Seattle Displacement Coalition
5031 University Way NE * Seattle * Washington * 98105 * 206-632-0668 * Jvf4119@zipcon.net
Date: June 19, 2013
Washington State Auditor
302 Sid Snyder Avenue SW
Olympia, Washington 98504-0021
Attn: Request for Investigation by the State Auditor's
From: Seattle Displacement Coalition
5031 University Way NE
Seattle, Wa. 98105
Date: June 12, 2013
Re: Formal request for investigation into King County Tax Assessor Practices that may have led to the loss millions in city, county, and state tax revenues due to that office's failure to adjust tax rates to compensate for tens of millions in property tax exemptions given to developers under the State's Multi-Family Tax Exemption (MFTE) program as authorized under state law (RCW 84.14).
Dear Mr. Kelley and others whom it may concern:
The Seattle Displacement Coalition is a 35 year old housing and homeless advocacy group committed to the preservation and expansion of affordable housing. Our supporters and members include residents, church, and community leaders from across the city. We have a long track record working to secure legislation preserving low income housing and responding to public officials and developers whose actions contribute to the continued loss of low income housing locally and state-wide. See our website at http://www.zipcon.net/~jvf4119/ .
We are writing to request a formal investigation into actions of the King County Tax Assessor's Office for failure to adequately track or adjust tax rates to compensate for tens of millions in property tax exemptions given to developers under the State's Multi-Family Tax Exemption (MFTE) program as authorized under state law (RCW 84.14). As indicated in the attached city memo to the City Council's Chair of their Housing Committee, Nick Licata, (see first attachment), Seattle officials believe as much as two-thirds of the value of MFTE property tax breaks given to developers - revenues that should have gone into City, King County, and State's general fund - simply were not collected at all by the tax assessor.
Seattle's MFTE program was first adopted in 1998 - soon after the state law was passed in 1995. In Seattle alone, over $200 million worth of tax breaks have been given to about 100 residential development projects since 2004. Even though these tax breaks are spread out over 12 years, it still means that as of 2012 several dozen developers received about $17 million in tax breaks in that year alone. Any one developer, for example, building 150-200 units might receive as much as $5 million in tax breaks over a 12-year period, or about $420,000 a year. As more and more developers request these tax breaks, the annual total subsidy easily could exceed $25 million by next year in Seattle alone.
If two-thirds of that $200 million value of tax breaks simply is not collected by the tax assessor because of a failure on their part to readjust tax rates, we're talking about over $130 million lost to all layers of government since 2004. And if the annual value of the tax breaks reaches $25 million next year, that means $16-$17 million will be lost. Given how the property tax dollar is divided between layers of government, it would mean that in that one year alone as much as $4 million was lost to the city, $3 million lost to the County, and as much as $8 million lost to the state (and public schools).
We also know that several other cities in the King County make use of the MFTE program, raising the question - has the tax assessor neglected to track and adjust tax rates here too? If so, how much is the value of the tax exemptions given by these other cities and what portion of it has been lost to government coffers due to Assessor error?
Since cities in other counties also make use of the MFTE program, does this also mean that other County Assessors are repeating the mistakes of our King County Assessor and neglecting to adjust tax rates there also? Are millions more destined for the state and other layers of government also being lost in these other counties?
An investigation into practices of the King County Assessor and assessors in other counties across the state as to how they administer the MFTE program is needed we strongly believe. What exactly is the depth of the problem and amounts of revenue that have been lost to all layers of government? Further what remedial action also is needed in order to prevent the problem from continuing?
Summary of how the MFTE Program is supposed to work:
Under the MFTE program, RCW 84.14, city's covered under the Growth Management Act (GMA) are given a local option to approve 12 years worth of property tax exemptions on the "improvements" a residential developer makes to their property provided they meet certain city defined requirements such as 'setting aside' a percentage of new units at affordable rent levels. Seattle is one of a growing number of cities in King County and state-wide that make use of this program in order to promote market rate and affordable residential development in their communities.
According to RCW 82.14 - See especially 82.14.020 (4) rules for application of the MFTE program - relieving developers of these taxes should not affect the tax assessor’s responsibility to set a tax rate based on the value of all properties including the improvements for which developers receive exemptions under this law. In other words the tax assessor for tax collection purposes is supposed to include the value of these exempted properties when setting rates and collecting taxes regardless of the break each developer receives. In this way, the full value of the tax breaks is "shifted", i.e., passed on to other taxpayers in the form of slightly higher tax payments. There should be no loss of revenue for cities, counties and state that divide up the property tax dollar. This is in fact what Seattle officials have been led to believe for years dating back to the programs inception in 1995. The Seattle City Council several times has revised program rules (most recently in 2010) in order to enable more developers to make use of the program under the assumption there was no "hit" or impact on the city's budget, or county and state budget.
How or why is it that we are only now learning - some 17 years into the program - that our Tax Assessor has neglected to adjust these tax rates and that in fact these millions in tax exemptions have been lost to government coffers?
Seattle City Council Review of MFTE is delayed - Tax Assessor effectively says "we'll get back to you later"
For several years there have been concerns expressed about
this program by our organization and others. Several Seattle Times articles and
at least two editorials from the Times have reported these concerns highlighting
the need for numerous changes in the MFTE program (See below for links to
articles) These concerns prompted an extensive review of the program by the
Seattle City Auditor in the Fall of 2012 after a formal request by Councilmember
Nick Licata. We have attached a link here to that full report
The City Auditor's Report did not look specifically into the question of whether or not the Tax Assessor was properly adjusting the tax rates to prevent loss of tax revenue. However, they did pay a visit to the Assessors office and they do touch on the issue on page 37, point (6). Quoting directly from that report from the City Auditor:
* King County could not provide us with an automated summary report from their system to show which Seattle properties were receiving a MFTE and the year the exemption started. As a result we could not verify whether properties in Seattle were receiving the MFTE when they were not entitled to it
* King County's on line property tax system (eReal Property) and information from OH files related to Seattle's MFTE properties did not always match. For example OH records showed the start date of the exemption for one property as being 2005 while eReal Property showed the start date as 2004. In two other cases the parcel number fore a property did not match
* King County's manually generated summary report of the properties receiving the City of Seattle's MFTE contained some erroneous information. For example, for two properties King County listed the incorrect beginning date for a property receiving MFTE.
The City Auditors report also has prompted a review of the program now underway (Spring 2013) by the Seattle City Council's Housing Committee chaired by Councilmember Licata – a review that has been delayed/postponed now for several months because of difficulties and delays getting information from the Assessors Office. (See attached “Licata Postponement” memo)
Among the City Auditor's numerous recommendations (See recommendations 11 and 19 in "OH summary" 2012), they urged the City's Office of Housing (OH) to acquire from the County Assessor a more accurate picture of the tax impacts of the MFTE programs on individual taxpayers. For all these years, since the program's inception, no one at City Hall had thought to go to the Assessor's office for these exact figures. It's simply been assumed the value of the tax breaks was shifted and that there was no loss of tax revenues to the city or other layers of government.
Upon making this request to the County Assessor earlier this year, surprisingly, city officials learned there was some sort of "administrative error" or "oversight". The Tax Assessor, according to the city, has not been adjusting the tax rates to offset the value of these exemptions and as much as two-thirds of the value of these exemptions may simply have been lost to city, county, and state coffers. (See attached memo to Licata) It is not clear but we would assume this has been going on for years since city officials have indicated that after meetings with Tax Assessor, they have promised to get back to them with years of calculations going at least to 2001.
As is indicated in the memo to Licata, City Officials say they are working on an administrative fix – one that requires changes by the City in how they submit information to the Assessor on projects receiving MFTE tax breaks, and also requires changes from the Assessors office in terms of how and when they conduct appraisals of the exempted properties. To quote from p2 of the memo to Licata:
The City will batch all projects’ final certificates of tax exemption and transmit them to the County in bulk at year-end. This will ensure that all records are treated consistently for purposes of incorporating new construction costs into levy calculations. The only disadvantage to this approach is that MFTE property owners will likely receive temporary tax bills during their first year of exemption; the County will then correct (i.e., lower) those bills in February.
The County will appraise the new construction value of MFTE properties in July of each year, just prior to the cutoff for the appraised value’s inclusion in the following year’s levy. This will ensure that the County captures the value of the residential improvements at a single point during the year and reflects maximum value of new construction generated under the MFTE program.
We at OH can easily implement part 1, but we must depend on King County to do part 2.
The nature of this fix depends on changes in Assessor and City practices. But will this fix be adequate? More importantly, there is no record of response from the Assessor indicating they will assume their role in making this fix. And what about other cities making use of MFTE in King County? Does the same problem exist there – it appears it does – since the problem seems to have something to do with timing and when exactly the County Assessor does the appraisal of exempted properties. One reasonably could assume there is set time consistent across all of King County when appraisals are done so if timing is a problem for Seattle, it must be for other cities using MFTE and doling out these tax breaks. However, this above ‘fix’ appears only to apply in Seattle. What about other cities in the County issuing these tax breaks? Is the County Assessor applying a fix here too?
Note we have attached a “FAQ” the city of Shoreline gives to property owners in that city explaining how MFTE affects individual tax bills among other points. Here Shoreline City Officials say that the millions in MFTE tax breaks developers receive in that city have no impact on the tax bill of other property owners. They are saying in effect the value of these tax breaks – none of it – is passed on to other taxpayers. There is no “shift”. This indicates or at least suggests the Tax Assessor in Shorelines case is making no attempt here to adjust the tax rates and shift the burden to avoid any loss of tax revenues.
It obviously also is a fix that would only apply in future
years in Seattle and would not recoup revenues already lost in past years.
Further, we are told by city officials that the Assessors will not be getting
back to the city for at least 2 more months. And obviously from the Lictata memo,
the City is unsure whether the Assessor will do its part to cover the fix.
Here's our list of questions unanswered that we are requesting the State Auditor examine regarding application of the State's Multi-Family Tax Exemption Program. Questions that also will assist the State Auditor in identifying the necessary remedial action :
Once you review this complaint and attachments, we believe it should persuade you how important it is to investigate this matter as soon as possible. Quite literally, there are tens of millions of dollars in tax revenue at stake here. We could be looking at substantial revenue losses to all layers of government including our school system dating back years.
There is no other state agency (or local one for that
matter) in a position to launch such an investigation and uncover how widespread
is this problem and how many millions already have been lost to already
cash-strapped government. And as far as we know, there is no other agency in a
position to recommend and we hope ensure remedial action.
Thank you very much and we look forward to a prompt reply. You may contact me any time during the work day at this email address and phone number listed above.
John V. Fox
Coordinator for the Seattle Displacement Coalition
CC: Seattle City Councilmembers and Members of the Press
Accompany materials supporting our request for an investigation and remedial action: see next page
Accompanying materials (e-attachments)
See attached June 7th 2013 memo from the Office of Housing Director Rick Hooper to Councilmember Nick Licata summing up the Assessors oversight and effectively characterizing the problem and indicating dilatory nature of the Assessors response in which their office indicates it will take another two months just to get anything definitive on the tax impacts of the program. The result of the Assessor's inaction is holding up the City's review as a result of the MFTE Program. See especially paragraphs identifying the fact that the Assessor has not been making proper corrections to the tax rate to ensure no loss of city, state, and county revenue and that the effect instead shifts the burden to other taxpayers.
Links to news clippings - note description of how program works in Bob Young story (3rd Times link below) and his paragraphs on tax impacts. Note also how many millions have been granted in tax exemptions to these developers. Our attached report and review of the program shows 200 million worth of exemptions granted since 2004. Note also, it has always been understood and communicated from the King County Assessors Office (but apparently never corroborated) that the value of these tax breaks was "shifted" to other tax payers and there would be no loss of revenue destined for the city, county and state.
Link to Auditors Report:
See especially Appendix VI for this quote (page 36 first bullet of their report) acknowledging after meeting with the Assessor that their office could not provide information on the impact of these tax breaks on taxpayers or on the city. Also see point six on page 37 in which the City Auditor states that King County Assessment records showed inadequate, incomplete and inaccurate information on properties receiving these tax breaks. Then review the City Auditors Recommendations on pages 38 and 39 calling for actual figures from the Assessor on tax impacts and ensure the correct properties are receiving correct amounts of tax exemptions. So far the City has been unable to obtain even clarification of what's going on in the Assessors Office.
See Attached Summary by City's Office of Housing (OH) responding to City Auditors recommendations (see especially recommendations 11 & 19) where OH commits to fulfilling recommendations of the City Auditor to meet with Assessor and get accurate information on the tax impacts. The Tax Assessor will not get back to the City for months thus delaying City Council review of the program.
See attached FAQ from the City of Shoreline telling Shoreline residents that the tax breaks going to developers from their MFTE program would not cause their taxes to go up. They even suggest the average homeowners taxes would go down This is absolutely contrary to what the Tax Assessor and City of Seattle say and what the state law requires. What's going on here? Why the contradictory information?