Urban Politics #176: Two Key Votes On Monday


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By City Councilmember Nick Licata.

With assistance from my L.A. Newell Aldrich.

Urban Politics (UP) blends my insights and information on current public policy developments and personal experiences with the intent of helping citizens shape Seattle’s future.

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CONTENTS:

  • Two Key Votes On Monday
  • Multifamily Housing Tax Exemption
  • Nucor City Light Rate
  • Monorail Design Guidelines Update

Two Key Votes On Monday

On Monday the City Council will cast two key votes: one on a multifamily housing tax exemption, and another on the Nucor steel City Light contract. They represent shifting millions of tax dollars from developers to homeowners and shifting electrical charges from a single company to other City Light ratepayers.

The question before the Council is whether this shift in paying taxes or rates produces a significant public benefit. If these two pieces of legislation are not be amended to produce such benefits, then I believe the public will not be adequately served by them.

Also, I’ve included information about a schedule change for a public hearing on the Monorail Guidelines.

Multifamily Housing Tax Exemption

At the Housing, Human Services and Health Committee on March 2nd, Councilmember Richard McIver and I tried to amend CB 114775, else known as the Multi-family Tax Exemption Program (MFTE) to provide greater public benefits. We failed and the bill passed 3(Rasmussen, Drago, Della) to 2 (McIver, Licata).

I believe there is a need and justification to provide a subsidy program like the MFTE program to stimulate development in economically distressed areas where development is not and will not happen without public subsidy and to provide such assistance in areas that are not economically distressed but are behind in meeting housing growth targets. I believe this program can be a tool to help these areas that are not seeing much if any development.

I do not believe that the MFTE program is needed in areas that are clearly seeing development happen – areas that are exceeding growth targets. These include South Lake Union, University District and Capitol Hill, in particular. All of these areas have seen significant growth and are clearly places where developers are interested in developing.

It is important to note that in the State Legislation (RCW Chapter 84.14) the stated purpose of this program is to “increase residential opportunities by stimulating the construction of new multi-family housing and rehabilitation of existing É buildings for multi-family housing In Areas Where The City Finds There Are Insufficient Residential Opportunities.”

Obviously this is not the case where neighborhoods are exceeding their growth targets. And I will propose that those neighborhoods not be included in the MFTE program.

Public subsidy programs, such as the MFTE, should be used in areas that need such assistance not in areas that are doing well on their own, as is the case with the three above-mentioned neighborhoods. This is particularly true as it relates to the MFTE program where the tax burden for this particularly program is shifted to other taxpayers.

I believe the affordability requirement contained in the substitute to CB 114775 does not provide a clear public benefit for the tax benefit provided by the MFTE program. Under the substitute proposal, a developer is allowed to choose between 3 options, 20% of the units at 60% of median income, 25% of the units at 65% of median income or 30% of the units at 70% of median income.

Given this range of choices, it is certain that for-profit developers will choose the latter option, the higher affordability requirement. This equates to a rent rate of $954 a month for a one-person household and $1090 a month for a two-person household. This is hardly an “affordable rent”. In addition, this rent level is actually the market rent in a number of neighborhoods in the City (including Capitol Hill and University District, Chinatown/ID).

It is hard to justify the public benefit that is being derived when a developer is paid a subsidy to develop units that he or she would already create without the subsidy. Furthermore, it is clear that there is an ongoing need to create more units in the low to low-moderate income range of 60% – 65% of median income. This is the housing in which City workers earning $32,700 – $35,425 a year can afford (one person household).

This equates to a rent rate of $817 to $886 a month for a one-person household. This is an income range at which the private market will not develop on its own without public subsidy. To justify the subsidy provided, a deeper affordability requirement must be imposed.

I will propose that the option of 30% of the units at 70% of median income be eliminated and that the percentage of units at 60% of median income be increased.

At the recent public hearing on the MFTE program, we heard from numerous speakers who advocated for creating mixed-income, affordable housing for City workers. Many called for the need to create units for couples and/or families. I believe that the MFTE program should not be used to create an overabundance of studio apartments since what we need is larger units (l bedroom and larger).

Further, when looking at market rent rates for studio apartments, these rent rates hover in the 60% – 65% of median income affordability range in many, many neighborhoods in the City. Therefore, if we are going to use the MFTE to create affordable, work force housing for our City workers, we need to create the type of affordable housing that the market will not create on its own – larger units (1 and 2 bedrooms) at lower affordability rates. A limit should be placed on the % of studio units that can be designated as the affordable units in a rental project.

I will be proposing an amendment that no more than 10% of the units designated as affordable could be studio units. This will assure that the MFTE is, in fact, helping to create those units needed for our present and future City workers.

Nucor City Light Rate

On March 10, the Energy and Environmental Policy Committee voted on C.B. 114799, which authorized City Light to sign a new electric service contract with Nucor Steel providing them about $4 million in rate subsidies. Council Member Richard Conlin and I were outvoted 3 (Compton, Godden, Della) to 2 to reject the contract.

This contract would replace a prior agreement that was originally negotiated with Birmingham Steel, and that Nucor chose to assume roughly one year ago when it took control of Birmingham’s assets in a bankruptcy proceeding.

The contracts set Nucor’s electricity rate within a certain range ($42 – $51/megawatt-hour), and allow Seattle City Light to interrupt power to the steel plant if electricity can be sold at a price above that range. Other industrial users are currently paying $55/megawatt-hour.

I’ve argued that City Light is paying millions for an interruptibility clause that was never used in the past and most likely will not be used during the 9 months of this contract. City Light is to report back monthly to the Council on any revenues earned on the interruptibility provisions of the contract. I suspect we will never see a penny.

The final price Nucor will pay for electricity in 2004 will not be determined until City Light undergoes a formal rate-setting process to re-evaluate and reset power prices among all classes of customers.

Conlin and I have argued that Nucor’s rates should be set when City Light reviews all customer rates next year rather than making an exception for them now. This piecemeal approach to setting rates undermines City Light’s historic commitment to an equitable distribution of all costs. This action transfers millions of dollars from one business to the other City Light ratepayers.

Nucor will pay City Light only $9 million up front to settle a previous contract it inherited from bankrupt Birmingham Steel, which it purchased in early 2003, obligating Nucor to pay up to $13.3 million to the city. At my initial suggestion Nucor wrote a letter to the City stating what it was willing to do in exchange for the subsidy. They responded that they promised to invest at least $2 million in its Seattle operations.

I’m glad that they are willing to make this investment, but at no time was there ever a threat to close this plant down. In fact, this is one of the most efficient steel mills in the nation. They could afford to make a greater commitment to the City in exchange for receiving almost $4 million in subsidies.

Nucor steel will be paying an average of $42/ megawatt-hour while other industrial users will be paying $55/megawatt-hour. At the end of the year they could pay up to $51/megawatt-hour, depending on what the new industrial rates are. They will pay no interest on the money they will owe City Light at the end of the year.

This rate structure alone provides Nucor a savings worth anywhere from $4 million to over $ 1 million, not including the millions they are saving by not paying back City Light the full amount owed.

Finally City Light was also directed to assess options for changing the structure of industrial electricity rates as part of the rate process, a request raised by other industrial customers during the debate on the Nucor contracts. I support this effort and think that is necessary and something we should do.

I just wish that Nucor would have been willing to work with the City to be part of this process and not want to receive benefits in advance of our regular decision making process. Then it can be done in public, with the assistance of the Rates Advisory Committee, and with a new rate structure that will be accessible to all businesses. We should not be adjusting rates for individual customers until this rate process is complete.

Monorail Design Guidelines Schedule Update

The schedule listed in UP 175 has been revised.

The public hearing scheduled for March 15 has been cancelled and rescheduled for Wednesday, March 31 at 5:30 p.m. in the City Council Chambers on the 2nd floor of City Hall, 600 4th Avenue (entrance on 5th Avenue).

A Council committee vote is now targeted for April 12, with a Council briefing on April 1. These had been scheduled for late March.

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