Council Narrowly Passes Tax Break for Projects With Extra Affordable Housing

The bill, which passed by a 5-4 vote, aims to incentivize building more affordable rental units than required


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Council member Nancy Floreen

Via Nancy Floreen

The Montgomery County Council Tuesday approved a bill that would exempt developers who build extra affordable housing from taxes used to help pay for school and transportation projects.

The legislation will exempt developers from impact taxes if they designate at least 25 percent of units in their projects as affordable. It was sponsored by Council member Nancy Floreen, who put it forth after a similar bill was tabled and expired in 2013.

The bill passed by a 5-4 vote, with Council members Hans Riemer, Nancy Navarro, Sidney Katz, Craig Rice and Floreen voting yes; while George Leventhal, Tom Hucker, Roger Berliner and Marc Elrich voted no.

Council members noted it’s unlikely that for-profit developers would take advantage of the new legislation. Over the long term, it will probably remain more profitable for developers to pay the impact taxes and collect higher rents from market-rate units than to build a greater percentage of affordable units.

Currently, Montgomery County requires all new developments to make at least 12.5 percent of units affordable. These affordable units are referred to by the county as moderately-priced dwelling units (MDPUs), and feature rents affordable for households earning less than 60 percent of the area median income.

Riemer said if developers did take advantage of the bill, it would be “revolutionary.”

The council Tuesday rejected a motion to add a sunset provision to the legislation, which would have forced the council to evaluate the effects of the legislation on schools and roads at a later date.

While recognizing it's an unlikely scenario, the county calculated that if every project currently in the development pipeline took advantage of the legislation, the county would lose about $48.6 million in impact tax revenue and gain about 634 affordable units.

The legislation, however, may help nonprofit organizations build more affordable housing in the county. The Montgomery Housing Partnership wrote a letter in March strongly supporting the legislation.

“Exempting rental projects that provide a minimum of 25 percent [MDPUs] overcomes one of the major obstacles to affordable construction in the county,” the housing partnership’s president Robert A. Goldman, wrote. “As it currently stands, each dwelling unit has an approximate $30,000 price tag from Impact Taxes alone.”

While some council members were concerned the legislation may impact the county’s budget, Floreen defended the bill by saying each council priority has a cost.

“The object is to get the housing built,” Floreen said.

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