Report - 2021 03 18 A28680 D232491 Bill Report 1189 S E Sbr Bfst Ta 21

Summary

A Senate Bill Report on ESHB 1189, an act relating to tax increment financing, as of March 11, 2021, prepared for the Senate Committee on Business, Financial Services & Trade. It records that the bill passed the House on 3/3/21 by 64-33 and was heard in committee on 3/11/21. The background describes Washington property tax, the 1 percent revenue growth limit and the constitutional $10 limit, and explains tax increment financing. The summary of the proposed striking amendment would let a local government designate up to three increment areas, each retired after no more than 25 years, with project analyses reviewed by the Office of the State Treasurer and general obligation bonds to finance public improvements. The report closes with a staff summary of pro, con and other public testimony and the list of persons testifying.

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                            SENATE BILL REPORT
                                 ESHB 1189

                                      As of March 11, 2021

Title: An act relating to tax increment financing.

Brief Description: Concerning tax increment financing.

Sponsors: House Committee on Finance (originally sponsored by Representatives Duerr,
    Boehnke, Bateman, Sullivan, Fitzgibbon, Walen, Ramel, Springer, Wicks, Slatter, Pollet,
    Callan and Harris-Talley).

Brief History: Passed House: 3/3/21, 64-33.
     Committee Activity: Business, Financial Services & Trade: 3/11/21.


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


SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES & TRADE

     Staff: Clinton McCarthy (786-7319)

     Background: Property Tax. All real and personal property in the state is subject to
     property tax each year based on its value, unless specific exemption is provided by law.
     Property taxes are levied by the state and many local jurisdictions, including counties, cities,
     and local school, fire, park, and library districts. Property taxes are collected by the county
     and distributed to the levying jurisdiction. The county assessor determines the value of real
     and personal property for tax purposes, and calculates and certifies levy rates for most
     taxing districts. The Washington Constitution requires taxes be uniform within a class of
     property. The annual growth of all regular property tax levy revenue is limited as follows:
         • jurisdictions with a population of less than 10,000, revenue growth is limited to 1
           percent; and



     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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         • jurisdictions with a population of 10,000 or more, revenue growth is limited to the
           lesser of inflation or 1 percent plus the value of new construction.

     The constitution also provides for a levy rate limit of $10 per $1,000 of assessed value,
     referred to as the constitutional $10 limit.

     Tax Increment Financing. Tax increment financing (TIF) is a method of allocating a
     portion of property taxes to finance public improvements in designated areas. Typically,
     under a TIF program, a local government issues bonds to finance public improvements. To
     repay its bondholders, the local government is permitted to draw upon regular property tax
     revenue from increases in assessed value inside a special district surrounding the site of the
     public improvements.

     Summary of Bill: The bill as referred to committee not considered.

     Summary of Bill (Proposed Striking Amendment): Creation of a Tax Increment
     Financing Area. A local government may designate TIF areas and use resulting tax
     allocation revenues to pay for public improvement costs. To do so, the local government
     must adopt an ordinance designating a specific increment area within its boundaries. Public
     improvements to be financed with the use of TIF must be specified. The increment area
     cannot include the area of the entire jurisdiction of the local government. A local
     government can create no more than three active increment areas at any given time and they
     may not physically overlap. An increment area must be retired after no more than 25 years.

     Prior to establishing an increment area, the local government must consider a project
     analysis that includes objectives for the increment area, identification of properties within
     the financing area, assessments of likely job creation and private development expected
     from the project, potential impacts and mitigation measures needed, and so on. If a project
     analysis indicates an increment area will impact at least 20 percent of assessed value in a
     fire district, mitigation strategies must be negotiated. Prior to adoption of an ordinance
     authorizing an increment area, the project analysis must be submitted to the Office of the
     State Treasurer for review. The local government must hold at least two public briefings for
     the community regarding the tax increment project.

     A local government designating a TIF area may issue general obligation bonds to finance
     the public improvements within an increment area. Any increase in assessed value within
     an area is included in the add-ons for purposes of the 1 percent revenue growth limit
     calculation.

     Apportionment of Taxes. Beginning in the calendar year following the passage of the
     ordinance, the county treasurer must distribute receipts from regular taxes on real property
     located in the increment area. Property taxes to be apportioned under TIF include property
     tax levies subject to the $10 and $5.90 limits. Taxes levied by port districts or public utility
     districts specifically for making payment on bonds, and taxes levied by the state for


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     supporting common schools are excluded from TIF apportionment.

     Each taxing district shall receive that portion of its regular property taxes produced by the
     rate of tax levied by the taxing district on the tax allocation base value for that TIF project
     in the taxing district.

     The local government that created the increment area shall receive an additional portion of
     the regular property taxes levied by each taxing district upon the increment value within the
     increment area. The local government that created the increment area may agree to receive
     less than the full amount of this portion as long as bond debt service, reserve, and other
     bond covenant requirements are satisfied. The portion of the tax receipts distributed to the
     local government may only be expended to finance public improvement costs financed by
     TIF.

     The apportionment of increases in assessed valuation in an increment area cease when the
     taxing district certifies to the county assessor that allocation revenues are no longer needed
     to pay the public improvement costs. Any excess tax allocation revenues must be returned
     to the county treasurer and distributed to the taxing districts that imposed regular property
     taxes.

     Appropriation: None.

     Fiscal Note: Available.

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

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

     Staff Summary of Public Testimony on Proposed Striking Amendment: PRO: We are
     one of only a handful of states that are not using this tool. This is a great tool for local
     governments in efforts to address the economic recovery. This tool is accountable, and lets
     local governments have a customizable tool to assist with economic development. There is
     additional public engagement requirements and the OST has to review any proposed use of
     the tool. This has been a long term goal of cities. This is an opportunity for local
     governments to partner with developers to promote jobs. This is a job creator. We need
     community options to recover from the pandemic. Authorizing a local TIF tool would be a
     great step forward for the state. Ports are struggling to pay for spiraling costs of
     infrastructure. This will help attract new business to our state. The state is at a
     disadvantage without this tool to attract and retain economic development.

     CON: Tax Increment Financing can be a promising tool. The bill as currently written
     captures revenue derived from growth. Section 1(9) of the tax allocation value is
     problematic so that it risks underlying tax funds that would be otherwise committed. This
     bill could direct natural appreciation to go to the TIF. There is work between the ports and


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     the members now. This issue was flagged by the Port of Tacoma bond council. There is no
     limitation on the size of the TIF.

     OTHER: We think an agreement is close and we will continue to work with proponents to
     try to find an agreement.

     Persons Testifying: PRO: Representative Davina Duerr, Prime Sponsor; Richard May,
     City of Blaine; Tommy Gantz, Association of Washington Business; Nicholas Federici,
     City of Spokane; Suzanne Dale Estey, Washington Economic Development Association;
     Candice Bock, Association of Washington Cities; Greg Hanon, NAIOP; Bill Ellis, City of
     Kent; Briahna Murray, Cities of Tacoma, Bellevue, Pasco, and Spokane Valley; John
     Caulfield, City of Lakewood; Rob Karlinsey, City of Kenmore; Randy Hayden, Port of
     Pasco; Diahann Howard, Port of Benton; Mike Bomar, Port of Vancouver.

     CON: Sean Eagan, Port of Tacoma; Eric Ffitch, Port of Seattle; Bruce Beckett, Port of
     Moses Lake.

     OTHER: Victoria Lincoln, Washington Public Ports Association.

     Persons Signed In To Testify But Not Testifying: No one.




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