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Eugene Weekly : Feature : 6.23.11

Does MUPTE Make Sense?

City may sunset subsidy for booming apartment developers

By Alan Pittman

The building going up at 17th & Pearl got a $1.5-million tax break

While many families struggle to pay their tax bills during the Great Recession and government struggles to afford basic services, the city of Eugene last month gave a booming student apartment developer a 10-year tax exemption worth an estimated $1.5 million.

Why? It wasnt low income housing. It wasnt to help Eugenes struggling downtown. It wasnt just for energy efficiency, good design or jobs. It was MUPTE.û

Whupte? MUPTE is the citys controversial but little known Multiple-Unit Property Tax Exemption that gives 10-year tax breaks to developers of five or more apartments in a zone stretching from west of the UO to all the way out Highway 99 nearly to Beltline Highway (see map on next page).û

The city has handed out two dozen tax breaks under the program at an estimated cost of about $1.3 million every year, according to a recent City Club of Eugene study. Other examples of recipients include an estimated $1 million break for a new six-story, 70-bedroom Westgate project on 13th near the UO; $400,000 for the four-story, 54-bedroom new Midtown Terrace apartments near the White Bird clinic on 12th; and $500,000 for The Register-Guards 58-unit High Street Terrace built downtown in 1996.

The developer giveaway has been hotly debated for decades and was suspended from 1996 to 2001 amid criticism it was depleting tight city budgets. The city loses roughly 40 percent of the subsidy money, state school funding loses about 50 percent and the county about 10 percent.

Supporters argue that the tax break is needed to stimulate high quality housing in the citys core and prevent urban sprawl. But critics charge that many of the breaks just increase developer profits and go to housing that would be built anyway to serve rising student demand.û

The debate over the $1.5 million tax break last month was similar to the debate over other projects. The break went to developer Dan Neal for a four-story, 138-bedroom, $13 million apartment building at 17th and Pearl, kitty-corner from Hirons Drug (see design drawing). At the May 9 meeting last month, councilors voted 5-3 to approve the developer subsidy for øParadigm on Pearl," but at least half the council said they may seek changes in the giveaway at a meeting scheduled for July 20.

øIm getting to the point where we have more than our share of MUPTEs in the university area," said Councilor Andrea Ortiz, a key swing vote on the issue. øI will support this MUPTE today, but from here on out, unless they are on the west part of town where I want to see business growth, people investing in my side of town, I probably wont be supporting them any longer."

Almost all the MUPTEs in recent years have gone into the university area where demand is high for student housing. The area out Highway 99 in Ortizs ward, with many low-income homes, hasnt gotten any new development from the program. The area outside the city core is supposedly øtransit-oriented" but lacks an EmX line.

Councilors Ortiz, Mike Clark, George Poling, Pat Farr and Chris Pryor supported the tax break. Councilors Alan Zelenka, Betty Taylor and George Brown voted against the giveaway.û

Zelenka said he supported MUPTE downtown and on Highway 99, but questioned whether the city was giving away money for nothing from its general fund to developers in the university area. Just outside the MUPTE zone near campus, øwe have seen multiple units redeveloped between 19th and 20th, about 500 bedrooms." On the other side of campus next to the new basketball arena, two other apartments with 500 units are going up or are completed, Zelenka noted.û

øThose are outside the MUPTE zone, and got no property tax exemption, and they dwarf the number of units inside MUPTE," Zelenka said. øOver a thousand units have been developed in the last couple years in the area, just outside the zone," he said. øIm puzzled that all this development is occurring in the area outside the MUPTE zone, far outstripping inside the MUPTE zone, yet were continuing to give property tax exemptions for people to build inside that area when its absolutely simply not needed."

With the council divided, Mayor Kitty Piercys tie-breaking vote could decide the fate of millions of dollars of developer profits. Piercy has generally supported MUPTEs in the past, but did not take a clear stand on whether they should continue in the area near the UO.û

øWhen I was in conversation with Mr. Neal about this project," Piercy said, øwhat he said to me was that they are going to build with or without MUPTE. Its a question of what they are going to build. Its a question of the quality of what they are going to build."

Piercy asked, øhow do we incentivise the kind of building we want to have happen as opposed to just any kind of building? I have no doubt that Councilor Zelenka is correct, because I drive over in that area, and I see the multitude of multiple-unit housing being built over there. My only question is are we trying to create something that gets to a higher standard that meets all of our goals in Envision Eugene, and if we are not going to do it this way, how are we going to try to do it?"

One free option would be through infill standards in the city code, but the council has balked at regulating developers in the past.

Zelenka pointed out that buildings going up just outside the tax break zone also have good quality and meet environmental goals. øThe Courtside housing that was just finished this last year near the Matt Knight Arena is seeking LEED (Leadership in Energy and Environmental Design) certified outside the MUPTE area zone without any subsidies," he said.û øWe should investigate how they can do it without any subsidies."

Kevin Matthews of Friends of Eugene testified that quality development in the city core was important. øIf you build density without quality, there is a good chance you are building slums," he said. But Matthews criticized the 17th and Pearl projects quality. øThis building is grotesque," he said, faulting the design for apartments lining long corridors and an in-facing U-shape design that lacks open space. øIt really is a mistake as it stands now," he said.

City staff recommended passing the tax break for the Pearl project and awarded the building a high score under code criteria. But that score was mostly for adding parking for 105 cars ‹ a questionable environmental measure.û

The cars stored in an underground garage may reduce competition for parking spaces and won praise from the neighborhood association board. But the abundant parking will also increase traffic in the area and reduce the incentive to walk, bike or use transit, contrary to the goals of city plans and LEEDs efforts to reduce carbon pollution.û

Increasing transit use is listed in the state law authorizing MUPTE as a goal of the program. MUPTE has appeared to promote closer-in, less car-oriented student housing than the large apartment buildings near Autzen Stadium. Giving the subsidies in the UO area, however, may detract from efforts to use MUPTE to attract student housing to Eugenes struggling downtown.

Councilor Taylor questioned the fairness of the tax break. øThere are people who are having a real struggle to pay their taxes in other parts of the city, who when they hear about something like this, they say, well, you give me a tax break and maybe I can remodel my house."

øWe run the city with taxes," Taylor said. øIf we want people to build better buildings and give them tax relief, why dont we do it everywhere? Its certainly not needed in this (university) area."

Taylor said she heard from neighbors next to the Pearl building that oppose the big structure shadowing nearby small houses and destroying privacy. øThey are not pleased at all," she said. øThey are going to have balconies looking into their back yard."

Taylor pointed out that the city is now struggling to provide basic services in the recession. At the same meeting, Willamette Family Services appealed to the city for help in funding a detox and sobering center threatened by county budget cuts. øThis is a train wreck," said director Bob Richards, warning that drunks could flood streets and ER rooms.

The developer of the Midtown MUPTE on 12th has complained that the city already isnt doing enough about homeless people near his tax-free project.û

Portland requires 25 percent affordable housing for its MUPTE (called NMUH there) subsidies. Eugene required affordable housing payments from developers in the past but dropped them in 2004. û

øIt should be a real advantage to the city if we are going to give a tax exemption," Taylor said. She said developers already have enough incentives. øI would hope that they would want to build a good building because they want to attract buyers, renters, and because they want to do the right thing for the community," Taylor said.û

Councilor Brown said that the council appears to have a ødouble standard" when it comes to developer subsidies. Brown said that when citizens trying to save Civic Stadium were asking for $100,000 to help, øseveral councilors said, *Oh my gosh, where are we going to find $100,000? We would take that away from social services."

Brown called for a review of the MUPTE program. øIts outlived its usefulness and is no longer necessary, and I think the city really needs the money," he said.

But other councilors strongly supported the developer handout in the university area.û

Councilor Clark, who has worked for a developer seeking a MUPTE exemption, supported the tax breaks. øOne of the unintended consequences of building density is that we could end up with tenements or slums," he said, arguing that the subsidies øcreate the greatest quality possible."

Clark questioned whether the Matt Court developers were able to make a profit without a city subsidy because they had more cost efficient, larger buildings. But the completed Courtside apartment building actually has fewer square feet than the 17th and Pearl building.

øI really like it," Councilor Poling said, arguing that the Pearl apartment was a big improvement over the older homes torn down to make room for it. øIt looks like a great project."

Councilor Farr noted that the ground floor of the building will include some commercial space required by city code that will still be taxed. øThis is a net increase in taxes" for the site, he said.û

But that commercial revenue from such MUPTE projects could end in the future. The council approval for the 17th and Pearl project required the developer to rush to finish the project by the end of the year when the state MUPTE program was to sunset. But last month the Legislature voted to extend the program for another 10 years and include commercial space below apartments in the tax break.û

While parents begged this year for money to save kids from brutal school budget cuts, the Legislature approved the developer subsidy overwhelmingly, costing $4 million a year statewide, and Gov. John Kitzhaber quickly signed the handout into law. û û

Neal and his contractors lobbied the council forcefully for their tax break at 17th and Pearl.û

Neals project manager Mark Bruer of Essex construction told the council he had a øselfish reason" to support the subsidy. øI want to keep my job." Bruer said, øhundreds of others might work on this project."

øThis project is awesome," said Neals LEED consultant Eli Volem. If the council doesnt give the tax break, øthe first things to go are the energy efficiency, the indoor air quality," he said.

Neal, who also got a MUPTE subsidy for Westgate and other student apartment projects, said his newest apartment building øwill help transform the character of this area into a more vibrant place." He said,û øwithout this (MUPTE) support we will need to build a very different project, certainly without LEED or underground parking."

But a project without LEED or underground parking could still generate many jobs without the subsidy. Just 10 blocks away at 18th and Alder, Neals Paradigm company boasts øabundant" garage parking and high quality and environmental standards at its similar-sized new Sonja apartments without a MUPTE subsidy.û û

Councilor Pryor said he wanted to talk about changing MUPTE next month, but supported the $1.5 million tax break. øHaving the conversation about how we want the money spent is where we need to go, but we dont need to have that here around this project."û

øI dont believe in changing the rules as people are playing the game," Ortiz said of the 17th and Pearl project.û

But Zelenka pointed out that øthe rules about MUPTE do not say once you put in an application and follow the rules, well give you the incentive. It says if its in the public interest to do so. A long time ago for me, because this incentive was no longer needed to build in this area, it ceased to be in the public interest for me."û û û û û û û û