Agenda Packet 4-15-20 Work Session

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Construction Excise Tax What Is the Construction Excise Tax? In 2016, Oregon Legislature passed Senate Bill 1533 authorizing Oregon cities and counties to establish a construction excise tax (CET). In May of 2019, the Eugene City Council passed an ordinance establishing the tax in Eugene. The tax will create a dedicated source of funding for affordable housing. The law authorizes a city or county to tax new residential and commercial buildings, additions, and alterations. Specifically, it applies to all improvements which result in a new structure, additional square footage to an existing structure, or addition of living space to an existing structure. Why is this tax needed? Eugene City Council and State Legislature both recognize traditional funding sources for affordable housing – especially federal sources- have declined. Because of this decline, our community has fallen far behind in meeting the housing needs of Eugene residents with limited incomes. The money collected from the CET will be put into the Affordable Housing Trust Fund. This fund will provide critical funding and is one part of a larger effort to help address the housing challenge. What does the CET pay for? Money collected from the CET will go into the Affordable Housing Fund, which will pay for projects and programs that increase availability and access to owner- and renter-occupied housing that is affordable to lower income community members. Examples of how these funds may be used include: • Gap financing for the development of new affordable housing • Acquisition of existing housing that will become affordable • Acquisition of land for future affordable housing development • Down payment assistance for home buyers • Rental or security deposit assistance for people who rent their homes. CET resources will be used to supplement the limited federal resources that support the City’s existing federal affordable housing programs. Revenues will be allocated to fund projects, programs, incentives, and services related to the housing of households earning 100% of area medium income and below, and in accordance with state law. The City is in the process of forming a citizen advisory committee that will advise on the use of Affordable Housing Trust Funds resources. It is anticipated that funds will be allocated to housing programs and projects starting in early 2020. Who needs to pay and when? The CET is required to be paid by the developer or property owner who is developing property within Eugene city limits. The CET applies to certain improvements to property that result in additional square footage or improvements which create additional living space. The CET is paid when the permit is issued. The CET goes into effect July 1, 2019. For the first two years of implementation, the CET will be offset by a reduction in system development charges (SDC) equal to the amount of the CET. If the SDCs are less than the total of the CET, permit fees will be reduced to offset the total of the CET. This means, for the first two years, there will be no additional cost to development. Who is exempt from paying the CET? The following are exempt from the CET: • Private school improvements • Public improvements as defined in ORS 279A.010 • Residential housing that is guaranteed to be affordable to households that earn no more than 80% of the median household income for a period of at least 60 years following the date of construction • Public or private hospital improvements • Improvements to religious facilities Attachment B April 15, 2020, Work Session – Item 2CC Agenda - Page 9