Passed by the House February 13, 2026 Yeas 52 Nays 40 Speaker of the House of Representatives Passed by the Senate March 11, 2026 Yeas 27 Nays 21 President of the Senate	CERTIFICATE I, Bernard Dean, Chief Clerk of the House of Representatives of the State of Washington, do hereby certify that the attached is SUBSTITUTE HOUSE BILL 2089 as passed by the House of Representatives and the Senate on the dates hereon set forth. Chief Clerk Chief Clerk
Approved	FILED
	Secretary of State State of Washington

ByHouse Finance (originally sponsored by Representatives Scott, Springer, Parshley, Ryu, Simmons, Berry, Street, Thomas, Ormsby, Obras, Reeves, Macri, Fosse, Hill, Pollet, and Salahuddin)

AN ACT Relating to supporting wildfire mitigation by modifying RCW 82.04.29005, concerning taxes on loan interest; amending RCW 82.04.29005; adding a new section to chapter 82.32 RCW; creating new sections; and providing an effective date.

NEW SECTION. Sec. 1. INTENT.(1) It is the intent of this act to restore funding to Washington state's wildfire response, forest restoration, and community resilience account ("wildfire response account").

(a) When the wildfire response account was created by chapter 298, Laws of 2021 (Second Substitute House Bill No. 1168, RCW 76.04.505), the legislature committed a biennial investment of $125 million to this account to fund wildfire preparedness. The account was created without a dedicated revenue source. Funding for the wildfire response account was reduced by 50 percent at the start of the 2025-2027 fiscal biennium. In a public statement of July 25, 2025, at the site of the Burdoin fire near the Columbia River Gorge, Governor Ferguson said "this is a reminder of the need for those resources."

(b) In RCW 76.04.505, the legislature found that "[fire] suppression costs are only a small portion of the impact [of wildfires] to the state budget." The legislature finds that funding wildfire preparedness activities under RCW 76.04.511(3) saves the state substantially in post facto costs stemming from infrastructure wreckage, reduced real estate valuation, insurance claims, and adverse health outcomes.

(c) In chapter 6, Laws of 2012 2nd sp. sess., (Engrossed Senate Bill No. 6635), the legislature extended a tax preference to defined "community banks," enabling them to receive a business and occupation tax deduction for the interest they received on certain loans. "Community banks" were defined in statute, RCW 82.04.29005, as "persons or an affiliate of such persons located in ten or fewer states." The legislature indicated that this tax preference was intended to stimulate lending activity in Washington's residential housing market through defined "community banks," and to do so without violating the federal interstate commerce clause. Under RCW 82.04.4292, a subsequent 2015 review of the tax preference by the joint legislative audit and review committee recommended modifying this tax preference, "if the Legislature determines the preference is [not] focused on the pool of lenders the Legislature intended."

(d) The 2024 department of revenue report "Impact of Revenue Alternatives" demonstrated that 65 percent of the beneficiary savings resulting from this tax preference ($91.6 million of a total $141 million in taxpayer savings in 2023) went to placeless financial institutions, not the "community" lenders the legislature intended to support with its 2012 tax preference. These and other large financial institutions benefiting from the tax preference are more likely to conduct a greater share of their business transactions via data centers that consume immense amounts of water on vast plots of deforested land, exacerbating climatic warming trends which increase the frequency of forest fires.

(e) The legislature finds that the current statutory definition of a "community bank" may in any case violate the interstate commerce clause: An arbitrary definition of "ten or fewer states" would appear to discriminate against certain financial institutions on the basis of how much business they conduct in and across American states.

(f) To harmonize the impact of the first mortgage interest deduction tax preference with the legislature's intent in creating this preference, the joint legislative audit and review committee's 2015 revisitation of RCW 82.04.4292 and 82.04.29005 recommended narrowing the intended target of the tax preference therein, perhaps by adjusting the statute definition of a "community bank," or by making the preference a function of certain kinds of data about mortgages. The legislature finds that thusly subjecting certain financial institutions to the Washington state business and occupation tax would create revenues, some to the state workforce education investment account, and that workforce development investments for forest fire mitigation activities were core to the creation of the wildfire response, forest restoration and community resilience account under RCW 76.04.511(7).

(1) Amounts received as interest on loans originated by a ((person located in more than ten states))high volume mortgage lender, or an affiliate of such person, and primarily secured by first mortgages or trust deeds on nontransient residential properties are subject to tax under RCW 82.04.290(2)(a).

(b) Such in-state presence allows borrowers or potential borrowers to contact the branch, office, employee, or representative concerning the acquiring, negotiating, renegotiating, or restructuring of, or making payments on, mortgages issued or to be issued by the person or an affiliate of the person))The person is a specified financial institution as defined in RCW 82.04.29004; or

(1) By October 15, 2027, and by each October 15th thereafter, the department must estimate any increase in state general fund revenue collections for the immediately preceding fiscal year resulting from the modification of RCW 82.04.29005 under section 3, chapter . . ., Laws of 2026 (section 3 of this act). The department must promptly notify the state treasurer of these estimated amounts.

(2) Beginning November 1, 2027, and by each November 1st thereafter, the state treasurer must transfer from the general fund the estimated amount determined by the department under subsection (1) of this section for the immediately preceding fiscal year into the wildfire response, forest restoration, and community resilience account under RCW 76.04.511.

(3) The department may not make any adjustments to an estimate under subsection (1) of this section after the state treasurer makes the corresponding distribution under subsection (2) of this section based on the department's estimate.