HOUSE BILL REPORT

ESHB 2052

BYHouse Committee on Ways & Means (originally sponsored by Representatives Locke, Grimm, Holland and Ferguson)

Changing provisions relating to funding of construction and operation of public facilities.

House Committe on Ways & Means

Majority Report:  The substitute bill be substituted therefore and the substitute bill do pass.  (19)

      Signed by Representatives Grimm, Chair; Bristow, Vice Chair; Appelwick, Basich, Belcher, Brekke, Dellwo, Ebersole, Grant, Hine, Locke, Peery, Sayan, Schoon, H. Sommers, Sprenkle, Valle, Wang and Winsley.

Minority Report:  Do not pass.  (3)

      Signed by Representatives Fuhrman, McLean and Nealey.

House Staff:Rick Wickman and Susan Kavanaugh (786-7136)

AS PASSED HOUSE FEBRUARY 29, 1988

BACKGROUND:

A study commissioned by the Joint Committee on the Convention and Trade Center indicated that the Washington State Convention and Trade Center (Center) would yield a greater long term benefit to the state if it were completed with full state funding and ownership rather than through a contemplated private/public partnership.  The study also stated that the Center would be a more competitive facility if it had additional meeting rooms and recommended that some of the space set aside for retailing be converted to provide 55,000 to 60,000 square feet of additional meeting rooms.

Design issues and a commitment to the City of Seattle to maintain certain public assess and retail space in the Center limit the amount of retail space that can be converted to meeting rooms.  Another source of additional meeting room space is expansion in the upper (900 level) part of the facility.

The special excise tax on hotel and motel room rentals is currently levied at 5% in Seattle and 2% in the rest of King County.  A law passed in the 1987 legislative session provided that beginning in 1993 a surtax would be imposed at the level necessary to fund the Center operating deficit.  The surtax was capped at 40% (i.e.:  2% in Seattle and .8% in surrounding King County).

The normal method for financing construction is to issue bonds.  In the past, general obligation bonds reimbursed from hotel/motel tax revenues have been issued for the Center.

The Center is authorized to borrow from the general fund or treasury for both debt retirement and operating costs.  Issuing additional bonds means higher debt retirement costs and, therefore, additional Center borrowing until hotel/motel tax revenues are sufficient to cover both debt retirement and the Center operating deficit.  Raising the hotel/motel tax would reduce the need for this borrowing.

The Center is also permitted to borrow for capital costs.  Current statute states that it is the intent of the legislature that $28 million of borrowing be repaid from funds received from a private developer and requires that borrowing for this purpose be repaid by the end of FY 1989.

The study commissioned by the Joint Committee also recommended additional money for Center marketing, with the increase funded from an increase in the hotel/motel tax dedicated to this purpose.

Land and a building together known as the McKay Parcel are located adjacent to the Center facility.  The Center is obligated to sell the McKay Parcel for at least $10.4 million by 1991 and turn the proceeds over to the federal government and an industrial insurance company.  Alternatively, it could turn the property over to the federal government and industrial insurance company in 1991.  Finally, the state could itself buy the McKay Parcel for $10.4 million.  Current statute allows the Center to buy and sell property.

Local governments are authorized to construct and maintain various public facilities to meet the needs of their citizens.  Traditional revenue sources used to finance public facilities are local taxes, user charges, and state and federal grants.

Many local governments utilize bonded indebtedness to provide public facilities.  Current law restricts the total bonded indebtedness of cities, towns, and counties to three fourths of objects, a local government may not have adequate revenues to either retire bonds or to pay for such a project on a "pay as you go basis."  Three areas of the state are confronted with the financing of large capital facilities with revenue sources that may not be adequate.  In Pierce County, an aquatic indoor swimming facility for the Goodwill Games; in Spokane County a convention/coliseum facility; and in Thurston County an Olympic Academy have been identified as needed local projects.

Cities, towns, and counties are authorized to levy a special excise tax of up to two percent on the lodging receipts of hotels and motels.  Except in King County, these tax revenues are to be used for constructing or operating stadium facilities, convention center facilities, performing arts center facilities, visual arts center facilities, or to pay for tourism promotion activities.  In King County, those revenues may only be used for debt service on the Kingdome and new capital improvements to the Kingdome.

This local optional two percent hotel/motel tax is separate and distinct from (1) the "Seattle Convention and Trade Center hotel/motel tax" of five percent in Seattle and two percent in the rest of King County for the convention center; and (2) the optional Bellevue three percent hotel/motel tax for convention and trade facilities.  Revenues collected by the cities, towns, and counties imposing this tax are deducted from the state sales tax on hotels and motels within the city or county.  The tax is a credit against the state sales tax.

SUMMARY:

The hotel/motel tax surcharge is deleted.  The hotel/motel tax rates are changed to the following:

5 percent in Seattle and 2 percent in the rest of King County through June 30, 1988 (already in statute).

6 percent in Seattle and 2.4 percent in the rest of King County from July 1, 1988 through December 31, 1992.

7 percent in Seattle and 2.8 percent in the rest of King County from January 1, 1993 through the date when borrowing for debt service and the operating deficit ends.

6 percent in Seattle and 2.4 percent in the rest of King County thereafter.

Marketing:  It is stated that the legislature intends that revenue from the 1% increase in the Hotel/Motel Tax be used for marketing.  (The temporary second additional 1% increase from 1993 until operating and debt service borrowing ends is used to reduce borrowing).

Borrowing:  It is stated that the legislature intends that $20 million of capital borrowing is to be repaid from additional bonds (backed by hotel/motel tax) rather than from funds received from a private developer.  The deadline for repayment of capital borrowing from the end of FY 1989 to the end of FY 1991.

Property Transfers:  All Center acquisitions or transfers of real property including the McKay parcel are required to be approved by the Director of Financial Management in consultation with the chairs of House and Senate Ways and Means Committees.

Any county or city may impose an additional three percent hotel/motel tax except a city subject to RCW 67.40.100 (Bellevue) or a city with an existing rate of five percent or more subject to RCW 67.40.090 (Seattle).  The counties of Pierce, Spokane, and Thurston have until July 1, 1989 to impose the optional tax on a countywide basis and preclude any city from levying the tax.

Revenues from the local option tax may be used for any public facility.  The local option tax is not a credit against the state sales tax.  Any county or city that has not enacted the two percent hotel/motel tax which is credited against the state sales tax may not impose said tax after the effective date of the act.  Uses of the revenues are expanded to include operation of a steam railway for tourism promotion purposes.  The city of Bellevue may pledge revenues from the tax authorized under RCW 67.40.100 to bonded indebtedness.

Non-voter approved councilmanic debt capacity is increased by three fourths of one percent of assessed valuation for Spokane County for purposes of acquiring and constructing a convention and coliseum facility.

A fifty cent admissions tax surcharge is authorized for any county.  Revenues from the surcharge may be spent on any public facility however, revenues may not be spent on public facilities prior to the effective date of the act.

Revenue:    The bill has a revenue impact.

Fiscal Note:      Not Requested.

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

House Committee ‑ Testified For:    Robert A. Wheeler, City of Yakima; Steven J. Caffery, Capitol Theatre;  Mike Pence, City of Ocean Shores; Tony Tijsson, Ocean Front Lodge, Lorna M. Valdez, Ocean Shores Convention Center; Marty Barnhart, Ocean Shores Polynesian Resort; Nan Campbell, Mayor, City of Bellevue; Don Prather, Bellevue Hilton; Nancy Watkins, East King County Visitors Convention Bureau.

House Committee - Testified Against:      None Presented.

House Committee - Testimony For:    Cities, towns, and counties desire to site, acquire, construct and operate public facilities that benefit their citizens.  Additional local option excise taxes should be authorized to enable local governments to meet these objectives.  The cities of Yakima and Ocean Shores desire additional local option lodgings taxation to finance public facilities.  The City of Bellevue needs authority to pledge bonds to revenues derived from the special three percent hotel/motel tax for a convention center.  Additional expansion of the uses of revenues from the two percent hotel/motel tax are needed.

House Committee - Testimony Against:      The City of Spokane desires to construct and operate a convention/coliseum facility in which the state imposes additional taxes on lodgings and admissions that would be pledged to state bonds.