Taxes & MFTEs

Who pays when developers receive tax exemptions?

Nearly every housing decision in Kirkland is argued in the name of “affordability.” In official programs that word means income-restricted units. This page is about the other affordability: what it costs a household to live in Kirkland, and how tax exemptions and utility taxes quietly raise it.

In short:

  • Developer tax exemptions (MFTE) quietly move costs onto everyone else’s property-tax bill, and nobody totals the stack

  • Utility taxes ride on bills set to climb 61.6 percent by 2032. The City collects about $18 million a year this way without ever voting on a tax

  • A quiet tax increase deserves the same scrutiny as a loud one. Ask for the full arithmetic, in public

Two meanings of “affordable”

In official programs, an “affordable” unit is not a unit with a low price. It is a unit with a covenant tying its rent to a percentage of area median income, and the tier is negotiable, deal by deal. The Arete units discussed below would be covenanted at 60% AMI, about $66,000 a year for a single person. A unit “affordable at 80% AMI” serves a single person earning about $85,000, more than many Kirkland teachers, nurses and firefighters make. (For the full tier breakdown and how Kirkland’s housing target uses it, see How Kirkland’s housing target was set.)

That is the program meaning of the word. The household meaning, whether a family can afford to live in Kirkland at all, is what this page is about. When a program promises “affordable” units, three questions decide what the public is buying: which tier, how many units, and for how long. A fourth decides what it does to everyone else’s affordability: who pays.

Who decides

  • The State Legislature authorizes the Multifamily Tax Exemption in RCW 84.14. Its 2025 transit-oriented development law (3SHB 1491) goes further: cities must approve a 20-year exemption for station-area housing that meets the law’s affordability tiers, and must cut its impact fees in half

  • The City Council adopts Kirkland’s own program (KMC 5.88) and votes on each exemption and development agreement individually. This is where the terms are negotiable

  • The Planning Commission reviews and recommends

  • The King County Assessor administers the exemptions across every taxing district on your bill. The City’s share of that bill is only about 12 cents per dollar. The rest goes to schools, the county, EMS, the hospital district and the state

  • Voters approve the levies that set how much total property tax is collected. Across King County, 19 levies passed for the 2026 tax year alone

How a tax exemption works, and who pays

Start with your own bill. The owner of a median-value Kirkland home pays about $9,368 a year in property tax, spread across a dozen taxing districts. Each district decides its total first. The county then divides that total among all taxable property. When a building near you receives an exemption, the districts still collect the same totals, so the exempted building’s share is recalculated onto everyone still paying. Your bill goes up, and nothing on the statement says why.

That is the tax shift. The second cost is quieter still: value that never joins the tax rolls is never taxed at all, so the city serves more residents on less revenue per person. Impact fees for roads, parks and schools can be waived on top.

No single exemption costs a household much, and that is exactly how the stack grows. The City’s own consultant totaled Kirkland’s program for the first time in October 2025: $626 million in assessed value off the tax rolls across 11 buildings, about $4.97 million a year in exempted taxes, and roughly $614,000 of it shifted onto Kirkland property owners. For the median homeowner that came to $15.18 in 2025, with $6.90 of it inside the City’s own levy. For scale: the exempted taxes come to nearly $5 million a year across all districts. That is almost half the entire funding package for the Peter Kirk pool, every year.

The shift also crosses city lines, in both directions. About 88 cents of every property-tax dollar a Kirkland resident pays goes to shared districts: King County, the state school levy, EMS and others. When any city in the county exempts a building, the shared share is re-divided among all county taxpayers, Kirkland households included. Seattle alone reports $8.9 billion of assessed value exempt under its program, and its own annual report concedes it has never counted what arrives from other cities’ programs.

Everything in this section is invisible. No property-tax statement has a line reading “taxes shifted from exempted buildings.” The next section is the part of the ledger you can see, and it is climbing fast.

Utility taxes: the affordability line nobody votes on

Property taxes arrive once or twice a year. Utility bills arrive every month, and they are where Kirkland’s cost of living is climbing fastest right now.

A typical Kirkland household pays $262.09 a month today for the four City utilities: water, sewer, surface water and garbage, taxes and fees included. Under the preliminary rates presented to council on August 5, 2026, that becomes $291.20 in 2027 and $314.85 in 2028, which is $633 more per year within two years. The same tables run out to 2032, where the bill reaches $423.62 a month, a 61.6 percent increase over six years.

The City’s own rate table (Table U-1) shows the planned increase for each utility:

  • Sewer — 19.5% in 2027, then 8.95% every year through 2032

  • Water — 8.5% in 2027, then 6.5% a year through 2030, easing to 5.15%

  • Surface water — 7.15% a year through 2029, then 2.75%

  • Garbage — 6.75% in 2027, then 3.95% a year

The biggest driver is regional, not local. More than half the average bill, and most of its growth, is the external share, which grows from $124.09 a month in 2026 to a projected $212.82 by 2032. King County Wastewater Treatment alone doubles, from $62.36 to $125.36 a month, and Cascade wholesale water rises from $21.85 to $35.63. The City’s own analyst projects the average residential water bill will go from about $57 a month today to about $93 by 2035.

On top of the rates sits a line most residents have never seen broken out: the City taxes its own utilities, at an effective 13.38 percent on water, 10.5 percent on sewer and on garbage, and 7.5 percent on surface water. Because the tax is a percentage of the bill, every rate increase raises the City’s general-fund revenue automatically, including the county and regional increases the City does not control. No vote on a tax rate is ever taken, and the dollars are unrestricted. The City’s rate model (Table U-2) shows the stack, year by year, on the average household’s bill:

  • 2026 — $25.65 a month ($308 a year)

  • 2027 — $28.50 ($342)

  • 2028 — $30.80 ($370)

  • 2029 — $33.32 ($400)

  • 2030 — $35.99 ($432)

  • 2031 — $38.61 ($463)

  • 2032 — $41.46 ($498)

That is about $190 more per year, per household, by 2032, collected automatically as rates rise. (Annual figures are our arithmetic, the rate study’s monthly figures times twelve. Every monthly number is the City’s own.)

And the four City utilities are only half the story. Kirkland also taxes the utilities it does not run: electricity, natural gas, cable and telephone. The City’s own financial dashboard says those revenues are “mainly affected by rate increases by Puget Sound Energy on electricity and natural gas.” Add it all up, from the City’s Q1 2026 projections: utility taxes bring the City about $18.2 million a year. Electric alone is budgeted at $6.8 million, garbage at $3.5 million, gas at $1.9 million, with water, sewer, cable, telephone and surface water making up the rest. For scale, the City’s property-tax levy is $31.9 million. For every dollar of property tax Kirkland collects, it collects nearly sixty cents more in utility taxes. Most households never see it as a tax, and it rides on bills scheduled to climb every year through 2032.

What the evidence says

  • The state’s own auditors (JLARC, 2019) reviewed the MFTE program and could not determine whether it produced a net increase in housing that would not have been built anyway

  • Meanwhile the City’s April 2025 impact-fee study showed the infrastructure side of the ledger: transportation costs up more than $30 million since 2021 and expected new trips up more than 40 percent, while per-trip fees charged to development are being reduced and some MFTE projects pay nothing

  • An individual homeowner, by contrast, can face impact fees up to $9,887 for a single-family home, and over $20,000 for a home with an ADU and DADU

In real terms: developers receive exemptions that protect their margins. The city collects less per resident. Existing residents pay the difference or watch services stretch. And the older, genuinely inexpensive rentals and starter homes are often what gets redeveloped into new units that are “affordable” only at the covenant tier.

When the base shrinks, the ballot grows

There is one more link in the chain, and it may be the most important. An exempted building still fills with residents who need roads, parks, medics and schools. The revenue to serve them was never collected. When needs outrun the tax base, governments return to voters with levies, lid lifts and bonds. King County voters approved 19 levies for the 2026 tax year. EvergreenHealth just raised its levy from 14 cents to 50, the hospital district’s first increase since it opened in 1972. The pool needs a $15 million bond. Each measure looks unrelated on the ballot. The pressure behind them is shared.

Our analysis: exemptions do not just re-divide today’s bill. They help create tomorrow’s. That is the heart of our concern with MFTE: it is a tax increase nobody votes on, and it feeds the tax increases we do vote on.

Why we look so hard at every MFTE: households are already absorbing the increases they can see. A utility bill scheduled to climb 61.6 percent in six years. A percentage tax taking about $190 more per household by 2032. The MFTE stack is a second increase that no household can see, granted to for-profit developers in exchange for “affordability” whose income tier is negotiable, whose duration is negotiable, and whose effect on housing supply the state’s own auditors could not confirm. A family’s budget does not distinguish visible increases from invisible ones. It pays the sum. So every time an exemption reaches the council, we ask for the full arithmetic in public: which tier, how many units, for how long, and the total cost per household across all taxing districts and all the bills a family actually pays.

Where things stand (August 2026)

  • Arete (August 5 council meeting): the owner of the 228-unit eco-flats building has proposed covenanting 218 units at 60% AMI in exchange for a tax exemption running 20 to 40 years, which he values at about $502,000 per year, plus a $500,000 zero-interest city loan for up to 40 years. Staff put the City-slice cost at about $1.25 per median home per year. By the owner’s own figures, 89 percent of the units already rent below the covenant line. Council took no vote and sent staff back to negotiate on interest, rent caps, a longer term, family-sized units, and market evidence of the conversion risk. The deal returns for a decision this fall. (One correction now on the record: the 2019 custom tax deal often mentioned alongside this proposal was on the Plaza building next door. Same owner, different building; its exemption runs to 2032)

  • The BERK fiscal study above is now in the public record, the first time Kirkland’s MFTE stack has been totaled for the City’s own slice

  • The Planning Commission and Council continue work on major project agreements with affordability components, including the Goodwill, Michaels and Houghton Village sites

  • The utility-rate decision is live: proposed 2027–2028 rates arrive at council September 15, with adoption set for October 20. The numbers above become binding there. Under the current proposal the new rates start December 1 for water and sewer and January 1 for everything else

What residents can do

When an exemption agreement, development agreement, or “CAR” reaches the Planning Commission or City Council, five questions cover what matters: Which AMI tier? How many units? For how long? What does it cost per household across all taxing districts? And what evidence supports the claimed risk or benefit?

On utility rates, one question does the same work before September 15: as rates climb, will the City hold its automatic utility-tax revenue harmless, or does the general fund simply grow with every bill? Written comments to CityCouncil@kirklandwa.gov become part of the public record.

Join our Facebook group to talk about these issues with neighbors. The group is private; request to join.

Sources & city records

Last updated August 27, 2026. We keep this page current. The explainer stays put, and Where things stand is updated as the record changes. Every link below goes to the primary source — a government body or the state’s own auditors — so you can check the underlying record yourself.

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