AN ACT Relating to property tax exemptions for residential structures at least twenty percent of which is set aside for occupancy by low-income persons; and adding a new chapter to Title 84 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. The legislature hereby declares that:

(1) There is a shortage in the supply of decent, safe, and affordable housing for persons of low income in this state, such that the lack of affordable, basic human shelter affects the housing needs of at least one hundred seventy-one thousand households.

(2) The shortage of decent, safe, and affordable housing for persons of low income harms the general health and public safety, depriving many persons of proper shelter and protections from unreasonable risks of fire, crime, personal injury, and deteriorated living conditions. This shortage harms the general public by contributing to the use of storefronts, public parks, and sidewalks as shelter by the homeless and by contributing to slums and blight in urban areas.

(3) The shortage of decent, safe, and affordable housing for persons of low income is at risk of becoming worse with the expiration of use restrictions on twenty-six thousand low and moderate-income rental units in federally subsidized and privately owned projects in the state by the year 2010.

(4) The effects of this shortage on persons of low income are worsened by the development pressures on land values and rents in some of the state's downtown areas, and in other downtown areas they are worsened by the lack of economic development and vitality.

(5) The development of downtown housing in a wide range of types, prices, and rent levels is appropriate and necessary. The growth of housing reinforces the public health and safety of downtowns and improves them as lively urban areas, especially during evenings.

(6) It is unlikely that any single approach to the downtown housing problems of Washington's cities will be sufficient to preserve, maintain, and construct a supply of decent, safe, and affordable housing for the cities that need it the most. Despite the best efforts of some of the state's cities, public agencies acting alone do not have sufficient resources to supply housing for persons of low income.

(7) Additional incentives are needed to leverage private sector investments in downtown housing development and preservation. Public agencies in partnership with private developers can play an important role in ensuring the economic and social vitality of downtowns, including the availability and affordability of downtown housing for a mix of income groups.

(8) It is in the public interest to stimulate the construction and rehabilitation of rental housing in the core areas of the state's urban centers in order to provide additional affordable low-income housing, improve the balance between the residential and commercial nature of these areas, promote economic and social growth, and ensure the full-time use of these areas where citizens of the community have an option to live as well as work.

(9) It is in the public interest that, where downtown housing needs exist, cities be enabled to locally establish and design programs to attract the development of new and rehabilitated rental housing based on the exemption of construction and rehabilitation expenditures from real property taxes, as authorized in this chapter.

(10) It is the intent of the legislature that an exemption of real property taxes for the construction and rehabilitation of rental housing in locally designated downtown areas result in an investment that would not be economically feasible otherwise.

NEW SECTION. Sec. 2. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Affordable rents" means rents that include utilities and do not exceed thirty percent of forty percent of the median income, adjusted for family size, for the county in which the property is located.

(2) "Department" means the state department of revenue.

(3) "Designated downtown area" means a contiguous block of properties zoned primarily for commercial use and including a significant business district of a city, as designated by city ordinance or resolution.

(4) "Eligible property" means property meeting the criteria specified in section 5 of this act.

(5) "Owner" means the owner of record.

(6) "Median income" means the most recent median income statistics published by the federal department of housing and urban development for the county where the property is located.

(7) "Persons of low income" means an individual or family whose current income does not exceed fifty percent of the median income, adjusted for family size, for the area in which the property is located. Persons of low income whose household income increases after they initially occupy a qualifying unit shall continue to be qualified low-income tenants until their income exceeds forty percent above fifty percent of the median income, adjusted for family size, for the county in which the property is located.

(8) "Qualifying low-income unit" means a residential dwelling unit in an eligible property that is occupied by, or held vacant for occupancy by, persons of low income at affordable rents. In the event that a dwelling unit ceases to be a qualified low-income unit by reason of an increase in tenant household income, such unit shall be deemed a qualified low-income unit if and until the next vacant nonqualified low-income unit is rented in a manner which converts such latter unit to a qualified low-income unit.

(9) "Real property taxes" means ad valorem property taxes levied on a residence in this state in the preceding calendar year.

(10) "Rehabilitation" means the improvement and/or modification of an existing structure to achieve compliance with the applicable state or local building or housing codes, provided that the actual cost is twenty-five percent or greater of the assessed valuation of the land and improvements thereon prior to rehabilitation.

(11) "Special assessment" means the charge or obligation imposed by a city, town, county, or other municipal corporation upon property specially benefited by a local improvement, including, but not limited to, assessments under chapters 35.44, 36.88, 36.94, 54.16, 56.20, 57.16, 86.09, and 87.03 RCW.

NEW SECTION. Sec. 3. (1) The county assessor shall, subject to the limitations stated in subsection (2) of this section, for ten consecutive assessment years following the calendar year in which application is made, place a special valuation on property receiving final approval under section 5 of this act. Such special valuation shall be equal to the assessed value of the property subtracting the value of new construction improvements or rehabilitation to the property.

(2) For applications first submitted in each calendar year during the period from January 1, 1990, to December 31, 1999, and for each year of the ten-year exemption period following the application year, the exemptions authorized by this chapter may only be granted to property for which the total value of new construction improvements for rehabilitation does not exceed an amount equivalent to one dollar and fifty cents per capita in each city with one or more designated downtown areas. Population, for the purpose of determining the per capita limitation in this subsection, shall be determined by using the most recent population statistics available from the state office of financial management.

(3) The county assessor shall keep a running total of all applications finally approved and all applications which have been given a binding commitment for approval for each property tax year for which they apply. The county assessor shall not allow any exemptions which would cause the tabulation for a property tax year to exceed the amounts determined under subsection (2) of this section. If all or part of an application for exemption is disallowed under this subsection, the disallowed portion shall be carried over for approval in the next property tax year.

NEW SECTION. Sec. 4. (1) Applications for the exemption under this chapter may be considered for approval only from January 1, 1990, to December 31, 1999. A city which establishes a designated downtown area shall establish a timetable for applications by owners for exemption of taxes under this chapter, which shall provide at least two opportunities per year for the submission of applications. The city may provide that all or part of the annual tax expenditure limit available for allocation may be applied for in any application round. Such applications shall be submitted simultaneously to the city and the county assessor.

(2) Applications shall be made upon forms prepared by the department and supplied by the county assessor, and shall be supplemented by whatever additional information is required by the city which established the designated downtown area. A document that contains the essential information requested by the department's form and by city requirements shall be processed as an application whenever the approved forms are not available. The application shall contain a verification or statement under penalty of perjury that the information supplied is true and correct. The application shall require the applicant to inform the county assessor and the city if there is any change in circumstances that would affect the continuing validity of information supplied in the application.

(3) The county and the city legislative authority may require a reasonable application fee, including the costs necessary to record the application document. Such fee must accompany the application.

(4) A county assessor may delegate the performance of any or all of the activities specified by this section to the municipal officials of the jurisdiction in which the property is located.

NEW SECTION. Sec. 5. (1) Applications for exemption of taxes under this chapter shall be reviewed by the city which established the designated downtown area, and may be approved only if the application demonstrates that the eligibility criteria set forth in section 6 of this act have been met or exceeded. Multiple applications may be concurrently reviewed with the decision to approve or deny an application based on which application or applications best address the eligibility criteria set forth in section 6 of this act, including such additional criteria established by the city which established the designated downtown area.

(2) The city may grant final approval to an application only upon first residential occupancy of the project after the completion of the new construction improvements or rehabilitation improvements, or in the twelve-month period following such first residential occupancy. Prior to first occupancy, applicants may receive a binding commitment that the applications will receive final approval if all representations in the applications are fulfilled and the applicant complies with other conditions as may be established by the city establishing the designated downtown area. A binding commitment may be issued for a property tax year after the current property tax year. The city shall notify the county assessor in writing within ten days of the making of a binding commitment and shall cause a copy of such notification to be recorded in the office of the auditor of the county in which the property is located in the same manner as an encumbrance upon the property.

(3) In reviewing applications, the city establishing the designated downtown area may contact the applicant, examine documents and records, interview occupants, and enter and inspect the premises during reasonable business hours to determine compliance with the requirements of this chapter. During such review, the city shall respect the confidentiality of the identity of, and any information provided by, persons of low income, unless the release thereof is consented to in writing by such persons. Financial information contained in applications shall be confidential, except that upon final approval, all financial information related to the cost of and financing for new construction improvements or rehabilitation improvements and to the rents charged in qualifying units shall be public information.

(4) The county assessor shall grant the exemption only if the report of the reviewing official gives final approval to an application for exemption and if the annual tax expenditure amount determined under section 3 of this act will not be exceeded and shall deny the application if the report recommends denial.

(5) Property exempted under the provisions of this chapter shall be so designated on the assessment roll and notice of that exemption shall be given on the notice of assessed value change sent to the taxpayer.

NEW SECTION. Sec. 6. Any owner of property that meets the following criteria or a duly authorized agent or guardian of the owner may make application to exempt payment of real property taxes, but not special assessments, on the value of new construction improvements or rehabilitation improvements to his or her property for a ten-year period:

(1) The owner must own the property on which the real estate taxes are imposed at the time of filing;

(2) The property must be located within a designated downtown area and be used exclusively for nonowner-occupied residential housing;

(3) At the time of final approval and for twenty years thereafter, at least twenty percent of the housing units therein are occupied by or held vacant for persons of low income at affordable rents; and

(a) The property must at the time of final approval have completed within the last twelve months the construction of new multi-unit housing; or

(b) The property must at the time of final approval have completed within the last twelve months the rehabilitation of one or more buildings located on the property which meet the following criteria:

(i) Noncompliance with one or more standards of the applicable state or local building or housing codes prior to rehabilitation or be a building that was not originally constructed for residential purposes;

(ii) Be not less than twenty years of age at the time of filing; and

(iii) The value of rehabilitation must equal twenty-five percent or more of assessed value prior to rehabilitation;

(4) In the event that the property for which an exemption under this chapter is sought is used in part as other than residential rental property, only the portion of the property used as residential rental property shall be eligible for exemption under this chapter. The value of the new construction improvements or rehabilitation improvements in the portion of the property used as residential rental property shall be determined as if such portion was designated as a separate apartment under chapter 64.32 RCW;

(5) At the time of final approval, the city must make a statement of finding that the construction or rehabilitation is consistent with and meets the requirements of the city's housing assistance plan or the housing element of the local comprehensive plan and a statement of finding that the amount of subsidy provided by the property tax exemption for this construction or rehabilitation does not exceed the amount reasonably needed to achieve the purposes of this chapter.

Eligibility requirements set forth in this section are minimum requirements, and cities may include any further requirements to be utilized in considering applications and making the findings required by this subsection, as approved by local ordinance, provided that cities have no discretion to vary the displacement assistance specified in section 7 of this act.

NEW SECTION. Sec. 7. (1) Eligible properties may not temporarily or permanently displace persons of low income for a period beginning one year prior to applying for an exemption under this chapter and ending one year after the date of final approval of such application, except as expressly authorized in this section. For purposes of this section, persons of low income are displaced when they are required to vacate their dwelling unit without good cause as defined by the city or when their rent is increased by more than twenty percent. Displacement does not include a lawful eviction for the grounds set forth in RCW 59.12.030 (3), (4), (5), and (6).

(2) Households of persons of low income may be displaced for less than one year only if such households are provided at the time of displacement not less than two thousand dollars per dwelling unit and a binding commitment from the property owner that they will be entitled to occupy a qualified unit in the property after the completion of the new construction or rehabilitation at a rent which does not exceed one hundred twenty percent of their rent at the time of displacement. In the event that such a temporarily displaced tenant is not provided a qualifying unit within one year of displacement, such tenant shall be entitled to an additional two thousand dollars from the property owner at the expiration of such one-year period.

(3) Households of persons of low income may be displaced for more than one year only if such households are provided at the time of displacement not less than four thousand dollars per dwelling unit.

(4) The amounts of displacement compensation set forth in this section shall be annually adjusted for inflation using the most recent annual consumer price index as published by the federal bureau of labor statistics.

NEW SECTION. Sec. 8. The department shall require owners of properties granted an exemption under this chapter to file annually with the county assessor, or the reviewing official if that authority has been delegated, such documents as the department may require to certify continued eligibility under this chapter. The county assessor or reviewing official may require the owner to certify information about the building's occupancy by persons of low income and rents paid and may investigate and require an audit of the owner if necessary.

NEW SECTION. Sec. 9. (1) At the time an owner's application for exemption is given final approval, the owner shall enter into a regulatory agreement with the department which shall be duly recorded in the office of the county auditor or recorder of the county in which the property is located as an encumbrance upon the property. Such regulatory agreement shall be prepared by the department to carry out the intent of this chapter and shall include, but not be limited to:

(a) The conditions the owner agreed to comply with in response to the eligibility criteria set forth in section 6 of this act, and the duration for which such conditions will apply;

(b) Provisions which allow the department or the city which established the designated downtown area where the project is located to enforce the conditions of the agreement by an action for specific performance of the terms of the agreement;

(c) Provisions which establish that the conditions of the agreement shall be deemed to run with the land and shall pass to and be binding upon the owner's successors in title including any purchaser, grantee, or lessee of any portion of the property or any transferee in consequence or in lieu of foreclosure and any other person or entity having any right, title, or interest therein and upon the respective heirs, executors, administrators, devisees, successors, and assigns of any purchaser, grantee, lessee, or transferee of any portion of the property and any other person or entity having any right, title, or interest therein;

(d) Provisions which establish that a sale or other disposition of the property or any portion thereof by the owner, other than by leasing or renting to tenants, without the new owner's assurance to the satisfaction of the department that the conditions of the agreement will continue to be observed shall cause the additional taxes and interest set forth in this section to become due.

(e) Provisions requiring the payment to the department of all additional taxes and interest due under this section for breach of the agreement or as a consequence of involuntary noncompliance caused by fire, seizure, requisition, condemnation, or other casualty loss;

(f) Provisions for a lien against the property for any additional taxes and interest due under this section.

(2) When real property has been exempted under this chapter and given a special valuation, a notation of the exemption shall be made each year upon the assessment and tax rolls, and the real property shall be valued pursuant to this chapter until the expiration of the tenth year of the exemption, at which time the full value of the improvements will be entered onto the assessment and tax rolls.

(3) Upon the occurrence of any of the following events, the department shall remove the exemption and cause the county assessor to enter the full value of the improvements onto the assessment and tax rolls, unless the exemption was removed prior to the occurrence of the event, and assess additional taxes and interest as calculated under subsection (5) of this section:

(a) The owner's noncompliance with any of the requirements of this chapter or the conditions the owner agreed to comply with in response to the eligibility criteria set forth in section 6 of this act;

(b) The sale or other disposition of the property or any portion thereof to a new owner unless the new owner executes an agreement with the department assuming all of the responsibilities of the original owner under the regulatory agreement required under subsection (1) of this section;

(4) Within thirty days after the removal of an exemption authorized under this chapter and the entry of the full value of the improvements onto the assessment and tax rolls, the county assessor shall notify the owner in writing, setting forth the reasons for the removal. Within thirty days of mailing the notice of removal, the seller, transferor, or owner may appeal the removal to the county board of equalization.

(5) The additional taxes under this section are:

(a) If the exemption is removed in any of the ten years following the year in which the exemption was granted, the difference between the property tax paid under the exemptions granted under this chapter and the amount of property tax that would have been due and payable had the exemptions not been in effect, for each of the years the exemption was in effect, except that, in the case of involuntary noncompliance caused by fire, seizure, requisition, condemnation, or other casualty loss, such additional tax shall not be collected for years prior to the year of the event causing the involuntary noncompliance; or

(b) If the exemption is removed in any year after the tenth year following the year in which the exemption was granted, the amount in (a) of this subsection multiplied by a fraction, the denominator of which is the number of years the regulatory agreement will be in effect minus ten, and the numerator of which will be the denominator plus the number of years which have expired after the tenth year following the year in which the exemption was granted, except that, in case of involuntary noncompliance caused by fire, seizure, requisition, condemnation, or other casualty loss, no additional tax shall be collected.

(6) Interest shall be charged on the amounts of the additional tax assessed under subsection (5) of this section paid at the same statutory rate charged on delinquent property taxes from the dates on which the additional tax would have been paid without the exemption claimed pursuant to this chapter.

(7) Additional tax, together with applicable interest thereon, becomes a lien on the real property, which lien attaches at the time the exemption is removed from the real property. The lien has priority to and shall be fully paid and satisfied before any recognizance, mortgage, judgment, debt, obligation, or responsibility to or with which the land may become charged or liable. The lien may be foreclosed upon expiration of the same period after delinquency and in the same manner provided by law for foreclosure of liens for delinquent real property taxes as provided for in RCW 84.64.050. Any additional tax unpaid upon its due date is delinquent. From the date of delinquency until paid, interest shall be charged at the same rate applied to delinquent ad valorem property taxes.

(8) The additional tax specified in subsection (5) of this section and interest thereon shall not be imposed if the removal of the exemption resulted solely from a change in the law or land-use regulations that precludes use of the property for low-income housing.

(9) Where the owner's noncompliance with any of the requirements of this chapter or the conditions the owner agreed to comply with in response to the eligibility criteria set forth in section 6 of this act does not exceed twelve months in duration, the department may waive additional taxes and interest under this section if the owner agrees to pay the taxes that would have been due on the property without the exemption claimed under this chapter for the year or years in which the noncompliance occurred, together with interest on such taxes and agrees in writing to avoid noncompliance for the duration of the regulatory agreement described in subsection (1) of this section.

NEW SECTION. Sec. 10. Chapter 82.32 RCW applies to the administration of this chapter.

NEW SECTION. Sec. 11. The department shall devise the forms and make rules consistent with chapter 34.05 RCW and the provisions of this chapter as shall be necessary or desirable to permit its effective administration.

NEW SECTION. Sec. 12. Sections 1 through 11 of this act shall constitute a new chapter in Title 84 RCW.