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Portland Auditor questions housing tax breaks oversight

July 29, 2008

Below is the summary from teh Portland City Auditor’s Report “HOUSING TAX ABATEMENTS: Oversight inadequate to ensure program goals
The City’s current tax abatement programs have evolving goals, incomplete reporting and monitoring, and poor verification of either the overall social goals or the specific project benefits that the pro¬grams were designed to provide. The City of Portland exempts some condominium, house, and apartment owners from paying property taxes as an incentive for providing certain public benefits. In this audit, we reviewed three of the City’s tax abatement programs: (1) New Multi-Unit Housing, (2) Transit Oriented Development, and (3) Single Family New Construc¬tion. These programs exempt the value of new housing construction from property taxes, in exchange for providing public benefits such as building new housing in distressed neighborhoods, or providing transit-friendly development.

Owners of almost 6,000 housing units built over the last 10 years – including single-family homes, apartment buildings, and condo¬miniums – do not pay any property taxes on the value of the new construction. The cost to the City in uncollected property taxes from these housing tax abatement programs has grown from less than $1 million in FY 1997-98, to more than $2.7 million in FY 2006-07. The cost to all taxing districts, including the City, the County, and other governments in the metro area now exceeds $8.5 million per year.

We found that the City has done too little to ensure that property owners with tax abatements follow through to deliver the benefits they promised. For example, one apartment building developer in the Pearl District was required to make some units affordable, and to submit financial statements to prove that the abatement was needed for the project to succeed. However, we found no verification that

project units met the affordability requirement, and the developer had not submitted the required financial statements to the City.

In another example, a condominium developer was required to sell units at a specific, affordable price as a condition of qualifying for the tax abatement. The condominiums were already built at the time the application was submitted and approved. Therefore, the abatement did not provide an incentive for new housing development. Six units were granted tax abatements, but we found that five of the units exceeded the initial sales price, did not meet the standard for having an affordable price, and should not have been approved.

We also found that administration of the tax abatement programs is fragmented between the two primary City agencies responsible for oversight — the Bureau of Planning (Planning) and the Portland De¬velopment Commission (PDC), resulting in a general lack of oversight. Consistent reports on basic information were not available – in part due to this fragmentation.

In addition, since the tax abatement programs were adopted, the stated purpose and goals of the abatement programs have shifted from providing an incentive for new housing construction, to making new housing more affordable. None of the programs include evalu¬ation or reporting components. As a result, it is unclear whether the City’s investment of tax funds is yielding the intended benefits.

During the past year, the City made several improvements in program administration. For example, PDC initiated a new monitoring process for ownership properties, and is updating its policies. PDC also initiated monitoring of some rental projects that were initially overlooked for compliance. However, we found that program administration is inadequate to ensure that the intended social goals and project benefits are provided.

To strengthen overall accountability of the City’s tax abatement pro¬grams, we recommend that City Council:

1. Clarify the goals and objectives of the housing tax abatement programs, and assign responsibility for oversight, evaluation, and reporting.

2. Direct the responsible bureau to submit an annual report of program activities to Council. The annual report should include information on the compliance status of abated properties, annual foregone revenues created by each abatement program, and progress in meeting program goals established by Council.

To improve program administration and ensure ongoing compliance with program criteria, we recommend that PDC:

3. Draft a regulatory agreement with each multi-family project developer that specifies responsibilities for monitoring project financial performance, affordability, and all other required public benefits.

4. Review the method for assessing financial need for multi-family condominium properties and make recommendations to Council for revising City Code.

5. Review and update processes for verifying applicant and tenant incomes.

  
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