A WMATA site tax credit overcomes a County Executive veto, setting the stage for housing decisions to come

On October 27 the Montgomery County Council voted 7-2 to override County Executive Marc Elrich’s veto on Bill 29-20, which will provide property tax incentives for developers to create high rises on WMATA owned land by exempting them from all property taxes for their first 15 years, though the bill itself sunsets in 12. While the terms of the bill were dry and technical, the debate around it highlighted the severe housing needs in Montgomery County and the tension surrounding development and growth policies.

Montgomery needs more housing

The housing affordability crisis in Montgomery County is dire. In the last decade, only households making $150,000 or more saw an increase in net home ownership in the county, and the household income required to afford the median-priced home exceeds the actual median income, a gap that has steadily widened. Meanwhile, the number of cost-burdened rental households is increasing, particularly in the very transit-oriented areas that Bill 29-20 was created to address.

The latest draft of Thrive 2050, Montgomery County’s general plan in development, notes that unless the county grows its housing supply to make room for the projected 200,000 new residents moving here by 2045, existing communities will become more expensive, less diverse and integrated, and it will be difficult to attract and retain a skilled workforce. To that end, the county has a goal of adding 41,000 housing units by 2030.

At-large Councilmember Hans Riemer, one of the co-leads of the legislation, feels the bill could be a significant step in the right direction while emphasizing the problem, saying, “Our housing market is not producing enough new housing and that is creating affordability problems for young and working families and putting rent pressure on market affordable housing.”

According to the release accompanying the bill it could provide 8,600 housing units, including around 1,300 below-market rate units, through the county’s affordability set-aside requirement.

It’s not easy to build on top of Metro stations

Part of the issue is that development directly on WMATA property, as opposed to near it, has added expenses due to parking replacement practices and engineering challenges. Consequently, there has been little development on, as opposed to next to, most WMATA sites. Multiple housing construction projects on Montgomery County’s Metro stations have either been delayed or canceled due to the financial difficulty. Construction costs are high and it can be difficult to get rents high enough to cover them. In addition, building anywhere within the zone of influence of a metro tunnel is expensive and can add up to a year or more in permitting review time.

Further, the current draft of Thrive 2050, which it should be noted is subject to change pending final approval, calls for the county to provide financial incentives, including the kind of Payment in Lieu of Taxes (PILOTs) efforts that would be offered in this bill, to increase housing production in targeted locations near high-capacity transit.

Objections and amendments to the bill

Opponents of the bill raise several objections. The most fundamental is cost, and their belief that the bill forgoes revenue the county needs. County Executive Elrich said that if the bill were to be applied across the county, lost revenue could exceed $400 million in his memo vetoing the bill. In the initial vote on October 6, Councilmember Will Jawando (At-large), who along with Councilmember Tom Hucker (District 5) voted against the bill and the override, reiterated this concern, explaining that while he’s not against incentives and considers them “a tool in the tool box,” the cost of the bill “means to me that there should be significant public benefit that is weighed against that forgone loss.”

To address this public benefit concern, councilmembers offered several amendments, including one requiring that 25% of the Moderately Priced Dwelling Units (MPDU), or units that, whether for purchase or rent, are subject to income limitations and other requirements, (12.5%-15% of all units must be MPDUs) be reserved for individuals with incomes at 50% or less of the area median income) and one that mandates that 25% of the workers on each project be county residents, both of which passed.

However, an amendment to require a prevailing wage be paid for all workers on any such projects failed 5-4. In introducing the amendment, Councilmember Jawando explained that given the high rise housing in question is the most expensive type to live in and build, workers should be paid a prevailing wage for doing the work, and the council needs to question if it should be incentivizing a proposal that cannot provide such pay.

Speaking in opposition to the amendment, Councilmember Riemer explained that while he supports the county’s frequent requirement to pay a prevailing wage despite the extra cost, when the county is providing land to affordable housing builders, it does not require such a wage. He noted: “The reason we don’t is that is we are balancing the cost against other public goals… the incentive we are providing (on 29-20) is a very small share of the cost of the project…. and unfortunately the cost (of the prevailing wage amendment) exceeds the value of the incentive, that’s the real issue here.”

Councilmember Andrew Friedson, (District 1) the bill’s other lead, seconded this stance, saying, “If I thought that there were a way for the incentive that we are trying to create in order to build high rise development on metro stations (to work) with the prevailing wage I would enthusiastically support it, …but this is an incentive that is trying to move the needle on something that isn’t currently happening.”

Though critics of the bill have claimed that the county would be giving up vast sums of revenue, WMATA does not pay property tax on county land. Therefore, unless development would occur without these incentives, no actual revenue is being foregone. Property tax can however be levied against a lessee of government property used for a private purpose, as would be the case with 29-20.

It is also important to note that residents living in these buildings would pay Montgomery County’s 3.2% income tax, along with impact taxes paid by developers, all of which will produce more income for the county than the zero dollars it collects from most of these WMATA sites currently.

The Path Forward

While supporters of the bill won the day, it remains to be seen how the broader political battle between housing development advocates and opponents will shake out in the months and years to come. The council struck down the county housing moratorium the same day it overrode the executive’s veto, opening the door for more sorely needed housing construction and more conflict along the way. With these developments and a once in a generation county general plan in the works, there are surely many more fights to come.