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Staff recommends Option 2 because housing proposals will differ greatly depending on their proposed size, location, and target population. Option 2 provides the council with information to make an informed decision and it provides a framework for proposals to respond to these and other quality considerations. Additionally, because applications are submitted for MUPTE when projects are in their conceptual stage, prior to when the design is final, the project financing in place, and permits issued, it may be unfair to place specific requirements on a project. Low Income Housing Fee MUPTE is an incentive program. About fifteen years ago, the low-income housing fee was created to satisfy the council's desire to be clearer about the "public benefit" of the exemption. The fee originally represented about 10% of the tax benefit. It is currently charged to all projects, unless more than half of the units are dedicated to low-income tenants. Since the fee was instituted, all of the granted tax exemptions projects paid the fee. Staff now knows more about the economics of housing construction and recommends against the fee. Items to consider: 1) It is barely economically feasible to provide a multi-unit housing development in today's environment. Incentives are required to enable projects to break-even financially during the first ten years. Providing less than a full MUPTE incentive undermines the goal by making the incentive less useful. 2) If the City wishes to encourage higher quality projects, it is likely those projects will also be more costly. Therefore, the City should encourage higher quality through full benefit of the tax exemption incentive. Otherwise the developer may cut quality to balance their budget. 3) Mixed-income projects are unlikely, but if they occur they will almost certainly be created as an element of a more heavily subsidized low-income housing project. The low-income portion of the project will likely have to request and receive the twenty-year low-income housing property tax exemption. 4) Owners and managers of market rate projects are not typically in a position to request income information from their tenants as a condition of ongoing tenancy, making it difficult to dedicate units for low-income purposes. Such a dedication also might make it difficult for a borrower to obtain financing. Boundary Options Given the testimony at the public hearing, staff recommends adding the options "A" and "B" to the boundary as shown in Attachment B. SUGGESTED MOTION Move to adopt the ordinance in Attachment A, a boundary as shown on Attachment B (with the two additions), and with direction to the City Manager to draft administrative rules consistent with the language in Option 2 and 2a. Note: If the council wishes to adopt Option 1 or ia, the following language may be added to Section 1, Paragraph 6(a)2: ... desigrn features that meet at least 4 [or at least 5] of the quality standards listed in subsection (2) of this section... L:\CMO\2004 Council Agendas\M040421\S040421B.doc