AN ACT Relating to providing local governments with options to preserve affordable housing in their communities; and adding a new chapter to Title 84 RCW.

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

(1) Families, senior citizens, and workers with fewer financial resources are more likely to experience unhealthy and unsafe housing conditions;

(2) Healthy homes promote good physical and mental health. When adequate housing protects individuals and families from harmful exposures and provides them with a sense of privacy, security, stability, and control, it can make important contributions to health and well-being;

(3) Affordable housing is a necessary component of strong, thriving neighborhoods with healthy physical and social environments;

(4) Very low-income household renters should have the opportunity to live in homes in neighborhoods close to major infrastructure investments like transit, quality schools for children, and vital services like health care, grocery shopping, and employment;

(5) Community members with critical occupations, senior citizens, and families are struggling to afford rent around the state;

(6) Rising rents are causing the displacement of very low-income household renters and long-time community members, risking the loss of cultural communities;

(7) Property owners require additional resources to make health, safety, and quality improvements to buildings without raising rents to pay for repairs; and

(8) Communities need a wide range of local tools to create healthy, affordable homes and address affordable housing needs.

(1) "Energy and water efficiency standards" means housing that meets standards substantially equivalent to evergreen sustainable development standards, as established by the Washington state department of commerce.

(2) "Governing authority" means the local legislative authority of a city or county having jurisdiction over the property for which an exemption may be applied under this chapter.

(3) "Health and quality standards" means standards substantially equivalent to uniform physical condition standards, as established by the United States department of housing and urban development, or the national healthy housing standard, as established by the national center for healthy housing and the American public health association.

(4) "High-cost area" means a county where the third quarter median house price for the previous year as reported by the Runstad center for real estate studies at the University of Washington is equal to or greater than one hundred thirty percent of the statewide median house price published during the same time period.

(5) "Household" means a single person, family, or unrelated persons living together.

(6) "Owner" means the property owner of record.

(7) "Permanent residential occupancy" means housing that provides rental occupancy on a nontransient basis. "Permanent residential occupancy" includes rental accommodation that is leased for a period of at least one month. "Permanent residential occupancy" excludes hotels and motels that predominately offer rental accommodation on a daily or weekly basis.

(8) "Property" means a residential building not designed as transient accommodations. "Property" excludes hotels or motels.

(9) "Rehabilitation improvements" means modifications to existing structures made to achieve substantial compliance with health and quality standards or energy and water efficiency standards.

(10) "Single-family dwelling unit" means an individual detached dwelling.

(11) "Very low-income household" means a single person, family, or unrelated persons living together whose adjusted income is at or below fifty percent of the median family income adjusted for family size, for the county in which the project is located, as reported by the United States department of housing and urban development. For cities located in high-cost areas, "very low-income household" means a household that has an income at or below sixty percent of the median family income adjusted for family size, for the county in which the project is located.

NEW SECTION.  Sec. 4.  A city governing authority may adopt a property tax exemption program to preserve affordable housing that meets health and quality standards for very low-income households at risk of displacement or that cannot afford market-rate housing. A county governing authority may adopt a property tax exemption program for unincorporated jurisdictions to preserve affordable housing that meets health and quality standards for very low-income households at risk of displacement or that cannot afford market-rate housing.

(a) Below market rent levels as determined by the governing authority; and

(b) Affordable to households with an income of fifty percent or less of the county median family income, adjusted for family size.

(2)(a) The governing authority, after holding a public hearing, may also establish lower income levels or lower rent levels adjusted to serve very low-income household renters in the community.

(b) The governing authority of a high-cost area, after holding a public hearing, may also establish higher income levels. The higher income level may not exceed sixty percent of the county area median family income, adjusted for family size.

(2) The governing authority may extend the duration of the exemption period by three years for properties meeting energy and water efficiency standards.

(3) The incentive provided under this chapter is in addition to any tax credits, grants, or other incentives provided by law.

(4) This chapter neither applies to increases in assessed valuation made by the assessor on nonqualifying portions of building or land nor to increases made by lawful order of a county board of equalization, the department of revenue, or a county, to a class of property throughout the county or specific area of the county to achieve the uniformity of assessment or appraisal required by law.

(1) A minimum of twenty-five percent of units in a multiple-unit property subject to tax exemption must be affordable as described in section 5 of this act. A governing authority may require more than twenty-five percent affordable units in multiple-unit housing buildings subject to tax exemption to address local market conditions. Affordable units must be comparable in terms of quality and living conditions to market rate units in the building;

(2) At least ninety percent of the units of multiple-unit property must be occupied by tenants at the time of application;

(3) The property must be part of a residential or mixed-use (residential and nonresidential) project;

(4) The property must provide for a minimum of fifty percent of the space in each building for permanent residential occupancy;

(5) The property must meet guidelines as adopted by the governing authority that may include height, density, public benefit features, number and size of proposed development, parking, income limits for occupancy, limits on rents, health and quality standards, and other adopted requirements indicated as necessary by the governing authority. The required amenities should be relative to the size of the project and tax benefit to be obtained; and

(6) The property owner must enter into a contract with the city or county approved by the governing authority, or an administrative official or commission authorized by the governing authority, under which the property owner has agreed to terms and conditions satisfactory to the governing authority.

(2)(a) The governing authority may waive certain standards for up to three years if the owner of the property submits a rehabilitation plan to comply with housing quality standards. The owner must notify the governing authority at the time of completion of rehabilitation.

(b) The governing authority may establish minimum health and quality standards for properties to qualify for a waiver under (a) of this subsection.

(3) The property must be inspected at the time of application for tax exemption and, thereafter, as established by the governing authority at least once every three years.

(4) If the governing authority grants a waiver of certain housing quality standards under subsection (2) of this section, the property must be inspected when the owner notifies the governing authority that rehabilitation has been completed or at the end of the waiver period, whichever occurs first.

(5) The governing authority may deny an application for tax exemption for failure to comply with health and quality standards.

(a) A limit on the total number of affordable housing units subject to exemption under this chapter;

(b) The designation of targeted residential areas for property to align with community needs, including to prevent displacement, preserve cultural communities, and provide affordable housing options near community infrastructure such as transportation or public schools;

(c) Standards for property size, unit size, unit type, mix of unit types, or mix of unit sizes;

(d) An exemption extension for property meeting minimum energy and water efficiency standards substantially equivalent to evergreen sustainable development building performance standards;

(e) A program for single-family dwelling rental units occupied by tenants complying with affordability requirements under this chapter as adopted by the governing authority;

(f) Any additional requirements to reduce displacement of very low-income household tenants.

(2) The governing authority must adopt and implement standards and guidelines to be utilized in considering applications and making the determinations required under this chapter. The standards and guidelines must establish basic requirements to include:

(a) An application process and procedures;

(b) Guidelines that may include height, density, public benefit features, number and size of proposed development, parking, income limits for occupancy, limits on rents, health and quality standards, and other adopted requirements indicated as necessary by the governing authority. The required amenities should be relative to the size of the project and tax benefit to be obtained;

(c) An inspection policy and procedures to ensure the property complies with housing and health and quality standards;

(d) Income and rent limits as required under section 5 of this act; and

(e) Documentation necessary to establish income eligibility of households in affordable housing units.

(3) Standards may apply to part or all of a jurisdiction and different standards may be applied to different areas within a jurisdiction or to different types of development. Programs authorized under this section may be modified to meet local needs and may include provisions not expressly provided in this section.

(1) The applicant must apply to the city or county on forms adopted by the governing authority. The application must contain the following:

(a) Information setting forth the grounds supporting the requested exemption, including information indicated on the application form or in the guidelines;

(b) A description of the project and site plan, including the floor plan of units and other information requested;

(c) A statement that the applicant is aware of the potential tax liability involved when the property ceases to be eligible for the incentive provided under this chapter;

(d) When the governing authority finds that rehabilitation is required to meet health and quality standards or evergreen sustainable development building performance standards, a plan, budget, and proposed schedule for repairs; and

(e) A certification of family size and annual income in a form acceptable to the governing authority for designated affordable housing units;

(2) The applicant must verify the application by oath or affirmation; and

(3) The applicant must submit a fee, if any, with the application as required under this chapter. The governing authority may permit the applicant to revise an application before final action by the governing authority.

(2) The duly authorized administrative official or committee of the governing authority may approve the application if it finds that:

(a) The property meets affordable housing requirements as described in section 5 of this act;

(b) The property meets health and quality standards, or a waiver is granted upon submission of a rehabilitation plan by the property owner;

(c) The property rehabilitation plan is of appropriate scope to be completed within the designated time frame of waiver and will result in property compliance with health and quality standards, as outlined in section 8 of this act; and

(d) The owner has complied with all standards and guidelines adopted by the governing authority under this chapter.

(3) The authorized representative of the governing authority may waive the unit affordability and occupancy restrictions for an incidental number of units occupied by existing over-income tenants at the time of application. The waiver should be limited for a specified period, but not to exceed three years. After the tax exemption has expired, the property owner must maintain affordable housing units for a term equal to the period that units were occupied by over-income tenants.

(2)(a) If the application is approved, the governing authority must issue the owner of the property a certificate of acceptance of tax exemption. The certificate must contain a statement by a duly authorized administrative official of the governing authority that the property has complied with the required findings indicated in this chapter.

(b) The governing authority may issue a conditional certificate of acceptance of tax exemption if a property must complete a rehabilitation plan in order to comply with housing quality standards. The rehabilitation must be completed within three years of the date of application for a tax exemption.

(3)(a) If the application is denied by the authorized administrative official or commission authorized by the governing authority, the deciding administrative official or commission must state in writing the reasons for denial and send the notice to the applicant at the applicant's last known address within ten days of the denial.

(b) Upon denial by the authorized administrative official or commission, an applicant may appeal the denial to the governing authority within thirty days after receipt of the denial. The appeal before the governing authority must be based upon the record made before the administrative official or commission with the burden of proof on the applicant to show that there was no substantial evidence to support the administrative official or commission's decision. The decision of the governing body in denying or approving the application is final.

(1) The affordable housing requirements as described in section 5 of this act were not met;

(2) The property did not meet health and quality standards; or

(3) The owner's property is otherwise not qualified for limited exemption under this chapter.

(2) The property owner must file a report at least annually indicating the following:

(a) Family size and annual income for each tenant living in designated affordable housing rental units and a statement that the property is in compliance with affordable housing requirements described in section 5 of this act;

(b) A statement of occupancy and vacancy;

(c) A schedule of rents charged in market-rate units;

(d) A certification that the property has not changed use;

(e) A description of changes or improvements;

(f) When rehabilitation is required to meet health and quality standards or evergreen sustainable development building performance standards, a progress report on compliance with the rehabilitation plan, budget, and proposed schedule for repairs; and

(g) Any other information required to determine compliance with program requirements or to measure program performance.

(3) A governing authority that issues certificates of tax exemption for property that conform to the requirements of this chapter must report annually to the department of commerce the following information:

(a) The number of tax exemption certificates granted;

(b) The number and type of units in building properties receiving a tax exemption;

(c) The number and type of units meeting affordable housing requirements;

(d) The total monthly rent amount for each affordable and market-rate unit; and

(e) The value of the tax exemption for each project receiving a tax exemption and the total value of tax exemptions granted.

(a) The owner intends to convert the property to another use that is not residential or the owner intends to discontinue compliance with affordable housing requirements;

(b) The owner fails to file annual reports;

(c) The owner fails to maintain the property in substantial compliance with all applicable local building, safety, and health code requirements;

(d) The owner fails to complete rehabilitation improvements as outlined in the application for tax exemption; or

(e) The owner fails to meet affordable housing requirements.

(2)(a) Upon cancellation of the property tax exemption, additional real property tax must be imposed upon the value of the nonqualifying improvements and land in the amount that would be normally imposed, plus a penalty must be imposed that amounts to twenty percent. This additional tax is calculated from January 1st of the year immediately following the year of issuance of the certificate of tax exemption.

(b) The tax must include interest upon the amounts of the additional tax at the same rate charged on delinquent property taxes from the dates on which the additional tax could have been paid without penalty if the property had been assessed at a value without regard to this chapter.

(c) The additional tax owed together with the interest and penalty becomes a lien on the land and attaches at the time the property or portion of the property is removed from use as affordable housing or the amenities no longer meet applicable requirements, and has priority to and must be fully paid and satisfied before a recognizance, mortgage, judgment, debt, obligation, or responsibility to or with which the land may become charged or liable. The lien may be foreclosed upon the expiration of the same period after delinquency and in the same manner provided by law for foreclosure of liens for delinquent real property taxes. An additional tax unpaid on its due date is delinquent. From the date of delinquency until paid, interest must be charged at the same rate applied by law to delinquent ad valorem property taxes.

(3) Upon a determination that a property tax exemption is to be canceled for any reason stated in this section, the governing authority or authorized representative of the governing authority must notify the record owner of the property as shown by the tax rolls by mail, return receipt requested, of the determination to cancel the exemption. The owner may appeal the determination to the governing authority or authorized representative within thirty days by filing a notice of appeal with the clerk of the governing authority, which must specify the factual and legal basis on which the determination of cancellation is alleged to be erroneous. The governing authority or a hearing examiner or other official authorized by the governing authority may hear the appeal. At the hearing, all affected parties may be heard and all competent evidence received. After the hearing, the deciding body or officer must either affirm, modify, or repeal the decision of cancellation of exemption based on the evidence received. An aggrieved party may appeal the decision of the deciding body or officer to the superior court under RCW 34.05.510 through 34.05.598.

(4) Upon a determination by the governing authority or authorized representative to cancel a property tax exemption, the county officials having possession of the assessment and tax rolls must correct the rolls in the manner provided for omitted property under RCW 84.40.080. The county assessor must make such a valuation of the property and improvements as is necessary to permit the correction of the rolls. The owner may appeal the valuation to the county board of equalization under chapter 84.48 RCW and in accordance with RCW 84.40.038. If there has been a failure to comply with this chapter, the property must be listed as an omitted assessment for assessment years beginning January 1st of the calendar year in which the noncompliance first occurred, but the listing as an omitted assessment may not be for a period more than three calendar years preceding the year in which the failure to comply was discovered.

(1) The legislature categorizes this tax preference as one intended to induce certain designated behavior by taxpayers, as indicated in RCW 82.32.808(2)(a).

(2) It is the legislature's specific public policy objective to preserve quality and healthy affordable housing where housing options, including quality and healthy affordable housing options, are severely limited. It is the legislature's intent to provide the value of residential improvements and land qualifying under this chapter an exemption from ad valorem property taxation for fifteen years, as provided for in this chapter, to provide incentives to developers to preserve affordable housing units for very low-income households.

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