Title: An act relating to providing financial assistance to cities, towns, and counties.

Brief Description: Providing financial assistance to cities, towns, and counties.

Sponsors: By Senate Committee on Ways & Means (originally sponsored by Senators Parlette, Doumit, Morton and Mulliken).

Brief History:

Capital Budget: 3/28/05, 4/1/05 [DPA];

Finance: 4/8/05, 4/15/05 [DPA(FIN w/o CB)s].

Floor Activity:

Passed House - Amended: 4/20/05, 61-37.

HOUSE COMMITTEE ON CAPITAL BUDGET

Majority Report: Do pass as amended. Signed by 21 members: Representatives Dunshee, Chair; Ormsby, Vice Chair; Jarrett, Ranking Minority Member; Hankins, Assistant Ranking Minority Member; Blake, Chase, Cox, Eickmeyer, Ericks, Flannigan, Green, Hasegawa, Kretz, Lantz, Moeller, Morrell, Newhouse, O'Brien, Schual-Berke, Springer and Upthegrove.

Minority Report: Do not pass. Signed by 6 members: Representatives DeBolt, Holmquist, McCune, Roach, Serben and Strow.

Staff: Susan Howson (786-7142).

HOUSE COMMITTEE ON FINANCE

Majority Report: Do pass as amended by Committee on Finance and without amendment by Committee on Capital Budget. Signed by 5 members: Representatives McIntire, Chair; Hunter, Vice Chair; Conway, Hasegawa and Santos.

Minority Report: Do not pass. Signed by 4 members: Representatives Orcutt, Ranking Minority Member; Roach, Assistant Ranking Minority Member; Ahern and Ericksen.

Staff: Mark Matteson (786-7145).

Background:

The passage of Initiative 695 in November 1999 repealed the Motor Vehicle Excise Tax (MVET), which had been forecasted to generate approximately $1.6 billion in revenues during the fiscal 1999-01 biennium. The MVET statute apportioned 23.6 percent of collections to counties, cities, and public health districts for the purposes of criminal justice assistance, fire and police protection, sales tax equalization, and public health. For some jurisdictions, the MVET assistance represented a relatively significant part of the operating budget, in some cases providing over 50 percent of operating expenditures.

The MVET collections were distributed on a quarterly basis to city and county jurisdictions and on a monthly basis to public health districts and county public health departments. The final distributions to jurisdictions occurred in January, 2001, based on collections in October through December, 1999.

For the past three biennia, state appropriations have provided financial assistance to counties and cities to mitigate the loss of local revenue following the passage of Initiative 695. For the 2003-05 biennium, the operating budget provides $14 million to specified cities and counties for this purpose.

A Real Estate Excise Tax (REET) is imposed on the sale of real property for state purposes at 1.28 percent of the sale price. Other local REETs are also authorized. Seven and seven-tenths of a percent of the state proceeds are deposited in the Public Works Assistance Account (PWAA) to assist local governments with low interest loans for roads and bridges, water and waste water systems, and solid waste and recycling facilities.

Summary of Amended Bill:

The bill reduces the portion of the state REET proceeds deposited in the PWAA from 7.7 percent to 6.1 percent, and deposits 1.6 percent into a new City-County Assistance Account. Funds deposited in the account must be distributed equally to cities and counties. Expenditures from the account are subject to legislative appropriation.

A separate distribution formula for cities and counties is specified.

County Distribution Formula

Funds deposited into the account will increase local sales and use tax revenue by each county to the greater of $250,000 or:

• for a county with 100,000 population or less, 70 percent of the statewide per capita    level of sales and use tax revenue for unincorporated areas of all counties imposing the sales and use tax; and
• for a county with more than 100,000 population, 65 percent of the statewide per capita level of sales and use tax revenue for unincorporated areas of all counties imposing the sales and use tax.

For each county with 15,000 population or less, the county shall receive the greater of the amount identified above or the amount received in local government assistance provided by the Department of Community, Trade and Economic Development (DCTED) as established in the 2004 omnibus operating budget.

For a county with 15,000 to 22,000 population, the county will receive in calendar years 2006 and 2007, the greater of the amount above or the amount in local government assistance provided by the DCTED in the 2004 omnibus operating budget.

Distributions will be ratably reduced should revenues be insufficient to fund distributions as provided in the bill. Should revenues exceed the amounts needed for the distributions, excess funds will be divided ratably, based on unincorporated population, among recipient counties that impose sales and use tax at the maximum rate.

City Distribution Formula

For a city with 5,000 population or less with a per capita assessed property value less than twice the statewide average for all cities, the city will receive the greater of:

• an amount necessary to increase revenues to 55 percent of the statewide per capita level of sales and use tax revenues for all cities imposing the tax in the previous calendar year;
• the amount received in local government assistance provided for Fiscal Year 2005 in the 2003-05 omnibus operating budget; and
• for a city with a per capita assessed property value less than 55 percent of the statewide average per capita assessed property value for all cities, an amount determined by subtracting the city's per capita assessed property value from 55 percent of the statewide average per capita assessed property value, divided by 1,000, and multiplied by the city's population.

   
For each city with more than 5,000 population with a per capita assessed property value less than the statewide average for all cities, the city will receive the greater of:

• an amount necessary to increase revenues to 50 percent of the statewide per capita level of sales and use tax revenues for all cities imposing the tax in the previous calendar year;
• for calendar years 2006 and 2007, the amount received in local government assistance provided for Fiscal Year 2005 in the 2003-05 omnibus operating budget; and
• for a city with a per capita assessed property value less than 55 percent of the statewide average per capita assessed property value for all cities, an amount determined by subtracting the city's per capita assessed property value from 55 percent of the statewide average per capita assessed property value, divided by 1,000, and multiplied by the city's population.

No city may receive more than $100,000 a year.

Distributions shall be ratably reduced should revenues be insufficient to fund distributions as provided in the bill. Should revenues exceed the amounts needed to make distributions as provided, excess funds shall be divided ratably, based on population, among recipient cities that impose sales and use tax at the maximum rate.

Other Provisions
The bill authorizes annual increases based on inflation for the $250,000 county distribution and the $100,000 city limit.

The JLARC is directed to review the distributions to cities and counties to determine the extent to which the distributions target needs of cities and counties for which the repeal of the Motor Vehicle Excise Tax had the greatest fiscal impact. The JLARC will report its findings, including any recommendations for changes to the distribution formulas, to the Legislature by December 31, 2008.

Appropriation: None.

Fiscal Note: Requested on April 15, 2005 for amended bill..

Effective Date of Amended Bill: The bill takes effect August 1, 2005, except section 7, relating to continuing the authority to allocate a proportionate share of interest earnings to the City-County Assistance Account, which takes effect July 1, 2006.

Testimony For: (Capital Budget) (In support) Since the passage of Initiative 695, cities and counties have been struggling to balance their budgets. Local law enforcement needs make up the greatest percentage of county budgets and services have been cut as a result of budget reductions, leaving many services unmet, especially in counties with a low tax base. This proposal would take 1.6 percent of the 7.7 percent of REET going to the PWAA, approximately $20 million next biennium, and dedicate it to local governments on a formula basis with no restrictions as to how the local governments could use the funds.

(With concerns) REET is not an extremely reliable funding source. Local governments could be better served by another funding option. This solution does not befit the problem.      

Testimony For: (Finance) The financial situation is really serious for the smaller jurisdictions, which are eliminating public services in some instances. Many very small cities cannot keep city hall open for more than a few hours each day. Cowlitz County has eliminated 50 positions. Other counties have made similar reductions. Columbia has zero reserves. Ferry County will not be able to make their payroll by the end of the year.

Counties have been requesting I-695 backfill for years. This is a difficult situation for small counties, where the backfill can be the majority of the general expense budget.

The distribution formula has been worked out with the cities and counties. The distribution funding is targeted to those jurisdiction that really need it. City assistance will go to 164 cities with no city receiving more than $100,000, and many receiving much less than that.

If a permanent funding source is found, then there will not longer be a need to ask for an appropriation for this purpose. The bill started with funding from a small part of the real estate excise tax that goes into the public works trust fund. The initial amount raised $20 million to fund the formula. The proposed amendment will have no impact on the general fund. This would be a permanent fix. The proposed amendment is not a general tax increase but a targeted utility tax. The funding source is equitable, fair and appropriate.

Revenue should not be diverted from the public works trust fund which provides money for infrastructure. Money should come from another funding source. The proposed amendment moves in the direction of providing tax parity between cable television and satellite television. Cable television pays local franchise and utility taxes which satellite television does not. Satellite television is no longer just in rural areas but in the urban areas as well. Currently cable television is at a competitive disadvantage to satellite television. Tax parity is a necessity.

Testimony Against: (Capital Budget) The PTWF funds important local projects that protect health and safety infrastructure. Although the needs of local governments are important, diverting revenue from the PWTF, a program with it's own great needs, will not solve the problem. Setting a precedent of diverting revenue from the PWTF could jeopardize the future of funding for public safety and health projects.

Testimony Against: (Finance) None.

Persons Testifying: (Capital Budget) (In support) Senator Parlette, prime sponsor; Bill Vogler, Washington State Association of Counties; Dean Burton, Garfield County; Steve Jenkins, City of Bridgeport; Jim Justin, Association of Washington Cities; Mike Whelan, Grays Harbor Sheriff; and Steve Whybark, Mason County Sheriff.

(With concerns) Bryan Wahl, Washington Association of Realtors.

(Opposed) Rick Slunaker, Associated General Contractors; David Ducharme, Utility Contractors Association of Washington; and Paul Locke.

Persons Testifying: (Finance) Representative Takko; Bill Vogler, Washington State Association of Counties; Jim Justin, Association of Washington Cities; Ron Main, Broadband Communications Association of Washington; and Rick Slunaker, Associated General Contractors.

Persons Signed In To Testify But Not Testifying: (Capital Budget) None.

Persons Signed In To Testify But Not Testifying: (Finance) None.