BILL REQ. #:  H-1449.1 

Read first time 02/06/2007.   Referred to Committee on Housing.

     AN ACT Relating to the property valuation of affordable multifamily rental housing; amending RCW 84.40.030; creating a new section; and declaring an emergency.

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

Sec. 1   RCW 84.40.030 and 2001 c 187 s 17 are each amended to read as follows:
     All property shall be valued at one hundred percent of its true and fair value in money and assessed on the same basis unless specifically provided otherwise by law.
     Taxable leasehold estates shall be valued at such price as they would bring at a fair, voluntary sale for cash without any deductions for any indebtedness owed including rentals to be paid.
     The true and fair value of real property for taxation purposes (including property upon which there is a coal or other mine, or stone or other quarry) shall be based upon the following criteria:
     (1) Any sales of the property being appraised or similar properties with respect to sales made within the past five years. The appraisal shall be consistent with the comprehensive land use plan, development regulations under chapter 36.70A RCW, zoning, and any other governmental policies or practices in effect at the time of appraisal that affect the use of property, as well as physical and environmental influences. An assessment may not be determined by a method that assumes a land usage not permitted, for that property being appraised, under existing zoning or land use planning ordinances or statutes. The appraisal shall also take into account: (a) In the use of sales by real estate contract as similar sales, the extent, if any, to which the stated selling price has been increased by reason of the down payment, interest rate, or other financing terms; and (b) the extent to which the sale of a similar property actually represents the general effective market demand for property of such type, in the geographical area in which such property is located. Sales involving deed releases or similar seller-developer financing arrangements shall not be used as sales of similar property. Sales of affordable multifamily housing involving nonprofits or housing authorities shall not be used as sales of similar property, nor may any other transaction involving an affordable multifamily rental housing project be used, when the price paid does not reflect government restrictions on use, actual net operating income, and typical investor motivations or financing. Sales of conventional multifamily projects that have no affordable rent restrictions shall not be used as sales of similar housing without applying a cash equivalency and a net operating income adjustment. The sales comparison approach shall be deemed secondary to the direct capitalization of income approach.
     (2) In addition to sales as defined in subsection (1) of this section and except as otherwise provided, consideration may be given to cost, cost less depreciation, reconstruction cost less depreciation, or capitalization of income that would be derived from prudent use of the property. In the case of property of a complex nature, or being used under terms of a franchise from a public agency, or operating as a public utility, or property not having a record of sale within five years and not having a significant number of sales of similar property in the general area, except as otherwise provided, the provisions of this subsection shall be the dominant factors in valuation. When provisions of this subsection are relied upon for establishing values the property owner shall be advised upon request of the factors used in arriving at such value.
     (3) For the purposes of determining the true and fair value of affordable multifamily rental housing:
     (a) The cost approach shall not be utilized unless appropriate adjustments are made to reflect economic obsolescence based upon the project's actual net operating income in addition to any functional obsolescence factors. The cost approach shall be deemed secondary to the direct capitalization of income approach;
     (b) Primary consideration shall be given to the direct capitalization of income approach utilizing actual annual net operating income after deduction of stabilized operating expenses. Both income and expenses shall be based upon the actual operating history of the property. A capitalization rate shall be set subject to the following:      (i) The risks associated with multiunit rental housing subject to a government restriction on use, including but not limited to diminished ownership control, income generating potential, and liquidity shall be considered;
     (ii) Tax credits and subsidized financing shall not be considered; and
     (iii) The capitalization rate that is set pursuant to this subsection (3) must be equal to or greater than the capitalization rate used for valuing multiunit rental housing that is not subject to government restrictions on use;
     (c) The taxable value of any personal property separately assessed shall be deducted from the determination under the direct capitalization approach to reach the true and fair value of the real property;
     (d) Within sixty days from the date of the expiration of the government restrictions it shall be the obligation of the property owner to notify the county assessor's office, in which the property is located, that the property is no longer rent-restricted. After receipt of such notice, the county assessor shall revalue such property for the next assessment date as a conventional multifamily project;
     (e) The property owner shall be subject to a penalty for failing to notify the county assessor within sixty days from the date of the expiration of the government restrictions, which shall be equal to one-tenth of one percent of the true and fair value of the property as redetermined by the county assessor for the county in which the property is located; and
     (f) The property owner shall provide the county assessor's office, in the county in which the property is located, with any of the following information, at the request of the county assessor:
     (i) A minimum of two years of income and expense data preceding the assessment year, which may include either audited or unaudited data;
     (ii) A copy of a December rent roll preceding the assessment date at issue;
     (iii) A copy of the regulatory or loan agreement; or
     (iv) Any other documentation demonstrating that the project meets the definition of affordable multifamily rental housing as defined in subsection (4) of this section.
     (4) For the purposes of this section, "affordable multifamily rental housing" means a project of four or more residential dwelling units that is subject to government restrictions on use that limit the rental of the units to qualified tenants in exchange for a government incentive, including but not limited to the following:
     (a) A low-income housing tax credit under 26 U.S.C. Sec. 142 of the federal internal revenue code, as amended on January 1, 2007;
     (b) Financing derived from exempt facility bonds for qualified residential rental projects under 26 U.S.C. Sec. 142 of the federal internal revenue code as amended on January 1, 2007, or financing derived from nonhospital bonds under 26 U.S.C. Sec. 501(c)(3) of the federal internal revenue code, as amended on January 1, 2007;
     (c) A low interest loan under 12 U.S.C. 1715z or 1715z-1 of the national housing act, as amended on January 1, 2007, or under 42 U.S.C. 1485 of the federal housing act of 1949, as amended on January 1, 2007;
     (d) A government rent subsidy;
     (e) A government guaranteed loan; or
     (f) A rural development 515 low-interest multifamily loan.
     (5) In valuing any tract or parcel of real property, the true and fair value of the land, exclusive of structures thereon shall be determined; also the true and fair value of structures thereon, but the valuation shall not exceed the true and fair value of the total property as it exists. In valuing agricultural land, growing crops shall be excluded.

NEW SECTION.  Sec. 2   This act applies to all affordable multifamily rental housing existing on or after the effective date of this act, as well as any affordable multifamily rental housing projects with valuation appeals pending before any Washington county board, Washington state appeals board, or any Washington state court as of the effective date of this act.

NEW SECTION.  Sec. 3   This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect immediately.