Senate Bill Report SB 5211

Summary

A Senate Bill Report on SB 5211, an act relating to tax increment financing, prepared by staff of the Senate Committee on Business, Financial Services & Trade and dated as of January 20, 2021. It lists Senators Frockt, Mullet, Conway, Kuderer and Rolfes as sponsors and committee activity on 1/21/21. The background section describes traditional tax increment financing, the court's holding in Leonard v. Spokane, and TIF-lite programs. The summary of the bill describes how local governments would designate increment areas by ordinance, including a required project analysis, a maximum of three active increment areas that must be retired after 25 years, apportionment of property tax receipts, and the issuance of bonds. The report lists no appropriation, a fiscal note requested on January 15, 2021, and an effective date of ninety days after adjournment.

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                            SENATE BILL REPORT
                                  SB 5211

                                      As of January 20, 2021

Title: An act relating to tax increment financing.

Brief Description: Authorizing tax increment financing for local governments.

Sponsors: Senators Frockt, Mullet, Conway, Kuderer and Rolfes.

Brief History:
     Committee Activity: Business, Financial Services & Trade: 1/21/21.


                                     Brief Summary of Bill
           • Authorizes local governments to designate tax increment financing areas
             to leverage increased local property tax collections to fund public
             improvements.


SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES & TRADE

     Staff: Clinton McCarthy (786-7319)

     Background: Tax Increment Financing. Traditional Tax Increment Financing (TIF) taps
     increased property taxes generated by private development, and applies those taxes to pay
     bonds issued to finance the public infrastructure supporting the development. A particular
     TIF district will be located within various overlapping taxing districts, and the TIF
     mechanism captures the increased property taxes of all overlapping taxing districts.

     Traditional TIF financing is unconstitutional under Washington State law. In Leonard v.
     Spokane, the court held that a 1982 TIF statute violated the Washington State Constitution,
     which requires the entire revenue derived from the common school fund and the state tax
     for common schools to be exclusively applied to the support of the common schools. The
     1982 TIF statute permitted forming TIF districts in which incremental property taxes,
     including the state property tax, could be applied to pay for public infrastructure. The court



     This analysis was prepared by non-partisan legislative staff for the use of legislative
     members in their deliberations. This analysis is not part of the legislation nor does it
     constitute a statement of legislative intent.

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     found the diversion of state property tax to be inconsistent.

     The Legislature has since authorized TIF-lite districts capturing only increases in local
     property taxes. TIF-lite districts must also work within the constitutional and statutory
     constraints of property taxes, including Washington's statutory 101 percent limitation on
     annual increases in property taxes. One exception to this limitation is for increased property
     taxes resulting from new construction or improvements. Accordingly, taxing districts
     generally can capture only the full increase in property taxes from new construction and
     improvements, and not the full increase in property taxes resulting from appreciation in
     property values within the TIF-lite district.

     TIF-lite programs, such as the Local Infrastructure Financing Tool Program, the hospital
     benefit zone statute, and the Local Revitalization Financing Program also capture excise
     taxes in addition to the capped local property taxes. Increased state excise taxes are
     contributed in the form of a state sales tax credit. The state sales tax credit is applied
     through imposition of an increase in the local sales tax rate. The increased local sales tax is
     credited against the sales tax that would otherwise go to the state, resulting in no net
     increase in the tax rate paid by taxpayers.

     Summary of Bill: Local governments are authorized to finance public improvements using
     tax increment financing through adopting an ordinance to designate an increment area.

     Prerequisites for Establishing a Local Tax Increment Financing Area. To establish an
     increment area, a local government must complete a project analysis of any public
     improvement project to determine the viability of the project by evaluating the potential
     costs and benefits of the project. A local government may be reimbursed by private
     developers to cover the cost of the analysis. Some of the elements that the analysis should
     consider include project job creation, impacts on affordable and low-income housing, and
     estimates on the amount of tax revenue generated from the project within the proposed
     increment area.

     The local government must make a finding that the improvements in the increment area:
        • encourage private development that increases the fair market value of property within
           the area;
        • development will be consistent with the permitting jurisdictions zoning and
           development standards;
        • development will be expected to occur solely through private investment in the
           foreseeable future; and
        • the assessed value of the site could not be reasonably expected to increase without the
           investment through tax increment financing.

     The increment area cannot comprise the entire jurisdiction of the local government. A local
     government may have a maximum of three active increment areas at any given time that do
     not overlap with each other. Increment areas must be retired after 25 years.


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     A local government must also ensure that public improvements are expected to increase the
     fair market value of real property within an increment area.

     A local government can coordinate with other taxing districts and programs, and projects
     may be funded in part from revenue sources other than tax increment financing from the
     increment area.

     Local governments are required to:
        • publish notice in a legal newspaper that describes the public improvement and how it
           is planned to be financed; and
        • deliver a certified copy of the ordinance to the county treasurer, county assessor, and
           the governing body of each taxing district within the increment area.

     Apportioning Local Revenues for Local Governments with Increment Area Ordinances.
     The apportionment of revenue commences in the calendar year after the increment area
     ordinance passes. The county treasurer is directed to distribute receipts from taxes imposed
     on real property within the increment area as follows:
         • each taxing district receives the portion of its regular property taxes produced by the
           rate of tax levied;
         • a local government that created an increment area shall receive an additional portion
           of the regular property taxes levied by or for each taxing district upon the increment
           value within the increment area;
         • a local government with a increment area may agree to receive less than the full
           amount of its portion as long as any financing obligations are met;
         • the additional funds raised due to improvements in the increment area do not apply to
           property taxes levied by the state for the support of common schools; and
         • the apportionment of increases in assessed valuation in an increment area and its
           associated distribution of local government receipts must cease when tax allocation
           revenues are no longer necessary to pay the costs of the public improvement within
           the improvement area.

     Incurring Debt and Issuing Bonds. Local governments are permitted to incur general
     indebtedness, and issue general obligation bonds to finance the public improvements and
     retire debt in whole or in part from its tax revenue allocation from its TIF area. Debt from
     the TIF area may be payable from other tax revenues, the full faith and credit of local
     government, and other revenues. Local governments are permitted to require a private
     entity to provide adequate security to protect any public investment in the increment area.

     Local governments may issue revenue bonds within an increment area to fund revenue-
     generating public improvements. Revenue bonds with a maturity in excess of 30 years
     cannot be issued to support projects financed by an increment area.

     Appropriation: None.


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     Fiscal Note: Requested on January 15, 2021.

     Creates Committee/Commission/Task Force that includes Legislative members: No.

     Effective Date: Ninety days after adjournment of session in which bill is passed.




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