Housing Tax Exemption plan

LEAVENWORTH – Leavenworth City Council hosted a public forum Tuesday night regarding the Multifamily Housing Tax Exemption (MFTE), a plan intended to incentivize developers to build more affordable, multi-family homes. The forum was held in an effort to answer unresolved questions about the complex plan.

Erin Fonville, the Assessment Administrator Manager of Chelan County’s Assessor’s office, gave a presentation on the matter. Andrew Bjorn of Berk Consulting was also in attendance and provided a Summary and Considerations packet for the City of Leavenworth. 

According to the Washington State Department of Commerce, MFTE allows local governments to give tax exemptions for new construction, conversion, or rehabilitation to multifamily residential improvements that contain at least four units. 

“It’s probably the most effective tool that cities have to incentivize affordable housing without directly funding it,” Bjorn explained at Tuesday's meeting. According to Bjorn, “It’s a way of providing enough leverage to get support [from developers].”

The city is considering two types of MFTE options: a 12-year and a 20-year plan. If a developer opts for a 12-year plan, at least 20 percent of the housing units must be rented or sold to low and moderate-income households to be exempt from paying taxes on all residential units for twelve years. The developer would still be required to pay taxes on the land and any commercial buildings on the site. The 20-year plan offers a longer exemption period but requires 25 percent of the units to be sold to low-income households, and a nonprofit or government agency must sponsor the sale.

The clarification that the exemption would cover all residential units, not just the affordable ones, shocked residents in attendance and even some council members. “That’s news to me today,” said City Council Member Tibor Lak.

The primary concern in Tuesday night’s meeting was the likely tax shift other property taxpayers would take on.

The packet provides an example that if there were a 25 million dollar MTFE in the 2022 tax year, a $400,000 home within city limits would pay about 31 dollars more in taxes. While 31 dollars may not seem like much, Fonville pointed out that the more tax-exempt projects the city allows, the more the public pays, which can add up. 

Lilith Vespier, Community Development director, reminded the audience that since MFTE became available in 2021, “only two to three developers have asked [about it]...Right now, we don’t have anyone interested. City Council Members have expressed that they want this as a tool in their toolbox.”

While the program targets certain zones within the city, the tax burden will also be on homeowners outside those zones and city limits since it will affect shared taxing districts such as Fire District #3, Hospital District #1, and the school district.

“The county (general, mental health, and Veteran’s relief), library, port, flood control, and Upper Valley Park & Rec will also be affected as the exemption lowers the taxing districts taxable assessed value, which increases the levy rate for each affected tax district,” Fonville added in an email to Ward Media.

The program received a large amount of criticism Tuesday night from both residents and city officials. Council Members Sharon Waters, Zeke Reister, and Tibor Lak all expressed doubts about the program. 

One attendee highlighted that most developers benefiting from the City of Wenatchee’s MFTE program are based in other cities, such as Kirkland.

Others raised concerns about how the tax burden would affect senior citizens on fixed incomes who are already struggling with increased property taxes. Some also expressed the inequality of tax exemption eligibility. A state-wide reduced property tax program for seniors was referenced, which requires someone to be 61 and older and earning 43,588 dollars or less a year to qualify. Under MFTE, the projected maximum income eligibility for affordable housing is 64,400 dollars (Area Median Income multiplied by 80 percent).

“Our seniors are struggling in Chelan County…We’re asking them to pay more property taxes for somebody who makes more than them,” Fonville said. The audience awarded her a round of applause.

It should be noted, however, that the program’s flexibility allows the city to choose different income eligibility requirements based on the community’s needs. Council Member Zeke Reister said the City Council has “the right and the responsibility” to target that level of income. 

There will be a final public hearing at the City Council meeting on Nov. 14 before members put it to a vote.

Taylor Caldwell: 509-433-7276 or taylor@ward.media