2021 | Government

County hopes tax change will improve housing supply

Council approves bill that changes exemptions for certain projects

share this
montgomery-county-logo

This story was updated at 3 p.m. Dec. 21, 2021, to clarify that the bill only applies to certain, not all, developers who aim to build affordable housing. 

Elected officials, county housing staff and nonprofit affordable housing providers are optimistic that a new tax change can help create more affordable housing countywide.

County Council members unanimously approved legislation on Dec. 14 that tweaks a program that gives tax exemptions to developers that build affordable housing.

The bill amends the county’s payment in lieu of taxes (PILOT) program by changing how exemptions of property taxes are levied on certain projects.

The changes are outlined in a memo for the Montgomery County Council, including that the changes only apply to housing owned or controlled by the Housing Opportunities Commission (HOC) and nonprofit housing developers that build affordable housing.

The HOC is an organization that works with the county government to provide and maintain affordable housing countywide.

Supporters of the bill said it allows those developers and their lending banks to know exactly how much property tax might be exempted. Before, the amount differed case by case, depending on agreements between the developer and the county’s Department of Housing and Community Affairs.

In general, the exemption depends on how much is income-restricted housing and the area median income levels for residents living in those units. 

The bill also removes the annual maximum limit for the aggregate dollar amount of all PILOT projects approved.

The bill still needs County Executive Marc Elrich’s signature. Scott Peterson, a spokesman for Elrich, wrote in a text message that the Elrich’s office is reviewing the bill.

PILOT programs are incentives offered by municipalities or county governments. They can be offered to developers to spur affordable housing projects, along with other general infrastructure or public needs. They defer some or all property taxes for a set period in exchange for the economic and social benefits of the project.

Frank Demarais, the deputy director of the county Department of Housing and Community Affairs, said in an interview Friday that after working with Council Members Hans Riemer and Andrew Friedson — co-sponsors of the legislation — and other partners, he was “very satisfied” with the final bill.

The PILOT idea is only one approach for helping with affordable housing, but it’s an important one, Demarais said. 

He called it a “technical improvement” that gives certainty to nonprofit affordable housing developers and others who want to preserve and build affordable units.

“If you’re a property developer calculating the cash flow and trying to convince your lender that this property will have this cash flow … this is an absolute improvement and simplification that will give them a greater amount of certainty,” Demarais said.

Demarais and Riemer said it’s difficult to know how many units might be kept affordable or how many projects it might encourage. 

“It enables the bank to be more comfortable lending money into projects. … It’s a powerful tool, that’s for sure,” Riemer said in an interview.

Robert Goldman, the president of the Montgomery Housing Partnership — a nonprofit that provides affordable housing — agreed that the legislation provides certainty.

In an interview Friday, he said developers such as the Montgomery Housing Partnership need as much information as possible when they go to banks to borrow money for projects.

Goldman said knowing how much tax relief will be provided through the PILOT allows affordable housing developers to see how much they can borrow and decide if projects are financially viable. 

“You need to know upfront what the rules of the game are, so you can run your numbers and see if you can move forward,” Goldman said.

Regarding tax abatements for PILOT projects, Demarais said county officials and developers had never been close to approaching the cap — in the most recent year, the cap was around $20 million in county real estate tax abatements. 

“It’s a very important tool,” Demarais said. “It’s used consistently and effectively in all of our affordable housing developments and allows for the reduction of the operating costs of the building … in order to lower costs for tenants.”

Lisa Govoni, a housing planner with the Montgomery County Planning Department, said that because the bill makes the PILOT program automatic, it removes uncertainty for banks about the amount of tax relief that developers could receive under the program.

Govoni said the bill has the stronger potential to allow more affordable housing units to be built countywide than to help preserve existing units.

“It probably has a bigger impact on new builds, just because it’s something that you can go to your bank when you’re looking for lending and saying, ‘Hey, this is something that I can now offer to make a guarantee that this project can be built,’” she said in an interview. 

Steve Bohnel can be reached at steve.bohnel@bethesdamagazine.com