AN ACT Relating to encouraging affordable housing development and preservation by providing cities limited sales tax remittance for qualifying investments, providing cities and counties authority to use real estate excise taxes to support affordable housing, and providing cities and counties with councilmanic authority to impose the affordable housing sales tax; amending RCW 82.46.037 and 82.14.530; adding a new chapter to Title 82 RCW; creating a new section; and providing expiration dates.

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

(a) "Affordable housing" means residential housing units for rental occupancy that are rented or owned by a person or household whose monthly housing costs, including utilities other than telephone, do not exceed thirty percent of the person's or household's monthly income. For purposes of this chapter, "affordable housing" also may include affordable workforce housing, which means affordable housing that supports employment opportunities.

(b) "City" means any city or town, including a code city.

(c) "Department" means the department of commerce.

(d) "Local infrastructure" has the same meaning as provided for "public improvements" under RCW 39.104.020(18).

(e) "Local sales and use tax" means the local revenue derived from the imposition of taxes authorized in RCW 82.14.030.

(f) "Low-income housing" means residential housing units that are available to persons with annual incomes at or below sixty percent of the county's median income as determined by the office of financial management.

(2) This section expires July 1, 2027.

(b) The residential units for which the city's remittance application was approved must remain affordable housing for at least twenty-five years after the date the department of revenue approved the city's application for a remittance.

(c) If the residential units do not meet the requirements in (b) of this subsection, the city must notify the department of revenue and repay any remittance received under (a) of this subsection on the project. The department of revenue may not assess penalties and interest as provided in chapter 82.32 RCW on the amount due if paid within ninety days from the date when the residential units no longer meet the requirements in (b) of this subsection.

(2) Subject to the requirements in section 4 of this act, a city that coordinates with a housing authority or developer for building approved local infrastructure to facilitate the development of affordable housing may receive a remittance from the department of revenue that is the equivalent of a 4.37 percent sales tax on the sale of or charge made for labor and services rendered in respect to the construction of such local infrastructure. The remittance received by the city under this section must be credited against the sales tax due to the state under chapter 82.08 RCW on the same sales, and must be used to finance the approved infrastructure.

(3) This section expires July 1, 2027.

(a) The city must create an affordable housing and local infrastructure account to be used solely for the city's acquisition or construction of affordable housing or local infrastructure; and

(b) The city must deposit into the affordable housing and local infrastructure account created in (a) of this subsection the equivalent of the 0.85 percent local sales and use tax the city estimates will be collected on the construction of the affordable housing or local infrastructure project.

(2) This section expires July 1, 2027.

(a) In the case of the affordable housing program:

(i) Information establishing the need for affordable housing in that city;

(ii) The anticipated cost of building the affordable housing;

(iii) The estimated annual operating costs for the affordable housing for twenty-five years;

(iv) The amount of the remittance it is requesting; and

(v) The date of expected remittance; and

(b) In the case of the local infrastructure program:

(i) Information establishing that the local infrastructure is needed for an approved private project that will provide affordable residential development;

(ii) The anticipated cost of the project;

(iii) The amount of remittance it is requesting; and

(iv) The date of the expected remittance.

(2) Remittance awards must be determined based on:

(a) For affordable housing:

(i) The immediate need for affordable housing in the requesting city;

(ii) The number of affordable housing units that will be created;

(iii) The city's rental vacancy rate for residential units; and

(iv) The speed with which the project can begin; and

(b) For local infrastructure projects:

(i) The speed with which the project can begin;

(ii) The type of residential development being attracted by the infrastructure investment, prioritized as follows:

(A) Low-income rental residential units;

(B) Affordable rental residential units;

(C) Low-income homeownership projects; and

(D) Affordable homeownership projects; and

(iii) The extent the project will leverage the public funds with private investment.

(3)(a) The department must notify the city of approval or denial within sixty days of receipt of application. Determination by the department is final.

(b) The department may only approve one affordable housing project per city and one local infrastructure project per city. If the city is approved for a combination project that includes both local infrastructure and affordable housing, the city cannot be approved for any additional projects under this chapter.

(c) Upon approval by the department and after the project has been issued final inspection approval by the local permit issuing authority, the city may apply to the department of revenue for a remittance under this chapter. The remittance application must be submitted in a form and manner as required by the department of revenue.

(4) The department must accept applications and begin approving project awards no later than January 1, 2023.

(5) This section expires July 1, 2027.

Sec. 5.  RCW 82.46.037 and 2016 c 138 s 4 are each amended to read as follows:

(1) A city or county that meets the requirements of subsection (2) of this section may use the greater of one hundred thousand dollars or twenty-five percent of available funds, but not to exceed one million dollars per year, from revenues collected under RCW 82.46.035 for:

(a) The maintenance of capital projects, as defined in RCW 82.46.035(5); ((or))

(b) From July 1, 2017, until June 30, 2022, the acquisition, construction, improvement, or rehabilitation of facilities to provide housing for the homeless; or

(c) The planning, acquisition, construction, reconstruction, repair, replacement, rehabilitation, improvement, or maintenance of capital projects as defined in RCW 82.46.010(6)(b) that are not also included within the definition of capital projects in RCW 82.46.035(5).

(2) A city or county may use revenues pursuant to subsection (1) of this section if:

(a) The city or county prepares a written report demonstrating that it has or will have adequate funding from all sources of public funding to pay for all capital projects, as defined in RCW 82.46.035(5), identified in its capital facilities plan for the succeeding two-year period; and

(b)(i) The city or county has not enacted, after June 9, 2016, any requirement on the listing or sale of real property; or any requirement on landlords, at the time of executing a lease, to perform or provide physical improvements or modifications to real property or fixtures, except if necessary to address an immediate threat to health or safety; ((or))

(ii) Any local requirement adopted by the city or county under (b)(i) of this subsection is: Specifically authorized by RCW 35.80.030, 35A.11.020, chapter 7.48 RCW, or chapter 19.27 RCW; specifically authorized by other state or federal law; or a seller or landlord disclosure requirement pursuant to RCW 64.06.080; or

(iii) For a city or county using funds under subsection (1)(b) of this section, the requirements of this subsection apply, except that the date for such enactment under (b)(i) of this subsection is ninety days after the effective date of this section.

(3) The report prepared under subsection (2)(a) of this section must: (a) Include information necessary to determine compliance with the requirements of subsection (2)(a) of this section; (b) identify how revenues collected under RCW 82.46.035 were used by the city or county during the prior two-year period; (c) identify how funds authorized under subsection (1) of this section will be used during the succeeding two-year period; and (d) identify what percentage of funding for capital projects within the city or county is attributable to revenues under RCW 82.46.035 compared to all other sources of capital project funding. The city or county must prepare and adopt the report as part of its regular, public budget process.

(4) ((The authority to use funds as authorized in this section is in addition to the authority to use funds pursuant to RCW 82.46.035(7), which remains in effect through December 31, 2016.

(5))) For purposes of this section, "maintenance" means the use of funds for labor and materials that will preserve, prevent the decline of, or extend the useful life of a capital project. "Maintenance" does not include labor or material costs for routine operations of a capital project.

Sec. 6.  RCW 82.14.530 and 2015 3rd sp.s. c 24 s 701 are each amended to read as follows:

(1)(a) ((A county)) The legislative authority of a county with a population of one million five hundred thousand or less may submit an authorizing proposition to the county voters at a special or general election and, if the proposition is approved by a majority of persons voting, impose a sales and use tax in accordance with the terms of this chapter. The legislative authority of a county with a population over one million five hundred thousand may impose a sales and use tax in accordance with the terms of this chapter. The title of each ballot measure must clearly state the purposes for which the proposed sales and use tax will be used. The rate of tax under this section may not exceed one-tenth of one percent of the selling price in the case of a sales tax, or value of the article used, in the case of a use tax.

(b)(i) If a county with a population of one million five hundred thousand or less has not imposed the full tax rate authorized under (a) of this subsection within two years of October 9, 2015, any city legislative authority located in that county may submit an authorizing proposition to the city voters at a special or general election and, if the proposition is approved by a majority of persons voting, impose the whole or remainder of the sales and use tax rate in accordance with the terms of this chapter. The title of each ballot measure must clearly state the purposes for which the proposed sales and use tax will be used. The rate of tax under this section may not exceed one-tenth of one percent of the selling price in the case of a sales tax, or value of the article used, in the case of a use tax.

(ii) If a county with a population of greater than one million five hundred thousand has not imposed the full tax authorized under (a) of this subsection within three years of October 9, 2015, any city legislative authority located in that county may ((submit an authorizing proposition to the city voters at a special or general election and, if the proposition is approved by a majority of persons voting,)) impose the whole or remainder of the sales and use tax rate in accordance with the terms of this chapter. ((The title of each ballot measure must clearly state the purposes for which the proposed sales and use tax will be used.)) The rate of tax under this section may not exceed one-tenth of one percent of the selling price in the case of a sales tax, or value of the article used, in the case of a use tax.

(c) If a county imposes a tax authorized under (a) of this subsection after a city located in that county has imposed the tax authorized under (b) of this subsection, the county must provide a credit against its tax for the full amount of tax imposed by a city.

(d) The taxes authorized in this subsection are in addition to any other taxes authorized by law and must be collected from persons who are taxable by the state under chapters 82.08 and 82.12 RCW upon the occurrence of any taxable event within the county for a county's tax and within a city for a city's tax.

(2)(a) Notwithstanding subsection (4) of this section, a minimum of sixty percent of the moneys collected under this section must be used for the following purposes:

(i) Constructing affordable housing, which may include new units of affordable housing within an existing structure, and facilities providing housing-related services; or

(ii) Constructing mental and behavioral health-related facilities; or

(iii) Funding the operations and maintenance costs of new units of affordable housing and facilities where housing-related programs are provided, or newly constructed evaluation and treatment centers.

(b) The affordable housing and facilities providing housing-related programs in (a)(i) of this subsection may only be provided to persons within any of the following population groups whose income is at or below sixty percent of the median income of the county imposing the tax:

(i) Persons with mental illness;

(ii) Veterans;

(iii) Senior citizens;

(iv) Homeless, or at-risk of being homeless, families with children;

(v) Unaccompanied homeless youth or young adults;

(vi) Persons with disabilities; or

(vii) Domestic violence survivors.

(c) The remainder of the moneys collected under this section must be used for the operation, delivery, or evaluation of mental and behavioral health treatment programs and services or housing-related services.

(3) A county that imposes the tax under this section must consult with a city before the county may construct any of the facilities authorized under subsection (2)(a) of this section within the city limits.

(4) A county that has not imposed the tax authorized under RCW 82.14.460 prior to October 9, 2015, but imposes the tax authorized under this section after a city in that county has imposed the tax authorized under RCW 82.14.460 prior to October 9, 2015, must enter into an interlocal agreement with that city to determine how the services and provisions described in subsection (2) of this section will be allocated and funded in the city.

(5) To carry out the purposes of subsection (2)(a) and (b) of this section, the legislative authority of the county or city imposing the tax has the authority to issue general obligation or revenue bonds within the limitations now or hereafter prescribed by the laws of this state, and may use, and is authorized to pledge, up to fifty percent of the moneys collected under this section for repayment of such bonds, in order to finance the provision or construction of affordable housing, facilities where housing-related programs are provided, or evaluation and treatment centers described in subsection (2)(a)(iii) of this section.

(6)(a) Moneys collected under this section may be used to offset reductions in state or federal funds for the purposes described in subsection (2) of this section.

(b) No more than ten percent of the moneys collected under this section may be used to supplant existing local funds.

(2) The legislature categorizes this tax preference as one intended to provide tax relief as indicated in RCW 82.32.808(2)(e), thereby lowering the cost of constructing affordable housing.

(3) It is the legislature's specific public policy objective to encourage cities to support the development of affordable housing in their community. It is the legislature's intent to provide a sales and use tax remittance to cities that invest in the construction of new affordable housing units and infrastructure to support the development of new affordable housing.

(4) If a review finds that the affordable units supported by this program are built and maintained at the same cost as the affordable housing programs funded through the housing trust fund or multifamily tax exemption, then the legislature intends to extend the expiration date of the tax preference.

(5) In order to obtain the data necessary to perform the review in subsection (4) of this section, the joint legislative audit and review committee may refer to data sources including:

(a) The information provided by the city on their application as developed by the department of commerce in consultation with staff from the joint legislative audit and review committee; and

(b) Data from the housing trust fund and data from programs funded by the multifamily tax exemption.

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