More details on new affordable housing proposal

The proposals to be discussed at tomorrow’s budget committee meeting have been posted now, and with that the details of Council member Herbold’s new proposal to spend an additional $29 million for affordable housing.

I wrote previously about yesterday’s announcement of a competing proposal to Council member Sawant’s, which would dedicate $160 million towards affordable housing — and the fiscal issues with both proposals.

Herbold’s new proposal, which has at least initial backing from five other Council members, involves issuing $29 million of new long-term (30-year) general obligation bonds and adding them into the Notice of Available Funds administered by the Office of Housing to provide supporting funds to housing developers. As such, it doesn’t specify the form in which the money will be used; that will depend upon the proposals the Office of Housing receives.

$29 million of bonds will require about $1.9 million of annual debt service to be paid in 2018 and each of the following 28 years, and $1.4 million in 2017 since the bonds will be issued part-way through the year. The tricky part of the proposal is where to find that money, since the most available source of funds — real estate excise tax (REET) — by state law can’t be used for affordable housing, and by city policy can’t be used for debt service except for building fire stations. Herbold’s proposal shifts money around to solve that problem:

  • REET funds ($1.4 million in 2017 and $1.9 million in 2018) are taken away from the re-planning effort for the North Precinct police station, and given to SDOT to pay debt service on REET-eligible projects currently being funded by commercial parking tax revenues.  The city policy is changed to make an exception through 2018 to allow REET dollars to be used for this particular debt service.
  • The freed-up commercial-parking tax dollars (also a restricted revenue source) is shifted over to eligible projects in SDOT currently being funded with unrestricted dollars.
  • The unrestricted (aka “general subfund” or GSF) dollars are used through 2018 to pay for the debt service on the newly-issued bonds for affordable housing.

There are a couple of issues with this plan. First, there are 28 more years of debt service on the bonds for which money is not allocated. Herbold’s proposal tries to address this through the creation of a “Growth Fund” in the future:

Starting in 2019, the City will begin using GSF to pay about $1.9 million in annual debt service. Council intends to establish a Growth Fund by 2019 that will be funded with some of the property tax proceeds attributable to new construction in Seattle.

There’s a furious amount of hand-waving happening here. First, there’s no details on the Growth Fund and how it will work. Second, it relies on a sustained increase in property tax dollars, which is in turn wholly dependent upon sustained or increasing property values and new construction, since they are tied together (despite Herbold’s assertion that they can rely just on new construction). Seattle has had a prolonged run-up of property values, but it’s insane to bet that it will continue for the next thirty years — or that the construction boom will continue. Even if they did, by state law Seattle can only increase its property tax revenues by 1% per year plus new construction. Now, $1.9 million a year is not much money in the context of a the city’s entire budget, but it would be nice to see an actual commitment for where the money is going to come from over the long term.

The second issue with Herbold’s plan is that it takes money away from the North Precinct project. The Mayor’s budget proposal allocates $15 million over the next two years, $1.5 million in 2017 and $13.5 million in 2018. Herbold’s plan would take the 2017 number all the way down to $100,000, and the 2018 figure to $11.6 million.  Ironically, there is a separate budget proposal to be discussed tomorrow which would add a proviso on the North Precinct funds, limiting the 2017 spend to $350,000 until they bring a plan and design back to the Council for its approval — that would be a moot point under Herbold’s plan since they would only have $100,000 to spend, and arguably that isn’t going to allow the city to do much in the way of planning or designing over the next year. Council members Juarez and Burgess will not like taking the funds away from the North Precinct, which is likely at least one reason why neither have signed on to Herbold’s proposal.

Of note: Council member Sawant’s proposal to fund $160 million for affordable housing is not on the agenda for tomorrow’s budget meeting, which means either she didn’t submit it, or it didn’t get the support of two other Council members. She could still introduce it between now and when the final budget is adopted, and she is planning a “next steps” rally with her coalition on Thursday, so we’ll see what happens with that.

The discussion of Herbold’s proposal will no doubt be interesting tomorrow.