Title: An act relating to dedicated funding for jobs, economic development, and local capital projects.

Brief Description: Concerning funding for jobs, economic development, and local capital projects.

Sponsors: Senate Committee on Ways & Means (originally sponsored by Senators Kilmer, Brandland, Hatfield and McAuliffe).

Brief History:

Community & Economic Development & Trade: 2/20/08, 2/27/08 [DPA].

HOUSE COMMITTEE ON COMMUNITY & ECONOMIC DEVELOPMENT & TRADE

Majority Report: Do pass as amended. Signed by 6 members: Representatives Kenney, Chair; Pettigrew, Vice Chair; Chase, Darneille, Rolfes and Sullivan.

Minority Report: Do not pass. Signed by 3 members: Representatives Bailey, Ranking Minority Member; McDonald, Assistant Ranking Minority Member; Haler.

Staff: Meg Van Schoorl (786-7105).

Background:

Community Economic Revitalization Board Program
The Community Economic Revitalization Board (CERB) is a statutorily authorized state board charged with financing publicly-owned economic development infrastructure improvements that encourage new business development and expansion in areas where growth is desired. Staffing for the CERB is provided by the Department of Community, Trade and Economic Development (DCTED). The CERB program provides local governments low-interest loans and, from time to time, grants, to help finance public facility projects. Assistance in the traditional CERB program is primarily targeted to rural communities. Counties, cities, towns, port districts, federally-recognized Indian tribes, special purpose districts, municipal corporations and quasi-municipal corporations with economic development purposes are eligible to apply. The CERB financing can be used for public facilities including, but not limited to, bridges, roads, domestic and industrial water, sanitary and storm sewers, and railroad spurs. In recent years, the Legislature has given the CERB responsibility for implementing the Job Development Fund (JDF) and Local Infrastructure Financing Tool (LIFT) programs.

Public Infrastructure Study Committee
A proviso in the 2007-09 Capital Budget established the Study Committee on Public Infrastructure Programs and Funding Structures (Committee). The joint House-Senate bipartisan committee was charged with making "recommendations for a comprehensive funding structure and a systematic approach to support the integration, consolidation and standardization of processes and procedures for community and economic development infrastructure programs."

The Committee's Final Report, dated January 1, 2008, determined that economic development resources should promote family wage jobs, job growth and retention, and should be based on regional plans that are consistent with the workforce development goals, the state economic development plan (when developed), and other state policy goals. The Committee proposed that: the JDF statute and the planned 2009-11 $50 million Public Works Assistance Account Fund transfer be eliminated; the Legislature identify a permanent funding source for the CERB; re-evaluate the rural/urban mix of projects and maximum dollar amount allowed for each project in an expanded CERB program; the CERB funding criteria should prioritize projects compatible with statewide policy goals; and, performance measures should be required to indicate whether the projects are meeting the policy goals. If the CERB Program were to be expanded, adequate funding would be necessary for diligent application review and monitoring.

Summary of Amended Bill:

Findings and Definitions (Sections 1 and 2)
Procedural language related to transportation improvements on state highways is removed from the intent section. A "rural county" is a county with a population density of less than 100 persons per square mile or smaller than 225 square miles. References to the special tools and targeted funding needed by natural resources impact areas and rural counties are eliminated from the findings section. The definition of "rural natural resources impact area" is eliminated. Obsolete references to industrial revenue bonds, industrial development bonds, and financial institutions, among others, are removed.

Community Economic Revitalization Board (Sections 3 and 4)
A majority of members currently appointed constitutes a quorum. Obsolete references to industrial development revenue bonds and industrial development facilities are removed.

Loans and Grants (Section 5)
The current requirement that the CERB provide at least 10 percent of all financial assistance in any biennium in the form of grants to political subdivisions and federally-recognized tribes is replaced by a limitation on the CERB to approve no more than 25 percent in grants.

The current prohibition on providing financial assistance for the acquisition of real property, including buildings and other fixtures which are a part of real property, is eliminated.

The CERB is prohibited from providing financial assistance for a project located outside the jurisdiction of the applicant political subdivision or federally-recognized Indian tribe.

Existing language that describes eligible projects in terms of specific industrial sectors is replaced. The CERB must only provide financial assistance for:

• a project that demonstrates convincing evidence that a specific private development or expansion is ready to occur and will occur only if the public facility improvement is made, that will result in the creation of significant private sector jobs or capital investment, as determined by the CERB, and is consistent with Washington Economic Development Commission's (Commission) comprehensive economic development plan, once the plan is adopted;
• a project that cannot demonstrate that a specific private development or expansion is ready to occur and will occur only if the public facility improvement is made, but will result in significant private sector jobs or capital investment, is consistent with the Economic Development Commission's comprehensive economic development plan once the plan is adopted, is part of a local economic development plan consistent with applicable state planning requirements, can demonstrate project feasibility, and is located in a rural community, as defined by the CERB, or a rural county; or
• site-specific plans, studies and analyses that address certain impacts, engineering, marketing, design and planning elements, up to $50,000 in grant funding.

An application must: demonstrate local match and participation; be approved by the political subdivision; be supported by the associate development organization or local workforce development council or approved by the governing body of the federally-recognized Indian tribe; and demonstrate convincing evidence that the median hourly wage of the private sector jobs will exceed the countywide median hourly wage.

"De minimis" general system improvements may be funded if they are critically linked to the project's viability.

The CERB must prioritize each project according to: the rate of return on the state's investment, including the leveraging of private sector investment and anticipated job creation and retention; whether the project offers a health insurance plan for employees that includes an option for dependents of employees; and, whether the investment will increase capacity to accommodate projected population and employment growth in a manner that supports infill and urban or industrial area redevelopment served by adequate public facilities. Projects should maximize the use of existing infrastructure and provide for adequate funding of necessary transportation improvements.

Conditions of Public Facilities Financial Assistance (Sections 6 and 8)
Outstanding financial assistance to Pierce, King and Snohomish counties may exceed 60 percent of the total disbursed funds. The CERB may partially forgive loan payments on projects in rural communities as defined by the CERB. Several references to the distressed county public facilities construction loan account and to rural natural resources impact areas are eliminated.

The current requirement for the CERB to spend at least 75 percent of all funds available for projects in rural counties or rural natural resources impact areas is replaced. Instead, the CERB must approve at least 75 percent of the first $20 million available and at least 50 percent of any additional funds for projects in rural counties. However, if there are insufficient applications received or anticipated from rural counties in the final six months of a biennium, the CERB may use the unused funds in non-rural counties.

Outcome-Based Evaluation by the CERB (Sections 9 and 10)
Each even-numbered year, the CERB must conduct an outcome-based evaluation according to specified criteria. By September 1, the CERB must forward the draft evaluation to the Commission for review and comment, and respond to the Commission's requests for additional information. The CERB must include the Commission's written comments or recommendations in the evaluation and present it to the Governor and appropriate legislative committees by December 31.

Miscellaneous, Repealers and Effective Date (Sections 7, 11, 12, 13 and 14)
Obsolete references to the State Transportation Commission are replaced by references to the Washington State Department of Transportation. The JDF Program expires June 30, 2009. Reports by the Joint Legislative Audit and Review Committee on State Public Infrastructure Programs and Funds (completed) and on the JDF (due 2010) expire June 30, 2009. A number of the CERB statutory sections are repealed, effective July 1, 2009.

Amended Bill Compared to Second Substitute Bill:

Reference to the .09 tax statute to define "rural county" is replaced by definition of "rural county" as a county with a population density of fewer than 100 persons per square mile or a county smaller than 225 square miles. The CERB projects must be consistent with the state comprehensive economic development plan developed by the Commission once the plan is adopted. The "median" hourly wage of private sector jobs created after the CERB project is complete must exceed the countywide "median" hourly wage, instead of the standard being the "average" hourly wage. Current law is reinstated and clarified regarding two project prioritization factors: relative benefits provided to the community and the rate of return of the state's investment. The Commission's evaluation of the CERB financial assistance is replaced with a three step process: (1) each even-numbered year, the CERB must conduct an outcome-based evaluation according to specified criteria; (2) by September 1, the CERB must forward the draft evaluation to the Commission for review and comment, and respond to the Commission's requests for additional information; and (3) the CERB must include the Commission's written comments or recommendations in the evaluation and present it to the Governor and appropriate legislative committees by December 31. Procedural language related to transportation improvements on state highways is eliminated from the intent section and in the operative section, obsolete references to the State Transportation Commission are replaced with references to the Department of Transportation.

Appropriation: None.

Fiscal Note: Requested on February 18, 2008.

Effective Date of Amended Bill: The bill takes effect 90 days after adjournment of session in which bill is passed, except for sections 1, 2, 4-11, and 14, relating to intent, definitions, CERB authorities, funds, transportation projects, evaluations, and appealers, which take effect July 1, 2009, and section 3, relating to the CERB quorum, which takes effect immediately.

Staff Summary of Public Testimony:

(In support) The CERB is the state's only economic development infrastructure program. This bill builds on the best that the CERB has done in the past and contains forward-thinking policy priorities that bring the CERB statute into the 21st Century. State infrastructure dollars should be invested on local projects that are consistent with overall state economic development policy and plans. Potential CERB projects should be prioritized according to their consistency with urban development growth management goals such as in-fill and use of existing infrastructure. State investment should focus on good paying jobs in terms of wage levels and benefits. If the Job Development Fund is eliminated, rural and urban economic development projects can be brought within one silo. We like defining a rural county in direct words rather than referencing a single, unrelated tax statute that may change in the near future. We would like the CERB quorum change to be effective immediately.

(With concerns) We would like to preserve the CERB's flexibility regarding consistency with the statewide economic development plan. The existing statewide plan is four years old, the new draft plan is due out this summer, and it would be better to see an actual plan before judging the CERB projects against it. In addition, economic development should begin at the local level, and should respond to local needs and priorities. Comparing a project's hourly average wage to the county's hourly wage is problematic. The evaluation factors that include relative benefits and return on investments should both be reinstated. Ten jobs in Ferry County may be more important there than 10 jobs in Seattle, and even an initially small number of jobs might stimulate additional job creation. Having the Economic Development Commission evaluate the CERB financing for projects is highly unusual and redundant. The Commission already can do evaluations within its existing authority. The CERB is agreeable to adding new evaluation criteria or reporting requirements. Unfortunately this bill does not propose a permanent funding source for the CERB – we are working on it, but agreement has not been reached.

(Opposed) None.

Persons Testifying: (In support) Senator Kilmer, prime sponsor; Terri Jeffreys, Washington Realtors; James McMahan, Washington Economic Development Association; and Ashley Probart, Association of Washington Cities.

(With concerns) Ginger Eagle, Washington Public Ports Association; and Marie Sullivan, Department of Community, Trade and Economic Development.

Persons Signed In To Testify But Not Testifying: None.