City councilors approved an excise tax Tuesday, June 6, designed to fund affordable housing projects.

In a 4-1 vote, councilors approved a 1 percent tax that would be applied to building permits — so if someone applied for a permit to build $200,000 home, $2,000 would go into the fund.

If the surcharge was applied to commercial and residential permits in 2016, the tax would have yielded about $96,000, City Planner Mark Barnes said.

Councilors who voted for the tax supported any way for the city to raise money for affordable housing projects, as well as the builder incentives that would waive the tax if the proposed units were affordable.

What projects are chosen and assessed to be affordable — which means households intended for people with incomes 80 percent of the median county income — would be decided by the City Council.

But Councilor George Vetter, the one dissenting vote, took issue with the principle of taxing a small group of people to solve what he calls “a community problem” in Cannon Beach.

“I would much prefer to see this issue solved with a general obligation bond,” Vetter said. “In a citizen survey, the people identified this as a community problem. I’d like to see the solution come from their pocketbooks.”

Vetter also said that he doesn’t think the waiver will be enough to entice developers.

“We’re talking about market value,” he said. “To get the best return, we would need to make up with some kind of subsidy.”

Other cities like Salem and Portland have passed similar taxes, while Astoria is still considering the option.

Affordable Housing Fund

The city’s budget committee approved next fiscal year’s budget, but not without heated debate over the merits of the newly added Affordable Housing Fund.

The budget was approved 9-1, with the ‘no’ vote coming Vetter.

Because of the increase in the lodging tax from 7 to 8 percent in 2016, the budget grew 4.7 percent, City Manager Brant Kucera said. The budget includes four major water and wastewater improvement projects, a newly funded position for an in-house building official to evaluate building codes and procedure and additional funding for updated radio technology for police.

But one of the most significant changes to the budget landscape is the Affordable Housing Fund. The fund’s purpose in this budget cycle is to build five affordable homes in the RV Resort on Elk Land Road and Haskell Lane, and $92,000 of that fund is made up from excise tax revenue.

The park was identified as a potential site in a report compiled by the affordable housing task force last year, citing the fact the city owned the land, as well as relatively low startup costs as benefits.

Each house would be around 400 square feet and mobile, Kucera said. With rent anticipated to be $600 to $800 a month, the homes would be intended for single and working-class people who earn about $15 an hour.

Different approaches

While the $429,740 fund has remained in the budget, some members of the committee took issue with the homes relying on a bank loan, rents and construction excise taxes tied to a building economy — all sources of income the committee interpreted as either too risky or unfair to business.

“I don’t think it’s good for us to charge such a tiny group of people for something that won’t make that much money,” Vetter said in reference to excise taxes.

During a May budget meeting, Kucera argued that taking out loans to buy a home is standard procedure, and that the plan is low risk given that the city already owns the land and could sell the units if the program does not succeed.

“Maybe there is some assumption of cost,” budget committee member Carolyn Propst said, “but if you don’t start with a low-risk project then how do you get started?”

But with Kucera leaving as city manager at the end of the month, how this project will roll out isn’t set in stone. Tentatively, implementation will be pushed from summer until fall, Kucera said, where it will be under the direction of a new city manager.

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