Tax Broken 

Developer Tax Breaks Lack Oversight

SINCE PORTLAND desperately needs more cheap housing, for years the city has offered big tax breaks to developers who build affordable apartments and condos in urban renewal areas. But in early August, a months-long investigation by the city auditor's office revealed that after granting the tax breaks, the Portland Development Commission (PDC) and Bureau of Planning do not effectively watch projects to make sure the affordable housing actually gets built and used by low-income people. Essentially, the agencies trusted developers to stick to their promises. The auditor's simple research shows this honor system is definitely flawed.

In short, the city allowed big housing projects to skip out on paying $2.8 million in taxes to the city in 2007—agreeing that the lost income was worth it to get more affordable housing built—but didn't properly check up to see if the units were actually being sold or rented at the promised-upon prices.

"The big question is: Are we getting what we paid for? And without the city monitoring the projects, we can't really answer that question," explains Director of Audit Services Drummond Kahn.

When the auditors poked into a handful of projects granted tax breaks, it found some basic paperwork was absent from projects' files. There was no documentation, for example, of rental rates at the Louisa, a 218-unit Pearl District tower that received $638,000 in tax breaks to offer 24 affordable rentals. So Auditor Kari Guy did some simple investigating: She checked out the rental prices listed on the Louisa's website. The cheapest one was nearly $200 a month over the agreed-upon affordable rate.

Other paperwork problems were also apparent. The Old Town Lofts, another Pearl District project, received $60,000 in tax breaks with the agreement that 23 of its condos would not sell for more than $166,962. When Guy checked the sale prices on portlandmaps.com—a publicly accessible record of sales prices—she found seven of the condos sold for between $1,500 and $8,500 more than the "affordable" price.

Across town, the Center Commons condo project on NE 59th and Hoyt also raised flags. While the tax break is supposed to serve as an incentive for developers to build new projects, the Commons received $10,219 in breaks after the project was already built.

The auditor's report raises concern about how a staff of expert planners at the PDC and Bureau of Planning could miss the basic step of follow up on affordable housing projects. The auditor's office suggested that it wasn't explicit between the agencies who should monitor the projects. Since the important task was not obviously assigned as someone's job, it simply did not get done. Also, the lack of monitoring shows the problems with the PDC's focus on new developments.

"The PDC's purpose is to spearhead development. Their emphasis isn't on maintaining projects," says Kahn. In a response to the report, the PDC and Bureau of Planning acknowledged the lack of follow up and agreed to make most of the recommended changes.

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