August 10, 2004

To:  Mayor Vera Katz

Commissioner Jim Francesconi

Commissioner Randy Leonard

Commissioner Dan Saltzman

Commissioner Erik Sten

From:  Brant Williams

 Director, Office of Transportation

Subject:  Agenda Item #965 - Substitute Resolution to initiate local improvement district proceedings and adopt Resolution of Intent for the Portland Mall Revitalization Local Improvement District to extend light rail services on Fifth and Sixth Avenues in downtown Portland (Previous Agenda Item 935)

A substitute Resolution of Intent related to the Portland Mall Revitalization will be submitted tomorrow, August 11, 2004. This memo addresses the following five specific issues raised during the course of the August 4^th Council session.

•  Should owner-occupied condominiums be included in the LID?

•  Should low income housing be exempt from the LID?

•  Should designated historic buildings receive special treatment within the LID?

•  Should non-profit organization receive special treatment within the LID?

•  Do we need to re-notice property owners if there are major changes to the LID?

What follows is a discussion of the five issues as well as the Portland Office of Transportation’s (PDOT) recommendations for modifications to the Resolution of Intent.

Finally, the relationship between the Mall LID and the Portland Streetcar LIDs is discussed.

Background

The LID assessment is not a tax. As an assessment, amount is required by Code and State Statute to be distributed among properties based on their respective direct benefit (as opposed to general benefit).

The Mall LID formula would continue to be based on three factors: Current land use, distance from the improvement and the Market Value of the property being assessed. These factors combine to produce a fair and reasonable means of distributing the fixed LID amount among properties according to their direct benefit.

Properties, other than Portland State University (PSU) properties, in the Mall LID are classified as Commercial, Local Institutional or Residential. Local Institutional includes churches, theaters, museums, libraries, parks and other publicly owned or non-profit places of public assembly or social service. Residential includes property primarily in residential use, both owner-occupied and rentals. All other property is considered Commercial. PSU Property is assessed as a $7 million lump sum.

The LID is broken into 3 Zones to account for the distance of properties from the Improvements.

The Market Value of most property is available from the Multnomah County Assessor who maintains and updates these values, including the values on public property and property owned by property tax exempt non-profit entities. The value of utility properties (property owner by telephone, gas and electric utilities) are centrally assessed by the State of Oregon and not maintained by the county. In those limited number of cases, the value is established by a professional estimate.

Issues Raised at the August 4^th City Council Hearing

Should owner-occupied condominiums be included in the LID?

Owner-occupied housing was not assessed under either the Convention Center or the three Portland Streetcar LIDs. The decision to exempt these residences resulted in reduced administrative costs and eliminated a possible disincentive for living in the Downtown commercial zones. At the time, the reason for exempting owner-occupied residents was based on a technical determination and a finding by the Council that residences would not receive a direct and peculiar benefit in contrast to other properties in those LIDs.

Some members of the Council argued last week that owner-occupied housing in Downtown is strong and the large number of units built or currently under development is indicative of a market place that no longer requires the avoidance of disincentives. PDOT cannot argue with this perspective.

Recommendation: After weighing the pros and cons of including owner-occupied housing, PDOT recommends that such housing be included, but at a reduced Value Assessment Rate of $2.625/$1,000. This represents a Value Assessment one-half of the commercial rate and thus acknowledges that commercial properties will benefit at a higher rate than residential properties.

Should low-income housing be exempt from the LID?

Low-income housing has not been exempted from previous LIDs for the Oregon Convention Center and Portland Streetcar. In general, the impact on low-income housing is modest, with typical assessment resulting in impacts of $1.00-$1.75 per unit per month if the assessments are financed by the City over 20 years. Many, if not most, low-income housing projects offer little parking. This is because most older buildings do not have parking, parking is expensive to construct and parking demand is lower for these types of project. As such, residents of low-income housing projects are proportionately more dependent on public transit than other forms of housing and would seem to be direct beneficiaries of improvements to light rail service in Downtown and upgrades to the Portland Mall.

At the same time, most low-income housing projects have significant economic limitations due to the type and age of the housing, or that come as a condition of the financial incentives provided by the City and others. For instance, many projects have rent limitations established by the City, State or federal government, affordability requirements that last between 15 and 60 years, and, in some cases, restrictions on the amount of net income a property owner can earn. As such, these projects tend to be very sensitive to increases in operating costs and even small increases can impact the bottom line.

PDOT is concerned about the potential precedent set by the Council should it choose to exempt low-income properties from the LID. Future LIDs in the Downtown area and elsewhere may include low income rental housing that benefits from an LID and exempting Downtown properties now may make it more difficult to include them in the future.

Recommendation: PDOT recommends that:

1.  The Value Assessment Rate on all housing (owner-occupied and rental) be reduced to 50% of the rate for commercial property, i.e., $2.625/$1,000.

2.  Upon certification by the property owner, Qualified Low Income Housing would be eligible for a reduced Value Assessment Rate of $1.3125/$1,000 for the proportion of units in the property benefiting tenants at 60% of Area Median Income or below. For the purposes of determining eligibility for such a reduce rate, property owners will be asked to submit to the City, just before the time of final assessment, an exemption form stating the number of units in the property restricted to tenants at or below 60% of Area Median Income and the basis for such restrictions, such as a loan agreement with PDC, a deed covenant or recorded Regulatory Agreement.

Should designated historic buildings receive special treatment within the LID?

In last week’s meeting, a representative of historic building property owners proposed that historic properties be assessed based on Assessed Value rather than Market Value. This is because the Assessed Value for historic properties represents the frozen value of the property at the time the historic property exemption was granted.

The Assessed Value carried by the Multnomah County Assessors office is based on a number of complexities mandated in various tax limitation measures. It is used to compute the countywide ad valorem property taxes and would not be an appropriate measure for apportioning the direct benefit of an improvement. For example, the length of time the property is owned affects the amount of the Assessed Value, a factor that does seem to have any bearing on the direct benefit that the property receives from the improvement. On the other hand, the Market Value has a great deal to do with the direct benefit, the rationale being that the greater the value of property, the higher the direct benefit. PDOT believes that Market Value should be reflective of the economic potential of the property.

In addition, unlike low-income housing which often has significant restrictions placed on rent levels on the owner’s return on investment, historic properties do not have these same limitations.

Recommendation: PDOT believes there is considerable risk associated with changing the assessment method for historic buildings. PDOT believes that the assessment method for historic buildings should remain as currently proposed.

Should non-profit organizations receive special treatment within the LID?

Non-profit organizations have not been exempt from any of the other LIDs for the Oregon Convention Center, light rail or streetcar. The special circumstances of non-profits are already recognized by a lower Value Assessment Rate ($3.50/$1,000 versus $5.25/$1,000 for commercial properties). PDOT recommends against exempting non-profits from the Mall LID because of a concern that such an exemption would generate a flood of requests from churches, the Art Museum, History Center, Performing Arts Center, ODOT, Multnomah County, and many others, all of whom would be routinely assessed under normal LID procedures.

Recommendation: PDOT recommends against any changes to the LID relative to the assessments for non-profits.

Do we need to re-notice property owners if there are major changes to the LID?

The notices sent to property owners within the proposal LID to date have been informational and informal rather than as mandated by City code. Should the Council decide the make changes to the LID, including adding or subtracting classes of land uses or changing assessment formulae, such changes can be addressed in the formal notices, which will be sent out later this month in accordance with the requirements of Title 17.08 of the City Code. These notices will go to all property owners included in the LID and will provide both the legal notification required by code and the opportunity for formal remonstrance. In addition, property owners impacted by the LID will be given an opportunity to testify before the Council at the LID Formation Hearing currently scheduled for September 29, 2004.

Relationship Between the Portland Mall LID and Portland Streetcar

The funds for enhanced Streetcar service are closely linked to the support that Pearl District and West End property owners have given the proposed Mall LID. The Mall LID boundary overlaps about 80% of the three (Phase 1, 2 and 3a) Streetcar LIDs. The total assessment for the Streetcar LID is just under $13 million. There were discussions with a number of the hundreds of property owners, who were recently assessed for the Streetcar or will be assessed soon for the RiverPlace Extension, and who will also be assessed under the Mall LID. Some of these owners argued that they should be exempt because the City guaranteed that they would not be further assessed for Streetcar extensions. If they had known about a Mall LID they would have insisted on broader language to include any rail or transit project, exempting them from the Mall LID. They feel the City is exercising a technicality. There were some that proposed that the Streetcar LID assessments should at least be a credit against their Mall LID assessment. Both of these proposals would have a grim impact on the Mall LID. It would be necessary to either significantly reduce the LID total or redistribute the LID burden.

In general, the enhanced Streetcar service proposal appears to be generating a positive property owner reaction and has resulted in additional support for the Mall LID including from owners of properties in Zone C, remote from the Mall, but in the heart of the Streetcar Service Area. In addition, to broadening the benefit to properties in the Streetcar LIDs and support for the Mall LID, the investment in enhanced Streetcar service is likely to improve ridership and connectivity to the extended Mall and Light Rail, maximizing the return on what will soon be a $90 million capital investment in Streetcar service extending 3.6 miles from N.W. 23rd to the South Waterfront Area. PSI has accepted the condition that Streetcar ridership must increase by at least 9% within 24 months from the time that the enhanced service begins in July 2006 in order to continue receiving the funds for enhanced service. Of course, these funds as well as City funding of regular Streetcar service will be subject to the annual PDOT budget review process.

Thank you for your consideration.

BW/