A program giving tax breaks to Seattle developers is rife with shortcomings, according to city auditors, and may not be providing the affordable housing required.
City auditors found rules were skirted and oversight lacking in a program providing tax breaks to Seattle developers who set aside apartments for moderate-income tenants.
Some developers weren’t setting aside the required number of rent-controlled apartments, some rents were too high, and some tenants in subsidized apartments earned more than they should to qualify, according to the audit released Wednesday.
Overall, the audit confirms much of what The Seattle Times reported last year in an investigation of the program.
Nick Licata, chairman of the council’s housing committee, requested the audit last year.
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“The audit has a number of things the council absolutely has to address,” Licata said.
Designed to provide incentives for nonprofits, the program has come to be dominated by for-profit developers in neighborhoods where they didn’t need incentives to build, he said. And, “It’s questionable how many units are going to the intended population,” Licata said.
The 43-page report lays out recommended changes for the City Council to consider, particularly in oversight. The council is to be briefed on the audit Monday.
Called the Multi-Family Tax Exemption or MFTE, the program gives developers a 12-year break on property taxes — for buildings, not underlying land. In exchange they agree to set aside 20 percent of their apartments for tenants who make about 75 percent of Seattle-area median income.
Rents then are controlled so eligible tenants don’t pay more than one-third of their gross income for housing and utilities.
Foregone taxes are shifted to all King County property taxpayers.
Rick Hooper, the city’s housing director, responded in writing to auditors. Hooper said many of their recommendations would strengthen the program.
Mayor Mike McGinn is “especially interested in ensuring that the MFTE program creates meaningful public benefits in exchange for the tax exemption,” Hooper wrote.
He also contends the audit report “overstates the frequency and extent of noncompliance” by developers. And Hooper stresses that while “clearly problematic,” the compliance gaps “do not suggest that taxpayer resources were misapplied or used for anything other than their intended purpose.”
Affordable-housing activist John Fox has long criticized the program, which started in 1998. Fox pointed to a couple flaws in the audit. It looks only at the tax-break program through 2010; the program has exploded in popularity since then, he says.
More important, the audit doesn’t address whether the subsidized apartments should be considered “affordable,” he says. Rents the city considers affordable are sometimes higher than market-rate rents in the same or nearby buildings.
“It’s a giveaway,” Fox said. And cumulative tax breaks under the program, which Fox puts at $177 million since 2004, are greater than what the city will spend in its seven-year, $145 million affordable-housing levy.
But the difference between the tax breaks and the levy, he says, is that voters get no say on the breaks and their benefit is minimal compared to the levy which helps extremely low-income people.
Some specific audit findings:
• In 24 percent of the apartments studied, tenants paid too much for rent.
• Tenants only had to qualify for income eligibility when they first rented a subsidized apartment. If their income increased they were allowed to stay in some cases.
• The program runs on an honor system; the city doesn’t verify tenant incomes.
• Some subsidized apartments sat vacant for six months or more.
• Tax breaks stimulated development in neighborhoods, such as Ballard, that had already exceeded city growth goals. Other targeted neighborhoods, such as Rainier Beach, saw little or no development resulting from the program.
Bob Young: 206-464-2174