Should BI use tourism funds, taxes for affordable housing?

When it comes to funding affordable housing, Bainbridge Island City Councilmember Kirsten Hytopoulos said she favors using tourism money over property taxes.

I’d be “nervous about raising property taxes. That’s a problem for a lot of people,” she said.

On the other hand lodging tax money has been skyrocketing at a “shocking” level in recent years. Half of the $400,000 has to go back into the community to help tourism, but she would have no problem spending the other half on affordable housing.

The City Council discussed the topic at its meeting March 19. City finance director DeWayne Pitts talked about the different funding options.

City manager Blair King said using lodging tax money “probably is not a good match for Bainbridge Island.” But he added that most cities use local resources to generate as much as they can and use that to leverage other funds from public or private sources. He said most bankers won’t turn down funding if there is a proven revenue stream with the right partner.

“We’re not trying to fund entire projects,” Hytopoulos said.

Councilmember Ashley Mathews said BI has not always been known as “development friendly,” but this effort could change that.

“We can’t do this alone,” Councilmember Clarence Moriwaki added. “We don’t have the capacity to fund” it all. “We need to find those partners.”

Councilmember Leslie Schneider said the city needs to have a matrix for how much money is needed to help people at different income levels.

Mayor Joe Deets agreed the issue “begs the need for a plan. How much money do we need to raise each year and for what? What’s the end goal we want to accomplish? Then we figure out how to finance it.”

A city memo said it has helped fund affordable housing in the past, but not in a systematic or predictable way. For example, a project in 2007 received $9,000 while one in 2022 received $2 million. Lack of funds, lack of information and lack of a comprehensive plan have also been issues.

The city now can help, thanks to a law passed in 2022 increasing the sales tax within BI 1/20th of 1% for affordable housing. That could bring in $850,000 a year. Also, in 2023, a council resolution provides some building and planning fees to help subsidize affordable housing projects. That would bring in $17,000 to $100,000 a year.

The city is also using its own property for an affordable housing project. So it is formulating a plan, similar to the Capital Improvements Plan, where applications would be taken for funding.

As for funding options, one possibility to increase those funds would be to use money from the hotel-motel tax. There are requirements, such as it needs to be built within a half mile of a transit station. Previously, the tax money has been used mostly to increase tourism. But in 2015 it became law that bonds could be paid for housing for an affordable workforce in certain conditions. There are other restrictions, too.

Pitts said another option is the Real Estate Excise Tax, but it is very volatile, down 25% last year.

As for property taxes, councils can vote to use existing money with a simple majority vote.

To increase taxes, voters need to approve bonds by 60% for specific capital projects. “Very few bonds are passed for affordable housing,” King said.

However, it takes just a simple majority approval to increase an existing property tax by more than 1%, Pitts said.