AN ACT Relating to economic diversification; amending RCW 43.63A.078, 43.168.010, 43.168.020, and 43.168.130; adding a new section to chapter 82.04 RCW; adding a new chapter to Title 43 RCW; and making an appropriation.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. The legislature finds that defense and related industries constitute a substantial portion of the state's economy; that economic activity in defense and related industries is subject to severe fluctuations due to changes in federal government outlays; and that the state, and particularly those local communities significantly dependent on defense and related industries, have suffered in the past as a result of these fluctuations in federal spending and are in jeopardy of future economic dislocation as a result of constraints on federal spending.

The legislature further finds that the state has an interest in assisting communities and firms which are significantly dependent on defense and related federal spending cope with fluctuations in these federal outlays. Moreover, the legislature finds that economic diversification from defense to nondefense production is a valuable way for communities and firms to respond to the fluctuating character of federal defense and related spending.

It is the purpose of this chapter to create a state commission on economic diversification. The commission shall assist communities and firms within the state which are significantly dependent on defense and related federal government outlays to diversify into nondefense economic activity.

NEW SECTION. Sec. 2. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter:

(1) "Commission" means the Washington state commission on economic diversification.

(2) "Firm dependent on defense spending" means a firm with at least twenty-five percent of its gross sales during the previous twelve months derived from federal outlays from the department of defense, or outlays related to the department of defense but which are from the department of energy or the national space and aeronautics administration.

(3) "Community dependent on defense spending" means a county of the state or a geographical area of the state with a minimum population of five thousand persons, in which the sum of salaries, wages, and procurement dependent on spending by the department of defense or defense related spending by the department of energy or the national space and aeronautics administration is equal to five percent or more of personal income of that county or area during any quarter of the previous twenty-four months.

(4) "Fund" means the economic diversification fund created in section 9 of this act.

(5) "Local development organization" means a nonprofit organization which is organized to operate within an area, demonstrates a commitment to a long-standing effort for an economic development program, and reflects a broad cross-section of the community including business and labor.

(6) "Alternative use plan" means a business plan to diversify at least twenty percent of gross sales from defense or defense related goods or services to nondefense or defense related goods or services.

NEW SECTION. Sec. 3. There is created the Washington state commission on economic diversification. The commission shall consist of eleven members and a chairperson. The governor shall appoint the members of the commission except for legislative members. Two members shall be from private sector firms, one of which shall be a firm dependent on defense spending; two members shall be from employee organizations, one of which shall be an employee organization representing employees of a firm dependent on defense spending; two members shall be from community-based organizations active in economic diversification; one member shall be an educator with expertise in the area of economic diversification; four members shall be from the legislature, one from each political caucus of the senate to be appointed by the president of the senate, and one from each political caucus of the house of representatives to be appointed by the speaker of the house of representatives. The director of the department of community development shall serve as the nonvoting chairperson of the commission.

(1) Members of the commission, other than the chair, shall serve for two-year terms. Vacancies shall be filled in the same manner as the original appointments.

(2) Members of the commission shall receive no compensation as under RCW 43.03.220 but shall be reimbursed for travel expenses under RCW 43.03.050 and 43.03.060.

(3) The commission shall have power to employ staff who shall be state employees pursuant to Title 41 RCW and prescribe their duties as necessary to carry out the purposes of this chapter.

NEW SECTION. Sec. 4. (1) The commission shall assist communities and firms dependent on defense spending to diversify from defense to nondefense economic activity. This assistance shall include, but not be limited to:

(a) Facilitating the provision of financial and technical assistance from federal, state, and local government, and private sources.

(i) Technical assistance shall include referrals of individuals, groups, governmental units, and firms with expertise in economic diversification.

(ii) Financial assistance shall include, but not be limited to, loans through the Washington state development loan fund committee as provided for under chapter 43.168 RCW; grants from the local development matching fund program as provided for under RCW 43.63A.078; and grants from the economic diversification fund as provided for under section 9 of this act;

(b) Serving as a source of information on diversification activities in this and other nations; and

(c) Conducting promotional activities including the formation of sister community and sister company relations between communities and firms in Washington and communities and firms in other states and nations which are engaged in diversification efforts, and the conducting of educational forums.

(2) The commission shall determine whether alternative use plans developed by firms dependent on defense spending satisfy the provisions of this act and whether any firm shall be granted the tax credit provided for in section 11 of this act.

Sec. 5. Section 7, chapter 125, Laws of 1984 as amended by section 33, chapter 505, Laws of 1987 and RCW 43.63A.078 are each amended to read as follows:

The department shall develop and administer a local development matching fund program. To be eligible to receive funds under this program, an organization must be a local government or a nonprofit local development entity. Any local government or entity requesting funds must demonstrate the participation of a cross-section of the local community in the economic development project, including business, labor, education and training, and the public sector. Under this program, the department shall provide matching funds which shall be used for the formulation of local economic development strategies, including the technical analysis necessary to designate and carry out the strategies. A technical analysis can include, but is not limited to, the development and dissemination of data on local markets, demographics, comparative business costs, site availability, labor force characteristics, and local incentives. Funds are to be used primarily to foster new developments and expansions which result in the trading of goods and services outside of the state's borders, and to assist local communities to diversify from defense and defense related economic activity to nondefense economic activity. Funds may be made available for assisting local businesses in utilizing state and federal programs in exporting, training, and financing. Funds may also be used to provide technical assistance to businesses in the areas of land use, transportation, site location, and manpower training. Matching funds cannot be used for entertainment, capital expenses, hosting, or marketing. Funds granted for economic development projects must be matched by local resources on a dollar-for-dollar basis. Not more than fifty thousand dollars of state matching funds as provided by this section may be used for any one project.

Sec. 6. Section 1, chapter 164, Laws of 1985 and RCW 43.168.010 are each amended to read as follows:

The legislature finds that:

(1) The economic health and well-being of the state, particularly in areas of high unemployment, economic stagnation, and poverty, is of substantial public concern.

(2) The consequences of minimal economic activity and persistent unemployment and underemployment are serious threats to the safety, health, and welfare of residents of these areas, decreasing the value of private investments and jeopardizing the sources of public revenue.

(3) The economic and social interdependence of communities and the vitality of industrial and economic activity necessitates, and is in part dependent on preventing substantial dislocation of residents and rebuilding the diversification of the areas' economy, including diversification from defense and defense related economic activity to nondefense economic activity.

(4) The ability to remedy problems in stagnant areas of the state is beyond the power and control of the regulatory process and influence of the state, and the ordinary operations of private enterprise without additional governmental assistance are insufficient to adequately remedy the problems of poverty and unemployment.

(5) The revitalization of depressed communities requires the stimulation of private investment, the development of new business ventures, the provision of capital to ventures sponsored by local organizations and capable of growth in the business markets, and assistance to viable, but under-financed, small businesses in order to create and preserve jobs that are sustainable in the local economy.

Therefore, the legislature declares there to be a substantial public purpose in providing capital to promote economic development and job creation in areas of economic stagnation, unemployment, and poverty. To accomplish this purpose, the legislature hereby creates the Washington state development loan fund committee and vests in the committee the authority to spend federal funds to stimulate the economy of distressed areas.

Sec. 7. Section 2, chapter 164, Laws of 1985 as last amended by section 18, chapter 42, Laws of 1988 and RCW 43.168.020 are each amended to read as follows:

Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Committee" means the Washington state development loan fund committee.

(2) "Department" means the department of community development.

(3) "Director" means the director of the department of community development.

(4) "Distressed area" means: (a) A county which has an unemployment rate which is twenty percent above the state average for the immediately previous three years; (b) a metropolitan statistical area, as defined by the office of federal statistical policy and standards, United States department of commerce, in which the average level of unemployment for the calendar year immediately preceding the year in which an application is filed under this chapter exceeds the average state unemployment for such calendar year by twenty percent. Applications under this subsection (4)(b) shall be filed by April 30, 1989; or (c) an area within a county, which area: (i) Is composed of contiguous census tracts; (ii) has a minimum population of five thousand persons; (iii) has at least seventy percent of its families and unrelated individuals with incomes below eighty percent of the county's median income for families and unrelated individuals; and (iv) has an unemployment rate which is at least forty percent higher than the county's unemployment rate. For purposes of this definition, "families and unrelated individuals" has the same meaning that is ascribed to that term by the federal department of housing and urban development in its regulations authorizing action grants for economic development and neighborhood revitalization projects.

(5) "Fund" means the Washington state development loan fund.

(6) "Local development organization" means a nonprofit organization which is organized to operate within an area, demonstrates a commitment to a long-standing effort for an economic development program, and makes a demonstrable effort to assist in the employment of unemployed or underemployed residents in an area.

(7) "Project" means the establishment of a new or expanded business in an area which when completed will provide employment opportunities. "Project" also means the retention of an existing business in an area which when completed will provide employment opportunities, including the diversification of an existing business from defense and defense related economic activity to nondefense economic activity.

Sec. 8. Section 7, chapter 461, Laws of 1987 and RCW 43.168.130 are each amended to read as follows:

(1) The committee shall develop performance standards for judging the effectiveness of the program. Such standards shall include, to the extent possible, examining the effectiveness of grants in regard to:

(a) Job creation for individuals of low and moderate income;

(b) Retention of existing employment;

(d) The diversification of the economic base of local communities, including diversification from defense and defense related economic activity to nondefense economic activity;

(e) The establishment of employee cooperatives;

(f) The provision of assistance in cases of employee buy-outs of firms to prevent the loss of existing employment;

(g) The degree of risk assumed by the development loan fund, with emphasis on loans which did not receive financing from commercial lenders, but which are considered financially sound.

(2) The committee shall report to the appropriate standing committees of the legislature on the development of performance standards by January 1, 1988.

NEW SECTION. Sec. 9. Revenues from the tax imposed in section 11 of this act shall be deposited in the economic diversification fund which shall be an account in the state treasury. Moneys in the account may be spent without further legislative appropriation for grants under this act.

NEW SECTION. Sec. 10. Subject to the restrictions contained in this act the commission is authorized to approve applications of local governments and local development organizations for grants from the economic diversification fund. The commission may approve applications as follows:

(1) Applications may be for the formulation of an economic development strategy to enable a community dependent on defense spending to diversify to nondefense economic activity, including technical analysis such as data on local markets, demographics, comparative business costs, site availability, labor force characteristics, and local incentives;

(2) Funds may be made available to assist local business in utilizing state and federal programs which are of use for economic diversification;

(3) Funds may be made available to provide technical assistance to businesses in the areas of land use, transportation, site location, and manpower training; and

(4) Not more than one hundred thousand dollars may be granted to any local government or local development organization within any twelve-month period.

NEW SECTION. Sec. 11. A new section is added to chapter 82.04 RCW to read as follows:

(1) There is levied and shall be collected from every person, for the act or privilege of engaging in business activities subject to tax under this chapter, an additional tax equal to one one-hundredth of one percent multiplied by that portion of the gross income derived from the sale or production of defense or defense related goods or services, except this section shall not apply to businesses which employ less than one hundred persons or which obtain less than twenty percent of their gross income from the sale or production of defense or defense related goods or services.

(2) Any person subject to the tax levied in this section shall be credited for the full value of the tax if that person has developed an alternative use plan as determined by the commission on economic diversification.

NEW SECTION. Sec. 12. The commission shall report each year to the governor, the trade and economic development committee of the house of representatives, and the economic development and labor committee of the senate beginning January 1, 1990, and each year thereafter, on the accomplishments of the commission.

NEW SECTION. Sec. 13. Sections 1 through 4 and 9, 10, and 12 of this act shall constitute a new chapter in Title 43 RCW.

NEW SECTION. Sec. 14. The sum of one hundred fifty thousand dollars, or as much thereof as may be necessary, is appropriated for the biennium ending June 30, 1991, from the general fund to the commission for the purposes of this act.

NEW SECTION. Sec. 15. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.