"NEW SECTION.  Sec. 1   The legislature finds that:
     (1) Washington's dependence on energy supplied from outside the state and volatile energy markets makes our economy and citizens vulnerable to unpredictable and high energy prices;
     (2) Washington's dependence on petroleum-based fuels increases energy costs for citizens and businesses;
     (3) Experts tell us that the global oil shortage will only worsen, making the three dollars per gallon gasoline of the summer of 2005 seem affordable;
     (4) Each year, citizens and businesses in Washington state spend nine billion dollars on gasoline and diesel, with those funds drained from the state economy;
     (5) Diesel soot from diesel engines ranks as the highest toxic air pollutant in Washington, leading to hundreds of premature deaths and increasing rates of asthma and other lung-related diseases;
     (6) The use of biodiesel results in significantly less air pollution than traditional diesel fuels and can help our citizens and businesses conserve energy;
     (7) Improper disposal and treatment of organic waste from farms and livestock operations can have a significant negative impact on water quality;
     (8) Washington has abundant supplies of organic wastes from farms that can be used for energy production and abundant farmland where crops could be grown to supplement or supplant petroleum-based fuels;
     (9) Instead of leaving our economy at the mercy of global events, and the policies of foreign nations, Washington state should adopt a policy of energy independence;
     (10) The energy freedom program is meant to lead Washington state towards energy independence;
     (11) Producing more energy here means cleaner, renewable energy that includes, but is not limited to, biofuels, solar power, and wind power;
     (12) The biofuels industry is a new and developing industry now limited by the availability of capital for construction of facilities for converting farm and forest products into energy and fuels; and
     (13) For biofuels to be economically viable in Washington, it will be necessary to grow dedicated crops, construct crushers near farms, and build refineries to create fuel.
     Therefore, the legislature finds it is in the public interest to reduce Washington's dependence on imported oil, expand renewable fuel production and use in Washington, conserve energy, improve use of renewable energy and energy efficiency measures, and promote sustainable rural economic development by creating new jobs and stimulating business and economic activity in local communities across Washington.
     To accomplish this, the energy freedom program is established to stimulate strategic investment in facilities, infrastructure, technologies, and research and development that will advance Washington's move toward energy independence.

NEW SECTION.  Sec. 2   The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Board" means the energy freedom board.
     (2) "Department" means the department of community, trade, and economic development.
     (3) "Political subdivision" means any port district, county, city, town, special purpose district, and any other municipal corporations or quasi-municipal corporations in the state.

NEW SECTION.  Sec. 3   (1) The energy freedom board is created to exercise the powers granted under this chapter.
     (2) The board consists of thirteen members as follows:
     (a) One member shall be the director of the department of agriculture or the director's designated representative;
     (b) One member shall be the director of the department of community, trade, and economic development or the director's designated representative from the department's energy policy division;
     (c) Four of the members shall be appointed as follows: Two members from the house of representatives committee that has jurisdiction over energy issues, one from each of the two major caucuses, to be appointed by the speaker of the house of representatives; two members from the senate committee that has jurisdiction over energy issues, one from each of the two major caucuses, to be appointed by the president of the senate; and
     (d) Seven of the members shall be appointed by the governor: One recognized expert in renewable energy; one representative from Washington State University; one Washington state grower; one producer of alternative fuels; one public fleet manager; one public buildings manager; and one sustainable society advocate.
     (3) The members appointed under subsection (2)(c) and (d) of this section must initially be appointed to terms as follows: Three members for two-year terms, four members for three-year terms, and four members for four-year terms which includes the chair. Thereafter, each succeeding term is four years. Appointees may be reappointed to serve more than one term.
     (4) The governor must select one of the members to serve as the chair of the board. The members of the board shall elect one of their members to serve as vice chair.
     (5) The department must provide staff support to the board.
     (6) Members of the board receive no compensation but shall be reimbursed for travel expenses as provided in RCW 43.03.050 and 43.03.060.

NEW SECTION.  Sec. 4   In addition to other applicable provisions of law pertaining to conflicts of interest of public officials, no board member, appointive or otherwise, may participate in any decision on any board contract in which the board member has any interests, direct or indirect, with any entity that would be the recipient of any aid under this chapter.

NEW SECTION.  Sec. 5   The board may:
     (1) Accept from any federal agency loans or grants for the planning or financing of any project and enter into agreements with such an agency concerning the loans or grants;
     (2) Accept any gifts, grants, or loan of funds, property, or financial or other aid in any form from any other source on any terms and conditions that are not in conflict with this chapter;
     (3) Adopt rules under chapter 34.05 RCW as necessary to carry out the purposes of this chapter; and
     (4) Perform all acts and functions as necessary or convenient to carry out the powers expressly granted or implied under this chapter.

NEW SECTION.  Sec. 6   The board shall:
     (1) Establish a competitive process to solicit proposals for and prioritize project applications for potential funding;
     (2) Adopt rules governing project eligibility and evaluation criteria;
     (3) Establish a peer review committee to include board members, renewable energy specialists, energy conservation specialists, scientists, and individuals with specific recognized expertise. The peer review committee shall provide to the board an independent peer review of all grant proposals submitted by Washington public research institutions for the purposes specified in section 7(3) (a) and (c) of this act that are determined to be competitive for a grant award. The board shall review the findings of the peer review committee when making final grant allocation decisions;
     (4) Develop the prioritized list through open and public meetings;
     (5) Establish performance measures against which the program will be evaluated;
     (6) Aggressively seek federal and other grant moneys;
     (7) Report annually to the appropriate standing committees of the legislature on the implementation of this chapter. The report must include, but is not limited to: Information on the number of applications for financial assistance; the grant or loan amount awarded each project; a description of each project; the status of each funded project, including the agricultural and environmental benefits of each project, as well as the progress made by each project in creating jobs and moving towards energy independence; the documentation of nonstate funds to be used for each project; and progress against performance measures developed under this chapter. The first report must be submitted by December 31, 2006, to committees in the house of representatives and senate with jurisdiction over energy issues.

NEW SECTION.  Sec. 7   (1) The board is authorized to make low-interest loans to political subdivisions of the state for the purposes of assisting political subdivisions in financing the cost of new and renewable energy and biofuel development projects and activities. 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 and the finding by the board that financial circumstances require grant assistance to enable the project to move forward. Up to ten percent of all financial assistance provided to political subdivisions by the board may consist of grants. Political subdivisions applying for loans and grants shall identify nonstate matching funds available for the project, and shall specify deliverables to be achieved by proposed projects and activities, including evidence that the proposed project will result in a positive net energy output, if applicable.
     (2) Applications for loans and grants must be made in the form and manner as the board may prescribe.
     (3) The board may provide financial assistance for the following types of projects and activities including, but not limited to:
     (a) Research and development of new and renewable energy and biofuel sources including but not limited to biomass and associated biofuel gases;
     (b) Renewable energy and biofuel development infrastructure and facilities;
     (c) Research and development to develop markets for alternative fuel byproducts; and
     (d) Loans for small commercial energy audits and retrofits.
     (4) Applications must be prioritized based on the following criteria:
     (a) The extent to which the project will contribute to the establishment of a viable bioenergy production capacity in Washington;
     (b) The benefits to Washington's agricultural producers;
     (c) The extent to which the project will help conserve energy and reduce dependence on petroleum fuels and imported energy, either directly or indirectly;
     (d) The extent to which the project will reduce air and water pollution, either directly or indirectly;
     (e) The number and quality of jobs, as well as the economic benefits, created by the project;     
     (f) The extent to which the investment shows a direct link to commercialization either by indirectly supporting the commercialization of bioenergy intellectual property into a commercialized project, or by directly assisting in moving a commercially viable project into the marketplace for use by Washington state citizens; and
     (g) The extent to which private funds have been leveraged.
     (5) The board may approve an application that results in loans of up to five million dollars. In no circumstances shall a loan approved under this section constitute more than fifty percent of total project funding.
     (6) Financial assistance awarded to political subdivisions is one time only and may not be used for ongoing operational expenses.
     (7) Before any financial assistance application is approved, the political subdivision must demonstrate to the board that no other timely source of funding is available to it at costs reasonably similar to financing available from the board.
     (8) A responsible official of the political subdivision must be present during board deliberations and provide information that the board requests.
     (9) The board may not approve an application if it fails to provide for adequate reporting or disclosure of financial and employment data to the board. The board may require an annual or other periodic audit of the project books.
     (10) The board may defer loan repayment for up to twenty-four months or until the projects start to receive revenue from operations, whichever is sooner.
     (11) Upon receiving financial assistance, a political subdivision must enter into appropriate contracts with any industry partners that may be involved in the use of the facilities, infrastructure, or equipment.
     (12) Upon written notice to the political subdivision, the board may suspend or cancel its loans or grants if any of the following occur:
     (a) The political subdivision fails to make satisfactory and reasonable progress to complete the project, or the board concludes the political subdivision will be unable to complete the project or any portion of it; or
     (b) The political subdivision or industry partners have made misrepresentations in any information furnished to the board in connection with the project.
     (13) In the event that any portion of the loan or grant has been paid to the political subdivision under this section at the time of breach, or failure of the political subdivision to satisfactorily perform, the board may require that the full amount of the loan or grant, or a portion thereof, be repaid within a period specified by the board.
     (14) The board is authorized to award grants to Washington public research institutions for the purposes specified in subsection (3)(a) and (c) of this section.

NEW SECTION.  Sec. 8   The energy freedom account is created in the state treasury. All receipts from appropriations made to the account, proceeds from other lawful sources, and loan payments of principal and interest derived from loans made under this chapter must be deposited into the account. Moneys in the account may be spent only after appropriation. Expenditures from the account may be used only for loans and grants to political subdivisions for renewable energy and biofuel development projects and activities authorized under this chapter.

NEW SECTION.  Sec. 9   In accordance with Article VIII, sections 5 and 7 of the state Constitution, the credit of the state and counties, cities, towns, and other municipal corporations shall not in any manner be given or loaned to any individual, association, company, or corporation in the administration of the grant and loan program established in this chapter.

Sec. 10   RCW 82.16.020 and 1996 c 150 s 2 are each amended to read as follows:
     (1) There is levied and there shall be collected from every person a tax for the act or privilege of engaging within this state in any one or more of the businesses herein mentioned. The tax shall be equal to the gross income of the business, multiplied by the rate set out after the business, as follows:
     (a) Express, sewerage collection, and telegraph businesses: Three and six-tenths percent;
     (b) Light and power business: Three and sixty-two one-hundredths percent;
     (c) Gas distribution business: Three and six-tenths percent;
     (d) Urban transportation business: Six-tenths of one percent;
     (e) Vessels under sixty-five feet in length, except tugboats, operating upon the waters within the state: Six-tenths of one percent;
     (f) Motor transportation, railroad, railroad car, and tugboat businesses, and all public service businesses other than ones mentioned above: One and eight-tenths of one percent;
     (g) Water distribution business: Four and seven-tenths percent.
     (2) An additional tax is imposed equal to the rate specified in RCW 82.02.030 multiplied by the tax payable under subsection (1) of this section.
     (3) Twenty percent of the moneys collected under subsection (1) of this section on water distribution businesses and sixty percent of the moneys collected under subsection (1) of this section on sewerage collection businesses shall be deposited in the public works assistance account created in RCW 43.155.050.
     (4) Of amounts deposited into the general fund pursuant to subsection (1) of this section, the legislature may authorize a transfer of up to twenty-five million dollars for the fiscal year ending June 30, 2006, into the energy freedom account created in section 8 of this act.

NEW SECTION.  Sec. 11   This act takes effect July 1, 2006.

NEW SECTION.  Sec. 12   This act expires June 30, 2016.

NEW SECTION.  Sec. 13   Any moneys in the energy freedom account on June 30, 2016, and all payments received after that date must be deposited in the state general fund.

NEW SECTION.  Sec. 14   Sections 1 through 9 and 13 of this act constitute a new chapter in Title 43 RCW.

NEW SECTION.  Sec. 15   If a transfer from the general fund to the energy freedom account created in section 8 of this act for the purposes of this act, referencing this act by bill or chapter number, is not provided by June 30, 2006, in the omnibus appropriations act, this act is null and void."