Legal Alert

Montgomery County, Md., Proposes Tax Incentives for Affordable Housing; Potential Impact on ROFRs?

by Roger D. Winston
July 5, 2021

Summary

New legislation would greatly expand the Montgomery County’s “payment in lieu of taxes” (PILOT) program.

The Upshot

  • The bill contemplates automatic tax breaks for projects that meet affordability requirements.
  • Owners would pay a nominal fee in place of property taxes, which could be partially or completely waived.
  • The proposal eliminates the existing cap on how the County can forgo on tax breaks issued through the PILOT program.

The Bottom Line

This bill provides valuable incentives for affordable housing, but may impact ROFRs in Montgomery County going forward. The public hearing on this legislation is scheduled for July 20.

Legislation recently introduced by Montgomery County Councilmembers Andrew Friedson, (D-Potomac), and Hans Riemer, (D-At Large), would greatly expand the County’s “payment in lieu of taxes” (PILOT) program to ensure developers and owners of affordable projects can more easily receive property tax benefits. The public hearing on this legislation, Bill 26-21, is scheduled for July 20.

Currently, the County can negotiate PILOT deals with multifamily owners on a case-by-case basis, but this bill would make the tax breaks automatic for projects that meet certain affordability goals.

Similar to the existing PILOT program, the legislation would allow developers/owners to pay a nominal fee in place of property taxes, which could be partially or completely waived.

The bill also permits full tax breaks for Housing Opportunities Commission (HOC) affordable projects. The County recently created a new bond funding program, the Housing Production Fund, designed to help HOC ramp up development of affordable projects by leveraging County funding.

The bill eliminates the existing cap on how much the County can forgo on tax breaks issued through the PILOT program. Currently, the County Council sets limits on the program in each year’s budget—for fiscal 2021, it was capped at just over $19 million.

If enacted, this legislation may impact ROFRs in Montgomery County going forward. Traditionally, properties with long term affordable units were of less interest to DHCA and HOC for ROFR purposes. Owners may be more willing and able to offer affordable units if PILOTs are easier to obtain and the ROFR risk is lessened. But if a project has no affordable units, HOC or DHCA (partnering with non-profits) may be more likely to exercise a ROFR if PILOTs are more readily available.

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