Spokane City Council approves tax incentive to turn downtown parking lots into housing

Some local lawmakers believe there is more than enough parking in the downtown Spokane area, and that the space would be better used as affordable housing.

On Monday, the Spokane City Council unanimously approved a new tax incentive to encourage developers to do just that. While some doubt that the incentive is enough to actually lead to redevelopment of surface parking lots, proponents said the ordinance is a small step to tackle the city’s affordable housing crisis.

The ordinance, sponsored by council members Zack Zappone and Lori Kinnear, would defer both state and local sales and use taxes – a total of 9% – for developers who turn downtown parking lots into housing, at least 50% of which must be affordable housing. The exact affordability requirements depend on whether the units are for rent or for sale, but costs cannot be higher than what is typical for the county.

If the development maintains those affordable units for at least 10 years, the taxes would not need to be paid. Developers who receive the waiver but later renege on the requirements would be required to pay back the deferred taxes.

There is more than enough parking in the downtown Spokane area, and much of it doesn’t get used frequently, according to a 2019 study conducted by the city.

That study found 37,000 parking spaces downtown , 85% of which were off-street, including in both parking lots and garages. Parking makes up nearly a third of the surface area of the “downtown study area,” which includes the downtown core and surrounding areas, according to the study.

That same study found that off-street parking in the downtown core was typically never more than 65% occupied, except for during large events such as the Lilac Parade, when up to 100% of off-street parking was occupied. Certain areas, however, such as the Main Avenue corridor, were frequently at or near capacity during the busiest times of day.

While the city of Spokane manages around 15% of parking spaces in the downtown area, almost all city-run parking is on-street. The vast majority of off-street parking is managed by private property owners and for-profit companies, such as Diamond Parking, which manages or owns 16% of all downtown parking, according to the study.

“We realize (parking lots) are not the highest and best use for that land, so we’re not averse to developing,”Dan Geiger, vice president of the Spokane Region for Diamond Parking, said in a recent interview.

But others are skeptical that the math would pencil out for downtown developments that have to make 50% of their units affordable.

“When the state came out with that (program) initially, my thoughts were that it was well-intended, but it’s going to miss the mark,” said Chris Batten, the principal of RenCorp Realty and board chair of the Downtown Spokane Partnership.

A lower affordability threshold, coupled with other incentives, would be more likely to lead to additional development, Batten said.

However, the affordable housing incentive can be layered with others, including a multifamily tax exemption, and at least one Tacoma-based developer has shown some interest, Kinnear said in an interview. Furthermore, if the 50% affordability requirement proves to be unworkable, the city will have evidence it can bring to the Legislature to ask for adjustments, she added.

Though the development incentive works by deferring and potentially forgiving taxes that the city could have otherwise received, it is still fiscally responsible, Kinnear continued. Surface parking lots generate little revenue for the city, and any building would create higher property taxes, among other downstream benefits, she argued.