Dan Saltzman Is Proposing A New Construction Tax to Fund Affordable Housing

Right now, Portland developers building new projects pay into a fund that helps parks meet demand of new residents or employees. And they pay similar “system development charges” (SDCs) for street improvements to account for new people, and for upgrades or additions to the stormwater and sewer system.

Now Commissioner Dan Saltzman says its time they pony up for affordable housing.

As promised, Saltzman this morning unveiled a proposal for a one percent “construction excise tax” on residential and commercial construction in the city. According to numbers supplied by the Portland Housing Bureau, that tax could raise an average of more than $8 million a year, with most of that money going to fund affordable housing (defined here as affordable for 60 percent of the median family income or lower), or other housing-related initiatives. Here are the details [PDF].

“There are lots of SDCs,” Saltzman said this morning. “This is the equivalent of a housing SDC.”

Portland’s never had a construction excise tax because it’s never been allowed (both schools and Metro already have them). Legislators earlier this year passed a law giving cities the ability to levy the tax, mostly for affordable housing. Along with fresh permissions to enact policies that mandate affordable housing in new projects—known as inclusionary zoning—Portland is on the verge of having potent new tools.

Those tools allow officials to be more nimble than they have been in years past. Much of the city’s money for affordable units has traditionally come from development funds targeted toward “urban renewal areas” with highly defined boundaries. The millions Saltzman envisions reaping from a construction tax would have no-such limitations.

“This gives us funds we can use citywide,” he says.

But this is potential new revenue, so of course there are what Saltzman diplomatically refers to as “robust discussions” in the offing. Fresh off the defeat of a proposed tax hike on businesses, Mayor Charlie Hales has suggested he’d like to pluck money from a construction tax for purposes other than housing.

Under state law, that’s allowed. Though construction tax revenues from new residential buildings are all earmarked for housing purposes, cities can use half of funds from commercial construction for any old purpose.

Hales, who’s been beating the drum for higher police pay, has signaled he’s interested using that unrestricted cash. Saltzman made clear today he’ll oppose any effort to do so.

“I believe we should dedicate all the revenue toward construction of affordable housing,” he says.

He’s got at least one ally. Commissioner Nick Fish tells the Mercury he agrees with Saltzman, so long as money’s used to fund projects affordable to people making 0-60 percent of the median family income. Saltzman thinks Commissioner Steve Novick—facing housing advocate Chloe Eudaly in a November runoff election—might also be on board.

Interestingly, Hales and Saltzman are batting around different numbers when it comes to a potential construction tax. Hales’ office has cited a “simple” analysis from the City Budget Office, which suggests a one-percent tax could bring in upwards of $14 million a year (a little more than $3 million from residential projects, and more than $11 million from commercial).

Saltzman’s numbers, based on historical data, are more modest. They say the tax would bring in $2.68 million, on average, from commercial projects and about $5.4 million from residential.

Saltzman thinks part of the difference comes from where analysts put multifamily construction. He believes the CBO put it, erroneously, under commercial projects.

“We believe it appropriately falls on the side of residential,” Saltzman says. “We think the state law is clear.”

The excise tax proposal will come before council in mid-June (the city can’t enact a policy until June 8). Expect push back from developers, who are loath to see another charge added to the cost of doing business. How much might that charge be? Saltzman’s office offered up examples.