Senate Bill Report SB 5539 — Technical Corrections to Local Tax Increment Financing (January 31, 2023)

Summary

Senate Bill Report on SB 5539, as of January 30, 2023, with the brief description "Making technical corrections to the local tax increment financing program." It lists committee activity of Business, Financial Services, Gaming & Trade on 1/31/23, and the sponsors include Senators Cleveland, Mullet, Boehnke, King, Liias, Frame and Wellman, by request of State Treasurer. The bill defines the term real property as it relates to local tax increment financing areas and clarifies that an increment area takes effect on June 1st following the adoption of the ordinance designating it. It also provides local taxing districts the authority to increase property tax levy capacity in certain situations. The report states that the bill contains an emergency clause and takes effect immediately.

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Full text

                             SENATE BILL REPORT
                                   SB 5539

                                      As of January 30, 2023

Title: An act relating to making technical corrections to the local tax increment financing
     program under chapter 39.114 RCW by applying the definition of real property to ensure
     private investments made on state and local government-owned land are included in the
     increment value, ensuring that the relocation and construction of a government-owned
     facility is included as an eligible project, ensuring that acquisition costs include appurtenant
     rights, providing clarification to definitions of increment value and tax allocation base value
     for consistency with current law, clarifying notice requirements for the creation of a tax
     increment area, and creating consistency with current law for add-on levies codified in
     RCW 84.55.010.

Brief Description: Making technical corrections to the local tax increment financing program.

Sponsors: Senators Cleveland, Wilson, L., Mullet, Boehnke, King, Liias, Frame and Wellman;
    by request of State Treasurer.

Brief History:
     Committee Activity: Business, Financial Services, Gaming & Trade: 1/31/23.


                                      Brief Summary of Bill
           • Defines the term real property as it relates to local tax increment
             financing areas.
           • Clarifies that an increment area takes effect on June 1st following the
             adoption of the ordinance designating the increment area.
           • Provides local taxing districts the authority to increase their property tax
             levy capacity for increases in assessed value in certain situations.


SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES, GAMING & TRADE

     Staff: Clinton McCarthy (786-7319)




     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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     Background: 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.

     Local Tax Increment Financing. In 2021, the Legislature authorized local governments to
     use local tax increment financing (LTIF). A local government may designate up to two
     LTIF 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 LTIF 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. There is an assessed value limit within an increment area of
     $200 million. If a jurisdiction sponsors two increment areas, the two areas may not equal
     more than $200 million or more than 20 percent of the sponsoring jurisdiction's total
     assessed value, whichever is less.

     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, among others. 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 LTIF 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 shall 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 the purpose of making payment on bonds, and taxes levied by the
     state for support of the 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


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     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.

     Summary of Bill: Real property is defined to include privately owned or used
     improvements located on publicly owned land subject to property taxation or the leasehold
     excise tax. An increment area takes effect on June 1st following the adoption of the
     ordinance designating the increment area.

     Public Notice Requirement. The period of time between between when a published notice
     in a legal newspaper prior, and when a local government can authorize the creation of an
     increment area is at least two weeks. A certified copy of an adopted ordinance must be
     sent to each taxing district within the increment area within ten days of when the ordinance
     was adopted.

     Requirements are established for an adjustment to the tax allocation base value for taxing
     districts having an increment area in effect as of the effective date of Section 1 of this bill, if
     the increment area contains privately owned improvements on government-owned land, and
     those improvements are subject to property taxation.

     Local Tax Increment Financing and Limitations on Levies. Local taxing districts are
     provided the authority to increase their property tax levy capacity for increases in assessed
     value within the LTIF area in certain situations. Specifically, a local taxing district may
     increase their levy capacity when:
         • restoring a regular levy after not levied since 1985;
         • levying after the consolidation of taxing districts; and
         • levying after annexing another property into the taxing district.

     Appropriation: None.

     Fiscal Note: Not requested.



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

     Effective Date: The bill contains an emergency clause and takes effect immediately.




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