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AN ACT Relating to neighborhood reinvestment; amending RCW 82.62.010, 82.62.040, 82.60.020, 82.60.050, 82.61.010, 82.61.040, 82.61.070, 30.60.030, 32.40.030, 43.160.060, 43.165.010, and 43.168.020; adding new sections to chapter 82.04 RCW; adding new sections to chapter 82.08 RCW; adding new sections to chapter 82.12 RCW; adding a new section to chapter 84.36 RCW; adding new sections to chapter 30.60 RCW; adding new sections to chapter 32.40 RCW; adding new sections to chapter 33.04 RCW; adding new sections to chapter 43.84 RCW; adding new sections to chapter 43.155 RCW; adding a new section to chapter 43.31 RCW; adding a new section to chapter 43.63A RCW; adding a new section to chapter 50.08 RCW; adding a new chapter to Title 43 RCW; creating new sections; and making an appropriation.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. (1) The legislature finds that:

(a) Neighborhoods are a powerful indicator of the diversity and health of the state;

(b) There are geographic areas within communities that are characterized by a lack of employment opportunities and high unemployment, by an average income level that is below the median income level for the surrounding community, by a lack of affordable housing, by deteriorating infrastructure, and by a lack of facilities for community services, job training, and education;

(c) Strategies to encourage reinvestment in these neighborhoods by assisting local businesses to become stronger and neighborhood residents to gain economic power involve a variety of activities;

(d) Reinvestment in these neighborhoods cannot be accomplished with only governmental resources and requires a comprehensive approach that integrates various incentives, initiatives, and programs to meet the economic, physical, and social needs of the neighborhood;

(e) Successful neighborhood reinvestment depends on a local government's ability to coordinate public resources in a cohesive strategy designed to leverage long-term private investment;

(f) Neighborhood reinvestment can strengthen the overall community tax base through increased taxes realized from the establishment of new business and physical property improvements;

(g) Local governments, in cooperation with neighborhood residents, can provide leadership as well as planning and coordination of resources and necessary services to address reinvestment in neighborhoods; and

(h) It is in the public interest to adopt a targeted approach to neighborhood reinvestment and enlist the resources of the public and private sectors, and neighborhood groups to revitalize neighborhoods.

(2) The legislature declares that the purposes of the neighborhood reinvestment act are to:

(a) Encourage neighborhood reinvestment through strong partnerships and cooperation between all levels of government, community-based organizations, neighborhood residents, and the private sector;

(b) Involve and educate the private sector and stimulate private reinvestment through the judicious use of public resources;

(d) Include neighborhood individuals and organizations in the policy-making process.

PART I -- GENERAL PROVISIONS AND POLICIES

NEW SECTION. Sec. 101. (1) It is the goal of the state of Washington to create an environment that fosters economic reinvestment and empowerment of neighborhood residents through public and private sectors, and neighborhood efforts. The legislature declares that attainment of that goal is a state priority.

(2) The objectives of the neighborhood reinvestment act are to attain the state's goal of economic reinvestment and empowerment of neighborhood residents by working with the public and private sectors, and neighborhood residents to:

(a) Develop local comprehensive neighborhood reinvestment strategies that reflect the diverse elements of the neighborhood;

(b) Expand homeownership and rental housing opportunities;

(d) Link housing and supportive services;

(e) Revitalize the physical infrastructure;

(f) Develop new private investment in the neighborhood; and

(g) Stimulate neighborhood business development and retention.

NEW SECTION. Sec. 102. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Affordable housing" means residential housing that is rented or owned by a person or household whose monthly housing costs, including utilities other than telephone, do not exceed thirty percent of the household's monthly income.

(2) "Business firm" means any incorporated or unincorporated business entity authorized to do business in the state of Washington and subject to the state's business and occupation taxes levied in chapter 82.04 RCW.

(3) "Community service" means any type of counseling and advice, emergency assistance, or medical care furnished to individuals or groups in a designated neighborhood reinvestment area.

(4) "Crime prevention" means any activity that aids in the reduction of crime in a designated neighborhood reinvestment area.

(5) "Designated neighborhood reinvestment area" means a geographic area within the boundaries of a local government that meets the requirements of section 104 of this act and is so designated by the director of the department of community development.

(6) "Education" means any type of scholastic instruction or scholarship assistance to any person who resides in a designated neighborhood reinvestment area that enable that person to prepare for better employment opportunities.

(7) "Housing assistance" means any activity that aids in the acquisition, preservation, rehabilitation, or construction of affordable housing within a designated neighborhood reinvestment area.

(8) "Job training" means any type of instruction to any person who resides in a designated neighborhood reinvestment area that enable that person to acquire vocational skills to become employable or seek a higher grade of employment.

(9) "Local government" means a city, town, or county.

(10) "Neighborhood assistance" means furnishing financial assistance, labor, material, or technical assistance to aid in the provision of community services, crime prevention, education, job training, and housing assistance activities in a designated neighborhood reinvestment area.

(11) "Nonprofit organization" means any public or private nonprofit organization that: (a) Is organized under federal, state, or local laws; (b) has no part of its net earnings inuring to the benefit of any member, founder, contributor, or individual; and (c) has among its purposes significant activities related to neighborhood assistance activities in designated neighborhood reinvestment areas. The term also includes public housing authorities created under chapter 35.82 RCW and public corporations created under chapter 35.21 RCW that are located in designated neighborhood reinvestment areas.

NEW SECTION. Sec. 103. (1) Any local government may apply to the director of the department of community development for designation of an area within the local government as a designated neighborhood reinvestment area.

(2) The application shall be in the form and manner and contain such information as the director of the department of community development may, by rule, determine, provided that the application for designation shall:

(a) Contain information sufficient for the director of the department of community development to determine if the criteria established in section 104 of this act have been met.

(b) Be submitted on behalf of the local government by its chief elected official, or, if none, by the governing body of the local government.

(c) Contain a five-year neighborhood reinvestment plan that describes the proposed designated neighborhood reinvestment area's community development needs and present a strategy for meeting those needs. The plan shall address the following categories: Housing needs; public infrastructure needs, such as transportation, water, sanitation, energy, and drainage/flood control; other public facilities needs, such as neighborhood facilities or facilities for provision of health, education, recreation, public safety, or other services; community economic development needs, such as commercial/industrial revitalization, job creation and retention considering the unemployment and underemployment of area residents, accessibility to financial resources by area residents and businesses, investment within the area, or other related components of community economic development; and social service needs.

The local government is required to provide a description of its strategy for meeting the needs identified in this subsection (2)(c). As part of the strategy, the local government is required to identify the needs for which specific plans are currently in place and the source of funds expected to be used. For the balance of the area's needs, the local government must identify the source of funds expected to become available during the next two-year period and actions the local government will take to acquire those funds.

(d) Certify that neighborhood residents were given the opportunity to participate in the development of the five-year neighborhood reinvestment strategy required under (c) of this subsection.

(3) No local government shall submit more than two neighborhoods to the director of the department of community development for possible designation as a designated neighborhood reinvestment area under this section.

(4)(a) Within ninety days after January 1, 1994, the director of the department of community development may designate up to six designated neighborhood reinvestment areas from among the applications eligible for designation as a designated neighborhood reinvestment area under this section. The director of the department of community development shall make determinations of designated neighborhood reinvestment areas on the basis of the following factors:

(i) The strength and quality of the local government commitments to meet the needs identified in the five-year neighborhood reinvestment plan required under this section.

(ii) The level of private commitments by private entities of additional resources and contribution to the designated neighborhood reinvestment area.

(iii) The potential for reinvestment in the area as a result of designation as a designated neighborhood reinvestment area.

(iv) Other factors the director of the department of community development deems necessary.

(b) The determination of the director of the department of community development as to the areas designated as neighborhood reinvestment areas shall be final.

NEW SECTION. Sec. 104. (1) The director of the department of community development may not designate any area as a designated neighborhood reinvestment area unless that area meets the following requirements:

(a) The area must be designated by the legislative authority of the local government as an area to receive federal, state, and local assistance designed to increase economic, physical, or social activity in the area;

(b) The area must have at least fifty-one percent of the households in the area with incomes at or below eighty percent of the county's median income, adjusted for household size;

(c) The average unemployment rate for the area, for the most recent twelve-month period for which data is available must be at least one hundred twenty percent of the average unemployment rate of the county; and

(d) A five-year neighborhood reinvestment plan for the area that meets the requirements of section 103(2)(c) of this act and as further defined by the director of the department of community development must be adopted.

(2) The director of the department of community development may establish, by rule, such other requirements as the director may reasonably determine necessary and appropriate to assure that the purposes of this section are satisfied.

(3) In determining if an area meets the requirements of this section, the director of the department of community development may consider data provided by the United State bureau of the census from the most recent census or any other reliable data that the director determines to be acceptable for the purposes for which the data is used.

PART II -- BUSINESS AND HOUSING TAX INCENTIVES

Subpart A - Business and Occupation Tax Credits for Contributions

NEW SECTION. Sec. 201. Unless the context clearly requires otherwise, the definitions in this section apply throughout sections 202 through 206 of this act.

(1) "Affordable housing" has the same meaning as in section 102 of this act.

(2) "Business firm" has the same meaning as in section 102 of this act.

(3) "Community service" has the same meaning as in section 102 of this act.

(4) "Crime prevention" has the same meaning as in section 102 of this act.

(5) "Designed neighborhood reinvestment area" has the same meaning as in section 102 of this act.

(6) "Education" has the same meaning as in section 102 of this act.

(7) "Housing assistance" has the same meaning as in section 102 of this act.

(8) "Job training" has the same meaning as in section 102 of this act.

(9) "Neighborhood assistance" has the same meaning as in section 102 of this act.

(10) "Nonprofit organization" has the same meaning as in section 102 of this act.

(11) "Recipient" means the person or business firm receiving tax credits under this chapter.

NEW SECTION. Sec. 202. The department shall establish a program to provide tax credits to business firms making contributions to nonprofit organizations that are undertaking neighborhood assistance activities in designated neighborhood reinvestment areas. The tax credit may be used as a credit against any of the taxes imposed on the business firm under this chapter.

NEW SECTION. Sec. 203. (1) Application for tax credit under this chapter must be made before the actual contribution to the neighborhood assistance activity is made. The application shall be made to the department of community development in a form and manner prescribed by the department of revenue and department of community development.

(2) The department of community development shall transmit a copy of the completed application for tax credits to the department of revenue, with its recommendations, within ten working days after receipt thereof. Within thirty days after receipt of the completed application from the department of community development, the department of revenue shall determine the amount of tax credits to be allocated to the business firm. The department of revenue shall notify the department of community development of its decision within ten working days.

(3) The department of revenue, in consultation with the department of community development, shall adopt rules specifying the administrative procedures applicable to applicants for tax credits, the form and manner in which the applications shall be filed, and the information to be contained therein. The rule shall apply to administrative procedure before the department of revenue and the department of community development.

NEW SECTION. Sec. 204. In order to qualify for the tax credits in section 202 of this act, the neighborhood assistance activity must meet the following requirements:

(1) The neighborhood assistance activity must be located in a designated neighborhood reinvestment area;

(2) The business firm's contribution must be made to a nonprofit organization that is undertaking neighborhood assistance activities that are consistent with the area's five-year neighborhood reinvestment strategy under section 103 of this act.

NEW SECTION. Sec. 205. (1) No tax credit under this chapter for neighborhood assistance activities may be issued after December 31, 2001.

(2) The department shall grant a credit against the tax due under this chapter of an amount equal to fifty percent of the approved amount contributed by the business firm for eligible neighborhood assistance activities in designated neighborhood reinvestment areas during the taxable year.

(3) Any tax credit not used during the taxable year in which the contribution was made may be carried forward for the five immediately succeeding taxable years until the full credit has been used.

(4) The department shall keep a running total of all tax credits granted under this chapter during each fiscal biennium. The department shall not allow any credits that would cause the total tabulation for a biennium to exceed five million dollars. If all or part of an application for credit is disallowed under this subsection, the disallowed portion shall be carried over for approval the next biennium.

(5) No tax credit shall be granted to any bank, bank and trust company, trust company, national bank, savings bank, savings association, or savings and loan association for activities that are a part of its normal course of business.

(6) No recipient is eligible for tax credits in excess of two hundred thousand dollars during the taxable year and no tax credit shall be granted to any business firm for any amount contributed of less than two hundred fifty dollars.

NEW SECTION. Sec. 206. Applications and any other information received by the department under sections 202 through 205 of this act shall not be confidential and shall be subject to disclosure.

Subpart B - Tax Incentives for the Preservation of Affordable Housing

NEW SECTION. Sec. 207. A new section is added to chapter 82.08 RCW to read as follows:

(1) The tax levied by RCW 82.08.020 shall not apply to the retail sale of building materials used in the remodeling, rehabilitation, or new construction of affordable housing or to the labor used to incorporate such building materials into real estate. As used in this section, "affordable housing" is as defined in section 102 of this act.

(2) In order to qualify for the exemption of retail sales tax on materials or labor under this section, the affordable housing must meet the following requirements:

(a) The affordable housing must be located in a designated neighborhood reinvestment area under section 103 of this act;

(b) The affordable housing development must be owned by an organization eligible to receive assistance through the Washington housing trust fund created in chapter 43.185 RCW;

(c) The affordable housing development must contain two or more residential rental dwelling units. Rental units used on a transient basis shall not be considered under this section; and

(d) At least fifty percent of the dwelling units must be set aside for occupancy by households with lower incomes for a period of at least twenty-five years.

(3) The department of revenue, in consultation with the department of community development, shall adopt rules specifying the administrative procedures applicable to applicants for exemption from retail sales tax on materials or labor, the form, manner, and time in which applications shall be filed, the information to be contained therein, and criteria for the approval or denial of requests for the exemption from retail sales tax on materials or labor under this chapter. The rules shall apply to both the department of revenue and the department of community development.

(4) The department of revenue shall grant an exemption from retail sales tax on materials or labor for affordable housing that is approved by the department of community development. The department of revenue shall keep a running total of exemptions granted under this section and section 208 of this act during each fiscal biennium. The department of revenue shall not allow any exemption that would cause the total tabulation for a biennium to exceed two million dollars.

(5) This section shall expire January 1, 2002.

NEW SECTION. Sec. 208. A new section is added to chapter 82.12 RCW to read as follows:

(1) The provisions of this chapter shall not apply in respect to the use of building materials used in the remodeling, rehabilitation, or new construction of affordable housing or to the labor used to incorporate such building materials into real estate. As used in this section, "affordable housing" is as defined in section 102 of this act.

(2) In order to qualify for the exemption granted by this section, the affordable housing must meet the following requirements:

(a) The affordable housing must be located in a designated neighborhood reinvestment area under section 103 of this act;

(b) The affordable housing development must be owned by an organization eligible to receive assistance through the Washington housing trust fund created in chapter 43.185 RCW;

(c) The affordable housing development must contain two or more residential rental dwelling units. Rental units used on a transient basis shall not be considered under this section; and

(d) At least fifty percent of the dwelling units must be set aside for occupancy by households with lower incomes for a period of at least twenty-five years.

(3) The department of revenue, in consultation with the department of community development, shall adopt rules specifying the administrative procedures applicable to applicants for the tax exemption under this section, the form, manner, and time in which applications shall be filed, the information to be contained therein, and criteria for the approval or denial of requests for the tax exemption under this chapter. The rules shall apply to both the department of revenue and the department of community development.

(4) The department of revenue shall grant a tax exemption under this section for affordable housing that is approved by the department of community development.

(5) This section shall expire January 1, 2002.

NEW SECTION. Sec. 209. A new section is added to chapter 84.36 RCW to read as follows:

(1) Any physical improvements to affordable housing upon real property shall be exempt from taxation for the three assessment years subsequent to the completion of the improvements. As used in this section, "affordable housing" has the same meaning as in section 102 of this act. In order to qualify for the property tax exemption, the property must meet the following requirements:

(a) The affordable housing must be owned by an organization eligible to receive assistance through the Washington housing trust fund under chapter 43.185 RCW;

(b) The affordable housing must contain two or more residential dwelling units;

(c) The value of the improvements to the affordable housing must exceed twenty percent of the current assessed value of the original structure;

(d) At least fifty percent of the dwelling units must be set aside for occupancy by households with lower incomes; and

(e) The rent paid by lower-income households in the dwelling units cannot exceed thirty percent of the household's income.

(2) Application for the exemption granted by this section must be made prior to the improvements being made. The application shall be made on forms prescribed by the department of revenue and furnished to the taxpayer by the county assessor. This exemption may not be claimed more than once in a five-year period.

(3) The department of revenue, in consultation with the department of community development, shall adopt such rules as are necessary and convenient to properly administer the provisions of this section.

(4) The department of revenue shall grant a property tax exemption under this section for affordable housing developments that are approved by the department of community development. The department of revenue shall keep a running total of exemptions granted under this section during each fiscal biennium.

(5) Applications and any other information received by the county assessor under this section shall be confidential. However, the department of community development and the department of revenue may conduct such audits of the administration of this section, and the claims for exemptions filed under this section, as they consider necessary.

(6) Any applicant knowingly signing a false application for an exemption under this section shall have the exemption revoked under the provisions of RCW 84.36.845.

(7) This section shall expire January 1, 2002.

Subpart C - Tax Incentives for Business Development and Retention

Sec. 210. RCW 82.62.010 and 1988 c 42 s 17 are each amended to read as follows:

Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Applicant" means a person applying for a tax credit under this chapter.

(2) "Department" means the department of revenue.

(3) "Eligible area" means: (a) A county in which the average level of unemployment for the three years before the year in which an application is filed under this chapter exceeds the average state unemployment for those years by twenty percent; ((or)) (b) a metropolitan statistical area, as defined by the office of federal statistical policy and standards, United States department of commerce, in which the average level of unemployment for the calendar year immediately preceding the year in which an application is filed under this chapter exceeds the average state unemployment for such calendar year by twenty percent((~~. Applications under this subsection (3)(b) shall be filed by April 30, 1989~~)); or (c) a designated neighborhood reinvestment area approved under section 103 of this act.

(4)(a) "Eligible business project" means manufacturing or research and development activities which are conducted by an applicant in an eligible area at a specific facility: PROVIDED, That the applicant's average full-time qualified employment positions at the specific facility will be at least fifteen percent greater in the year for which the credit is being sought than the applicant's average full-time qualified employment positions at the same facility in the immediately preceding year.

(b) "Eligible business project" does not include any portion of a business project undertaken by a light and power business as defined in RCW 82.16.010(5) or that portion of a business project creating qualified full-time employment positions outside an eligible area or those recipients of a sales tax deferral under chapter 82.61 RCW.

(5) "Manufacturing" means all activities of a commercial or industrial nature wherein labor or skill is applied, by hand or machinery, to materials so that as a result thereof a new, different, or useful substance or article of tangible personal property is produced for sale or commercial or industrial use and shall include the production or fabrication of specially made or custom made articles. "Manufacturing" also includes computer programming, the production of computer software, and other computer-related services, and the activities performed by research and development laboratories and commercial testing laboratories.

(6) "Person" has the meaning given in RCW 82.04.030.

(7) "Qualified employment position" means a permanent full-time employee employed in the eligible business project during the entire tax year.

(8) "Tax year" means the calendar year in which taxes are due.

(9) "Recipient" means a person receiving tax credits under this chapter.

(10) "Research and development" means the development, refinement, testing, marketing, and commercialization of a product, service, or process before commercial sales have begun. As used in this subsection, "commercial sales" excludes sales of prototypes or sales for market testing if the total gross receipts from such sales of the product, service, or process do not exceed one million dollars.

Sec. 211. RCW 82.62.040 and 1988 c 41 s 4 are each amended to read as follows:

RCW 82.62.020 and 82.62.030 shall expire ((~~July 1, 1994~~)) January 1, 2002.

Sec. 212. RCW 82.60.020 and 1988 c 42 s 16 are each amended to read as follows:

Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Applicant" means a person applying for a tax deferral under this chapter.

(2) "Department" means the department of revenue.

(4)(a) "Eligible investment project" means that portion of an investment project which:

(i) Is directly utilized to create at least one new full-time qualified employment position for each three hundred thousand dollars of investment on which a deferral is requested; and

(ii) Either initiates a new operation, or expands or diversifies a current operation by expanding or renovating an existing building with costs in excess of twenty-five percent of the true and fair value of the plant complex prior to improvement; or

(iii) Acquires machinery and equipment to be used for either manufacturing or research and development if the machinery and equipment is housed in a new leased structure: PROVIDED, That the lessor/owner of the structure is not eligible for a deferral unless the underlying ownership of the buildings, machinery, and equipment vests exclusively in the same person.

(b) "Eligible investment project" does not include any portion of an investment project undertaken by a light and power business as defined in RCW 82.16.010(5) or investment projects which have already received deferrals under this chapter.

(5) "Investment project" means an investment in qualified buildings and qualified machinery and equipment, including labor and services rendered in the planning, installation, and construction of the project.

(6) "Manufacturing" means all activities of a commercial or industrial nature wherein labor or skill is applied, by hand or machinery, to materials so that as a result thereof a new, different, or useful substance or article of tangible personal property is produced for sale or commercial or industrial use and shall include the production or fabrication of specially made or custom made articles. "Manufacturing" also includes computer programming, the production of computer software, and other computer-related services, and the activities performed by research and development laboratories and commercial testing laboratories.

(7) "Person" has the meaning given in RCW 82.04.030.

(8) "Qualified buildings" means new structures used for manufacturing and research and development activities, including plant offices and warehouses or other facilities for the storage of raw material or finished goods if such facilities are an essential or an integral part of a factory, mill, plant, or laboratory used for manufacturing or research and development. If a building is used partly for manufacturing or research and development and partly for other purposes, the applicable tax deferral shall be determined by apportionment of the costs of construction under rules adopted by the department.

(9) "Qualified employment position" means a permanent full-time employee employed in the eligible investment project during the entire tax year.

(10) "Qualified machinery and equipment" means all new industrial and research fixtures, equipment, and support facilities that are an integral and necessary part of a manufacturing or research and development operation. "Qualified machinery and equipment" includes: Computers; software; data processing equipment; laboratory equipment; manufacturing components such as belts, pulleys, shafts, and moving parts; molds, tools, and dies; operating structures; and all equipment used to control or operate the machinery.

(11) "Recipient" means a person receiving a tax deferral under this chapter.

(12) "Research and development" means the development, refinement, testing, marketing, and commercialization of a product, service, or process before commercial sales have begun. As used in this subsection, "commercial sales" excludes sales of prototypes or sales for market testing if the total gross receipts from such sales of the product, service, or process do not exceed one million dollars.

Sec. 213. RCW 82.60.050 and 1988 c 41 s 5 are each amended to read as follows:

RCW 82.60.030 and 82.60.040 shall expire ((~~July 1, 1994~~)) January 1, 2002.

Sec. 214. RCW 82.61.010 and 1988 c 41 s 1 are each amended to read as follows:

Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Applicant" means a person applying for a tax deferral under this chapter.

(2) "Person" has the meaning given in RCW 82.04.030.

(3) "Department" means the department of revenue.

(4) "Eligible investment project" means:

(a) Construction of new buildings and the acquisition of new related machinery and equipment when the buildings, machinery, and equipment are to be used for either manufacturing or research and development activities, which construction is commenced prior to December 31, ((~~1994~~)) 2001; or

(b) Acquisition prior to December 31, ((~~1994~~)) 2001, of new machinery and equipment to be used for either manufacturing or research and development if the machinery and equipment is housed in a new leased structure: PROVIDED, That the lessor/owner of the structure is not eligible for a deferral unless the underlying ownership of the buildings, machinery, and equipment vests exclusively in the same person; or

(c) Acquisition of all new or used machinery, equipment, or other personal property for use in the production or casting of aluminum at an aluminum smelter or at facilities related to an aluminum smelter, if the plant was in operation prior to 1975 and has ceased operations or is in imminent danger of ceasing operations for economic reasons, as determined by the department, and if the person applying for a deferral (i) has consulted with any collective bargaining unit that represented employees of the plant pursuant to a collective bargaining agreement that was in effect either immediately prior to the time the plant ceased operations or during the period when the plant was in imminent danger of ceasing operations, on the proposed operation of the plant and on the terms and conditions of employment for wage and salaried employees and (ii) has obtained a written concurrence from the bargaining unit on the decision to apply for a deferral under this chapter; or

(d) Modernization projects involving construction, acquisition, or upgrading of equipment or machinery, including services and labor, which are commenced after May 19, 1987, and are intended to increase the operating efficiency of existing plants which are either aluminum smelters or aluminum rolling mills or of facilities related to such plants, if the plant was in operation prior to 1975, and if the person applying for a deferral (i) has consulted with any collective bargaining unit that represents employees of the plant on the proposed operation of the plant and the terms and conditions of employment for wage and salaried employees and (ii) has obtained a written concurrence from the bargaining unit on the decision to apply for a deferral under this chapter.

(6) "Research and development" means the development, refinement, testing, marketing, and commercialization of a product, service, or process before commercial sales have begun.

(7) "Buildings" means only those new structures used for either manufacturing or research and development activities, including plant offices and warehouses or other facilities for the storage of raw materials or finished goods if such facilities are an essential or an integral part of a factory, mill, plant, or laboratory used for manufacturing or research and development purposes. If a building is used partly for manufacturing or research and development and partly for other purposes, the applicable tax deferral shall be determined by apportionment of the costs of construction under rules adopted by the department.

(8) "Machinery and equipment" means all industrial and research fixtures, equipment, and support facilities that are an integral and necessary part of a manufacturing or research and development operation. "Qualified machinery and equipment" includes computers; software; data processing equipment; laboratory equipment; manufacturing components such as belts, pulleys, shafts, and moving parts; molds, tools, and dies; operating structures; and all equipment used to control or operate the machinery. For purposes of this chapter, new machinery and equipment means either new to the taxing jurisdiction of the state or new to the certificate holder. Used machinery and equipment may be treated as new equipment and machinery if the certificate holder either brings the machinery and equipment into Washington or makes a retail purchase of the machinery and equipment in Washington or elsewhere.

(9) "Qualified employment position" means a permanent full-time employee employed in the eligible investment project during the entire tax year.

(10) "Recipient" means a person receiving a tax deferral under this chapter.

(11) "Certificate holder" means an applicant to whom a tax deferral certificate has been issued.

(12) "Operationally complete" means constructed or improved to the point of being functionally useable for the intended purpose.

(13) "Initiation of construction" means that date upon which on-site construction commences.

Sec. 215. RCW 82.61.040 and 1988 c 41 s 2 are each amended to read as follows:

RCW 82.61.020 and 82.61.030 shall expire ((~~July 1, 1994~~)) January 1, 2002.

Sec. 216. RCW 82.61.070 and 1988 c 41 s 3 are each amended to read as follows:

The department and the department of trade and economic development shall jointly report to the legislature about the effects of this chapter on new manufacturing and research and development activities in this state. The report shall contain information concerning the number of deferral certificates granted, the amount of sales tax deferred, the number of jobs created and other information useful in measuring such effects. Reports shall be submitted by January 1, 1986, and by January 1 of each year through ((~~1995~~)) 2003.

NEW SECTION. Sec. 217. A new section is added to chapter 82.08 RCW to read as follows:

(1) The tax levied by RCW 82.08.020 shall not apply to the retail sale of building materials used in the remodeling or expansion of a commercial or industrial structure or to the labor used to incorporate such building materials into real estate.

(2) In order to qualify for the exemption of retail sales tax on materials or labor under this section, the commercial or industrial structure must be located in a designated neighborhood reinvestment area under section 103 of this act.

(3) The department of revenue, in consultation with the department of community development, shall adopt rules specifying the administrative procedures applicable to applicants for exemption from retail sales tax on materials or labor, the form, manner, and time in which applications shall be filed, the information to be contained therein, and criteria for the approval or denial of requests for the exemption from retail sales tax on materials or labor under this chapter. The rules shall apply to both the department of revenue and the department of community development.

(4) The department of revenue shall grant an exemption from retail sales tax on materials or labor for commercial or industrial structures that are approved by the department of community development. The department of revenue shall keep a running total of exemptions granted under this section and section 218 of this act during each fiscal biennium. The department of revenue shall not allow any exemption that would cause the total tabulation for a biennium to exceed one million dollars.

(5) This section shall expire January 1, 2002.

NEW SECTION. Sec. 218. A new section is added to chapter 82.12 RCW to read as follows:

(1) The provisions of this chapter shall not apply in respect to the use of building materials used in the remodeling or expansion of a commercial or industrial structure or to the labor used to incorporate such building materials into real estate.

(2) In order to qualify for the exemption granted by this section, the commercial or industrial structure must be located in a designated neighborhood reinvestment area under section 103 of this act.

(3) The department of revenue, in consultation with the department of community development, shall adopt rules specifying the administrative procedures applicable to applicants for the tax exemption under this section, the form, manner, and time in which applications shall be filed, the information to be contained therein, and criteria for the approval or denial of requests for the tax exemption under this chapter. The rules shall apply to both the department of revenue and the department of community development.

(4) The department of revenue shall grant a tax exemption under this section for affordable housing that is approved by the department of community development.

(5) This section shall expire January 1, 2002.

PART III -- COMMUNITY REINVESTMENT AND PRIVATE INVESTMENT

Subpart A - Deposit of Surplus State Funds

NEW SECTION. Sec. 301. (1) The supervisor of banking shall annually prepare and submit to the state treasurer a list of banks that have satisfied their continuing and affirmative obligations to help meet the credit needs of the applicant's entire community, including low and moderate-income neighborhoods. Only banks in such list shall be eligible to receive deposits of state funds under the provisions of chapter 43.86A RCW.

(2) The supervisor of banking shall also prepare and submit annually to the state treasurer a list, based on information received from the appropriate federal agency, that indicates those federal savings and loan associations and national banking associations that have been determined by the office of thrift supervision, the federal deposit insurance corporation, the federal reserve bank, or the office of the comptroller of the currency to have complied with the requirements of the federal community reinvestment act (12 U.S.C. Sec. 2901 et seq.), and any regulations promulgated in accordance with that act. Only those banks so listed shall be eligible to receive deposits of state funds under the provisions of chapter 43.86A RCW.

NEW SECTION. Sec. 302. The supervisor of banking shall compile community reinvestment evaluations required under RCW 30.60.010 and the federal community reinvestment act (12 U.S.C. Sec. 2901 et seq.). The supervisor shall summarize the results of the evaluations and make this information available to the public.

Sec. 303. RCW 30.60.030 and 1985 c 329 s 7 are each amended to read as follows:

(1) The supervisor of banking shall adopt all rules necessary to implement sections 2 through 6 ((~~of this act~~)), chapter 329, Laws of 1985, by January 1, 1986.

(2) The supervisor of banking shall adopt all rules necessary to implement sections 301 and 302 of this act by January 1, 1994.

NEW SECTION. Sec. 304. (1) The supervisor of banking shall annually prepare and submit to the state treasurer a list of savings banks that have satisfied their continuing and affirmative obligations to help meet the credit needs of the applicant's entire community, including low and moderate-income neighborhoods. Only savings banks in such list shall be eligible to receive deposits of state funds under the provisions of chapter 43.86A RCW.

(2) The supervisor of banking shall also prepare and submit annually to the state treasurer a list, based on information received from the appropriate federal agency, that indicates those federal savings and loan associations and national banking associations that have been determined by the office of thrift supervision, the federal deposit insurance corporation, the federal reserve bank, or the office of the comptroller of the currency to have complied with the requirements of the federal community reinvestment act (12 U.S.C. Sec. 2901 et seq.), and any regulations promulgated in accordance with that act. Only those savings banks so listed shall be eligible to receive deposits of state funds under the provisions of chapter 43.86A RCW.

NEW SECTION. Sec. 305. The supervisor of banking shall compile community reinvestment evaluations required under RCW 32.40.010 and the federal community reinvestment act (12 U.S.C. Sec. 2901 et seq.). The supervisor shall summarize the results of the evaluations and make this information available to the public.

Sec. 306. RCW 32.40.030 and 1985 c 329 s 10 are each amended to read as follows:

(1) The supervisor of banking shall adopt all rules necessary to implement RCW 32.40.010 and 32.40.020 by January 1, 1986.

(2) The supervisor of banking shall adopt all rules necessary to implement sections 304 and 305 of this act by January 1, 1994.

NEW SECTION. Sec. 307. (1) The supervisor of savings and loans shall annually prepare and submit to the state treasurer a list of savings and loan associations that have satisfied their continuing and affirmative obligations to help meet the credit needs of the applicant's entire community, including low and moderate-income neighborhoods. Only savings and loan associations in such list shall be eligible to receive deposits of state funds under the provisions of chapter 43.86A RCW.

(2) The supervisor of savings and loans shall also prepare and submit annually to the state treasurer a list, based on information received from the appropriate federal agency, that indicates those federal savings and loan associations and national banking associations that have been determined by the office of thrift supervision, the federal deposit insurance corporation, the federal reserve bank, or the office of the comptroller of the currency to have complied with the requirements of the federal community reinvestment act (12 U.S.C. Sec. 2901 et seq.), and any regulations promulgated in accordance with that act. Only those savings and loan associations so listed shall be eligible to receive deposits of state funds under the provisions of chapter 43.86A RCW.

NEW SECTION. Sec. 308. The supervisor of banking shall compile community reinvestment evaluations required under the federal community reinvestment act (12 U.S.C. Sec. 2901 et seq.). The supervisor shall summarize the results of the evaluations and make this information available to the public.

NEW SECTION. Sec. 309. The supervisor of savings and loans shall adopt all rules necessary to implement sections 307 and 308 of this act by January 1, 1994.

Subpart B - Linked Deposit Program

NEW SECTION. Sec. 310. (1) The legislature finds that:

(a) There are parts of communities throughout the state that are experiencing economic stagnation or decline;

(b) The unemployment and underemployment in these areas threaten the safety, health, and welfare of residents of these areas, decreasing the value of private investment and jeopardizing the sources of public revenue; and

(c) The revitalization of these areas requires the development of new business ventures and the stimulation of private investment.

(2) The legislature declares that it is the intent of the linked deposit program to provide capital to promote community economic development and job creation in designated neighborhood reinvestment areas by authorizing the state treasurer to operate a program which links state deposits to business loans by financial institutions.

NEW SECTION. Sec. 311. (1) The state treasurer shall establish a linked deposit program for investments in certificates of deposit in Washington financial institutions. As a condition of participating in the program, financial institutions must make qualifying loans as provided in section 312 of this act. Each certificate of deposit purchased by the state treasurer shall be equal to the amount of the qualifying loan made by the financial institution. The state treasurer is authorized to set interest rates on certificates and on qualifying loans consistent with the intent of sections 310 through 313 of this act and sound financial practices.

(2) Qualifying loans under the linked deposit program are those which:

(a) Are made in designated neighborhood reinvestment areas as defined in section 102 of this act;

(b) Are made to a small business with a majority of employees in the state; and

(3) The state treasurer may reject any specific loan.

(4) In setting interest rates on certificates and loans, the state treasurer shall vary the rates so that preference in lending will be given to businesses that are engaged in manufacturing, export, or providing services for sale outside the state or that have innovative products or production processes. The treasurer may also vary the length of the terms of deposit.

NEW SECTION. Sec. 312. The state and those acting as its agents are not liable in any manner for payment of the principal or interest on qualifying loans under the linked deposit program. Any delay in payments or default on the part of the borrower does not in any manner affect the deposit agreement between the financial institution and the state treasurer.

NEW SECTION. Sec. 313. The state treasurer may use up to fifty million dollars per year of state funds for the linked deposit program.

PART IV -- TARGETING OF STATE RESOURCES

Subpart A - Public Works Trust Fund

NEW SECTION. Sec. 401. (1) For the period beginning July 1, 1994, and ending June 30, 2001, in those areas designated by the department of community development as neighborhood reinvestment areas under section 103 of this act, the public works board may award low-interest or interest-free loans to local governments for construction of new public works facilities that stimulate community economic development.

(2) For the purpose of sections 401 through 403 of this act, "local governments" means a city, town, or county.

(3) For the purpose of sections 401 through 403 of this act, "public facilities" means bridge, road and street, domestic water, sanitary sewer, and storm sewer systems.

(4) The loans may have a deferred payment of up to five years but shall be repaid within twenty years. The board may require other terms and conditions and may charge such rates of interest on its loans as it deems appropriate to carry out the purpose of this section. Repayments shall be made into the public works assistance account.

(5) The board may make loans irrespective of the annual loan cycle and reporting required in RCW 43.155.070.

(6) This section shall expire June 30, 2001.

NEW SECTION. Sec. 402. (1) As authorized in section 401 of this act, the board shall establish criteria for awarding loans to local governments including, but not limited to, the following:

(a) The local government must be imposing the tax authorized by chapter 82.46 RCW at a rate of at least one-quarter of one percent;

(b) The local government must have in place a capital improvement plan meeting the standards established by the board and an economic development plan meeting standards established by the department of community development;

(c) The proposed project must provide an opportunity to create or retain jobs within the designated neighborhood reinvestment area. Priority may be given to those projects that provide employment opportunities for residents of the neighborhood reinvestment area;

(d) The local government must provide reasonable assurances of its ability to repay the debt; and

(e) The local government must meet any additional guidelines and criteria established by the board for awarding loan funds.

(2) Existing debt or other financial obligations of the local government shall not be refinanced under sections 401 through 403 of this act.

(3) The board shall award loans only to those projects that meet the criteria and will fulfill the purpose of sections 401 through 403 of this act. Any funds not obligated at the close of the biennium shall be returned to the public works assistance account.

(4) This section shall expire June 30, 2001.

NEW SECTION. Sec. 403. (1) The board shall provide to the office of financial management and the appropriate legislative committees an annual report, beginning January 15, 1995, on the loans awarded in neighborhood reinvestment areas.

(2) This section shall expire June 30, 2001.

NEW SECTION. Sec. 404. For the biennium ending June 30, 1995, there is hereby appropriated from the public works assistance account created in RCW 43.155.050 to the public works board four million dollars to be utilized by the board for the purposes of sections 401 through 403 of this act.

Subpart B - Community Economic Development Assistance

Sec. 405. RCW 43.160.060 and 1990 1st ex.s. c 17 s 73 are each amended to read as follows:

The board is authorized to make direct loans to political subdivisions of the state for the purposes of assisting the political subdivisions in financing the cost of public facilities, including development of land and improvements for public facilities, as well as the acquisition, construction, rehabilitation, alteration, expansion, or improvement of the facilities. A grant may also be authorized for purposes designated in this chapter, but only when, and to the extent that, a loan is not reasonably possible, given the limited resources of the political subdivision.

Application for funds shall be made in the form and manner as the board may prescribe. In making grants or loans the board shall conform to the following requirements:

(1) The board shall not make a grant or loan:

(a) For a project the primary purpose of which is to facilitate or promote a retail shopping development or expansion.

(b) For any project that evidence exists would result in a development or expansion that would displace existing jobs in any other community in the state.

(2) The board shall only make grants or loans:

(a) For those projects which would result in specific private developments or expansions (i) in manufacturing, production, food processing, assembly, warehousing, and industrial distribution; (ii) for processing recyclable materials or for facilities that support recycling, including processes not currently provided in the state, including but not limited to, de-inking facilities, mixed waste paper, plastics, yard waste, and problem-waste processing; (iii) for manufacturing facilities that rely significantly on recyclable materials, including but not limited to waste tires and mixed waste paper; (iv) which support the relocation of businesses from nondistressed urban areas to distressed rural areas; or (v) which substantially support the trading of goods or services outside of the state's borders.

(b) For projects which it finds will improve the opportunities for the successful maintenance, establishment, or expansion of industrial or commercial plants or will otherwise assist in the creation or retention of long-term economic opportunities.

(c) When the application includes convincing evidence that a specific private development or expansion is ready to occur and will occur only if the grant or loan is made.

(3) The board shall prioritize each proposed project according to the relative benefits provided to the community by the jobs the project would create, not just the total number of jobs it would create after the project is completed and according to the unemployment rate in the area in which the jobs would be located. As long as there is more demand for loans or grants than there are funds available for loans or grants, the board is instructed to fund projects in order of their priority. The board shall give special consideration to projects in designated neighborhood reinvestment areas approved under section 103 of this act.

(4) A responsible official of the political subdivision shall be present during board deliberations and provide information that the board requests.

Before any loan or grant application is approved, the political subdivision seeking the loan or grant must demonstrate to the community economic revitalization board that no other timely source of funding is available to it at costs reasonably similar to financing available from the community economic revitalization board.

Sec. 406. RCW 43.165.010 and 1987 c 461 s 1 are each amended to read as follows:

Unless the context clearly requires to the contrary, the definitions in this section apply throughout this chapter.

(1) "Department" means the department of community development.

(2) "Director" means the director of the department.

(3) "Distressed area" means: (a) A county that has an unemployment rate that is twenty percent above the state-wide average for the previous three years; ((or)) (b) a community or area that has experienced sudden and severe or long-term and severe loss of employment, or erosion of its economic base due to decline of its dominant industries; ((or)) (c) a designated neighborhood reinvestment area approved under section 103 of this act; or (d) an area within a county which area: (i) Is composed of contiguous census tracts; (ii) has a minimum population of five thousand persons; (iii) has at least seventy percent of its families and unrelated individuals with incomes below eighty percent of the county's median income for families and unrelated individuals; and (iv) has an unemployment rate which is at least forty percent higher than the county's unemployment rate. For purposes of this definition, "families and unrelated individuals" has the same meaning that is ascribed to that term by the federal department of housing and urban development in its regulations authorizing action grants for economic development and neighborhood revitalization projects.

(4) "Economic development revolving loan funds" means a local, not-for-profit or governmentally sponsored business loan program.

(5) "Team" means the community revitalization team.

(6) "Technical assistance" includes, but is not limited to, assistance with strategic planning, market research, business plan development review, organization and management development, accounting and legal services, grant and loan packaging, and other assistance which may be expected to contribute to the redevelopment and economic well-being of a distressed area.

Sec. 407. RCW 43.168.020 and 1991 c 314 s 19 are each amended to read as follows:

Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Committee" means the Washington state development loan fund committee.

(2) "Department" means the department of community development.

(3) "Director" means the director of the department of community development.

(4) "Distressed area" means: (a) A county which has an unemployment rate which is twenty percent above the state average for the immediately previous three years; (b) a metropolitan statistical area, as defined by the office of federal statistical policy and standards, United States department of commerce, in which the average level of unemployment for the calendar year immediately preceding the year in which an application is filed under this chapter exceeds the average state unemployment for such calendar year by twenty percent. Applications under this subsection (4)(b) shall be filed by April 30, 1989; (c) an area within a county, which area: (i) Is composed of contiguous census tracts; (ii) has a minimum population of five thousand persons; (iii) has at least seventy percent of its families and unrelated individuals with incomes below eighty percent of the county's median income for families and unrelated individuals; and (iv) has an unemployment rate which is at least forty percent higher than the county's unemployment rate; ((or)) (d) a designated neighborhood reinvestment area approved under section 103 of this act; or (e) a county designated as a timber impact area under RCW 43.31.601 if an application is filed by July 1, 1993. For purposes of this definition, "families and unrelated individuals" has the same meaning that is ascribed to that term by the federal department of housing and urban development in its regulations authorizing action grants for economic development and neighborhood revitalization projects.

(5) "Fund" means the Washington state development loan fund.

(6) "Local development organization" means a nonprofit organization which is organized to operate within an area, demonstrates a commitment to a long-standing effort for an economic development program, and makes a demonstrable effort to assist in the employment of unemployed or underemployed residents in an area.

(7) "Project" means the establishment of a new or expanded business in an area which when completed will provide employment opportunities. "Project" also means the retention of an existing business in an area which when completed will provide employment opportunities.

NEW SECTION. Sec. 408. A new section is added to chapter 43.31 RCW to read as follows:

The department shall coordinate its programs within the department and with other agencies to assist in the success of designated neighborhood reinvestment areas approved under section 103 of this act.

NEW SECTION. Sec. 409. A new section is added to chapter 43.63A RCW to read as follows:

NEW SECTION. Sec. 410. A new section is added to chapter 50.08 RCW to read as follows:

PART V -- EMPLOYMENT OF NEIGHBORHOOD RESIDENTS

NEW SECTION. Sec. 501. A business receiving assistance under chapter . . . , Laws of 1993 (this act) shall seek to employ as many of its employees as possible from the designated neighborhood reinvestment area the assistance is related to, with a minimum goal of at least thirty percent of the employees from the respective designated neighborhood reinvestment area.

NEW SECTION. Sec. 502. The department shall require that local governments receiving financial assistance under chapter . . . , Laws of 1993 (this act) include a provision in their construction contracts for projects in neighborhood reinvestment areas, that require the contractor to increase outreach and recruitment efforts to employ as many of its employees as possible from the designated neighborhood reinvestment area the assistance is related to, with a minimum goal of thirty percent of the employees from the respective designated neighborhood reinvestment area.

PART VI -- TECHNICAL PROVISIONS

NEW SECTION. Sec. 601. (1) Sections 1, 101 through 104, 501, and 502 of this act shall constitute a new chapter in Title 43 RCW.

(2) Sections 201 through 206 of this act are each added to chapter 82.04 RCW.

(3) Sections 301 and 302 of this act are each added to chapter 30.60 RCW.

(4) Sections 304 and 305 of this act are each added to chapter 32.40 RCW.

(5) Sections 307 and 308 of this act are each added to chapter 33.04 RCW.

(6) Sections 310 through 313 of this act are each added to chapter 43.84 RCW.

(7) Sections 401 through 403 of this act are each added to chapter 43.155 RCW.

NEW SECTION. Sec. 602. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 603. Part and subpart headings as used in this act constitute no part of the law.

NEW SECTION. Sec. 604. This act may be known and cited as the "neighborhood reinvestment act."