Multiple Agency Fiscal Note Summary — Bill Number 1371 ES HB, Freight railroad infra. (3/21/2023)

Summary

This is the Multiple Agency Fiscal Note Summary for Bill Number 1371 ES HB, titled Freight railroad infra., marked Final 3/21/2023. The Joint Legislative Audit and Review Committee note says the bill creates several new tax preferences to incentivize investments in Washington's regional and short line freight rail infrastructure. The Department of Revenue note lists total cash receipts of (493,000) for 2023-25 and operating expenditures of 1,216,800 for 2023-25. The Local Government Fiscal Note states that, according to the Dept. of Revenue, the bill decreases local revenues by an estimated $86,000 in the 10 months of impacted collections in fiscal year 2025, and by $107,000 in fiscal year 2026.

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Multiple Agency Fiscal Note Summary

Bill Number:

1371 ES HB

Title: Freight railroad infra.

Estimated Cash Receipts

Agency Name 2023-25 2025-27 2027-29
GF-State NGF-Outlook Total GF-State NGF-Outlook Total GF-State NGF-Outlook Total
Department of (493,000) (493,000) (493,000) (819,000) (819,000) (819,000) (873,000) (873,000) (873,000)
Revenue
Agency Name |! 2023-25 2025-27 2027-29
GF- State Total GF- State Total GF- State Total
Local Gov. Courts
Loc School dist-SPI
Local Gov. Other (191,070) (221,760) (237,600)
Local Gov. Total (191,070) (221,760) (237,600)
Estimated Operating Expenditures
Agency Name 2023-25 2025-27 2027-29
FTEs GF-State | NGF-Outlook Total FTEs | GF-State | NGF-Outlook Total FTEs GF-State NGF-Outlook Total
Joint Legislative A 0 0 26,700 0 0 0 13,400 0 0 0 13,400
Audit and Review
Committee
Department of 2.8 1,216,800 1,216,800 1,216,800 1.1 209,200 209,200 209,200 9 179,000 179,000 179,000
Revenue
| Totals | 29] 1,216,800] 1,216,800] 1,243,500] 1.1 | 209,200{ 209,200] 222,600 += 0.9] —_—179,000| 179,000] 192,400
Agency Name 2023-25 2025-27 2027-29
FTEs | GF-State Total FTEs | GF-State Total FTEs | GFE-State Total
Local Gov. Courts
Loc School dist-SPI
Local Gov. Other Non-zero but indeterminate cost and/or savings. Please see discussion.
Local Gov. Total | | | | |
Estimated Capital Budget Expenditures
Agency Name 2023-25 2025-27 2027-29
FTEs Bonds Total FTEs Bonds Total FTEs Bonds Total
Joint Legislative Audit 0 0 0 0 0 0 0 0 0
and Review Committee
Department of Revenue 0 0 0 0 0 0 0 0 0
Total$| 0.0 0 o] 00] 0 o] 00] 0 0

FNPID 68274

FNS029 Multi Agency rollup
Agency Name 2023-25 2025-27 2027-29
FTEs | GF-State Total FTEs | GF-State Total FTEs | GF-State Total
Local Gov. Courts
Loc School dist-SPI
Local Gov. Other Non-zero but indeterminate cost and/or savings. Please see discussion.
Local Gov. Total | | | | |
Estimated Capital Budget Breakout
Prepared by: Cheri Keller, OFM Phone: Date Published:

(360) 584-2207

Final 3/21/2023

FNPID 68274
FNS029 Multi Agency rollup
Individual State Agency Fiscal Note

Bill Number: 1371 ES HB

Title:

Freight railroad infra.

Agency: 014-Joint Legislative Audit

and Review Committee

Part I: Estimates

[| No Fiscal Impact

Estimated Cash Receipts to:

NONE

Estimated Operating Expenditures from:

FY 2024 FY 2025 2023-25 2025-27 2027-29
FTE Staff Years 0.1 0.0 0.1 0.0 0.0
Account
Performance Audits of Government 20,000 6,700 26,700 13,400 13,400
Account-State 553-1
Total $ 20,000 6,700 26,700 13,400 13,400

Estimated Capital Budget Impact:

NONE

The cash receipts and expenditure estimates on this page represent the most likely fiscal impact. Factors impacting the precision of these estimates,
and alternate ranges (if appropriate), are explained in Part II.

Check applicable boxes and follow corresponding instructions:

If fiscal impact is greater than $50,000 per fiscal year in the current biennium or in subsequent biennia, complete entire fiscal note
form Parts I-V.

If fiscal impact is less than $50,000 per fiscal year in the current biennium or in subsequent biennia, complete this page only (Part I).

Capital budget impact, complete Part IV.

Requires new rule making, complete Part V.

Legislative Contact: Kristina King Phone: 360-786-7190 Date: 03/16/2023
Agency Preparation: Zack Freeman Phone: 360-786-5179 Date: 03/20/2023
Agency Approval: Eric Thomas Phone: 360 786-5182 Date: 03/20/2023
OFM Review: Gaius Horton Phone: (360) 819-3112 Date: 03/21/2023

Form FN (Rev 1/00) 186,632.00
FNS063 Individual State Agency Fiscal Note 1

Request # 62-1
Bill # 1371 ES HB
Part II: Narrative Explanation

II. A - Brief Description Of What The Measure Does That Has Fiscal Impact

Significant provisions of the bill and any related workload or policy assumptions that have revenue or expenditure impact on the responding agency by
section number.

The bill creates several new tax preferences to incentivize investments in Washington’s regional and short line freight rail
infrastructure.

Eligibility

The bill defines eligible taxpayers as follows:

« Any Class II and Class III railroads, as classified by the Surface Transportation Board (STB), as in effect January 1,
2023.

* Any railroad owned by a port, city, or county in Washington.

* Any owner or lessee of rail siding, industrial spur, or industry track located on or adjacent to a class II or class III railroad
in Washington.

STB railroad classifications are based on the carrier’s annual operating revenues. STB’s latest classifications from 2021 are
as follows:

* Class I> $943.9M

* $943.9M > Class II > $42.4M

* Class III < $42.4M

Eligible taxpayers, therefore, must have annual operating revenues of less than $943.9 million.

Section 2 creates a new non-refundable B&O tax credit equal to:

a) 50% of the qualified short line railroad maintenance expenditures. The credit may not exceed $5,000 multiplied by the
number of miles of railroad track owned or leased in the state by the eligible taxpayer at the close of the year.

b) 100% of the new rail development expenditures. Credit for new rail expenditures may not exceed $2 million for each
new rail development project. Credits are available on a first-in-time basis. The total amount of credits claimed during any
calendar year may not exceed $15 million.

c) 100% of the qualified railroad modernization and rehabilitation expenditures.

Expenditures not used to earn a credit on one fiscal year may be carried forward for no more than five years.
New credits may not be issued after January 1, 2035.

Section 3 provides a B&O tax credit to any owner or operator of a Class I railroad that transfers materials removed from
use on the main railroad line to be installed on tracks used by an eligible taxpayer (i.e., Class II or Class III railroads). A
company that recycles railroad materials and transfers them to an eligible taxpayer may also claim this credit. Eligible
materials include but are not limited to railroad rail, ties, tie plates, joint bars, fasters, switches, and ballast. The credit is
equal to the fair market value of the donated materials used for track maintenance, expansion, or modernization.

Sections 4 & 5 create sales and use tax exemptions on materials required for railroad track maintenance sold to eligible
taxpayers.

Sections 6 and 7 extend the same credits and criteria provided in Sections 2 and 3 to eligible railroads subject to the public
utility tax (PUT).

Section 8 is the tax preference performance statement.

* The tax preferences are intended to promote economic development throughout Washington.

* The Legislature’s specific public policy objective is to encourage and expand economic development by incentivizing
investment in Washington’s railroad infrastructure.

Freight railroad infra. 014-Joint Legislative Audit and Review Committee
Form FN (Rev 1/00) 186,632.00 Request # 62-1
FNS063 Individual State Agency Fiscal Note 2 Bill # 1371 ES HB
* The Legislature intends to extend the expiration date of the tax preferences if a review finds that the freight rail system in
the state has been maintained or improved.

When conducting its review JLUARC should consider the following measures:

* Total miles capable of transporting 286,000-pound railcars.

¢ The number of miles of track rehabilitated to 90-pound rail or greater.

* The number of ties replaced.

¢ The amount of ballast replaced.

* The number of bridges returned from out of service or able to operate heavier loaded equipment.

* The number of switches installed.

* Any related safety benefits of addressing at-grade crossings.

¢ The number of rail cars from increased economic activity.

* Any improvement in federal railroad administration track classification designation up to and including class II track and
the ability to operate at greater speeds.

* The amount of steel or ties made obsolete by a class I railroad, pursuant to section 2 of this act, that are reused by a class
II or class III railroad, as defined in section 5 of this act, within Washington.

Sec. 9. Sections 4, 5, and 8 of this act take effect August 1, 2023.

Sec. 10. Sections 3 and 7 of this act take effect July 1, 2024.

Sec. 11. Sections 2 and 6 of this act take effect January 1, 2025.

II. B - Cash receipts Impact

Cash receipts impact of the legislation on the responding agency with the cash receipts provisions identified by section number and when appropriate, the
detail of the revenue sources. Description of the factual basis of the assumptions and the method by which the cash receipts impact is derived. Explanation
of how workload assumptions translate into estimates. Distinguished between one time and ongoing functions.

II. C - Expenditures

Agency expenditures necessary to implement this legislation (or savings resulting from this legislation), with the provisions of the legislation that result in
the expenditures (or savings) identified by section number. Description of the factual basis of the assumptions and the method by which the expenditure
impact is derived. Explanation of how workload assumptions translate into cost estimates. Distinguished between one time and ongoing functions.

JLARC staff would work with the Department of Revenue and the Washington State Department of Transportation
immediately after passage of the bill to ensure project contacts are established and data necessary for JLARC staff’s
future evaluation needs are identified and collected.

JLARC staff would likely review this preference in 2032, beginning work in 2031, outside of the range of this fiscal note.
Costs associated with the review are therefore not included in this fiscal note, which reflects only the costs associated with
establishing data collection and other work to prepare for the future review of the preference.

This tax preference review may require additional resources. The audit will be conducted and presented to JLARC
consistent with the processes used for other tax preference reviews. Based on all tax preference legislation that is passed,
JLARC may subsequently determine that it can absorb the costs for this proposed bill in its base budget, if the workload of
other enacted tax preference legislation does not exceed current staffing. JUARC will assess all of the tax preference
reviews mandated in the 2023 legislative session.

This audit will require an estimated 2 audit months.

JLARC Audit Months: JLUARC calculates its staff resources in "Audit Months" to estimate the time and effort to undertake
and complete its studies. An "Audit Month" reflects a JLARC analyst’s time for a month, together with related

administrative, support, and goods/services costs. JUARC’s anticipated 2023-25 costs are calculated at approximately
$22,100 per audit month.

Freight railroad infra. 014-Joint Legislative Audit and Review Committee
Form FN (Rev 1/00) 186,632.00 Request # 62-1
FNS063 Individual State Agency Fiscal Note 3 Bill # 1371 ES HB
Part III: Expenditure Detail
If. A - Operating Budget Expenditures

Account |Account Title Type FY 2024 FY 2025 2023-25 2025-27 2027-29
553-1 Performance Audits |State 20,000 6,700 26,700 13,400 13,400
of Government
Account
Total $ 20,000 6,700 26,700 13,400 13,400
III. B - Expenditures by Object Or Purpose
FY 2024 FY 2025 2023-25 2025-27 2027-29
FTE Staff Years 0.1 0.1
A-Salaries and Wages 12,900 4,300 17,200 8,600 8,600
B-Employee Benefits 4,100 1,400 5,500 2,800 2,800
C-Professional Service Contracts
E-Goods and Other Services 2,700 900 3,600 1,800 1,800
G-Travel 300 100 400 200 200
J-Capital Outlays
M-Inter Agency/Fund Transfers
N-Grants, Benefits & Client Services
P-Debt Service
S-Interagency Reimbursements
T-Intra-Agency Reimbursements
9-
Total $ 20,000 6,700 26,700 13,400 13,400
III. C - Operating FTE Detail: List FTEs by classification and corresponding annual compensation. Totals need to agree with total FTEs in
Part I and Part ITIA
Job Classification Salary FY 2024 FY 2025 2023-25 2025-27 2027-29
Research Analyst 126,694 0.1 0.1
Support staff 89,671
Total FTEs 0.1 0.1 0.0

III. D - Expenditures By Program (optional)

NONE

Part IV: Capital Budget Impact

IV. A - Capital Budget Expenditures
NONE

IV. B - Expenditures by Object Or Purpose

NONE

IV. C - Capital Budget Breakout

Acquisition and construction costs not reflected elsewhere on the fiscal note and description of potential financing methods.

NONE

IV. D - Capital FTE Detail: FTEs listed by classification and corresponding annual compensation. Totals agree with total FTEs in Part IVB.

NONE

Freight railroad infra.
Form FN (Rev 1/00) 186,632.00

FNS063 Individual State Agency Fiscal Note

014-Joint Legislative Audit and Review Committee

Request # 62-1

Bill # 1371 ES HB
Part V: New Rule Making Required

Provisions of the bill that require the agency to adopt new administrative rules or repeal/revise existing rules.

Freight railroad infra. 014-Joint Legislative Audit and Review Committee
Form FN (Rev 1/00) 186,632.00 Request # 62-1
FNS063 Individual State Agency Fiscal Note 5 Bill # 1371 ES HB
Department of Revenue Fiscal Note

BillNumber: 1371 ES HB Title: Freight railroad infra. Agency: 140-Department of Revenue
Part I: Estimates
[| No Fiscal Impact
Estimated Cash Receipts to:
Account FY 2024 FY 2025 2023-25 2025-27 2027-29
GF-STATE-State (191,000) (238,000) (429,000) (500,000) (535,000)
01 - Taxes 01 - Retail Sales Tax
GF-STATE-State (24,000) (24,000) (121,000) (131,000)
01 - Taxes 05 - Bus and Occup Tax
GF-STATE-State (40,000) (40,000) (198,000) (207,000)
01 - Taxes 35 - Public Utilities Tax
Total $ (191,000) (302,000) (493,000) (819,000) (873,000)
Estimated Expenditures from:
FY 2024 FY 2025 2023-25 2025-27 2027-29
FTE Staff Years 3.5 2.1 2.8 1.1 0.9
Account
GF-STATE-State 001-1 974,100 242,700 1,216,800 209,200 179,000
Total § 974,100 242,700 1,216,800 209,200 179,000

Estimated Capital Budget Impact:

NONE

The cash receipts and expenditure estimates on this page represent the most likely fiscal impact. Factors impacting the precision of these estimates,
and alternate ranges (if appropriate), are explained in Part II.

Check applicable boxes and follow corresponding instructions:

Capital budget impact, complete Part IV.

LX |

If fiscal impact is greater than $50,000 per fiscal year in the current biennium or in subsequent biennia, complete entire fiscal note
form Parts I-V.

If fiscal impact is less than $50,000 per fiscal year in the current biennium or in subsequent biennia, complete this page only (Part I).

Requires new rule making, complete Part V.
Legislative Contact: Kristina King Phon&60-786-7190 Date: 03/16/2023
Agency Preparation: Beth Leech Phon&60-534-1513 Date: 03/20/2023
Agency Approval: Valerie Torres Phon&60-534-1521 Date: 03/20/2023
OFM Review: Cheri Keller Phon€360) 584-2207 Date: 03/20/2023

Form FN (Rev 1/00) 186,619.00

FNS062 Department of Revenue Fiscal Note

Request # 1371-3-1
Bill # 1371 E S HB
Part II: Narrative Explanation

II. A - Brief Description Of What The Measure Does That Has Fiscal Impact

Significant provisions of the bill and any related workload or policy assumptions that have revenue or expenditure impact on the responding agency by
section number.

Note: This fiscal note reflects language in E SHB 1371, 2023 Legislative Session.

COMPARISION OF THE ENGROSSED SUBSTITUTE BILL WITH THE SUBSTITUTE BILL:
The engrossed substitute bill makes changes to the effective dates and expiration dates of most sections.

The business and occupation (B&O) tax credit and public utility (PU) tax credit to qualified short line railroads are now
effective January 1, 2025, and expire January 1, 2040.

The B&O tax credit and PU tax credit for class I railroads and recyclers now expire January 1, 2035.
The retail sales and use tax exemptions for materials required for track maintenance now expire January 1, 2035.

CURRENT LAW:
Railroads pay PU tax as public service businesses that engage in transportation in lieu of the B&O tax. Railroads also pay
retail sales and use tax to purchase materials required for track maintenance.

PROPOSAL:

BUSINESS AND OCCUPATION TAX CREDIT FOR SHORT LINE RAILROADS (section 2):
This section provides a B&O tax credit to qualified short line railroads for qualified expenditures made by an eligible
taxpayer. Expenditures not used to earn a credit in one fiscal year may be carried forward for five additional years.

Qualified expenditures may be used to generate a credit for the following amounts:

- Maintenance not to exceed $5,000 times the number of miles of railroad track owned or leased in the state. The credit
allowed for this type of expenditure is 50%.

- New rail development not to exceed $2 million for each new project per taxpayer per year. The department must disallow
any credits, or portions thereof, that would cause the total amount of credits claimed to exceed $15 million in any calendar
year. The credit allowed for this type of expenditure is 100%.

- Modernization and rehabilitation to upgrade rail, switches, tracks, and bridges. The credit allowed for this type of
expenditure is 100%.

The B&O tax credit may be transferred to any person subject to B&O tax. Unused credits could subsequently be
transferred to any person subject to B&O tax. No credit transfer applications may be submitted after January 1, 2035. No
new credits may be earned after January 1, 2035.

An eligible taxpayer is any railroad subject to B&O tax and classified by the United States surface transportation board as a
class II or class HI railroad, any railroad owned by a Port, City, or County in the state, or any owner or lessee of rail siding
located on or adjacent to a class I or class III railroad in the state.

This credit does not apply to Class I railroads or short line railroads owned by a Class I railroad or any of its subsidiaries.

This section expires January 1, 2040.

BUSINESS AND OCCUPATION TAX CREDIT FOR RAILROAD OWNERS OR OPERATORS (section 3):

Request # 1371-3-1
Form FN (Rev 1/00) 186,619.00 2 Bill # 1371 E S HB

FNS062 Department of Revenue Fiscal Note
This section provides a B&O tax credit for an owner or operator of a class I railroad or the owner of a company who
recycles railroad materials. The credit is equal to the fair market value of railroad equipment or materials:

- That are part of the rail infrastructure the class I railroad owner or operator removed from use on the main railroad line
and has installed on tracks used by class II or II railroads, or

- That the recycler transfers to an eligible taxpayer to install on tracks used by the class II or III railroads.

Materials must be given to a qualifying recipient without consideration.

The B&O tax credit may be transferred to any person subject to B&O tax. Unused credits could subsequently be
transferred to any person subject to B&O tax. No credit transfer applications may be submitted after January 1, 2035. No
new credits may be earned after January 1, 2035.

This credit does not apply to short line railroads owned by a Class I railroad or any of its subsidiaries.
This section expires January 1, 2040.

RETAIL SALES AND USE TAX EXEMPTION (sections 4 and 5):

These sections exempt the sales of materials required for track maintenance to owners and operators of class II or class II
railroads, any railroad or freight rail facility owned by a Port, City, or County in the state, or any owner or lessee of rail
siding, industrial spur, or industry track located on or adjacent to the railroad from retail sales and use tax.

Materials required for track maintenance are defined as rails, ties, fasteners, switches, ballast, subgrade, roadbed, bridges,
industrial leads, sidings, signs, safety barriers, crossing signals and gates, and track.

These sections expire January 1, 2035.

PUBLIC UTILITY TAX CREDIT FOR SHORT LINE RAILROADS (section 6):
This section provides a PU tax credit to qualified short line railroads for qualified expenditures made by an eligible taxpayer.
Expenditures not used to earn a credit in one fiscal year may be carried forward for five additional years.

Qualified expenditures may be used to generate a credit for the following amounts:

- Maintenance not to exceed $5,000 times the number of miles of railroad track owned or leased in the state. The credit
allowed for this type of expenditure is 50%.

- New rail development not to exceed $2 million for each new project per taxpayer per year. The department must disallow
any credits, or portions thereof, that would cause the total amount of credits claimed to exceed $15 million in any calendar
year. The credit allowed for this type of expenditure is 100%.

- Modernization and rehabilitation to upgrade rail, switches, tracks, and bridges. The credit allowed for this type of
expenditure is 100%.

The PU tax credit may be transferred to any person subject to PU tax. Unused credits could subsequently be transferred to
any person subject to PU tax. No credit transfer applications may be submitted after January 1, 2035. No new credits may
be earned after January 1, 2035.

An eligible taxpayer is any railroad subject to PU tax and classified by the United States surface transportation board as a

Request # 1371-3-1
Form FN (Rev 1/00) 186,619.00 3 Bill # 1371 E S HB

FNS062 Department of Revenue Fiscal Note
class II or class III railroad, any railroad owned by a Port, City, or County in the state, or any owner or lessee of rail siding
located on or adjacent to a class II or class III railroad in the state.

This credit does not apply to Class I railroads or short line railroads owned by a Class I railroad or any of its subsidiaries.
This section expires January 1, 2040.

PUBLIC UTILITY TAX CREDIT FOR RAILROAD OWNERS OR OPERATORS (section 7):

This section provides a PU tax credit for an owner or operator of a class I railroad or the owner of a company who recycles
railroad materials. The credit is equal to the fair market value of railroad equipment or materials:

- That are part of the rail infrastructure the class I railroad owner or operator removed from use on the main railroad line
and has installed on tracks used by class II or III railroads, or

- That the recycler transfers to an eligible taxpayer to be installed on tracks used by the Class II or III railroads.

Materials must be given to a qualifying recipient without consideration.

The PU tax credit may be transferred to any person subject to PU tax. Unused credits could subsequently be transferred to
any person subject to PU tax. No credit transfer applications may be submitted after January 1, 2035. No new credits may
be earned after January 1, 2035.

This credit does not apply to short line railroads owned by a Class I railroad or any of its subsidiaries.
This section expires January 1, 2040.

EFFECTIVE DATE:

The retail sales and use tax exemptions take effect August 1, 2023.

The B&O and PU tax credits for railroad owners or operators take effect July 1, 2024.
The B&O and PU tax credits for short line railroads take effect January 1, 2025.

II. B - Cash receipts Impact

Cash receipts impact of the legislation on the responding agency with the cash receipts provisions identified by section number and when appropriate,
the detail of the revenue sources. Description of the factual basis of the assumptions and the method by which the cash receipts impact is derived.
Explanation of how workload assumptions translate into estimates. Distinguished between one time and ongoing functions.

ASSUMPTIONS:

- Class II and HI railroads spend approximately 29% of revenue to maintain their infrastructure.

- Labor is 50% of the cost of maintenance, reconstruction, or replacement of railroad infrastructure.

- There are 12 Class III railroads that may qualify for the credits and exemptions in this proposal.

- The impacts from the B&O and PU tax credits for owners or operators of railroads are confidential and not included in
this estimate, as they impact fewer than three taxpayers. However, the negative revenue impact from these sections is
substantial.

- Public utility tax growth mirrors the growth rate in the Economic and Revenue Forecast Council (ERFC) November 2022
forecast.

- Business and occupation tax growth mirrors the growth rate in the ERFC November 2022 forecast.

- Sales tax growth mirrors the growth rate in the ERFC November 2022 forecast.

- The average local sales tax rate is 2.92%.

- The sales and use tax exemptions are effective August 1, 2023, and impact 10 months of collections in fiscal year 2024.

- The B&O and PU tax credits for owners or operators of railroads are effective July 1, 2024, and impact 11 months of
collections in fiscal year 2025.

- The B&O and PU tax credits for short line railroads are effective January 1, 2025, and impact five months of collections
in fiscal year 2025.

Request # 1371-3-1
Form FN (Rev 1/00) 186,619.00 4 Bill # 1371 E S HB

FNS062 Department of Revenue Fiscal Note
DATA SOURCES:

- U.S. Surface Transportation Board

- TrainWeb.com

- American Society of Civil Engineers, Infrastructure Report Card

- U.S. Department of Transportation, Federal Railroad Administration
- Department of Transportation, Washington State Rail Plan 2019-2040
- Economic and Revenue Forecast Council, November 2022 forecast

- Department of Revenue, excise tax returns

REVENUE ESTIMATES:
Not including the confidential portions of this estimate, this bill decreases state revenues by an estimated $191,000 in the 10
months of impacted collections in fiscal year 2024, and by $302,000 in fiscal year 2026.

This bill also decreases local revenues by an estimated $86,000 in the 10 months of impacted collections in fiscal year 2025,
and by $107,000 in fiscal year 2026.

TOTAL REVENUE IMPACT:

State Government (cash basis, $000):
FY 2024- ($191)
FY 2025- ($302)
FY 2026- ($403)
FY 2027- ($416)
FY 2028- ($429)
FY 2029- ($444)

Local Government, if applicable (cash basis, $000):
FY 2024- ($ 86)
FY 2025- ($107)
FY 2026- ($110)
FY 2027- ($114)
FY 2028- ($118)
FY 2029- ($ 122)

II. C - Expenditures

Agency expenditures necessary to implement this legislation (or savings resulting from this legislation), with the provisions of the legislation that result in
the expenditures (or savings) identified by section number. Description of the factual basis of the assumptions and the method by which the expenditure
impact is derived. Explanation of how workload assumptions translate into cost estimates. Distinguished between one time and ongoing functions.

ASSUMPTIONS:

- This bill affects approximately 20 taxpayers.

- The annual tax performance report is not required. The tax preference performance statement (section 9) of this bill lists
the purpose as a general purpose (82.32.808(2)(f)).

FIRST YEAR COSTS:
The department will incur total costs of $974,100 in fiscal year 2024. These costs include:

Labor Costs — Time and effort equate to 3.5 FTEs.
- Set up, program and test computer systems for multiple new credits. This includes a new credit ID and associated
return processing and system indicator codes, a new e-file worksheet, and modifications to reports and data files.
Request # 1371-3-1
Form EN (Rev 1/00) 186,619.00 5 Bill # 1371 ES HB

FNS062 Department of Revenue Fiscal Note
- Gathering requirements, implementation meetings, documentation, and testing of system changes due to new credit.

- Assist taxpayers with reporting questions and respond to inquiries via email, web message, and paper correspondence.

- Create a Special Notice and identify publications and information the department may need to create or update on the
department’s website.

Object Costs - $550,000.

- Computer system changes, including contract programming.

SECOND YEAR COSTS:
The department will incur total costs of $242,700 in fiscal year 2025. These costs include:

Labor Costs — Time and effort equate to 2.13 FTEs.
- Adopt one new administrative rule.
- Continued computer system testing, monitoring, and maintenance.
- Process returns verify credits taken and all associated work items, including issuing assessments for return errors and
underpayments.

ONGOING COSTS:
Ongoing costs for the 2025-27 biennium equal $209,200 and include similar activities described in the second-year costs. Time
and effort equate to 1.05 FTEs.

Part III: Expenditure Detail
III. A- Expenditures by Object Or Purpose

FY 2024 FY 2025 2023-25 2025-27 2027-29

FTE Staff Years 3.5 2.1 2.8 1.1 0.9
A-Salaries and Wages 259,700 158,000 417,700 135,200 115,600
B-Employee Benefits 85,800 52,000 137,800 44,700 38,200
C-Professional Service Contracts 550,000 550,000
E-Goods and Other Services 53,500 24,600 78,100 22,800 19,600
G-Travel 400 400
J-Capital Outlays 24,700 8,100 32,800 6,500 5,600

Total $ $974,100 $242,700 $1,216,800 $209,200 $179,000

Ill. B - Detail: FTEs listed by classification and corresponding annual compensation. Totals agree with total FTEs in Part I and Part IIIA.

Job Classification Salary FY 2024 FY 2025 2023-25 2025-27 2027-29
EMS BAND 4 126,619 0.0 0.0
EMS BAND 5 147,919 0.0 0.0
EXCISE TAX EX 3 61,632 0.8 0.9 0.9 0.8 0.7
IT SYS ADM-JOURNEY 92,844 0.5 0.6 0.6
MGMT ANALYST4 73,260 1.6 0.4 1.0 0.3 0.2
MGMT ANALYSTS 80,952 0.3 0.1 0.2
TAX POLICY SP 2 75,120 0.3 0.0 0.2
TAX POLICY SP 3 85,020 0.1 0.0
TAX POLICY SP 4 91,524 0.0 0.0
WMS BAND 3 107,685 0.0 0.0
Total FTEs 3.5 2.1 2.9 1.1 0.9

III. C - Expenditures By Program (optional)
NONE

Request # 1371-3-1
Form FN (Rev 1/00) 186,619.00 6 Bill # 1371 E S HB

FNS062 Department of Revenue Fiscal Note
Part IV: Capital Budget Impact
IV. A - Capital Budget Expenditures

NONE

IV. B - Expenditures by Object Or Purpose
NONE

IV. C - Capital Budget Breakout

Acquisition and construction costs not reflected elsewhere on the fiscal note and description of potential financing methods.

NONE

Part V: New Rule Making Required

Provisions of the bill that require the agency to adopt new administrative rules or repeal/revise existing rules.

Should this legislation become law, the department will use the standard process to adopt WAC 458-20-NEW, titled: "New
rule on railroad exemptions and credits." Persons affected by this rulemaking would include certain railroads.

Request # 1371-3-1
Form FN (Rev 1/00) 186,619.00 7 Bill # 1371 E S HB

FNS062 Department of Revenue Fiscal Note
LOCAL GOVERNMENT FISCAL NOTE

Department of Commerce

Bill Number: 1371 ES HB Title:

Freight railroad infra.

Part I: Jurisdiction-Location, type or status of political subdivision defines range of fiscal impacts.

Legislation Impacts:

Cities: Decreased sales tax, and use tax, and public utility tax revenue. Decreased expenditures for sales and use tax exempt cities,
and utility tax credit - eligible cities.

Counties: Decreased sales tax, and use tax, and public utility tax revenue. Decreased expenditures for sales and use tax exempt
counties, and utility tax credit - eligible counties.

Special Districts: Decreased sales tax, and use tax, and public utility tax revenue. Decreased expenditures for sales and use tax exem}
ports, and utility tax credit - eligible ports.

Specific jurisdictions only: Decreased expenditures for cities, ports, and counties that own railroads

[| Variance occurs due to:

Part II: Estimates

[| No fiscal impacts.

[| Expenditures represent one-time costs:

[| Legislation provides local option:

Key variables cannot be estimated with certainty at this ttme: Current and expected expenditure amounts (of local governments) tha’
will be eligible for tax credits and tax exemptions.

Estimated revenue impacts to:

Jurisdiction FY 2024 FY 2025 2023-25 2025-27 2027-29
City (25,357) (31,549) (56,906) (66,047) (70,765)
County (31,171) (38,782) (69,953) (81,189) (86,988)
Special District (28,612) (35,599) (64,211) (74,524) (79,847)
TOTAL$ (85,140) (105,930) (191,070) (221,760) (237,600)
GRAND TOTAL $ (650,430)
Estimated expenditure impacts to:
Non-zero but indeterminate cost and/or savings. Please see discussion.
Part III: Preparation and Approval
Fiscal Note Analyst: Tammi Alexander Phone: 360-725-5038 Date: 03/20/2023
Leg. Committee Contact: Kristina King Phone: 360-786-7190 Date: 03/16/2023
Agency Approval: Allan Johnson Phone: 360-725-5033 Date: 03/20/2023
OFM Review: _ Cheri Keller Phone: (360) 584-2207 Date: 03/20/2023
Page | of 3 Bill Number: 1371 ES HB

FNSO060 Local Government Fiscal Note
Part IV: Analysis
A. SUMMARY OF BILL
Description of the bill with an emphasis on how it impacts local government.

CHANGES FROM PREVIOUS BILL VERSION
This engrossed substitute bill makes changes to the effective dates and expiration dates of most sections.

SUMMARY OF CURRENT BILL VERSION

Section 5 and 6 adds new chapters to RCW 82.08 RCW [Retail sales tax] and RCW 82.12 [Use tax] to:

1. Create a Retail sales and use tax exemption for track maintenance to:

(a) Owners and operators of class II or class III railroad operators;

(b) Any railroad owned by a port, city, or county in the state of Washington; or

(c) Any owner or lessee of a rail siding, industrial spur, or industry track located on or adjacent to a class II or class III
railroad in the state of Washington,

2. Provide definitions for "Class II or class II railroad," and "Materials required for track maintenance"

Section 5 now expires January 1, 2035 and Section 6 now expires January 1, 2040.

Section 7 adds a new chapter to RCW 82.16 [Public Utility Tax] to create a public utility tax credit for qualified railroad
expenditures for eligible railroad owners and lessees, which may include ports, cities, and counties. This section now
expires January 1, 2040.

B. SUMMARY OF EXPENDITURE IMPACTS

Expenditure impacts of the legislation on local governments with the expenditure provisions identified by section number and when
appropriate, the detail of expenditures. Delineated between city, county and special district impacts.

CHANGES FROM PREVIOUS BILL VERSION
This substitute bill does not alter the previous analysis of expenditure impacts.

SUMMARY OF CURRENT EXPENDITURE IMPACTS

As described in section 5-6, this bill will decrease track maintenance expenditures for certain eligible ports, cities, and
counties that own or lease railroads. Information on the current or expected expenses that would be eligible for a retail
sales and use tax exemption was not available and cannot be determined.

Section 7 creates a credit against utility taxes due and is expected to decrease expenditures for certain eligible ports, cities,
and counties that own or lease railroads. Information on the current or expected expenses that would be eligible for a
utility tax credit was not available and cannot be determined.

In addition to eligible ports, cities, and counties, private businesses are expected to benefit from these tax credits and tax
exemptions as well.

C. SUMMARY OF REVENUE IMPACTS

Revenue impacts of the legislation on local governments, with the revenue provisions identified by section number, and when
appropriate, the detail of revenue sources. Delineated between city, county and special district impacts.

CHANGES FROM PREVIOUS BILL VERSION
This substitute bill alters the effective dates and expiration dates. This bill increases tax revenue loss to local governments
for fiscal years 2024 and 2025 compared to the previous bill version.

SUMMARY OF CURRENT REVENUE IMPACTS
According to the Dept. of Revenue (DOR) this bill decreases local revenues by an estimated $86,000 in the 10 months of
impacted collections in fiscal year 2025, and by $107,000 in fiscal year 2026. Please the DOR fiscal note for their
assumptions and data sources.

Page 2 of 3 Bill Number: 1371 ES HB

FNSO060 Local Government Fiscal Note
LOCAL GOVERNMENT LOSS BREAKDOWN
Counties:

FY 2024 _ -$31,171

FY 2025 = -$38,782

FY 2026 = -$39,870

FY 2027 ~—_ -$41,319

FY 2028 -$42,769

FY 2029 = -$44,219

Cities:

FY 2024 = -$25,357
FY 2026 -$32,434
FY 2027 = -$33,613
FY 2028 = -$34,793
FY 2029 = -$35,972

Special Districts:

FY 2025 = -$35,599
FY 2026 = -$36,597
FY 2027 = -$37,927
FY 2028 -$39,258
FY 2029 = -$40,589

METHODOLOGY:

The distributions in this note for cities, counties, and special districts are based on DOR data for local sales and use tax
distributions from Calendar Year 2021. Mitigation payments and distributions to hospital benefit zones are not factored into
this distribution. The result is a distribution of 36.61 percent to counties, 29.78 percent to cities, and 33.61 percent to
special districts. The one percent DOR administrative fee has also been deducted.

SOURCES:

Association of Washington Cities

Department of Revenue fiscal note, ESHB 1371 (2023)

Department of Revenue Local Tax Distributions (2021)

Local Government Fiscal Note program, Local Sales Tax model 2023

Local Government Fiscal Note program, Sales and Use Tax Distribution model 2023
Washington State Association of Counties

Page 3 of 3 Bill Number: 1371 ES HB
FNSO060 Local Government Fiscal Note


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