The Multifamily Housing Property Tax Exemption (MFTE) program has been repealed on Mercer Island.

At its July 21 meeting, the Mercer Island City Council voted 5-2 to quash the program. The overarching reasons for the revocation were that no multifamily projects in the city have utilized it since it was passed, and that it could, in the long run, help support city finances, which have been significantly affected by the pandemic. (The city of Mercer Island relies on property tax revenues as a major source of revenue.)

Several councilmembers who were in support of the ordinance took a “repeal and replace” stance — that is, forgo the currently in place MFTE program but look further into alternative incentives and what tools are already available that can help foster affordable housing on Mercer Island.

“The city council needs to balance its policy goals with the necessity of ensuring the financial stability of Mercer Island,” the ordinance repealing the exemption states.

The MFTE program was first adopted by the council in 2011 to create new, affordable multifamily housing available in the area. As part of this venture, existing vacant and underused buildings could be rehabilitated for that specific purpose.

The program made it so that if a multifamily housing project opted to participate in the program, then the value of the new or rehabilitated housing would be exempt from property taxation for either eight or 12 years.

To make this exemption a reality, a project would in turn need to ensure affordable housing units be available for its lifetime. Ten percent of units would be eligible for an eight-year tax exemption; 20 percent would qualify for a 12-year exemption.

Although the MFTE program hasn’t been used on Mercer Island, it has seen notable deployment statewide. According to a 2019 state report, some 424 developments in Washington between 2007 and 2018 received an exemption. About 34,885 new units of housing used the program. And some 21 percent of those units were considered affordable. The same report, though, notes that it’s still inconclusive whether MFTE program use has created a net increase in development.

Council discussion

Councilmembers Salim Nice, Lisa Anderl, Jake Jacobson, David Rosenbaum and Mayor Benson Wong were in support of the repealing ordinance, and voted for its passage.

“I think we do have tools to encourage affordable housing,” Anderl said, alluding to available density bonuses and fee waivers.

She added, “I think this is not one of them…this tool was created specifically to incentivize development in areas where no developer would otherwise go. We don’t have that problem on Mercer Island — there is plenty of incentive to develop. This is not a situation where we have an economically depressed area that is maybe industrial or less desirable to pay developers to come in…I don’t think we need it.”

Wong agreed that although MFTE is inarguably a tool that can be taken advantage of to foster affordable housing, “the thing is, it’s a tool nobody is using.”

“I think this is really just a simple repeal and replace,” Nice said. “If you want to have something back on the books, or if you want to be more thoughtful, we have the comprehensive plan coming up. It can be tucked into that…To me, somebody is going to deploy this in a way that is inappropriate, and it’s going to be the taxpayers paying for somebody else’s benefit where they double-dip and they could have been paying for counselors in our schools.”

Councilmember Craig Reynolds and Deputy Mayor Wendy Weiker, who ultimately voted against the ordinance, voiced reservations about a repeal.

“It seems like basically what we’re saying is, ‘if you want to build affordable housing, Mercer Island is not the place to do it — because here, you won’t get the tax benefit, but if you built in Bellevue or Renton or Kirkland or wherever else you like, you will get the tax benefit,’” Reynolds said. “We’re effectively hanging up the sign saying we don’t want affordable housing on Mercer Island. I think that would be a major mistake. We could argue that the program should perhaps be eliminated at the state level, and that’s an argument we can have with our state legislators. But us standing out to say, ‘we want to disadvantage ourselves for affordable housing relative to the next, neighboring communities,’ is at least contrary to my goals that there should be affordable housing available on the Island for people of a range of different income levels.”

Weiker said that even though multifamily housing projects on Mercer Island haven’t made use of the MFTE program, “it doesn’t hurt us to keep it on the books.”

“This tool hasn’t been used because we have the most expensive dirt in western Washington…this isn’t a transfer of wealth to [developers] — this is a transfer of wealth to have a variety of incomes in our community, which only benefits us,” she said. “We’re talking about teachers, seniors on fixed incomes; we’re talking about QFC store managers, we’re talking about graduate students. We’re talking about people that can’t normally afford market rates and the most expensive King County real estate market. So I really think leaving this tool in the books for whatever property owner might want to use it is only going to help us, and help us have some affordable housing and a variety of housing.”

For more details on the MFTE program, go to the July 21 meeting agenda. To watch the full meeting, go to the city’s YouTube channel.