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Are new apartment buildings commercial or residential projects?

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Most days, that's a question that makes a difference mostly for the type of permit developers need from the City of Portland. But under a new construction tax that appears destined to pass city council next week, it could mean a difference of millions in how much unrestricted cash Portland has for affordable housing in the next two decades.

And right now? The city seems headed toward sending much of that money out of Portland.

At issue is a "construction excise tax" Commissioner Dan Saltzman brought before Portland City Council for the first time this afternoon. As we've reported, the tax would amount to 1 percent of most construction permits filed with the city, beginning August 1. According to numbers drawn up by the Portland Housing Bureau it could bring in more than $8 million a year.

The tax applies to both residential and commercial projects, but the recently passed law that allows Portland to even consider the tax drew some stark differences between the two.

It breaks down like this:

For Commercial Projects:
•50 percent must go toward affordable housing
•50 percent for any other purpose

For Residential Projects:
•50 percent must go to create incentives for affordable housing under the city's forthcoming inclusionary zoning policy
•35 percent must go to affordable housing
•15 percent must go to the state, for homeownership programs.

(All of that's after the four percent of revenues that will go toward administering the tax.)

Here's where things get interesting: In its day-to-day permitting, the city always treats multifamily buildings (apartments and condos) as commercial projects, according to Kurt Creager, director of the Portland Housing Bureau (PHB). But for the new construction tax, the PHB has suggested classifying those buildings as residential. That means 15 percent of money from those buildings will go toward the state.

That can add up. According to the estimates PHB drew up, $778,188 would be kicked to the state every year with multifamily projects classified residential. Not all of that would be transferred to the city's clutches if the city chose to call them commercial, but some would.

"Why would we want to classify multifamily as residential, when we know that would send 15 percent of money to the state and it might never come back?" Commissioner Amanda Fritz asked Creager at Thursday's hearing. "All that money can be used on affordable housing."

The housing director replied that the PHB's reading of the legislature's intent was that that apartments and condos should be residential—regardless of the quirks of City zoning.

"It does mean less of the money is fungible," Creager told the Mercury. But he noted that he expected other cities that establish similar taxes to treat those buildings as residential, and he'd hoped to eliminate confusion.

There's something else, too. Creager said treating apartments and condos as residential projects safeguards the money for housing in perpetuity. It's locked in, regardless of the whims of future city councils that might like to pluck funding for any old thing (remember, 50 percent of revenue from commercial projects can pay for anything).

"As a houser, I want to pay for housing," Creager said.

Fritz's calls for discussion about how to classify multifamily buildings didn't seem to generate much interest from her colleagues for much of the hearing, but she succeeded in getting them to agree to discuss it when the tax comes up again next week.

"My understanding is that the industry standard is to classify multifamily as commercial," she said. "It's a lot of money on the line."

"I don't feel bad about the 15 percent going to statewide affordability, " responded Saltzman.

With or without the change—or a separate tweak from Commissioner Nick Fish that could exempt Brownfield development —the tax looks like a sure thing.

That was a possible reason for an almost complete lack of opposition among the people who signed up to testify. By my reckoning, only the Portland Business Alliances' Marion Haynes voiced doubts about the measure, and even that was mostly a call for the council to slow down.

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"We do not object to the Construction Excise Tax, per se," Haynes said, though she gave voice to a bugbear, common among developers, that the tax could hurt development. "We would prefer that we looked at it a little more closely."

Far more common was a sense of exuberance about new revenue brought in from the tax. The word "momentous" was used again and again—once, by Jes Larson, executive director of the Welcome Home Coalition, which is pushing a new property tax for housing on the November ballot.

"That’s whats very exciting about this day," Larson told the council. "We are for the first time saying affordable housing is part of the public infrastructure.. like schools, and parks, and roads."

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