How to Save Downtown Seattle? A Tax Deal for Streetside Retail

This story was originally published by Post Alley on Dec. 22, 2020.

By Dick Lilly

Seattle’s downtown and neighborhood business areas are a depressing sight. Graffiti-sprayed plywood has replaced store windows that should be bright and decorated for the holidays. Others are papered over, empty inside. On doors, signs say “Closed” and sometimes “Out of Business.”

It’s not all bleak but a lot of restaurants are closed, the ones open doing take-out. Retailers  limit the number of customers. Formerly bustling stores have an empty feel.

Seattle’s street-level retail businesses and services are hurting and need help. Health precautions and, particularly downtown, with tens of thousands working at home will keep the streets quiet way into and maybe through next year. As of October, the Downtown Seattle Association (DSA) tallied 192 permanent street-level business closures, including 139 downtown. UPDATE: As of mid-December, the Downtown Seattle Association (DSA) tallied 218 permanent street-level business closures, including 155 downtown.

Faced with months more in this crippled state, what can we do to restore Seattle’s vitality?

Sure, after vaccines something resembling the past will eventually return. Conventions, cruise ships and many office workers will be back, I suspect more than most prognosticators think. Those are the macro – future – forces.  But they won’t help us now. Helping and saving our street level businesses both small and even large is up to us.

The city through its Small Business Stabilization Fund gives $10,000 grants – 469 so far this year – to small businesses with fewer than 25 employees.  Applications for a new round with $4 million available closed at the end of November. The money can be used for salaries and rent. Eviction prohibitions in effect until Dec. 31 apply to some small businesses. Payment plans are available for city utility bills. Free expedited permitting has been developed to allow restaurants to move outdoors onto sidewalks and even street parking areas.

Paul Roberts has reported in The Seattle Times that Amazon is not charging rent to the street-level businesses in its downtown buildings, recognizing what a huge survival value that can be.

County Assessor John Wilson has his staff combing the property tax codes for ways to ease the burden on companies that have lost revenue. Not surprisingly, the system was not set up with off ramps to deal with the striking losses retail and restaurant businesses have suffered from the Covid lockdowns and economic contraction.

But there may be a way to game-changing help. State law allows property tax exemptions or tax deferrals for low-income elderly and the disabled. (Deferrals are a lien on the property and paid back then the home is sold.) Roughly, homeowners over 60 with incomes less than about $60,000 can apply. State law also allows exemptions for legislatively-approved uses of property.

Why not copy that system and do something like this:

Allow building owners renting or leasing space to street-level retail businesses (including restaurants, gyms, hair and nail salons, etc.) to remove from tax the portion of their property rented or leased to those kinds of stores, the activities that make downtown and Seattle’s neighborhood business areas the lively, vital places we love.

But one condition must apply to this exemption (and this is what makes it work): the entire tax reduction must be passed through to the retail tenants as rent reductions.

Landlords come out even. The tax and rental income reductions are equal – and their storefronts don’t go empty. The retail, restaurant and other street-level businesses get the big break that might just keep them afloat. This is important not just because of loss of sales due to Covid. Downtown retail rents have been flat or slightly down for more than a year, according the DSA. But there’s plenty of anecdotal evidence that Seattle’s booming real estate market has for years been painfully raising rents to the detriment of the small businesses. This plan would level the playing field in a game where national brands and franchises can afford higher rents. In fact, even if this scheme is available to retail and restaurant chains, it still means that small local businesses have the rent break they need to stay on the street. It’s help in the competition with online retail as well.

Tax experts tell me this will work with, of course, the caveat that it must be equally applied. That is, it must be available to all properties similarly situated. It might not be difficult to define “street-level retail,” listing the types of businesses that would be included. Location would also be an issue. Downtown? Retail core? What are the boundaries? Neighborhood business areas?  Limited to Seattle’s “urban villages?” Anyone drafting the law will also need to carefully craft it so there’s an equitable definition applicable to other large and medium-sized cities as well as rural towns. It’s taxation so this has to be a state law. But it can be done.

Jon Scholes, DSA president and CEO told me what we do to bring our city back is a measure of our values, actions we might take to “balance out the market effects.”  A prime example: preservation of the Pike Place Market, 50 years ago.

For now, Assessor Wilson’s office is looking at options that would provide some real relief – depending on what the legislature might approve. One is application of a section of law that allows a property tax reduction due to government restrictions on the use of property such as setbacks from streams under environmental regulations. The Assessor might ask the legislature to amend this section to include health-based restrictions such as occupancy limits.

They’re also working on a proposal to define “Covid business losses” under what’s called the “destruct law,” where taxes are reduced if at least 20 percent of a property has been left unusable by earthquake, flood or other disaster.

A third plan is a similar to the one I’ve made above, a “Renter’s Relief Act” that would partially reduce property taxes for landlords who charge below market rents and commit to passing the tax savings on to their business tenants hurt financially by loss of business due to Covid.

Of course, it would be great to go all the way and set it up as I have so all street-level retail businesses and their landlords acting together could apply for the benefit: Pass-through of a 100 percent property tax reduction on the space they rent. That would really help restore our city and keep small businesses going for a long time to come.