Property Tax.
All real and personal property is subject to a tax each year based on the highest and best use, unless a specific exemption is provided by law. The annual growth of all regular property tax levy revenue is limited by the levy growth limit as follows:
In addition to the revenue growth limit, levy capacity may increase by additional amounts equal to the increase in assessed value in a taxing district resulting from:
Tax Increment Financing.
Tax increment financing (TIF) is a financing tool that local governments can use to fund public infrastructure in targeted areas. A local government may designate an increment area within the local government, provided that the following requirements are met:
In considering whether to designate an increment area, the local government must prepare a project analysis that includes specified requirements. Examples include a statement of the local government's objectives; the duration of the increment area; an estimate of the job creation reasonably expected to result from the public improvements and private developments; and an assessment of impacts on affordable and low income housing, the local business community, the local school districts, and the local fire service.
The local government must negotiate a mitigation plan with a fire protection district or regional fire protection service authority if a project analysis indicates that an increment area will impact at least 20 percent of the assessed value in a fire protection district or regional fire protection service authority, or the fire service agency's annual report demonstrates an increase in the level of service in an increment area.
Tax allocation revenues within the increment area must cease when the taxing district certifies to the county assessor in writing that tax allocation revenues are no longer necessary or obligated to pay public improvement costs.
Funding for mitigation to impacted taxing districts, limited to the future revenues collected by the established tax increment area, is added as a public improvement cost permitted within tax increment areas.
The project analysis must include an assessment of impacts on local emergency medical services and public hospital services in addition to local fire services. Local governments must provide written notice to each taxing district within a proposed tax increment area prior to submitting a project analysis.
Local governments must enter into negotiations for mitigation agreements with affected public hospital districts. If the local government and public hospital district or fire district cannot agree to a mitigation agreement, the parties must proceed with arbitration. The board of arbitrators must consist of three members. The local government and affected taxing district may each select one arbitrator within 60 days. The third arbitrator must be selected by the first two arbitrators within 90 days. If the third arbitrator is not agreed to by both arbitrators, then the superior court judge from the county with the largest portion within the proposed tax increment area must designate the arbitrator. Arbitration is binding on both parties.
An increment area must expire prior to the sunset date if tax allocation revenues are no longer necessary or obligated to pay any bonded indebtedness issued solely to fund public improvement costs.
The Office of the State Treasurer must conduct a study and report to the Legislature by June 30, 2025. The report must include:
The report may include process improvement recommendations to address any impacts on special purpose districts if needed.
The substitute bill adds funding for mitigation to impacted taxing districts, limited to the future revenues collected, as a public improvement cost. Emergency medical services and public hospital services must also be included in the project analysis. The requirement for mitigation agreements with fire districts is restored, and mitigation plans must be negotiated with public hospital districts. Arbitration is required if the local government and affected districts cannot agree to a mitigation plan. Local governments must provide written notice to each taxing district within a proposed increment area prior to submitting a project analysis. The Office of the State Treasurer must conduct a study and report to the Legislature on various metrics related to tax increment areas.
(In support) Tax Increment Financing (TIF) is a good idea. The goal is not to remove this financing tool, but to make some changes to avoid unintended consequences. Tax increment financing allows a city to take out a bond for infrastructure improvements which will then spur growth and increase property values. This reduces sprawl. The cost is charged to constituents within the TIF area. The increased tax from the improvements then goes to pay off the bond. Once property taxes are frozen in a TIF, other districts are affected because tax districts overlap. There could be three to four TIFs overlapping one fire district, and each one of those TIFs could freeze the taxing authority of the fire district. The amount of money that an impacted district has remains static. There is a bigger problem when some TIFs are used to expand growth. The fire district has a stable or flat income to serve a larger population, essentially asking the fire district to do more with less money. This bill agrees that tax increment financing is a great tool, but requires the implementing local government to go to each affected district to allow them to opt out. It also requires local governments to work with other districts to make sure that harm is mitigated. The current TIF process has created a perfect storm for fire districts. In its current form, TIF is bad public policy. It allows a local government to encumber a district without allowing that district to have a say, and then requires that district to take on the sole responsibility for providing services. The process for fire districts should be the same as for school districts. Fire districts' funds come from the property tax and the districts rely on this revenue to provide services. These property taxes are the sole source of funding for fire districts. Tax increment financing does work for some districts, particularly those who have their own municipal fire services, but is tough on small communities. The current mitigation requirements have no teeth. Some districts suggest minor mitigation recommendations which are then denied. The TIFs in place have no mitigation. The current process unnecessarily strains partnerships with various populations. This will impact how fire districts budget in the future. The TIF policy that was recommended in the 1980s had a complete exemption for fire districts because fire safety and emergency medical services are critically important. There is concern when elected officials can decide how to spend future fire district tax dollars, which can result in a decrease in fire services to the taxpayers. This is unfair to those taxpayers because they are then required to pay more for services for which they have already paid. Fire and emergency services are too vital to safety to have them removed by TIFs. Mergers and consolidation of services can be affected by TIFs. There are opponents to the bill saying a study should be done, but in the meantime, more and more TIFs will be approved. This is a step in the wrong direction. If districts are allowed to opt in, then they can do their daily work and not be hindered.
The crux of this bill is simple: current law does not provide enough protection for fire authorities. There is nothing a district can do but watch its funds be reduced while service requirements increase. The opt-in proposal does not preclude other districts from participating, it just puts the onus on the local government advocating for the TIF. Fire districts have voluntarily participated in TIFs. If the local government can convince the junior taxing districts to opt in, then that is indicative that the economic development proposal there is not a good proposal.
TIFs capture incremental growth with property, but also inflationary growth that would normally add up. The statute supposes that economic development in TIFs is better than economic development elsewhere. Some junior taxing districts use their tax levies as local match dollars for partnerships with the federal government. The local match can be in jeopardy because of a decision made by someone else.
The bill provides a reasonable opt-in solution. The consequences of TIFs are dire for hospitals and fire districts. The TIF model takes critical funding from rural hospitals when they need it the most. In 2023 only three hospitals operated in a positive margin. The opt-in solution protects the districts before the fact, where the existing mitigation language protects after the fact. Public hospitals need to support the core mission of hospitals, which is to provide services to residents. Junior districts have tried and failed to pass levies for funding.
(Opposed) Tax Increment Financing allows cities to fund public infrastructure. Without TIF, the development would not happen. This policy was thoughtfully created in 2021 to address concerns, including mitigation. Fourteen projects are undergoing review, and the initial review shows that they would lose 60 to 90 percent of the revenue depending on the jurisdiction?s makeup.
Washington has joined 49 other states doing TIF programs. Tax Increment Financing helps finance infrastructure that is legally required to be provided under the Growth Management Act and other statutes. It also lays the foundation for jobs that would not have happened otherwise. This bill will effectively gut TIF as a financing tool and render it useless. There should be a data-driven study before proceeding with this policy. The original policy for TIF that was developed in 2021 authorizes TIF areas only if the local government can prove that, without the investments, economic development would not occur. Mitigation language allows junior taxing districts to provide services they offer. Allowing districts to opt out undermines the original purpose of TIF.
(In support) Representative Chipalo Street, prime sponsor; Matthew Ellsworth, Association of Washington Public Hospital Districts; Aaron Edwards and Jordana LaPorte, Lake Chelan Health; Steve Brooks, Lacey Fire and Washington Fire Chiefs Association; John Nohr and Larry Bartel, Clark-Cowlitz Fire and Rescue; Brandon Asher, Chelan Fire and Rescue; Ryan Spiller, Washington Fire Commissioners; Robert Homan, Graham Fire and Rescue; Dylan Doty, Washington Fire Chiefs Association; John Flanagan, Port of Seattle; and Sean Eagan, Port of Tacoma.