Lynnwood Council discusses multifamily tax exemption changes, $600K affordable housing grant

The Lynnwood City Council welcomed a new member Monday night before diving into policy discussions on how to spend accumulated affordable housing funds and how to restructure the City’s multi-family tax exemptions to meet the needs of residents and developers. 

New councilmember sworn in: Chelsea Wright took the oath of office Monday, filling Council Position 6. Supported by family and friends, Wright was sworn in for a term expiring Nov. 23, 2027.

“I’m very thankful to be in this position and I truly hope to make the residents of Lynnwood proud,” Wright said during council comments. Later in the meeting, she was appointed to the History & Heritage Board and nominated to the Snohomish County 911 Board.

Affordable housing fund: The council discussed how to spend approximately $1 million sitting in Fund 146, the affordable housing fund generated by a state sales tax credit enacted in 2019. The City accumulates between $200,000 and $250,000 annually in this fund. Staff proposed the Council vote Feb. 23 on whether to move forward, eventually awarding contracts sometime in July.

Staff proposed a two-pronged approach to spend $600,000 of the current balance:

• Development assistance: A request for proposal (RFP) offering up to $500,000 to developers for one or two projects that construct at least 50 units of affordable housing.
• Rental assistance: An RFP offering $100,000 for a one-year pilot program managed by a nonprofit to help residents earning 60% or less of the Area Median Income (AMI).

While construction costs are high – at approximately $400,000 per unit – City Community Planning Manager Karl Almgren said the $500,000 grant could act as a “financial cushion” to help developers fund projects through the design phases. 

Before diving into the proposed spending plan, staff presented what they say demonstrates the demand for affordable housing in Lynnwood. 

Approximately one in four Lynnwood households receive assistance from the state Department of Social and Health Services. Further, 20% of Lynnwood’s households are cost burdened (meaning 30% or more of gross income goes to housing), and 18% are severely cost burdened (50% or more gross income spent on housing). 

Staff also broke down calls for services from Lynnwood ZIP codes from two local resources: Washington 211, a resource hotline connecting residents to resources to help with matters including housing, food, health care and employment, and Snohomish County Legal Services requests for representation. 

Calls for services from Lynnwood ZIP codes in 2025: 

2-1-1 data  

• Rent assistance: 604
• Housing and eviction law: 658
• Low-cost hosing: 668
• Utility assistance: 688

Snohomish County  Legal Services housing data: Out of the 2,931 total case referrals received countywide, a quarter – 607 – were from Lynnwood households, and 495 of those related to non-payment of rent, Almgren said. He also noted that from 2024 to 2025, Snohomish County’s eviction rate was 16%, more than King County’s 12%. However, these are only two of several resources in Washington, Almgren said. 

“Keep in mind, Snohomish County Legal Services only receives a portion of eviction or housing law-related referrals, so the need is likely a little higher than these numbers suggest,” he told the Council. 

Under state law, Lynnwood is limited in how it spends the affordable housing funds. Permitted uses include acquiring, rehabilitating or constructing affordable housing; maintenance and operations of new affordable or supportive housing; and rental assistance for households with an income at or below 60% Area Median Income. The City is prohibited from using funds on emergency shelters, including housing for people in crisis and spending on behavioral health facilities and care centers, like Lynnwood’s new Crisis Care Center. 

Councilmembers generally supported the proposition while suggesting potential changes. Councilmember Bryce Owings discussed potential local-priority hiring requirements to offer more jobs for Lynnwood residents. 

With the state legislative session underway, Councilmember Derica Escamilla floated the idea of a brief pause on the development portion to monitor potential new state legislation regarding emergency shelters, suggesting the city might pool resources with neighboring municipalities for a larger project. 

Next steps: The Council is set to vote Feb. 23 whether to move forward with the proposals. 

• March: Finalize request for proposals
• April: Procurement review 
• May/June: Advertise for submittals
• June: Selection committee review 
• July: Council approves contracts. 

Multi-family Tax Exemption update

In 1995, state lawmakers approved a tax waiver program enacted by cities and counties to boost housing development, known as the Multi-Family Tax Exemption (MFTE). The exemption gives property tax breaks for up to eight or 12 years to developers in the City Center area who help the City meet its housing goals. Adopted by the Lynnwood City Council in 2007, the City’s first MFTE application came in 2019 with the Kinect apartments. Four apartment buildings in Lynnwood are using the program as of 2026. 

Staff on Monday presented the Council with an update on the program along with several proposed updates, driven partly by new state requirements for cities to adopt a 20-year exemption for transit-oriented development (TOD) by 2029. This means Lynnwood has to offer the program to all developments within half a mile of a major transit station, including the light rail or rapid transit bus. Almgren said this criteria includes most of the city. 

Under the law, participating developers must provide a certain amount of affordable units for at least 50 years. This ranges from 10% of units affordable for people earning ≤50% AMI to 20% of units affordable for people earning ≤80% AMI. 

Lynnwood currently offers two MFTE options: 

• Eight-year exemption: No affordable unit requirement, projects must be enrolled by Dec. 31, 2031. 
• 12-year exemption: 20% of units must be affordable to those earning less than 115% to 80% AMI or lower. Projects must be enrolled by Dec. 31, 2031. 

There are four developments currently enrolled in Lynnwood’s MFTE program: Kinect, Ember, Koz and Enso (the newest addition), making for a total of 1,113 units– 161 (14%) of those are considered affordable for those earning under 115% AMI.

Staff Monday proposed a few changes to the program: 

1. Required: Implement a 20-year transit-oriented development exemption: Under HB 1491, all cities in Washington are required to offer the 20-year exemption to developments within half a mile of a major transit station, including the light rail or rapid transit bus by the end of 2029. Almgren said this criteria includes most of the city.

Under the law, participating developers must provide a certain amount of affordable units for at least 50 years. This ranges from 10% of units affordable for people earning ≤50% AMI to 20% of units affordable for people earning ≤80% AMI. 

1. Removing the eight-year exemption: This option prioritizes affordable housing, but could potentially reduce program participation. However, Lynnwood Development and Business Services Director Ben Wolters said he doesn’t think this will greatly increase participation, given the strength of Lynnwood’s housing market.  

• Expand MFTE target areas: Currently, Lynnwood only offers the tax exemptions in the City Center area. Staff proposed expanding this along Highway 99 and the Alderwood areas to support housing near transit and to spread density and redevelopment throughout the city.
• Offer MFTE exemptions: The City could allow developers to extend participation in the program, as long as 20% of units are affordable for people earning ≤80% AMI. 
• Lower AMI requirements: The City has the option to eliminate the 115% AMI option, the maximum allowed by the state. This focuses on affordability for people earning 80% AMI or lower, but could possibly affect participation in the program, as developers wouldn’t be able to collect market rate. 
• 20-year rental or home ownership program: The state offers two 20-year exemptions, one for home ownership and one for rentals.
• Home ownership program: 25% of units must be permanently affordable to those earning plus or minus 80%. Sponsorship from a nonprofit or government agency is also required for at least 99 years. Wolters said other jurisdictions haven’t seen success with this program, including Seattle. In a statement to the Lynnwood Council, Seattle staff said the program failed to attract participating developers because it doesn’t offer competitive market rates.  
• Rental program: 20% of units must be affordable to low income renters (plus or minus 80% AMI) for at least 99 years and must be within one mile of high-capacity transit (including light rail and rapid bus lines). 
•  Hire a consultant: Staff suggested hiring a consultant to review financial impacts of the changes, especially if the Council pursued options departing from state regulations (such as options five and six) 
• Staff estimated a consultant could cost between $25,000 and $50,000, and would be included in the 2027-28 budget if the Council pursued this option. 

The Council in May established a 68-acre Tax Increment Financing (TIF) area in Lynnwood to fund a portion of the Lynnwood Public Facilities District redevelopment project near the event center. Wolters said Lynnwood’s current MFTE program slightly reduces near-term funds generated from the allotted area.– A 20-year exemption program would reduce funding dramatically, potentially by tens of millions. Staff are currently working with state lawmakers to exempt TIF areas from the required 20-year transit-oriented exemption requirement. 

However, Almgren said offering more MFTEs won’t significantly reduce the amount of property tax the City can collect over time. In Washington state, cities control the total amount of property tax levied, rather than the rate itself. 

Lynnwood’s 2026 tax levy is $8.9 million, and it can collect that full amount regardless of rates. Almgren said it’s more of a tax “shift”: Participating developers are exempt from paying into the total levy, raising rates for other property owners and nonparticipating venues. However, MFTEs only apply to the residential portion of properties and developers are still required to pay property taxes on property without housing, including lawns and parking lots.  

Allowing MFTE projects isn’t necessarily forgoing revenue, Almgren said, “We’re shifting it amongst who is paying into it.” 

Almgren said there are other options to pursue affordable housing, but MFTEs are just one way to increase housing overall to comply with state housing goals and regulations. 

“It’s a tool in the toolbox, it’s not the only mechanism that supports the construction of affordable housing,” he said. “The state made a specific attempt to make [MFTEs] about the production of housing and not only about affordable housing.” 

Although immediate action isn’t required, the Council is set to revisit its MFTE program sometime in the near future. A public hearing is required for any changes the council pursues, and the City would be required to alert all taxing districts in affected areas. 

Small business program update 

Simreet Dhaliwal Gill, the City’s business development program manager, briefed the Council on the first year of the Small Business Development Program. Since launching in early 2025, the program has contacted nearly 500 of the estimated 4,000 businesses in Lynnwood, providing direct assistance to 203 businesses and 159 small businesses and entrepreneurs. 

The program also offered quarterly business programs, connecting owners and entrepreneurs to essential business tools including assistance with taxes and finances, advertising and networking. 

Dhaliwal-Gil said she took a “boots-on-the-ground” outreach approach  meeting owners where they’re at, rather than requiring them to come to City Hall for assistance. To address public safety concerns, she often brought police officers along to introduce them to business owners and hear their needs.

Throughout 2026, the program will continue offering workshops, focusing on business support ahead of the 2026 World Cup games. Dhaliwal-Gil said she’s planning a re-run of Dining Month, where residents through a “passport” system could connect to local businesses. Using a Snohomish County Tourism Grant, the City last year was able to promote 27 local businesses on social media and TV. The City also created an app to boost restaurant sales that had over 1,000 users. 

Other business

The Council re-assigned liaison positions due to Councilmember scheduling conflicts and Wright’s appointment to the Council. This was followed by a recap from Councilmembers who attended the Association of Washington Cities Action Days in Lacey on Jan. 21 and 22. 

The meeting agenda and recording are available on the City’s website.