Oregon’s Constitution Has Shackled Portland’s $258 Million Housing Bond Now, State Lawmakers Say They Have the Key

TED WHEELER Talking about housing in a tent. Multnomah County Communications

Last Friday, local officials and well-wishers packed into a wedding tent in the Lloyd District to crow about Portland’s largest affordable housing development in decades.

Once built, the Block 45 development, at the corner of Northeast Hassalo and Grand, will offer 240 units affordable to people making 60 percent or less of the area’s median family income. The 12-story development will set aside 20 deeply affordable apartments for domestic violence survivors, offer two-bedroom units that can house families, and—perhaps most importantly—maintain below-market rents for up to a century.

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That’s all good news, but Mayor Ted Wheeler came to last week’s groundbreaking ceremony keen on making another point about the $73.7 million project: that it’s a steal for Portland taxpayers.

“The $5.6 million that the city has contributed has a leverage of 1,317 percent,” Wheeler told his audience. “Is there anybody here who has gotten a better rate of return on investment than that? No.”

If the comment sounds defensive, it sort of was. Wheeler, who oversees the Portland Housing Bureau (PHB), has been battered with questions about whether the city is overspending on affordable units. In response, he’s repeatedly pointed out that Portland’s contribution on housing projects is often multiplied by funding from elsewhere. (For instance, he recently compared one downtown development to “paying for a Toyota and getting a Tesla.”)

For a hefty and high-profile segment of Portland’s housing cash, though, that leverage isn’t currently possible. Now, state lawmakers are considering asking you to change that.

Among the bills being prepped ahead of the short legislative session that begins next month is a proposal that would allow local governments more leeway to spend bond money on affordable housing. If passed by lawmakers—and then approved by voters this fall—the constitutional change could have a big impact on the landmark $258.4 million housing bond Portlanders passed in 2016.

“We’re in a situation right now where the City of Portland can issue general obligation bonds to finance affordable housing, but its hands are tied behind its back,” Portland bond attorney Harvey Rogers told lawmakers last year.

At issue is Article XI, Section 9 of the Oregon Constitution, which prohibits cities from intermingling general obligation bond money with private enterprises. The provision, written in the 1800s, was meant to prevent government corruption. But for affordable housing, which frequently relies on a bevy of funding sources to get a project to pencil out, it’s a roadblock.

According to Rogers, the constitutional limitation hurts Portland’s chances for securing federal housing loans, prevents the city from tapping useful tax credits, and preempts help from private-sector partners.

That’s a central reason why supporters of the 2016 housing bond were only able to make a tepid promise to voters. For nearly $260 million, the city guaranteed just 1,300 affordable units would be built or preserved, all of which would need to be owned by the City of Portland. In a city short more than 20,000 affordable homes, it’s a drop in the bucket—and well below what officials say they could accomplish without limitations.

“Based on our typical leverage ratio, a constitutional amendment would allow us to leverage two to four times the amount of our investments with bond dollars,” PHB Interim Director Shannon Callahan says. In other words, without the constitutional hang-up, housing officials would expect your $260 million to help create between 2,600 and 5,200 affordable units.

That’s no longer possible. The city has already committed to spending a sizeable chunk of the bond money to purchase the 263-unit Ellington Apartments in Northeast Portland, and has other projects in the works. Callahan says Portlanders expect the city to continue prioritizing the money, regardless of what’s on the horizon.

If voters ultimately approve a change, though, Callahan says, “there will still be a significant amount of resources that we have not bonded yet to make the tool go farther.”

The bill being mulled in Salem would keep in place restrictions on most bond spending, creating a small exception for affordable housing. The proposal has bipartisan support, but a lot has to happen before a ballot measure goes before voters.

The fate of the bill could be dictated by the outcome of the January 23 special election. If voters shoot down Measure 101, which would leave new health care taxes in place, legislators may be too preoccupied trying to close a funding gap during the February session to deal with much else.

If the legislation does go through—and if an amendment is ultimately approved by voters—it could have reverberations well beyond Portland. Advocates say the tweak could convince cities and counties around the state to pursue housing bonds. And it would certainly have bearing on a bond Metro is expected to pursue later this year.

“We don’t want government to get in the way of the private sector, which we know needs to be a part of solving the affordable housing crisis,” said state Rep. Alissa Keny-Guyer (D-Portland), chair of the House Committee on Human Services and Housing, in a hearing last week. “I’m excited about the product that we’re bringing forward.”