Item B: MUPTE Boundary and Selection Criteria

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APARTMENT ANNUAL REVENUE LOST TOTAL TAX AVERAGE CURRENT PROPERTY TAX ON REMOVED PAID (ON TAX PAID ANNUAL TAX PRIOR TO IMPROVEMENT LAND) ANNUALLY PAID ON LAND MUPTE (LAND IN YEAR ONE DURING DURING AND PLUS AND ESTIMATED MUPTE MUPTE IMPROVEMENTS* IMPROVEMENTS) 10 YEAR TOTAL EXEMPTION (YEAR) Hilyard House $3,357 (1996) $1,769/$23,704 $19,240 $1,923 $31,320 *If one of these projects were constructed without the MUPTE the total tax exempted over ten years would be approximately ten times the amount in the last column. However, it can be assumed that they would not have been built at all, because the applicant had to financially demonstrate that the project wasn’t feasible “but for” the MUPTE. When was the current MUPTE boundary created, and has multi-family activity followed the boundary amendments? Response: The MUPTE boundary has changed numerous times since it was originally created. The current boundary was adopted in 2004. Multi-family development activity is most significantly impacted by economic factors which include the cost of land and construction, interest rates, and housing demand. To some extent the degree of construction is also impacted by opportunities in other locations. After the boundary was reduced to the heart of downtown in the late 1990’s no multi-family construction took place in the previous MUPTE area. When the boundary was mostly restored to the previous area in 2004 the tool was used and new construction activity began again. While development has sometimes followed the MUPTE program boundary changes, new multi-family development in the core, of five or more units, has seldom occurred without a property tax exemption incentive. If applied to other neighborhoods the tool may not work immediately because the rental rates may not be adequate to offset the construction costs – even with a ten-year tax exemption. Are there demonstrable differences between the developments with MUPTE and without? Response: Multi-family housing construction is primarily influenced by economics. The most significant determining factors are the cost of land, cost of construction, and potential rental income. There were recently two potentially eligible projects developed in the West University Neighborhood (WUN) that did not apply for MUPTE assistance. A local appraiser believes that neither needed the MUPTE (and therefore couldn’t prove the “but for” requirement) because they were able to purchase the land at far below market value. Due to unique circumstances they paid $25 per square foot at a time when the market was generally at $40 per foot. It is now at $60 or higher. Since there is almost no bare land in that neighborhood, any redevelopment also includes an additional cost for an improvement (typically an old house) that is likely going to be removed. In WUN rents are particularly high for this community and new units are charging $525 per bedroom per month. The result is a project that can be financially viable. The same appraiser believes that two of the most recent MUPTEs were of significantly higher than typical quality and that MUPTE probably resulted in the difference. The third project discussed was described as high but not exceptional quality. The MUPTE enabled the project to pencil out economically. Can the evaluation of MUPTE applications be less subjective and more objective? How do staff analyze the applications to determine compliance with the “but for” requirement? Response: A proposal for objective criteria is provided as Attachment E. This criterion offers specific Y:\CMO\2008 Council Agendas\M080527\S080527B.doc