“Draft Legislation”

 

Seismic Enhancement Tax Exemption Solution

“SETES”

 

Seismic Enhancements are necessary to protect the general public in and around approximately 30,000 structurally deficient unreinforced masonry (“URM”) structures in Washington. Building owners have lacked any incentive to voluntarily comply with updated building codes, without a viable source to fund or recover the cost of these improvements. This is most urgent for Seattle URM building owners, who are now facing Mandatory retrofit standards proposed under Director’s Rule 6-2023, while Enforcement policies and timelines are still under committee discussions. These decisions could erase building owner’s motivation to retain the character & fabric of our communities and should be recognized for their decades of prior property tax and providing space for residential and commercial contributions with a solution.

 

State Legislation is necessary to extend the life of these residential and commercial structures by allowing lenders to underwrite the property tax savings due on Assessed Value-Improvements for up to 15-years on eligible properties, limited to 85% of the qualified costs. SETES would not bifurcate fee land, like the CPACER program, and conventional lenders experienced in underwriting the Multifamily Property Tax Exemption Bill (“MFPTE”) loans will know how to underwrite qualified Improvements. 

 

Much of the following text was borrowed from Oregon’s SB 311, who adopted this framework to motivate URM building owners to retrofit their buildings and become compliant. This “Draft” is proposed as follows:

 

SECTION 1. (1) As used in section 1 to 5 of the “SETES” Act:

           (A) “Eligible costs” include, but not limited to:

            (i) All pre-construction costs related to inspections, mortar and HAZ MAT testing and

seismic risk assessment to determine design and energy performance deficiencies including, but not limited to, mechanical, electrical, and plumping (“MEP”) systems; and 

           (ii) Architectural and engineering cost, expenses, and fees; pass-through Errors & Omission insurance policy premiums; project and permit management; plan check and permit fees; and 

           (iii) All associated costs for construction and installation of seismic and energy performance improvements for code compliance;

           (iv) Cost of residential tenant relocation.

           (B) “Eligible costs” does not include:

            (i) Costs associated with Tenant improvements or remodeling that modifies the aesthetics of the structure, but does not add seismic life-safety features to the improvements; or improve energy performance;

           (ii) Loss of rent.

           (C) “Eligible property” means improvements that constitute a commercial, industrial, or multifamily building.

           (2) The governing body of a city or county may adopt an ordinance resolution providing for exemptions or partial exemptions from valorem property taxation of eligible property that will be seismically retrofitted and/or enhanced to meet energy performance mandates.

           (3) An ordinance or resolution adopted under this section must specify the eligibility requirements for the exemption or partial exemption.

           (4)(a) An ordinance or resolution adopted under this section must specify the period, not to exceed the tax year following 15-years from Improvement’s permit issuance, for which the exemption or partial exemption may be granted.

(b) Eligible property may be granted exemption or partial exemption under this section until the early of:

             (A) The expiration of the period for which the eligible property is eligible for exemption of partial exemption under paragraph (a) of this subsection or

             (B) The date on which the cumulative dollar amount of the tax exemption or partial exemption of ad valorem taxes due on Improvements otherwise due equals eighty-five (85%) of the eligible costs for the property’s permitted improvements.

             (C) The property’s Deed is transferred to new ownership after the building’s Improvement permit is issued, except for transfers made to related parties. 

           (D) The demolition of the property improvements.

SECTION 2. (1)(a) The owner of Eligible Properties seeking an exemption or partial exemption under an ordinance or resolution must file an application with the county assessor who will adopt its ordinance or resolution and pay any required fees where an exemption or partial exemption is to be sought.

             (b) Notwithstanding paragraph (a) of this subsection, an application with the county may be filed prior to a building’s permit application submission, and become pending until its permit is issued

             (c) Will not become effective until the assessment year after a permit is issued, so long as an application is received within 90 days of the beginning of the year.

(2) An application filed pursuant to the section must include:

(a) The address of the eligible property and main point of contact.

(b) Documentation showing the eligible property’s ownership, with application.

(c) Documentation showing assessment of building’s eligibility requirements to be met.

(d) Proposed exterior work in pedestrian, and interior public occupant areas. 

(e) Plans, calculations and any other documentation prepared by a registered structural engineer, or architect, that satisfy the city or county’s seismic retrofitting standard, as defined as Basic Performance Objective for Existing Buildings in the Seismic Evaluation and Retrofit and Existing Buildings ASCE/SEI 41-13, published by the American Society of Civil Engineers and the Structural Engineering Institute, as in effect on December 31, 2016, unless the governing body of the city or county has expressly approved or required a different standards. The documentation shall include details for seismic retrofitting all parapets, cornices and chimneys.

(g) Pay independent review fees, if any, required by the city or county.

(3) The application shall be reviewed by the city and/or county. The city or county may consult with the owner of the eligible property about the application, and the owner may amend the application.

(4)(a) If the city or county determines that the application does not meet the requirements of the section, the city of county shall promptly notify the owner of the eligible property in writing that the application is not approved, stating the reasons for the determination. A determination under this paragraph is not reviewable, but the owner of the eligible property may file an application under this section for any subsequent year.

(b) If the city or county determines that the application meets the requirements of this section, the city or county shall promptly:

(A) Notify the owner of the eligible property in writing that the application is approved; and

(B) Notify the county assessor in writing that the application is approved and certify the period for which the exemption is granted and the estimated eligible costs with respect to the eligible property, reduced by any financial incentives received from local, state or federal government for seismic retrofitting and energy performance updates to the eligible property, exclusive of the exemption or partial exemption granted.

(5) The assessor of the county in which the eligible property granted an exemption or partial exemption is located may charge the owner a fee of up to $200 for the first year and up to $100 for each subsequent year for which the exemption or partial exemption is granted to compensate the assessor for duties imposed. 

(6) Upon receiving notice under subsection (4) of this section of the approval of an application, the owner of the eligible property shall cause to be recorded with the clerk of the eligible property and a statement that the eligible property has been granted a property tax exemption pursuant to an ordinance or resolution.

SECTION 3. 

(1) An ordinance or resolution shall be adopted to exempt real property taxes due on Assessed Value-Improvements, after completion of eligible seismic and energy Improvements.

(2) The exemption or partial exemption shall apply to all eligible property owners who apply for and determined to have made code compliant seismic and energy performance improvements put into service after January 1, 2024.

(3) Each year the county assessor shall add to the assessment and tax rolls of the county, with respect to the eligible property granted exemption or partial exemption pursuant to an ordinance or resolution notation “potential additional tax.”

             SECTION 4. 

(1) Each year, on or before a date prescribed by the city or count that adopted the ordinance or resolution to which eligible property is granted an exemption or partial exemption, the owner of the eligible property may amend documentation of actual eligible costs incurred and provide an updated estimate of the eligible costs to the city or county, as applicable.

(2)(a) If the updated estimate of the eligible costs is greater or less than the original estimate by 10 percent or more, the city or county shall submit the documentation and updated estimate to the county assessor.

(b) Upon receipt, the county assessor shall recompute the assessed value and maximum assessed value of the eligible property beginning with the first year for which the eligible property was granted exemption or partial exemption.

(c) The values as recomputed under this section shall apply to the remaining period for which the eligible property has been granted exemption or partial exemption. Delinquent taxes may not be assessed or collected, and refunds may not be paid, as a consequence of the recomputation under this section for property tax years preceding the remaining period.

             SECTION 5. 

      (1) Eligible property that is granted exemption or partial exemption pursuant to an ordinance or resolution shall continue to receive the exemption or partial exemption until the eligible property is disqualified by the earliest of:

      (a) The expiration of the period for which the exemption or partial exemption was certified.

     (b)The dollar amount of the exemption or partial exemption has reached eighty-five (85%) percent of the eligible costs for the eligible property;

      (c) Discovery by the city or county that the owner of the eligible property has failed to

comply with the eligibility requirements adopted by the city or county;

      (d) The discovery by the city or county that any material statement or representation in any documents or plans were misleading or false.

     (2) City or county shall notify the owner of the grounds for disqualification and provide owner with an opportunity to cure.