Bend councilors vote 5-1 to approve disputed 10-year, $10.6 million tax break for Jackstraw housing project

(Update: Adding video: Councilors OK tax break, discuss Transportation Utility Fee)

Two councilors received, returned donations for campaign, nonprofit; one recused from discussion, vote

BEND, Ore. (KTVZ) – Bend city councilors decided the goals and project details were worthy and issues with a new multi-unit tax exemption program will be revisited before voting 5-1 Wednesday night, with one recusal, to approve a controversial 10-year, $10.6 million tax break for the 313-unit Jackstraw Project on SW Industrial Way.

The developer laid out many applauded details, from room for 20 slots of at-home child care to two rent-limited units so the operators can afford to live there.

The biggest heartburn was that while it’s required that the exemption be crucial for a project to pencil out, as an independent analyst found, construction on the site by The Box Factory shortly (a few weeks, apparently) before the Multi-Unit Property Tax Exemption (MUPTE) application was even made to the city.

Councilor Anthony Broadman, who’s decided to run for the Legislature this year, recused himself from involvement in the discussion, saying he received two campaign contributions from the developer, Killian Pacific. He had returned the donations but said the appearance of possible impropriety prompted his stepping aside.

Colleague Mike Riley said the developer several weeks ago gave an unsolicited $5,000 donation to The Environmental Center, which he oversees. He said city staff asked the state Government Ethics Commission to review the situation and they “agreed it did not present an actual conflict of interest” but that to hold to high council standards, he returned the donation, which he said “allows me to fully take part in deliberations.”

Immersion Brewing co-owner Sean Lampe had raised objections in social media and encouraged opposition to the tax exemption, and the brewery’s event coordinator, Kate Hunt, spoke to councilors during the visitor section about the “fairly miniscule” things Killian Pacific had done.

“We know we need more housing here,” she said, but “the standards need to be higher” than two deed-restricted units out of 313 “outrageously priced units” in a city many cannot afford to live in. Construction has had negative impacts on existing businesses, fueling the opposition, such as lights out for months along Lava Road.

“If they can’t support what they already have, why give them a break?” she said.

Long-time Bend resident Paul Evers said he had “a very positive experience” with Killian Pacific. And two members of the Bend YIMBY (Yes In My Back Yard) spoke in support, pointing to the need for more homes” and pointing to the walkable, environmentally friendly project as ones we need more of.

Historic District homeowner Brice McMorris said it’s taken 10 years to get another unit built on his property: “It’s been a nightmare,” and that he’s “confused why fat-cat, big-city developers” can get a break when “there’s not money available to people like me,” a single parent of two boys.

He said he even has to pay for a city-required ADA-ramp that’s not on his property but “directly benefits Jackstraw. I can’t afford it – I’m broke. They can say midstream they need a break? Well, I need a break!”

Two city staff members stepped through the details of the MUPTE and tax-increment financing, which can confuse many (see city FAQ below), noting it actually has not financial impact on taxing districts and later leads to more tax revenue for all of them. They also noted the developer will be putting $5 million into city system development charges, the SDCs aimed at growth paying its own way (or more of it.)

The Bend Park and Rec Board and Deschutes County have approved the proposal, and the Bend-La Pine School Board takes it up next Tuesday.

Staff said construction of the project began in early May and the MUPTE was applied for in early June.

Killian Pacific Principal Michi Sllick outlined the details of the project, from 17,000 square feet of ground-floor retail to 325 bike parking spaces, a plaza with public art, and meeting the requirements, including the first apartments in Bend to achieve LEED Platinum certification and a “wrapped” parking structure not visible from surrounding streets.

The much-maligned two units at 60% of area median income match the typical income for in-home child care operators to “make sure they could actually be tenants,” Slick said. Then there’s the stormwater features beyond requirement, the 62 electric vehicle charging stations, “future-proofing” for future solar panels and an “all-electric” development with no natural gas, which has come under fire of late and is likely its own hot council topic in coming months, locally produced artwork, including a mural, drought-resistant planting, a native pollinator program … the list goes on.

But the bottom line, she said: “If it weren’t for the MUPTE program, we would not be able to build.”

Mayor Melanie Kebler asked how they had already started to build the project?

Slick said they have used similar tax abatement programs across the US, including in the Portland area, and they are “typically compliance-based” – unlike Bend’s, which as it now stands requires taxing districts’ approval.

“We had understood this to be a compliance-driven program” she told councilors. “We did not understand this to be a discretionary review of all taxing districts. We didn’t learn of that until a few months ago … If we had been aware of that, we certainly would not have started construction.”

After the very detailed presentations, councilors actually had no questions – but they did have things to say.

Councilor Megan Perkins said it was “less than ideal” that construction began before the tax break was formally sought, but said it’s “probably” the “fault of a cumbersome, confusing and lengthy process” that councilors vowed to review and make any necessary changes. “Is that what we’re here to do tonight? No,” she said.

Kebler agreed, noting they will start that review of the program at a work session at their next meeting, but that if council changes requirements on an applicant in mid-stream, “we’re not going to have people take part in programs designed to incentivize what we want.”

Councilor Ariel Mendez asked the developer what Killian Pacific would do if they don’t get the MUPTE now, to which Slick replied: “If we didn’t, our lender would not fund the project” – that their underwriter would find “the loan would not be supported by the revenue on the project.”

Mendez said many people “have valid concerns” about the construction impact, but that is not related to the project itself. The critics “kind of miss the biggest public benefit: This is pretty great project.” He said it was “not an open-ended giveaway” but a “good deal to incentivize the project.”

Councilor Megan Norris called it “a beautiful project. … I wish it had more affordable units. But yes, I understand from my day job how hard it is to make projects pencil. I think it will be a great addition to the area.”

Colleague Riley, reading a prepared statement, said he supports the MUPTE and the goal of redevelopment the city’s core, but couldn’t support a project where “a private, sophisticated” business with much experience starts construction before seeking the tax break.

“That says very clearly, to me, the project is financially viable without the MUPTE,” Riley said. “To me, it violates at least the spirit of the MUPTE code. I think it sets a bad precedent for us as a city of Bend and council.” But he added that it was “a really difficult decision,” as “so much of what you do is what I’ve worked with so many others” to achieve.

“I’d like to talk about the idea that ‘rich developers’ are bad, evil parts of our world,” Campbell said, often voiced by “people from my side of the aisle.” The “simple fact,” she said, is “to be a developer, you have to have access to far more money than many of us will ever see in our entire lives.”

She said the council and city have done a lot to try to help small builders, too.  But as for an “unimaginably rich person sweeping into town – in this case, it’s a developer who’s been in town. The benefit is the housing. It is true that we need housing at every income level.”

Councilors began the meeting with a lengthy work-session dive into the latest details, options and further direction for another controversial subject: the Transportation Utility Fee that the city council may impose at mid-year after over a year of public discussion and debate.

Councilors backed the idea of phasing in the fee, to raise $5 million for road maintenance needs the first year as a goal, $10 million in year 2 and $15 million a year from there on. The current breakdown is that 53% would come from residential property, possibly to $16 a month for single-family homes and $12 for multi-unit property.

Campbell was hoping to hold to the $15 monthly cost for homeowners, but there are many adjustments to make in coming months before any fee is enacted, and thereafter as the estimates turn into firm reality. Kebler noted that sewer and stormwater fees are reviewed and adjusted, sometimes annually.

There will likely be an exemption for those on utility assistance, and then there’s all the details on how to set rates for businesses of varied sizes – and whether and how to charge for parks and schools. So there’s still much to decide.

As for the tax break, hours before the council met, the city released a frequently-asked-questions (FAQ) summary on the complex issues involved:

FAQ: Jackstraw Project (Multiple Unit Property Tax Exemption)

The City of Bend has received and observed questions related to the Jackstraw Project, a development located at 310 and 350 SW Industrial Way. This FAQ is intended to clarify facts surrounding the development, the Multiple Unit Property Tax Exemption (MUPTE) they have applied for, and how the Core Area Tax Increment Financing works.

The Jackstraw project is uniquely positioned within the Core Area, a tax increment financing district (urban renewal). The Core Area Tax Increment Financing (TIF) district is one of the areas eligible for MUPTE. These two programs (TIF and MUPTE) are aimed towards developing Bend’s Core Area into a more connected and livable community.

Please tune into the Bend City Council’s discussion of the MUPTE request associated with the Jackstraw Project – you can watch it live (on Wednesday evening at 7:00 p.m.) or find the recording at bendoregon.gov/councilagenda.

Question: Would Bend-La Pine Schools lose tax income if the MUPTE tax exemption is approved?

Answer: No. Funding for school districts is allocated on a per-pupil basis through an equalization formula. Urban renewal (TIF) does not affect the per pupil allocation nor the local funding for local school districts.

Question: Who will pay for the lost income (due to the tax break experienced by the developer)?

Answer: No one, the idea behind tax increment financing is to encourage revitalization in a specific area through strategic investments around defined project categories – including housing . It is a long-game approach built around research and data that indicates those investments will have positive returns for the community. The MUPTE program, which the Jackstraw Project has applied for, incentivizes development to provide additional market housing for a growing population.

Question: What is Tax Increment Financing (TIF)?

Answer: Using property tax increases within an established urban renewal area on approved projects that continue to promote redevelopment.

The website related to the Core Area Tax Increment Financing (TIF), a district created in 2020, provides a deep dive into how the Core Area TIF Plan was developed, the stakeholders involved, and the associated goals and values.

Question: Why is the developer saying that the project may fail if the exemption is not approved?

Answer: To qualify for MUPTE, projects must demonstrate that it would not be financially viable without the exemption. A third-party reviewer (external to City of Bend staff) reviews the project’s financial documents (pro formas) and makes a determination whether the project requires the tax exemption to move forward.

The Jackstraw Project was reviewed by an independent financial consultant who determined that the project would not be financially viable without the property tax exemption. (The consultant’s full report is available online as part of the January 3, 2024 Council meeting materials. Item No. 6 on the agenda.)

Question: What does the developer have to do to qualify for this tax exemption?

Answer: The developer has to follow the requirements of the Multiple Unit Property Tax Exemption (MUPTE) program. They are outlined on the website, but involve developing residential units, must be multi-story, must need the exemption to move forward with the development, and must provide at least three public benefits (listed within the Bend Municipal Code 12.35). The Jackstraw project is providing the following three public benefits to qualify for the MUPTE program: high standard of energy efficiency through LEED Platinum Certification, mobility supportive amenities, and a wrapped parking structure.

Additionally, the 313 housing units planned within the Jackstraw project help add much-needed options to Bend’s housing stock and the urban, high-density approach meets the Community Climate Action Plan’s vision of growing up (rather than out) in an effort to protect our wild, open spaces.

Question: What is the Multiple Unit Property Tax Exemption (MUPTE) program?

Answer: MUPTE is a tool to encourage development of multifamily housing options in core and transit-oriented areas lacking choices for workforce or moderate-income levels. Multi-unit residential projects of three or more units can apply to receive a ten-year property tax exemption on structural residential improvements as long as the program requirements are met.