Council Pushes Back on “Growth Fund” Housing Preservation Proposal

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Freshman city council member Lisa Herbold has proposed resurrecting a pre-Eyman-era housing “growth fund” to pay for the preservation of naturally-occurring affordable housing–privately owned housing that, because of its age or state of repair, is more affordable than market-rate housing.   The original growth fund was created in 1985 to fund affordable housing construction; it consisted of a percentage of property tax revenues from new construction downtown, and brought in about $15 million in its 17-year existence. Herbold’s proposal would begin with a single demonstration project.

“I think it’s an important commitment to make in light of our current housing crisis,” Herbold says. “Between 1960 and 1985, nearly 16,000 housing units were lost downtown. … I think we are in a similar time now and if [Mayor Ed Murray’s] goal of 20,000 more net affordable housing units is going to be met, we have to do something about the fact that it is unlikely the units lost will be replaced or preserved without an explicit preservation strategy.”

Last Wednesday, Herbold invited affordable-housing advocates from groups like Puget Sound Sage and the Low-Income Housing Institute to pitch the council’s affordable housing committee on the fund proposal. 

“I think the public understands the linkage between all this new construction in a booming economy and the loss of affordable housing,” LIHI director Sharon Lee told council members. “We’ve got 1 Percent for the Arts. If housing is on the front page of the paper every day and people are being forced to leave Seattle [because of high housing prices], why aren’t we using 1 percent of the general fund for housing?”

Lee told the committee that former mayor Greg Nickels eliminated the growth fund when he first took office in 2002; “He said, ‘We have a housing levy; let’s just cut [the growth fund],’ and that was a disappointment to us,” Lee said.

But committee chair Tim Burgess and city budget office director Ben Noble strongly disputed Lee’s claim that Nickels had cut the fund for purely political reasons, noting that 2002 was the year that a Tim Eyman-backed measure capping annual property tax growth at 1 percent was adopted by the state legislature (the original initiative was ruled unconstitutional, but the legislature passed a copycat version). That meant that property tax revenues, which had been growing at about 6 percent a year, took a sudden, dramatic hit, forcing the city to scramble for funds to pay for basics and leading to the city’s current reliance on property tax levies to pay for everything from early-childhood education to libraries to housing.

“I think we should be real clear about why the city got rid of the growth fund in 2002,” Burgess said sternly. “It was not just the whim of Mayor Nickels.” After the 1 percent cap on property tax increases took effect, city leaders “determined that we should increase the size of the housing levy … and eliminate the growth fund because our property tax revenue options had been suppressed so much. That’s a much fairer explanation of that.”

Moreover, Noble and council member (and former private-sector CFO) Mike O’Brien pointed out that neither of Herbold’s proposals would create any new revenue; rather, the dedicated growth fund would take money from other city programs funded by the budget and spend it on housing preservation. Similarly, the bond proposal wouldn’t create any new money (Herbold protested: “It’s new in that it’s dedicated to this purpose”); instead, it would create new debt that would have to paid back, with interest, out of the general fund every year.

“Let’s not pretend that we get this [housing preservation fund] for free when we’re paying for that debt over 20 years, and there’s no new source of that money because it’s coming out of the general fund,” O’Brien said. “I expect and hope our experts will give us the best solution, so if using our bonding capacity is the best way to fund affordable housing, that intrigues me … and on the flip side, if it’s not a very good idea and there’s more efficient financing tools, I would not want to use a bad tool just because it sounds good.”

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“The bottom line,” Noble told me this week, “is that to do what council member Herbold is suggesting would require taking existing general fund resources and dedicating it to housing—which is a perfectly fine thing to do, but the general fund is already being relied upon on to pay for cops and fire and everything else.”  Noble says the city is still optimistic about passing a tax exemption for landlords who agree to keep their housing affordable, which narrowly failed in the state house this year thanks to opposition from house speaker Frank Chopp.

Both O’Brien and Burgess seem to agree that the source of additional funding for housing preservation is less important than providing the money, which led both to the idea of funding preservation through the housing levy.

“We’re getting ready to vote in two or three weeks on dedicating a huge amount of taxpayer money to housing, including preservation,” Burgess says. “This is really a discussion about how are we going to allocate all of the taxpayer money that we have at our disposal, and focusing on a specific method like a growth fund is less important to me than how we decide to use all our resources.” However, Herbold counters that the 2009 housing levy could have funded affordable housing preservation, but didn’t, in part because housing levy funds are less flexible than the growth fund was, and because the Office of Housing traditionally works on new construction, not preservation.

At last week’s meeting, Office of Housing director Steve Walker seemed to agree, noting that buying up existing for-profit affordable housing is challenging, because of income requirements (if an existing resident makes too much to qualify for a unit in a newly city-owned building, would the city kick her out?) and because the city doesn’t have much experience in the housing-preservation business.

Herbold says she worries that “if we separate the conversation, the result will be that we are driven down the path of traditional OH programs. …  Separating the conversation about financing from the conversation about preservation from makes the need for preservation more and more abstract from the harm of displacement.”

The council will need a lot of convincing on that front (right now, Herbold’s proposal seems to have little traction), and that will likely have to wait until after voters consider the $290 million housing levy proposal in August.

3 thoughts on “Council Pushes Back on “Growth Fund” Housing Preservation Proposal

  1. Pingback: Council Bans Preferred Employer Rent Discounts | The C Is for crank

  2. “…the city doesn’t have much experience in the housing-preservation business.”

    I’ll say and that’s why we have lost so much affordable housing to new, more expensive development. Kudos to CM Herbold for raising the issue with her proposal. Will Housing Levy funds require some portion be used for preservation of existing affordable housing? I doubt it unless City Counsel takes steps to require that to happen.

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  3. Did anyone consider creating an apportionment district, according to the state’s local revitalization bonding, RCW 39.104, which includes purposes such as housing?

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