Redmond City Council Study Session: MFTE Amendments, Utility Rates, and Fiscal Policies (July 28, 2026)
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Redmond City Council Study Session: MFTE Amendments, Utility Rates, and Fiscal Policies (July 28, 2026)
On Tuesday, July 28, 2026, at 7 p.m., the Redmond City Council held a study session with all council members and Mayor Bernie in attendance. The agenda covered: (1) 2026 amendments to Redmond Municipal Code 3.38, the multifamily housing property tax exemption (MFTE); (2) a budget process update including the utility rate study, long-range financial strategy, and fiscal policies; and (3) council talk time. No separate written agenda or minutes accompanied the transcript.
Multifamily Housing Property Tax Exemption (RMC 3.38)
- Staff presented proposed amendments to add a 12-year extension option to the existing MFTE programs in three residential targeted areas: Merrymore, mixed use, and Overlake. The downtown Faith/neighborhood residential targeted areas would not be affected, and the new tool would supplement rather than replace existing MFTE programs.
- The proposal was based on a 2026 analysis conducted with the Regional Coalition for Housing (ARCH). The exemption would not trigger until a building is complete and receives a certificate of occupancy, with the exemption starting the following year.
- Council discussion clarified that the tax exemption applies to all residential units but only to the assessed value of the improved property, not the land or mixed-use components. Redmond's affordable units remain affordable for the life of the project through legal covenants, even after the exemption period ends.
- Staff cited fiscal context: the community cost is roughly $45 per household annually, about $575,000 in foregone taxes, 258 affordable units produced since the program began in 2017, and a $5 million figure representing the broader staff cost of the community and economic development program rather than this amendment alone.
- Staff explained that the 20-year transit-oriented development MFTE option is not being recommended now because state Department of Commerce guidance on deeper affordability requirements is unclear. Staff plan to seek a legislative trailer amendment and could revisit the 20-year option before the 2029 deadline, noting the city does not want to become a litigation test case.
- On occupancy validation, staff said ARCH units are generally oversubscribed and that occupant qualifications are rigorously monitored through the MFTE process and city covenants.
- Staff shared pilot program learnings from 2023: the 12-year program requires a 20% affordable set-aside; two developments opted in and two did not during volatile 2023–24 market conditions.
- Outcome: Council directed staff to prepare the ordinance and place it on the consent agenda for the August 3, 2026 business meeting; no objections were raised.
Utility Rate Study and City Utilities
- Public Works staff described the three core utility systems: water service to more than 20,000 homes and businesses, nearly 360 miles of water main, five city-owned wells, regional wastewater conveyance, and stormwater management of approximately 11 billion gallons of rainfall annually through about 200 miles of pipe. The utilities represent roughly $3.5 billion in public infrastructure.
- Staff explained that utilities are enterprise/proprietary funds that must be self-sustaining. Rate pressures come from King County wastewater treatment and Cascade Water Alliance water supply costs. The City of Redmond's growing customer base — around 4–5% annual growth since 2019–20, compared with about 1.25% historically — helps absorb cost increases. Redmond produces about 40% of its water through local wells, which helps offset reliance on regional supplies.
- The Novelty Hill area faces higher rate increases because its customer base is built out, small, and served by relatively new infrastructure with high depreciation costs.
- Staff presented preliminary rate expectations and said final numbers would be ready at the end of September. Rate smoothing was explained as using reserves, timing of expenditures, and debt coverage strategies to reduce sharp rate jumps while still meeting financial tests.
- Council members requested options for rate smoothing, an affordability analysis, commercial versus residential rate breakdowns, and details on utility assistance programs. Staff noted existing programs include a 50% low-income discount for seniors/disabled residents and assistance through Hopelink.
- Council President Stewart cited affordability as a top resident concern and referenced regional rate increases of 12.75% for each of the next six years. Councilmember Forsyth noted that pandemic-era rate freezes contributed to the larger increases now being seen.
- Staff said general fund capital support for utilities is allowable but is not currently planned because of competing general fund capital needs. Regional partnership agreements with King County and Cascade Water Alliance were discussed as providing treatment capacity and buying power that the city could not achieve on its own.
- Outcome: Staff will return in September with final forecasts, rate design recommendations, cost-of-service results, affordability analysis, and options for council consideration.
Long-Range Financial Strategy and Fiscal Policies
- Asset management strategy: Council supported adding an asset management strategy to the long-range financial strategy. Staff will add broad language now and work with council over the next year to develop a detailed strategy, with emphasis on critical assets that are largest, most valuable, and present the greatest risk.
- Budget contingency plan: Council supported developing a formal budget contingency plan, with a target completion by the end of the second quarter of 2027. The plan is expected to address reserve use, service priorities, communication with the community, and policy choices such as furloughs versus staffing reductions during downturns.
- Community strategic plan: Council decided to replace the fiscal policy reference to the community strategic plan with a reference to the Comprehensive Plan. Council also agreed to continue a separate conversation about creating a short-term, public-facing priorities tool that is more digestible than the full Comprehensive Plan.
- Community Results Team: Council majority supported continuing and upgrading the team, including a possible budget offer in the non-budget year to proactively recruit a diverse group of community participants and give them budget education before the 2027–28 budget cycle begins.
- General obligation bond 50% policy: Council retained the existing 50% borrowing limit for now. The policy will be revisited in 2027 with additional data, peer-city comparisons, and possible consideration of adjusting the percentage.
- Operating reserves: Council directed maintaining the 12% operating reserve target. The current reserve level is 9%; reaching 10% in the 2027–28 budget would require about $4.1 million. Policy language will be revised to remove the point-in-time “currently 9%” reference and instead describe a gradual increase each biennium until 12% is reached.
- Community investment rate: Staff presented the metric showing city revenues as a share of community personal income. The council-approved target is 5.2%–5.5%. Historical averages have declined: 29-year average 5.04%, 15-year average 5.16%, 10-year average 4.95%, 5-year average 4.53%, 3-year average 4.35%, and a 2026–32 forecast of 3.68%. Staff outlined options including no change, revenue-led decisions, service-led corrections (not recommended), and recalibrating the target. Council made no change tonight and will revisit after 2026 actuals are available, likely before the end of the second quarter of 2027. One councilmember flagged a possible slide math error, and staff said they would review the calculation.
Council Talk Time
- Council recognized the retirement of Chip, the IT and meeting-production staff member, with thanks for his years of service.
- Announcements included a special meeting on Monday, August 3, 2026, followed by recess until Tuesday, September 1, 2026; National Night Out; Rockets on the River concerts on August 5, 12, and 19; a retirement celebration for Director Hallen on August 18; and ongoing recruitment for a legislative coordinator.
- Councilmember Procrea announced work in Washington, D.C., on AI policy for the U.S. Senate under Senator Cantwell, with no conflict with city duties.
- Councilmember Sony discussed the recent Seattle Center incident and called for strengthening youth safety, prevention strategies, and regional partnerships; a human services budget review is planned for the fall.
- Councilmember Forsyth reminded the public that primary ballots are out, highlighted the state Supreme Court races, and recommended using drop boxes.
- The meeting was adjourned.
Key Outcomes
- Directed the MFTE 12-year extension ordinance to the August 3, 2026 consent agenda.
- Directed staff to return in September with final utility rate forecasts and rate options.
- Added asset management and budget contingency planning as strategies to develop over the next year.
- Replaced the community strategic plan reference with the Comprehensive Plan in fiscal policies.
- Retained the GO bond 50% policy for now, to be revisited in 2027.
- Maintained the 12% operating reserve target with revised language to avoid a point-in-time reference.
- Made no change to the community investment rate target; scheduled further discussion after 2026 actuals are available.
Meeting Transcript
Good evening. I'm calling to order this Redmond City Council study session held on Tuesday, July 28th, commencing at 7 p.m. All council members and Mayor Bernie are in attendance. There are three items on tonight's agenda the 2026 amendments to Redmond Municipal Code 3.38 multifamily housing property tax exemption, a budget process update, including our rate utility study, long-range financial strategy, and fiscal policies, followed by council talk time. The first item on the agenda is the 2026 amendments to Redmond Municipal Code 3.38, multifamily housing property tax exemption. Carol Hallen, Director of Planning and Community Development, will introduce this item and her team. Welcome. Thank you so much. Councilmember Stewart. And that's why we're here this evening. So responses to the questions that were asked as were are part of your packet this evening. And I also sent an email earlier today if those of you had an opportunity to read it, where we provided responses to additional questions that were raised. Thank you, Carol. Hello, council. As introduced last month, the proposed amendments would add a 12-year extension option to our existing MFTE programs to three residential targeted areas. Merrymore, mixed use, and overlake. The proposed amendments would not impact the downtown faith or neighborhood residential targeted areas. And importantly, this would be a tool on top of the existing MFTE programs. It would not replace any program. Based on a 2026 analysis conducted in partnership with the Regional Coalition for Housing Arch, these extensions will improve development feasibility. We conducted the MFTE program analysis in 2026 for two key reasons. The first is that we promised our development partners during the Redmond 2050 comprehensive plan update that we would. And two, there was a variety of different legislative items that came and offered different tools for the toolbox of local jurisdictions. If adopted, the 12-year extension would be available to qualifying developments this year. Notably, the exemption does not trigger until the building is complete and has a certificate occupancy, then starts the following year. Council members asked background questions about the MFTE program and about the 2023 pilot program, responses to which are in your packet. In addition, as Carol noted, we uh sent out a collection of eight or so responses to Councilmember Parsi's questions about the program. And tonight we are seeking council direction on the proposed amendment so that staff can prepare an ordinance for council action at a future business meeting. And with that, I turn it back to Council President Stewart. Thank you so much. Much appreciated. Council, who has the first question or comment on this item. Councilmember Procrea. Thank you for coming back to us with the with the matrix. Uh I'm just looking at the first item, um, which was the question I raised on the 20-year 20-year option. And um I'm looking at the the last sentence that we didn't consider it because we want additional guidance by the State Department of Commerce or other legislative revisions. Uh I was just wondering if you could provide more context on what guidance may be provided by the Department of Commerce. Um, just more clarification on that. Thank you. Absolutely. So the different MFTE programs that are authorized in the revised code of Washington typically have baseline minimum requirements, both for the set aside of affordable units and for the levels of affordability. In some cases, like with the eight-year baseline program, there is no set aside requirement for affordable housing at all. Part of the recent legislative uh package that implemented a 20-year TOD MFTE program. The way that the language was written and organized into the existing code is such that we are not sure if local jurisdictions have the authority to adopt deeper levels of affordability, more stringent affordability requirements associated with that program. Notably, other MFTE programs do have the formatting in the language such that local jurisdictions are clearly authorized to adopt more stringent affordability requirements. Some folks interpret it one way, some folks the other way, based on legal counsel and just the availability of our timeline. We do not need to adopt anything until the end of 2029. We felt it would be prudent to pause on this item and not say no, but just say not at this moment. Thank you. Councilmember Kritzer.
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