Brief Summary of Bill

Authorizes a city or county to permit American Dream Homes to encourage development of single family homes for low-income households.
Limits permit fees to $1,250 and exempts impact fees on the development of American Dream Homes.
Distributes the state portion of certain sales and use taxes from the construction of American Dream Homes to counties and cities.
Provides builders of an American Dream Home a 4 percent business and occupation tax credit on the sale price of the home.

Background: Counties and cities may impose impact fees on development activity as part of financing public facilities needed to serve new growth and development. This financing cannot rely solely on impact fees and must provide a balance between impact fees and other sources of public funds. Impact fees may only be imposed for system improvements reasonably related to the new development, may not exceed a proportionate share of the costs of system improvements, and must be used for system improvements that will reasonably benefit the new development.

County and city ordinances imposing impact fees must conform with specific requirements. Among other obligations, these ordinances:

must include a schedule of impact fees for each type of development activity for which a fee is imposed;
may provide an exemption for low-income housing and other development activities with broad public purposes; and
must allow the imposing jurisdiction to adjust the standard impact fee for unusual circumstances in specific cases to ensure fees are imposed fairly.

Retail sales taxes are imposed on retail sales of most articles of tangible personal property, digital products, and some services. If retail sales taxes were not collected when the user acquired the property, digital products, or services, then use taxes apply to the value when used in this state. The state, most cities, and all counties levy retail sales and use taxes. The state sales and use tax rate is 6.5 percent. Local sales and use tax rates vary from 0.5 percent to 3.9 percent, depending on the location.

Washington's major business tax is the business and occupation (B&O) tax. B&O tax is imposed on the gross receipts of business activities conducted within the state, without any deduction for the costs of doing business. A taxpayer may have more than one B&O tax rate, depending on the types of activities conducted. Major B&O tax rates are 0.471 percent for retailing; 0.484 percent for manufacturing, wholesaling, and extracting; and 1.5 percent for services, and activities not classified elsewhere.

Summary of Bill: A city or county may permit an American Dream Home to encourage the development of single family residential housing for low-income households. Low-income household means a single person, family, or unrelated persons living together whose adjusted income is less than 80 percent of the median family income. American Dream Homes includes a single-family detached residence under 1700 square feet. An American Dream Home may be approved if the following criteria are met:

covenants or restrictions are included to ensure each home is reserved for low-income households;
each home is exempt from impact fees; and
the city or county does not charge cumulative permitting fees exceeding $1,250.

A city or county may receive a distribution equal to the state portion of the sales and use tax for labor and services rendered during the construction of an American Dream Home. The Department of Revenue must remit qualifying amounts at least annually to cities and counties.

The builder of an American Dream Home is allowed an annual credit against the B&O tax. The credit equals 4 percent of the gross selling price of the home and may be taken through June 30, 2030. The credit may be carried over until used, provided no credits can be claimed after June 30, 2031.

Staff Summary of Public Testimony: PRO: The approach in the bill is modeled after the Habitat for Humanity model and seeks to encourage additional opportunities for home ownership for low income families. Washington needs additional entry-level homes, and this bill would help build homes with costs comparable to renting. The provisions in the bill seek to incentivize builders to construct affordable housing. Home ownership helps build wealth and get people out of poverty. Local governments appreciate that the bill provides incentives and is an opt-in approach, without mandates. It would be helpful if the bill would allow the building of duplexes or triplexes. The building industry welcomes the opportunity to work with local governments to build affordable housing. Many current homes being built are too large and expensive for many people to afford, and this bill seeks to promote more affordable housing options.

CON: While not opposed to home ownership, it would be preferable if the bill allowed more density, including duplexes or row houses. It is not clear how this bill would interact with zoning requirements under the Growth Management Act.