Group recommends public, private funding paths
Long reports can sometimes get lost in the chaos of government.
Every year, researchers, scientists and experts across the nation get together to research and analyze some of our society’s greatest social issues such as poverty, incarceration, and crime to inform policy makers.
They create detailed charts and comprehensive reports that are sometimes thousands of pages long. But then something happens — or more specifically, nothing happens. The political will is there but there is simply no money to fund any action, and the immense report, filled with its important knowledge and detailed charts, is left to gather dust like a piece of shelf art.
On Sept. 19, not long before news of the global financial meltdown, the Countywide Housing Affordability Task Force (CHAT) released its comprehensive report detailing Whatcom County’s 19,157 households paying more than 30 percent of their income for housing and the 10,381 households paying more than 50 percent of their income.
The report recommends the creation of a Whatcom County housing fund, but with taxes down across the board and Bellingham and Whatcom County cutting positions through attrition, the housing fund will remain, at least for now, empty and imaginary.
Bellingham Mayor Dan Pike said as county residents are dealing with a grim economic reality, now is not the time to raise taxes.
“It’s meaningful — but most importantly it is symbolic — to let people know that we are not going to put the squeeze on taxpayers to make the city’s financial picture a little better and make my job of balancing the budget a little easier,” Pike said. “So we are just sharing the pain if you will.”
‘Not something that has to happen overnight’
Seth Fleetwood, county councilman and CHAT co-chair, said that some type of public funding is necessary even if there is a waiting period until the economy rebounds.
“The public financing aspect is important to success,” Fleetwood said. “The particulars of how and when remain unclear, but the CHAT was a five-year plan; it’s not something that has to happen overnight.”
Paul Schissler, executive director of Kulshan Community Land Trust and member of the CHAT, said that downturns end just like boom times, and as long as global wage trends continue falling and Whatcom County continues to be an attractive place to live, the affordability gap will continue to widen.
“The economic downturn is bad for a lot of people but not everyone,” Schissler said. “Some people will continue to move here and we may see flight from other places to Whatcom County.”
Ted Mischaikov, local developer and CHAT member, said a lack of affordable housing is an issue that exists only in a rising real estate market.
“People aren’t talking affordable housing in states like North Dakota or South Dakota where people are walking away from their mortgages,” Mischaikov said. “Affordable housing is simply not the topic. Creating jobs and getting any new tax revenue is the discussion there.”
Despite the tough economy, Pike said the city is committed to creating more affordable housing.
“I am more of a Keynesian,” Pike said. “I think we need to look at how we can use our capital resources to help leverage our way out of a situation.”
But as far as creating an affordable housing fund as the CHAT report recommends, Pike said he is open to ideas.
“I think it’s a good idea but I don’t know how we do that yet,” Pike said. “So I am open to creative thoughts on how we can get that done. This is a tough time to do that and I think we should keep that goal in mind. As the economy starts expanding, we should think about slicing off a piece of that expanding pie, so that we have it going forward.”
Taxes on tap
But when the economy expands, what piece of the pie is most appropriate to fund affordable housing?
The idea behind the CHAT-recommended housing fund is that some type of public funds would be tapped to fill it, such as property tax, sales tax or real estate excise tax.
Mischaikov said the CHAT group seemed to be in favor of property taxes for a couple reasons.
“It’s a progressive tax and it seems to be less difficult than sales tax and less of a legal challenge than an excise tax,” Mischaikov said.
Schissler said perhaps further down the road, Whatcom County residents would approve a levy that would divert some property taxes to a housing fund like what was done in Seattle.
Mischaikov said a property tax levy would be similar to the Greenways measure.
“ I will vote for it and I think that’s an appropriate way of doing it,” Mischaikov said. “If it’s a community benefit then it should be shouldered by the whole community just like Greenways.”
However, Fleetwood said the CHAT conducted a survey which suggested that while county residents think affordable housing is an issue they want addressed, they would like to see the private sector pay for it.
“That is something some people point at to indicate public funding might be difficult to obtain,” Fleetwood said.
Another tax stream the CHAT discussed as a possible funding source for affordable housing is real estate excise tax (REET) funds, which are real estate taxes collected on the sale of a home. But the law currently restricts those funds for specific capital uses and not affordable housing.
Jon Soine, CHAT member and vice president-elect of government affair
for the Washington Association of Realtors, said the use of REET funds would burden state and local governments already facing multi-million-dollar budget shortfalls.
“We have been pushing for two or three years to not rely on (REET) taxes because it will diminish income for state, county and city governments,” Soine said.
Soine said that REET funds are an extremely volatile revenue stream that rises and falls with the market and should be left alone in hard times. According to city data, REET funds are down more than 26 percent over 2007 numbers.
“Real estate excise tax is based on a healthy economy,” Soine said. “We need to revitalize the housing industry, which is everything from the Realtor and the builder to the plumber, carpet installer and title companies.”
However, several CHAT members agreed that the use of REET funds would be a good way of capturing money from those who are benefitting from a rising housing market.
Mischaikov said when people own homes for 20 or 30 years, there is an assumption of considerable appreciation in home value.
“Those that benefit from a rising real estate environment would participate in offsetting the detrimental impacts of a rising real estate environment,” Mischaikov said.
Robbing Peter to pay Paul
Hart Hodges, director of Western Washington University’s Center for Economics and Business Research and a CHAT member, said he didn’t see his role on the CHAT as advocating for any particular funding measure but as someone who could inform the CHAT’s members about the inherent tradeoffs of any new public funding campaign.
“It’s ultimately the City Council’s decision that determines if we go left or right and how hard we hit the gas,” Hodges said. “Doing it eyes wide open is the key.”
Hodges said in a tough economy, governments really need to look at their priorities before redirecting money toward affordable housing.
“Where does it fit next to schools and Lake Whatcom?” Hodges asked.
While Schissler agreed a city must make priorities, he said affordable housing should always be one of those priorities.
“A community without homes that people can afford is not a healthy community,” Schissler said.
Hodges said that the city’s actions regarding other issues affect their ability to have an impact in affordable housing.
“It’s a tradeoff,” Hodges said. “With no extension of the urban growth area, no infill to speak of and limiting development on the waterfront, it doesn’t seem like we care about managing growth or affordable housing.”
Lowering building costs, attracting developers
Aside from public funding, the CHAT also wrestled with ways to lower building costs to attract developers to do affordable housing projects. One such method is called inclusionary zoning (IZ), where home developers subsidize affordable housing with profits from market-value units. For example, developers would receive specific cost offsets from the city or county and then build one permanently affordable home for every four sold at fair market value.
Certain cost offsets the city could implement include waiving certain impact fees, expediting the permit process, or anything else that would lower building costs.
Pike said the city needs to work on incentives that attract developers as well as bolster the Kulshan Community Land Trust and the Bellingham-Whatcom Housing Authorities, which have their own niche in affordable housing.
“We need to hit it from every side we can,” Pike said.
Fleetwood said the CHAT report recommends that the county adopt voluntary IZ. However, data contained within the CHAT report shows how other municipalities’ voluntary IZ efforts were met with little or no development activity, but when IZ was made mandatory, several hundred projects with affordable housing components materialized.
“We recommended voluntary with the idea that if it doesn’t work, then we would reconsider mandatory,” Fleetwood said.
Tax on developers?
Hodges said if the city and county can’t create enough incentives to attract developers, then mandatory IZ participation is more like a tax on developers.
“If there are not enough carrots to get the developers to do what you want them to do and then you require inclusionary zoning, you are imposing a tax on them,” Hodges said.
Hodges said if the cost offsets do not sufficiently lower building costs, then developers would be forced to pass that cost onto the buyers of the market-rate units.
“The conversation should have been about how much the price increases in market products through mandatory inclusionary zoning, but it never got there,” Hodges said.
Mischaikov said calling this method inclusionary “zoning” skirts the true nature of the measure, which he said is more like a tax on developers because if affordable housing were a zoning issue, affordability would be a component of all zoning concerns including commercial properties.
“It’s just the aggregator of these different services that is getting taxed [with IZ],” Mischaikov said. “It isn’t the guy who provides the windows or the concrete guy or the sidewalk guy. No one expects the suppliers to participate — only the aggregator, which is the developer-contractor or the developer.”
Mischaikov said it’s a slippery slope from voluntary to mandatory IZ because if the cost offsets put forth by the city or county are feasible, developers will volunteer.
“The only reason anything is mandatory is because you want to force someone to do it without compensation,” Mischaikov said. “We make things mandatory when we don’t want to pay for them.”
Keeping it a priority
Can the CHAT report and its recommendations escape the fate of so many in-depth reports? Or will it end up on a shelf collecting dust?
Fleetwood said that he and the members of the CHAT need to remain committed to the affordable housing issue if the CHAT’s recommendations are to be executed.
“A number of us are very clear that we do not want the CHAT’s recommendations to become shelf art,” Fleetwood said.
Schissler said he hopes all CHAT members continue working toward affordable housing.
“There were some strong advocates on the CHAT and I hope all those people and organizations continue to advocate at least about the things we agreed upon,” Schissler said.
Pike said he and county executive Pete Kremen are in support of creating what is being called CHAT 2, a continuation of the first group to continue the affordable housing conversation.
“I will say that one way [the CHAT report] won’t go away is that the folks on CHAT have committed to not letting it go away,” Pike said. “If they stick to that perspective and commitment, Pete and I respond well to pressure.”