Taxes & MFTEs

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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:

• Tax exemptions for new apartments (MFTE) move part of each building’s tax bill onto other taxpayers, through every district on your bill, not just the City’s

• Kirkland households also carry part of the exemptions granted in Redmond, Seattle and other cities, through the school, county and regional levies we share. Nobody publishes the regional total

• Utility taxes ride on bills set to climb about 62% by 2032. The City collects about $18 million a year this way without a new vote

• We ask the City to choose its housing tools in the open, show the full price of each, and stop stacking costs households can’t see

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 depends on the program. Under Kirkland’s MFTE, the code sets it. In zones where affordable units are already required, an 8-year exemption means at least 10% of units at 50% of area median income. In zones with no requirement, it’s 10% at 80%. A 12-year exemption requires 20% of units, half at 50% and half at 80% (25% in the South Kirkland transit zone). In development agreements and deals like Arete, the tier is negotiated case by case. The Arete units discussed below are 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 the project’s impact fees in half

• The City Council adopts Kirkland’s own program (KMC 5.88) and votes on each exemption contract and development agreement individually. Development agreements are where terms get negotiated

• The Planning and Building Director approves each MFTE application, and the Council approves each contract (KMC 5.88.060). The last four contracts all passed on the consent calendar without being pulled for discussion

• 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 much of what is collected. The County Assessor publishes a list of the active voter-approved measures each year

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. Under MFTE, a new apartment building pays no tax on its residential value for 8 or 12 years. It still pays on its land and any shops. In exchange, 10% to 25% of its units rent at set income levels, and in every Kirkland case but one those units stay affordable for the life of the building.

What happens to the tax the building doesn’t pay depends on the district. Local school levies and other voter-approved levies collect a fixed dollar amount, so the exempt building’s share is recalculated onto everyone else. The regular levies, including the City’s, the County’s and the state school levy, work differently. Part of the exempt value is shifted the same way, and part usually never reaches the tax rolls while the exemption runs, so it’s simply not collected. When the exemption ends, the building pays full tax and the shift stops.

The City asked its consultant, BERK, to add up Kirkland’s program, and the final report came out in November 2025. In 2025, 11 buildings had $626 million of value off the tax rolls, about 1.3% of the city’s total. The exemptions were worth about $4.97 million that year across all districts. About $3.03 million of that was shifted onto other taxpayers, and about $761,000 of it landed on Kirkland property owners. For the median home, that’s $25.72 a year. Only $6.90 is the City’s own levy. The biggest piece, $16.70, comes through the Lake Washington School District levy.

The City’s headline is that the shift is less than 1% of a household’s property taxes, and on its own numbers that’s right. The City also corrected itself upward: its draft put the median-home figure at $15, and the final raised it to $26 after review of how school and voter levies work. That correction is the best evidence that the full count matters. County records put the exempt value in these buildings at about $642 million for 2026. Four more approved buildings aren’t in that count: Adara at Totem Lake, whose exemption began this year, and The Brynn, Modera Bridle Trails and Parkshore, whose exemptions are still to come.

The shift crosses city lines

That $25.72 counts only Kirkland’s own buildings, by design. Most of a Kirkland tax bill goes to districts we share with other cities, and in those shared districts the shift travels in both directions.

The clearest case is Redmond. Kirkland and Redmond share most of the Lake Washington School District, and the school levy is where most of the shift lands. Kirkland pays about 44% of that levy, so it carries about 44 cents of every dollar that Redmond’s exemptions shift onto it. Redmond’s program is the larger one: BERK’s own appendix counts 485 affordable units in Redmond’s MFTE projects against Kirkland’s 296, and state reports since 2019 show Redmond certifying more than twice the value Kirkland has by the same first-year measure. In August 2026 Redmond also voted to let projects extend their exemptions another 12 years, in exchange for more units at 50% of area median income (Ordinance 3266). Redmond’s exemptions show up on Kirkland school tax bills, and Kirkland’s show up on Redmond’s. About $2.3 million a year of Kirkland’s own shift lands on taxpayers outside Kirkland.

Seattle is the other large source. Its 2025 MFTE report shows $9.6 billion of value exempt for 2026 and puts the shift at $177 a year on a median Seattle home. Part of that reaches every Kirkland household through the County, Sound Transit, the Port and the state school levy. Seattle’s report says plainly that its estimates “do not account for additional tax shift impacts resulting from other King County cities’ MFTE programs.” Kirkland’s study leaves them out too.

Nobody has published the regional total, for Kirkland or any other city. We’re building it from the County’s own records and will add it here when it’s solid.

When one set of units earns two incentives

The City describes MFTE as “one of two parts of the incentive” for building affordable units. The other part is extra height and density under the zoning code. As of April 2026, MFTE had been used 17 times, and 14 of those were projects where zoning already required the affordable units. The City allows the same units to count for both. Its reason, in BERK’s words, is that the policy “has contributed to additional units at the 50% AMI level,” deeper than the 80% tier MFTE asks for where zoning requires no affordable units. Affordable units can also qualify for an 80% impact-fee exemption on request.

That can be a fair trade, but the terms matter. Bellevue allows the same overlap and requires the double-counted units to be set 15 points deeper on the income scale, for example 65% of area median income instead of 80%. Kirkland’s required units already sit at 50%, which is deeper than Bellevue’s. But that 50% is the zoning code’s price for the extra height and density, owed whether or not the building gets a tax exemption. The exemption itself buys no deeper tier.

The clearest example is at the South Kirkland Park and Ride. The code for that zone counts affordable units anywhere in the zone. The 58 units in Velocity were built by the nonprofit Imagine Housing with public money, and the building is fully exempt from property tax on the County’s rolls. Those 58 are 58 of the 61 units that qualified the market-rate Kirkland Crossing building next door for a 12-year exemption, now on about $71 million of value. That was the design of a public partnership with Metro, approved by the Council, and it’s the plainest case of one set of units carrying two exemptions.

Kirkland doesn’t run the test that would settle whether a given exemption is needed. The Legislature’s auditors (JLARC, 2019) found it “inconclusive” whether MFTE produces development that wouldn’t otherwise occur. They recommended that the Legislature require cities to weigh a project’s profitability with and without the exemption. The Legislature never did. Nothing stops Kirkland from doing it on its own. Since December 2025, each new MFTE request has come with a worksheet estimating its tax effect, which is real progress. The worksheet reports the City’s share only, and it doesn’t ask whether the exemption is needed.

What the money buys

The City’s study argues MFTE is a bargain: $26 a year for the median home, against $44 to $64 for a housing levy that built the same units, or $48 for one that paid the same rent savings. The comparison is narrower than it looks. The $26 is the part of the shift that lands on a Kirkland home. It leaves out the $305,000 the City went without in 2025 and the roughly $2.3 million that landed on taxpayers outside Kirkland. A levy’s cost is the whole cost, paid entirely inside Kirkland.

Seattle’s annual report puts the whole program on one line, comparing owners’ tax savings with tenants’ rent savings. Done the same way for Kirkland, the exemptions were worth about $4.97 million to building owners across all districts in 2025, and they delivered about $1.95 million in rent savings to tenants, by the study’s own estimate. Some of the owners’ savings is shifted, some is revenue never collected, and part of that comes back later, so the gap between the two numbers is what the incentive costs the public beyond the rent help it buys.

The study’s finding that rent savings ($9,292 per affordable unit) exceed the taxes never collected ($9,251, per its exhibit; the text prints $9,226) holds by about $41 a unit a year. The market rents behind it were self-reported by the buildings to ARCH and “may or may not include utility expenses,” and studios already show a negative rent benefit. A small change in the assumed rents would reverse it.

To be fair to the program, the City does get money back. When exemptions end, the buildings pay full tax. BERK projects the City will recover about 69% of what it went without by 2033, and says the total “could surpass foregone taxes depending on the property appreciation rate and levy rate.” That projection assumes no new MFTE projects, and new ones keep coming.

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 rates proposed to council on September 15, 2026, that becomes $284.12 in 2027 and $307.83 in 2028, about $550 more a year within two years. The same tables run out to 2032, where the bill reaches $423.69 a month, up about 62% in six years. In August, staff had floated an 11.1% jump for 2027. The September version spreads the increases more evenly, but the 2032 bill lands within seven cents of the August figure.

The City’s own rate table (Table U-1) now shows one steady increase for each utility, every year from 2027 through 2032:

• Sewer — 8.85% a year

• Water — 6.75% a year

• Surface water — 5.9% a year

• Garbage — 5.3% a year

The lower sewer number has a cost. To get there, staff cut the money the sewer fund sets aside each year to replace its own pipes, from 165% of depreciation to 50% this year, and the fund does not get back to the full target until 2032. Every utility’s operating reserve is also allowed to run below target for several years, recovering by 2032.

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 $124.43 a month in 2026 to a projected $215.94 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 $36.20. 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 — $27.81 ($334)

• 2028 — $30.13 ($362)

• 2029 — $32.67 ($392)

• 2030 — $35.44 ($425)

• 2031 — $38.33 ($460)

• 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 2026 budget counts $31.9 million of property tax for the General Fund. For every dollar of that, the City 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 Legislature’s auditors (JLARC, 2019) called it “inconclusive” whether MFTE produces development that wouldn’t otherwise occur, and recommended the Legislature require a profitability test. It never did

• Meanwhile the City’s April 2025 impact-fee study showed the infrastructure side: the transportation cost basis up about $30 million since 2021 and expected new trips up about 41%, while the fee per trip went down. Affordable units can claim an 80% impact-fee exemption

• An individual homeowner can owe up to $9,887 in transportation impact fees alone by 2027, and roughly $20,000 for a house with an ADU and a DADU once the phase-in is complete

Where MFTE meets the levies we vote on

The City’s own study draws the link between MFTE and levies, by offering a housing levy as the comparison.

Voter-approved levies collect a fixed dollar amount, so every exempt building makes each one cost everyone else a little more. That’s why most of Kirkland’s own MFTE shift, $16.70 of the $25.72 on a median home, arrives through the school district levy, and why Redmond’s exemptions reach Kirkland school bills too. A Kirkland-only levy for housing, parks or a pool would carry a similar markup: by County figures, Kirkland’s exempt MFTE value is about 1.2% of the city’s tax base.

The City’s regular levy is capped at 1% growth a year plus new construction. While a building is exempt, its new construction usually doesn’t count toward that growth. BERK estimates the City went without about $305,000 in 2025, about 0.7% of its $45 million levy, and $3.43 million in all through 2032.

New buildings bring in other revenue: sales tax on construction, utility taxes and fees, and impact fees. The City’s study didn’t ask whether that revenue, plus the property tax, covers the services new residents use. Nobody has netted it out.

Our view: if Kirkland wants to buy affordable housing with public money, it should use tools voters can see, price and approve. MFTE was adopted here in 2004, and the City didn’t total its cost until 2025. Today it sits alongside density bonuses, impact-fee exemptions, nonprofit exemptions, voter levies and rising utility taxes. We’d rather the City pick one tool than layer MFTE and a levy on the same households. Whatever it chooses, it should choose openly, show the full price, and stop stacking costs that households can’t see.

One honest note on that choice. For Kirkland households alone, a levy would cost more than Kirkland’s own MFTE, $48 against $26 on the City’s numbers, because a levy isn’t shared with neighbors. MFTE looks cheaper to each city partly because about three quarters of Kirkland’s shift lands outside Kirkland, and other cities’ shifts land here. That’s why it needs a regional answer, with Redmond, the school district and ARCH at the table.

Households are already absorbing the increases they can see: a utility bill scheduled to climb about 62% in six years, and a percentage tax taking about $190 more per household by 2032. The MFTE shift is one more increase that no household sees and no voter approves. Affordable housing matters, and some of these trades may be good ones. We want the full price shown before each one is made.

Where things stand (October 2026)

• Updated October 2026. We rewrote the MFTE sections using the City’s final MFTE study from November 2025, which raised its estimate for a median Kirkland home from $15 to $26 a year. We also corrected how we described MFTE’s income levels, which the City code sets, and added how exemptions in other cities reach Kirkland tax bills

• The Arete deal was approved 7–0 on October 6 (Resolution R-5747). The City lends the owner $500,000 interest-free for 20 years, and the term can be renewed twice, to 60 years. For as long as the loan runs, 219 units are held at 60% AMI and five larger units at 80% AMI, among them the two two-bedroom apartments council pushed for in August. Rent increases on every unit, market-rate included, are capped at the state formula of 7% plus inflation or 10%, whichever is less. The owner says the loan is what qualifies the building for a state property-tax exemption for nonprofit-owned affordable housing. That is a different program from the City’s MFTE. By the owner’s own count, only 26 of the 228 units rent above the 60% line today. The final agreement is still to come, with no date set. (One correction stays on the record: the 2019 custom tax deal often mentioned alongside this proposal was on the Plaza building next door. Same owner, different building, and its exemption runs through 2031)

• BERK’s final MFTE study (November 18, 2025) is in the public record. Since December 2025, each new MFTE request has come with a worksheet estimating its tax effect. It reports the City’s share only, not the school district, county or regional districts, and not what other cities’ exemptions add

• 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 vote is October 20. Council saw the proposed rates, the ones shown above, on September 15, and final rates come back for adoption. If adopted, water and sewer rates take effect December 1 and surface water and garbage on January 1. Two questions council raised on September 15 are still open: whether any regional savings would go to ratepayers or to rebuilding reserves, and whether the sewer pipe-replacement fund should be drawn down to keep rates lower now

• The capital side of the same bill is moving too. At council’s first look at the 2027–2032 capital plan on September 1, two water projects came in higher than budgeted: the South Reservoir replacement rose from $38.1 million to $44.7 million at 30% design, and the Highlands water fix grew from a $3.3 million budget to about $8.1 million. On September 15 council chose that option 5–0, restoring higher water pressure to the upper Highlands and replacing a main installed in 1942, with $6.96 million of it new money in the 2027–2032 capital plan. The capital plan has its public hearing November 4 and is adopted December 8

• The City Manager’s proposed 2027–2028 budget comes out October 22. Public hearings follow on November 4 and 17, and the budget, the capital plan and the 2027 property-tax levy are adopted by December 8

What residents can do

When an MFTE contract or development agreement reaches the Council, five asks cover it:

• Show the cost across every district on the bill, not just the City’s levy

• Show what the exemption buys: which tier, how many units, for how long, and the rent savings against real nearby rents

• Show whether the units would exist without it, using the profitability test the Legislature’s auditors recommended

• Where the same units earn both a density bonus and an exemption, ask for a deeper income tier in return, as Bellevue does

• Publish one yearly report of every housing exemption in Kirkland, MFTE and nonprofit, and work with Redmond, the school district and ARCH on a shared approach

On utility rates, one question does the same work before the October 20 vote: as rates climb, will the City hold its automatic utility-tax revenue harmless, or does the general fund simply grow with every bill? Comment reaches council best before the packet is written, around October 15. Written comments to CityCouncil@kirklandwa.gov become part of the public record.

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