Approve application under the Multiple-Unit Limited Tax Exemption Program under the Inclusionary Housing Program for Sunshine Dairy Apartments located at 2050 NE Pacific St

Ordinance

The City of Portland ordains:

Section 1.  The Council finds:

  1. On behalf of the City of Portland, the Portland Housing Bureau (“PHB”) administers the Multiple-Unit Limited Tax Exemption Program (the “MULTE Program” or “Program”), authorized under ORS 307.600-307.637 and City Code Chapter 3.103.
  1. The MULTE Program provides a 10-year property tax exemption on the residential portion of the structural improvements so long as Program requirements are met. During the exemption period, property owners remain responsible for the payment of taxes on the assessed value of the land and any commercial portions of the project, except for those commercial improvements deemed a public benefit and approved for the exemption.
  1. The MULTE Program is an incentive provided to developments complying with the City Inclusionary Housing (“IH”) Program, which requires 99 years of restricted rents of a percentage of units within the building.
  1. PHB received a request for a 10-year property tax exemption under the MULTE Program for the development known as Sunshine Dairy Apartments (the “Project”) and located at 2050 NE Pacific St (the “Property”), in conjunction with the City’s Inclusionary Housing Program. The Project, located in the Kerns neighborhood mixed-use housing project and will restrict eight percent of the total bedrooms in the Project to households earning no more than 60 percent of the median family income (“MFI”) at the time of lease-up. Using the reconfiguration option, one studio and eight one-bedroom units, which is three percent of the project’s total 271 units, will be restricted to households earning no more than 60% MFI.  The Owner of record for the property is NBP Sunshine LLC (“Owner”).
  1. The MULTE Program has an annual cap limiting the approval of new property tax exemptions to no more than 15 million dollars of new estimated foregone revenue within a five-year period, defined as any current year and the previous four years. There is sufficient cap remaining for the 2022 calendar year to include the Project’s application.
  1. PHB has the responsibility for reviewing compliance of applications with the minimum MULTE Program requirements and has concluded that the application for the Project does indeed meet the minimum Program requirements.

NOW, THEREFORE, the Council directs:

  1. The request for a 10-year property tax exemption under the MULTE Program is hereby approved for three percent of the residential portion of the structural improvements of Sunshine Dairy Apartments, including three percent of residential parking and common areas.
     
  2. Approval of the application is provided subject to the Project meeting the following conditions:
     
    1. The Project must restrict three percent of its 271 units to households earning no more than 60 percent MFI (the “Restricted Units”). The Restricted Units, through reconfiguration, will consist of one studio and eight three-bedroom units. 
       
    2. The application will comply with the Program requirements established in City Code Chapter 3.103, including the requirement that the Owner sign a Regulatory Agreement and report annually to PHB each tax year that the exemption and restrictions are in effect.
       
    3. The Restricted Units will be built to meet all minimum Americans with Disabilities Act and Fair Housing Act requirements. The Project will also be built to ensure at least five percent of the Restricted Units, totaling one, be fully adaptable to become fully accessible per ADA and FHA standards if necessary to accommodate tenants with disabilities.
       
  3. PHB shall provide a copy of this Ordinance to the Multnomah County Tax Assessor as prescribed by City Code Section 3.103.050 (A).
     
  4. If, prior to the completion of construction, the Project is changed in any way that would reduce the number, percentage or distribution of the Restricted Units in the Project, or the approved public benefits provided, Owner must provide written notice to PHB.  If such changes still conform to the Program requirements, PHB will amend the Regulatory Agreement.  Such amendment would not be subject to City Council approval if changes are minor and would result in substantially the same Project.  

Impact Statement

Purpose of Proposed Legislation and Background Information

To ensure Portland has economically inclusive development and neighborhoods, the city requires that new buildings being constructed (with more than 20 units) also provide Inclusionary Housing units (“IH Units”), restricted for 99 years under the Inclusionary Housing (“IH”) Program.

In exchange for providing IH Units, developers receive some benefits, including a 10-year property tax exemption – typically on all residential units in the Central City, or on only eligible rental units restricted under the IH Program outside the Central City.

For the building associated with this ordinance, below are the IH Program options available to the developer in city code. The option selected by the developer is in bold and highlighted.

On-Site

Units

New

Off-Site Units

Existing

Off-Site Units

Fee-in-Lieu

Units at 80% of Median Income

40 Units

N/A

N/A

N/A

Bedrooms at 80% of Median Income

45 Bedrooms

N/A

N/A

N/A

Units at 60% of Median Income

22 Units

54 Units

68 Units

N/A

Bedrooms at 60% of Median Income

25 Bedrooms

N/A

N/A

N/A

Units at 30% of Median Income

N/A

27 Units

40 Units

N/A

No IH Units

N/A

N/A

N/A

$5,437,177

The developer selected the option to provide eight percent of the building’s 271 units. Using the option to reconfigure the building’s IH obligation into larger type units, the building’s original requirement of nine studio, 11 one-bedroom, one two-bedroom, and one three-bedroom units, will be provided in one studio and eight three-bedroom units, which is three percent of the project’s total 271 units, and will be restricted to households earning no more than 60 percent median income for 99 years.

Original IH Unit Requirements

(22 IH Units)

Total Bedrooms in Original IH Unit Requirements

IH Obligation utilizing Reconfiguration

(9 IH Units)

(9) Studio

(11) One-bedroom

(1) Two-bedroom

(1) Three-bedroom

25 bedrooms

(1) Studio

(8) Three-bedroom

Because this building is outside the Central City Plan District, the tax exemption will apply to the IH Units.

Overview of building and units:

271-unit building at 2050 NE Pacific St

  1. Market rate units: 262 units
  2. IH Units: 9 units

Studio

One

Bedroom

Two

Bedroom

Three

Bedroom

Total

108

137

18

8

Market Rate

107

137

18

0

Restricted at 60% of Median Income

1

-

-

8

Average Square Footage

520

529

919

970

Largest Square Footage

719

842

1,024

1,077

Smallest IH Unit

471

-

-

931

Regulated restricted rents compared to new construction market rate rents in the same neighborhood:

Studio

One

Bedroom

Two

Bedroom

Three

Bedroom

Market Rate

$1,323

$1,695

$2,649

$3,170

Restricted at 60% of Median Income

$1,015

-

-

$1,509

Monthly Rent Difference

$308

-

-

$1,661

Annual Rent Difference

$3,696

-

-

$19,932

Over the 99 years of required rent restriction, market rents will only continue to increase at a faster rate compared to regulated rents.

If this ordinance is not approved by City Council, the development will proceed without any IH Units.

ORS 307.621 and City Code Section 3.103.060(B) state that PHB will take applications to City Council for approval in the form of an ordinance and deliver approved applications to the Multnomah County Tax Assessor. This action meets those requirements.

Financial and Budgetary Impacts

The City will pay the $7,650 application activation fee to Multnomah County, should the application move forward.   

This Ordinance approves a property tax exemption resulting in foregone tax revenue. The total estimated amount of the property tax revenue not collected for the 10 years of the exemption period is valued at approximately $79,623 in today’s dollars, assuming a four percent discount rate and a three percent annual assessment increase. This 10-year estimate includes taxes foregone by the City of Portland, Multnomah County and other entities which receive property taxes within Multnomah County. The reduced amount of property taxes to the City of Portland over the 10 years is roughly 33 percent of that amount, or $26,276 The City will still benefit from property taxes collected on the improved value of the land during the exemption period.

Property tax exemption value and foregone revenue:

Estimated total foregone revenue:

$79,623

Estimated first year value of the tax exemption:

$8,645

Estimated annual value of the tax exemption per IH Unit during the exemption period:

$885

Estimated annual foregone revenue per IH Unit over 99-year restriction term:

$89

Central City Plan District:      Yes     No

Remaining 5-Year Cap:       $12,386,707

Property Management:        Not selected yet

Community Impacts and Community Involvement

As the largest taxing jurisdiction affected by the tax exemption programs, Multnomah County has approved the administration of the programs in order to meet shared affordable housing goals.

100% Renewable Goal

Approval of the MULTE does not impact the City’s total or renewable energy use.

Budget Office Financial Impact Analysis

This action would result in estimated foregone property tax revenues to the City totaling $26,276 over ten years for 9 units affordable at or below 60% MFI. Total cost to all jurisdictions forgoing revenue is estimated at $79,623. The estimated value of the tax exemption for the first year is $8,645 (all jurisdictions), which equals approximately $885 per affordable unit per year during the exemption period. The City will still benefit from property taxes collected on the improved value of the land during the exemption period. The City will pay Multnomah County the $7,650 application activation fee if the application moves forward. 

Agenda Items

401 Consent Agenda in May 18-19, 2022 Council Agenda

Passed to second reading

Passed to second reading May 25, 2022 at 9:30 a.m.

439 Consent Agenda in May 25-26, 2022 Council Agenda

Contact

Matthew Tschabold

Policy and Planning Manager

Requested Agenda Type

Consent