The Spokane City Council will face a choice Monday between more taxes or fewer affordable housing projects in the city.
The council is set to vote on whether to impose a sales tax of up to 1/10th of 1%, the proceeds of which would be used to develop or support affordable housing projects targeted at groups like low-income residents, veterans and people with disabilities.
The tax, which would raise an estimated $5.8 million a year, is under consideration at a time when the city is wrestling with ways to mitigate record-high home prices and a shortage of housing.
The new sales tax was authorized by the state Legislature in March in a new law that allows county commissioners and city councils to impose it locally without voter approval. The Spokane County Commission declined to adopt the tax earlier this year, but the city has the option to move forward on its own.
For Councilwoman Lori Kinnear, the new law offers a conundrum. She’s vexed by the choice between imposing a regressive sales tax amid the pandemic’s economic fallout, or losing out on much-needed funding for affordable housing projects that will help address the city’s housing crisis.
“We’re damned if you do, damned if you don’t,” Kinnear said.
Sales tax is a regressive tax because everyone pays the same rate regardless of their income. The burden is disproportionately borne by poorer people, who spend a higher percentage of their income than relatively wealthier people, according to the nonpartisan Tax Policy Center.
But at least 60% of the annual revenue from the new sales tax would, by law, be funneled into the construction of affordable housing. The “nominal” tax adds up to about $25 a year for the average Spokane family, according to Council President Breean Beggs.
To Beggs, that’s worth it.
“The housing crisis is such a crisis, it’s not a hard choice for me,” Beggs said. “I wish we had a more progressive tax system, don’t get me wrong, but I’m just glad we have that tool.”
A draft assessment of Spokane’s housing needs, published this month, estimated that the city would need to add more than 300 units of housing every year until 2037 to keep up with the anticipated demand.
Home prices have jumped 47% since 2010, dramatically outpacing the average family’s income, the report found.
The Spokane Association of Realtors supports the tax as a way to promote construction of new housing, although the organization has concerns about implementing it during the current economic climate and suggested it could be delayed, according to Darin Watkins, its government affairs director.
“Our own survey shows over half of all renters are looking to buy a home, but there just isn’t any inventory available,” Watkins said. “October housing reports show the lowest level of inventory we’ve ever recorded.”
Avenues for new revenue in Washington, which does not have an income tax, are famously limited. That leaves only a few options, like gasoline, real estate and sales.
Beggs would prefer a more progressive tax to be used to fund affordable housing development, but “we’re not going to get an income tax,” he said.
Organizations that he would typically expect to be against a new sales tax haven’t mounted any opposition, including Greater Spokane Inc.
Councilman Michael Cathcart is likely not a barometer of the entire council’s thoughts on the issue; he was recently the only member to vote against the city’s 1% property tax increase and regularly opposes new taxes. But he’s also a staunch advocate for the development and construction of more housing in Spokane.
With the economy in shambles due to the coronavirus pandemic, Cathcart is looking beyond the housing component of the new tax.
“The timing is wrong,” Cathcart said. “We shouldn’t be imposing new taxes during a severe economic downturn and a pandemic at the same time.”
If there was an option to put it on the ballot and leave it to voters, Cathcart would support it, he said.
Although the City Council has conducted outreach to major groups, like the Spokane Home Builders Association, Kinnear is concerned the new tax would come as a surprise to city residents.
Cathcart wants to ensure that development of affordable housing with the new tax revenue is open to both for-profit and nonprofit builders.
Beggs wants a housing model that emphasizes ownership by people who are working but cannot afford a mortgage.
“We think it’s 100 units a year, which is not going to change the world for Spokane, but it will change the world for 100 families each year,” Beggs said.
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