Background: The Growth Management Act (GMA) is the comprehensive land use planning framework for county and city governments in Washington. Enacted in 1990 and 1991, the GMA establishes numerous planning requirements for counties and cities obligated by mandate or choice to fully plan under the GMA (planning jurisdictions), and a reduced number of directives for all other counties and cities. Twenty-nine of Washington's 39 counties, and the cities within those counties, are planning jurisdictions.

Public infrastructure funding is accomplished in a number of different ways in the state. The Legislature has, in recent years, examined a number of ways to increase investment in public infrastructure in the state. Tax increment financing is a method of redistributing increased tax revenues within a geographic area resulting from a public investment to pay for the bonds required to construct a project.

A number of tax increment financing programs have been created in the state: in 2001 the Legislature created the Community Revitalization Financing Program; in 2006 the Local Infrastructure Financing Tool Program was created by the Legislature; and in 2009 the Legislature created the Local Revitalization Financing Program.

A transfer of development rights (TDR) occurs when a qualifying land owner, through a permanent deed restriction, severs potential development rights from a property and transfers them to a recipient for use on a different property. In TDR transactions, transferred rights are generally shifted from sending areas with lower population densities to receiving areas with higher population densities. The monetary values associated with transferred rights constitute compensation to a land owner for development that may have otherwise occurred on the transferring property.

In 2007 the Legislature directed the Department of Community, Trade, and Economic Development, now the Department of Commerce (Commerce), to fund a process to develop a regional TDR program that corresponds with the GMA. The legislation specified that the TDR program must encourage King, Kitsap, Pierce, and Snohomish counties, and the cities within, to participate in the development and implementation of regional frameworks and mechanisms for TDR programs. In 2009 the Legislature directed Commerce to establish a regional TDR program to foster voluntary local government participation that will result in the transfer of development rights between jurisdictions in central Puget Sound counties and cities.

The Puget Sound Regional Council (PSRC) is an association of cities, towns, counties, ports, and state agencies that serves as a forum for developing policies and making decisions about regional growth and transportation issues in the four county central Puget Sound region. Membership of the PSRC includes King, Kitsap, Pierce, and Snohomish counties, 72 cities and towns, four port districts, and transit agencies and tribes within the region. Two state agencies, the Department of Transportation and the Transportation Commission, are also members of the PSRC.

Summary of Bill (Recommended Substitute): An eligible county, defined as a county that borders Puget Sound, has 600,000 or more residents, and that has an established TDR program, must designate all agricultural and forest land of long-term commercial significance within its jurisdiction as sending areas under its TDR program. An eligible county must calculate the number of development rights from agricultural and forest land of long-term commercial significance that are eligible for transfer to receiving cities.

An eligible county may designate rural zoned lands as available for transfer to receiving cities if 50 percent or more of the agricultural and forest land of long-term commercial significance in the county has already been protected through a permanent conservation easement or is owned for conservation purposes. The portion of rural zoned lands available for transfer must not exceed 1500 development rights. Additionally, the rural zoned lands must be identified either:

by the county as top conservation priorities because they meet certain criteria; or
as highly important to the water quality of Puget Sound.

On or before September 1, 2011, each eligible county must report to the PSRC the total number of transferable development rights within the eligible county that may be available for allocation to receiving cities. The PSRC must allocate the total number of development rights among the receiving cities in consultation with eligible counties and based on certain factors. On or before March 1, 2012, the PSRC must report to each receiving city and to Commerce each receiving city's share of transferred development rights. A receiving city may, by interlocal agreement, transfer all or a portion of its transferred development rights to another receiving city. A receiving city is defined as any incorporated city within an eligible county that has a population plus employment of 22,500 or more.

A receiving city becomes a sponsoring city by:

accepting all or a portion of its transferred development rights;
adopting a development plan for infrastructure; and
creating one or more local infrastructure project areas.

A development plan for infrastructure must:

be developed in consultation with the county and any port district where the local infrastructure project area to be created is located;
be consistent with any TDR policies or development regulations adopted by the sponsoring city;
specify the public improvements to be financed using local infrastructure project financing;
estimate the number of transferred development rights that will be used within the local infrastructure project area; and
estimate the cost of the public improvements.

Before creating a local infrastructure project area, a sponsoring city must (1) adopt TDR policies or implement development regulations, or (2) make a finding that it will either receive its transferred development rights in a local infrastructure project area or purchase its transferred development rights to be held in reserve by the sponsoring city and used in future development.

To create a local infrastructure project area, a sponsoring city must adopt an ordinance or resolution that describes the proposed public improvements and the boundaries of the local infrastructure project area. Before adopting an ordinance or resolution creating a local infrastructure project area, a sponsoring city must provide notice to the county assessor, county treasurer, and the chief executive officer of each port district within the proposed local infrastructure project area and hold a public hearing on the proposed formation. A sponsoring city may adopt an element to its comprehensive plan and associated development regulations to apply within a local infrastructure project area.

The designation of a local infrastructure project area is subject to limitations, including, but not limited to:

the area be contiguous tracts of land;
the public improvements be financed with local infrastructure project financing;
the area not contain more than 25 percent of the total assessed value of taxable property within the sponsoring city;
there is no overlap of the boundaries of each local infrastructure project area; and
all local infrastructure project areas created by the sponsoring city comprise an area in which the transferred development rights will be used.

A port district may opt in to local infrastructure project financing for one or more local infrastructure project areas.

Each participating taxing district and the sponsoring city must receive that portion of its regular property taxes produced by the rate of tax levied by or for the taxing district on the property tax allocation revenue base value for that local infrastructure project area in the taxing district. The sponsoring city must receive an additional portion of the regular property taxes levied by it and by or for each participating taxing district upon the property tax allocation revenue value within the local infrastructure project area. The portion of the tax receipts distributed to the sponsoring city may only be used to finance public improvement costs within the local infrastructure project area, or to pay or finance costs of affordable housing, or facilities and improvements that support affordable housing. At least 5 percent of the tax receipts distributed to the sponsoring city must be set aside and reserved or expended within the local infrastructure project area for such affordable housing purposes. The property tax allocation terminates when local infrastructure project financing is no longer used for costs of public improvements or based on certain threshold levels.

The eligible counties, in collaboration with sponsoring cities, must provide a report to Commerce by March 1 of every other year that contains certain information.

Staff Summary of Public Testimony on Original Bill: PRO: This bill applies to King, Pierce, and Snohomish counties. In the face of sprawl, there must be protection of rural lands, and this bill is designed to do that. This bill provides cities with a new local infrastructure financing tool that will help meet the demands for public infrastructure. This bill will promote smart growth. This bill provides an innovative approach that is needed to limit sprawl. Farm and forest land owners can realize their development value but still be able to farm their land. TDR programs have worked, but this bill will scale the TDR programs around Puget Sound. The costs of rural development is much higher than the costs of urban development on the local jurisdictions. This bill provides cities with critical infrastructure financing. This bill provides a creative idea of protecting resource lands in the rural areas and providing funding for infrastructure in the urban areas. This bill does not provide any state funding. This program will offer cities a new local financing tool to meet existing and future infrastructure needs in exchange for working together to absorb development potential through the transfer of developments rights from the surrounding natural and working landscapes. This legislation has brought together a diverse coalition to support this proposal. TDR programs are critical to ensure forestry is maintained in the Puget Sound region. This bill will create jobs, create livable communities, and protect 500,000 acres of farms and forestry.

CON: This bill will effect port districts in Seattle, Tacoma, Everett, and Edmonds. This bill authorizes tax increment financing in a somewhat complex mechanism of transferring development rights from rural lands to urban lands. It does it by capturing the increased property tax capacity of cities, counties, and port districts. Port districts align their tax revenues with their economic priorities, which tend to be job creating types of infrastructure, including transportation infrastructure.

OTHER: There is concern about gentrification with this bill. There needs to be a stronger connection between development rights and affordable housing. It is important to make sure that low income folks do not get priced out of communities that this bill would improve.