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SUBJECTS › ECONOMIC DEVELOPMENT › Washington Statutes Relating to Financing Economic Development
Updated 04/06

Washington Statutes Relating to Financing Economic Development

Contents

Limitations on Local Government Economic Development Financing

As financial partners in economic development, cities and counties can invest public funds in a limited, but meaningful manner to promote industrial and commercial growth. This investment may include infrastructure improvements and/or increasing the number of industrial and commercial properties. Local government investment in the state of Washington is restricted by the state constitution under what is known as the lending of credit clause. [Excerpted from Yakima County Comprehensive Plan, "Role of Government in Economic Development."] A number of economic development councils have listed economic development incentives on their Web sites for new and expanding businesses which illustrate some of the programs authorized by the statutes.

General Authority

RCW 35.21.703 - provides general authority for cities to engage in economic development programs. This statute gives authority for cities to contract with private nonprofit corporations for the purpose of engaging in economic development programs, assuming the underlying transaction is constitutional. The statute precludes cities from entering into contracts with for-profit corporations.

RCW 36.01.085 - provides general authority for counties to engage in economic development programs.

Authority for Specific Programs

See also Chapters 82.60 - 82.63 RCW for tax deferral and tax credits

B&O Tax Credit for New Employment for International Services Activities in Eligible Areas (RCW 82.04.44525) provides tax exemptions for businesses in community empowerment zones that provide selected international services.

Community Empowerment Zones and Rural Enterprise Zones (RCW 43.31C.020)  - Not implemented by Dept. of Community, Trade and Economic Development. See Rural Area Marketing Plan Evaluation  by the State Joint Legislative Audit and Review Committee, November 1999  See CTED Community Empowerment Zones

The Community Redevelopment Financing Act (Ch. 39.88 RCW)  is this state's equivalent to the tax increment financing mechanisms heavily utilized in many other states. The Washington Supreme Court ruled that this legislation was unconstitutional. See Leonard v. Spokane, 127 Wn. 2nd 195 (1995).

Community Renewal Area (Ch. 35.81 RCW (Ch. 218 Laws of 2002))  - Revises and updates the Urban Renewal Act to improve the ability of cities, towns, and counties (municipalities) to implement economic development projects in blighted areas. A community renewal plan may include activities designed to reduce poverty and unemployment within the community renewal area. A community renewal plan may also address the replacement of housing that is lost as a result of community renewal activities. The plan must be consistent with the municipality’s plans adopted under the state’s Growth Management Act, or any other applicable planning statutes. The law provides a limited form of tax increment financing. It allows a municipality to pledge any excess local excise taxes generated by business activity within the boundaries of the community renewal area to pay for bonds issued to finance public improvements of that area. A community renewal agency may establish a local improvement district within a community renewal area, and levy special assessments used to pay off bonds issued to finance the local improvements.  See MRSC Web Page Community Renewal Law

Community Revitalization Financing (Ch. 39.89 RCW  (Ch. 212 Laws 2001))  - Authorizes counties, cities, towns, and port districts to create tax increment areas within their boundaries where community revitalization projects and programs are financed by diverting a portion of the regular property taxes imposed by local governments within the tax increment area. Has an expiration date of July 1, 2010.   See MRSC Web page Community Revitalization Financing (Tax Increment Financing) 

Downtown and Neighborhood Commercial Districts (Ch. 35.100 RCW  (Ch. 79, Laws of 2002))  - Authorizes cities over 100,000 designate certain areas as "downtown" or "neighborhood commercial districts," to undertake certain kinds of revitalization activities, measure the increase in its local sales tax revenue in the areas, and spend that increase on revitalization costs, debt service on bonds issued for projects in these districts, etc.

Main Street Tax Credit Incentive Program  Ch. 83.73 RCW (Ch 514 Part IX, Laws 2005)  - Creates a Washington Main Street program to provide technical and financial assistance for the revitalization of downtown and neighborhood commercial districts.  The program is funded by a business and occupation (B&O) tax credit or public utility tax (PUT) credit for private contributions given to eligible downtown or neighborhood commercial district revitalization organizations or to the Department of Community, Trade and Economic Development’s Main Street Trust Fund for downtown and neighborhood commercial district revitalization efforts. Eligible programs are in cities and towns with a population less than 190,000.  See CTED Main Street Tax Incentive  Program

Rural Counties - Distressed Counties - Distressed county assistance account (RCW 82.14.380) was created by Referendum 49 to receive a portion of all motor vehicle excise tax receipts provided in RCW 82.44.110. Funds distributed shall be expended by the counties for criminal justice and other purposes. Note: MVET funding source eliminated by I-695

Rural Counties - Public Facilities Construction Loan Revolving Account (RCW 43.160.080) was created by Referendum 49 to receive funds provided under RCW 82.14.200. Moneys in the account are to be used to provide financial assistance to rural counties that have experienced extraordinary costs due to the location of a major new business facility or the substantial expansion of an existing business facility within the county. Note: MVET funding source eliminated by I-695

Rural Counties - Enhanced Economic Vitality - (Ch 164 Laws of 1999 (ESSB 5594)) - Provides enhanced flexibility for use of CERB funds to allow funding of telecommunications infrastructure, transportation, improvements, and pre-construction costs of infrastructure and facilities; creates a "one stop clearinghouse" to coordinate development of housing for agricultural employees; changes eligibility requirements for distressed area sales and/or business and occupation tax relief ; changes Washington state development loan fund committee to the Rural Washington loan fund; revises public facility grants and loan provisions relating counties, cities and towns planning under GMA including preferences for competing requests.

Rural Counties - Tax Incentives  - Sales and Use Tax

(Ch. 130 Laws of 2004 (SB 6113)) ( 15 KB) -   Amends RCW 82.14.370 and Ch. 184 Laws of 2002)  Amendments are to insure that the proceeds of the local option tax are used for the original purpose of the legislation.   Moneys collected under the local option tax in rural counties may only be used to finance public facilities serving economic development purposes.  Economic development purposes are those that facilitate the creation or retention of businesses and jobs.  Counties must make yearly reports to the State Auditor on new projects, showing that the funds have been used consistent with the goals and requirements of the act.  Existing projects that have bonded against the income stream from the local option tax are not considered new projects.  Final Senate Bill Report.

(Ch. 311 Laws of 1990 (ESHB 2260)  - The rural county local option sales and use tax is directed to rural counties. The tax rate is increased from 0.04 percent to 0.08. Rural county is defined as a population density of less than 100 persons per sq. mi. Defines public facilities. Tax revenues can only be used for public facilities that are listed as an item in the county's overall economic development plan, or the economic development section of the county's comprehensive plan, or the comprehensive plan of a city, or the county's or city's capital facilities plan. A business and occupation (B&O) tax credit is provided to businesses located in rural counties that provide information technology "help desk" services to third parties. A $1,000 per job B&O tax credit is created for jobs created in rural counties for software manufacturing or computer programming. A public utility tax credit is created for donations to an electric utility economic development revolving fund. See Port Angeles example, Ordinance No. 3034.

Industrial Redevelopment Bonds (Ch. 39.84 RCW)  - Authorizes municipal corporations (including cities and counties) to pass ordinances creating public corporations "for the purpose of facilitating economic development and employment opportunities in the state of Washington through the financing of the project costs of industrial development facilities" (RCW 39.84.030).

The public corporations so formed are separate from the municipality that created them, and municipalities cannot give or lend money to these public corporations (RCW 39.84.060). The powers of these public corporations are listed in RCW 39.84.080, and include the power to issue revenue bonds to construct and maintain one or more industrial development facilities. The definition of "industrial development facilities" is quite broad, and even includes public sports facilities and parking facilities. See RCW 39.84.020(6) for the complete definition. Note the following: "No public corporation created under this chapter may operate any industrial development facility as a business other than as lessor, seller, or lender." RCW 39.84.070.

List of jurisdictions with Development Corporations under RCW 39.84

Parking and Business Improvement Areas.  - Cities use BIAs for a variety of purposes including parking improvements, security and maintenance of common areas, business retention and recruitment, marketing programs, special events and promotion, programs to improve the pedestrian environment, projects to enhance aesthetic appearance, and administrative costs. In some cities, the establishment of a business improvement area has been quite controversial. Questions have been raised concerning the constitutionality of chapter 35.87A RCW (which authorizes BIAs), and two state supreme court cases have ruled on its validity. See City of Seattle v. Rogers Clothing for Men, Inc., 114 Wn.2d 213 (1990) and Bellevue Plaza v. Bellevue, 121 Wn.2d 397 (1993). In both cases, the court affirmed the authority of cities to utilize the provisions of ch. 35.87A RCW to establish parking and business improvement areas.   See MRSC Web page Parking and Business Improvement Areas

Public Corporations (RCW 35.21.730-.757 ) - Under RCW 35.21.730, et. seq., general purpose local government may establish "public corporations, commissions or authorities." These special purpose quasi-municipal corporations have become known as "PDA's." The statutory purpose for the creation of a public corporation under this statute is to improve the administration of authorized federal grants or programs, to improve governmental efficiency and services, or to improve the general living conditions in the urban areas of the state. The provision was initially enacted to authorize counties, cities, and towns to participate in and implement federally-assisted programs, including revenue sharing. See MRSC Web page on Public Corporations under RCW 35.21.730 -.755.

Public Facilities Districts (Ch. 36.100 RCW and Ch. 35.57 RCW).  - Public facilities districts (PFDs) are municipal corporations, have independent taxing authority and are taxing districts under the state constitution. There are two enabling statutes, Ch. 36.100 RCW for counties and Ch. 35.57 RCW for cities, towns, and contiguous group of cities and towns. Public facilities districts may acquire, construct, and operate sports facilities, entertainment facilities, convention facilities or regional centers and related parking facilities. "Regional center" is defined as convention, conference, or special events center, or any combination of facilities, and related parking facilities, serving a regional population constructed, improved, or rehabilitated after July 25, 1999 at a cost of at least ten million dollars, including debt service. See MRSC Web Page on Public Facilities Districts.

Stadium, Convention, Arts and Tourism Facilities (Ch. 67.28 RCW)  - Authorizes municipalities to impose taxes on lodging facilities under this chapter and acquire and operate tourism-related facilities.

Provision of Telecommunications Services by Public Utility Districts and Rural Port Districts, Ch. 81 Laws of 2000 (SSB 6675). See also Economic Development and Telecommunications

Tourist Promotion (RCW 35.21.700)  - Provides power to cities and towns to expend moneys and conduct tourist promotion of resources and facilities.

Tourist Promotion Area (Ch. 35.101 RCW (Ch. 148 Laws of 2003)  - A county with a population of more than 40,000, but less than 1 million, and the cities in it, may form a "tourist promotion area." Within that area, they may assess a charge of up to $2 per night on the sale of lodging. The revenue must be used for "tourism promotion," which is defined as "activities and expenditures designed to increase tourism and convention business, including but not limited to advertising, publicizing, or otherwise distributing information for the purpose of attracting and welcoming tourists and operating tourism destination marketing organizations." Formation of an area is initiated by a petition to the legislative body that must have the signatures of people in the lodging industry that would be paying at least 60 percent of the charges in the area. Up to six different classifications are allowed, each with a different charge, but no charge can be more than $2 per night. Unless a county and city sign an interlocal agreement to do otherwise, a county can form an area only in an unincorporated area and a city, only within the boundaries of the city.

Other Statutes with Economic Development Applications

Contracts with Community Service Organizations (RCW 35.21.278)  - Authorizes county, city, town, school district, metropolitan park district and recreation district, or park and recreation service area to contract with community service organizations for public improvements.

Essential Rail Assistance Account ( RCW 47.76.250)

Local Improvement District (Ch. 35.43 RCW)  - Permits formation of local improvement districts.

Interlocal Cooperation Act (Ch. 39.34 RCW)  - Permits local governments to cooperate with other local governments to provide public facilities and services

Local Transportation Act (Ch. 39.92 RCW)  - Authorizes local governments to develop and adopt programs for the purpose of jointly funding, from public and private sources, transportation improvements necessitated in whole or in part by economic development and growth within their respective jurisdictions. Local governments operating under this chapter are authorized to impose transportation impact fees on development to pay for "reasonable and necessary off-site transportation improvements to solve the cumulative impacts of planned growth and development in the plan area." RCW 39.92.030(4).

The Act specifies various requirements for transportation programs. The authorized programs must be based on an adopted transportation plan and the fee must be calculated from a specified list of capital projects. Traffic impact fees cannot exceed an amount that the local government can demonstrate is reasonably necessary as a direct result of the proposed development.

Transportation Benefit Districts (TBD)  (Ch 36.73 RCW and RCW 35.21.225) Amended  by Ch. 336, Laws of 2005 ( 82 KB)  and Ch. 311, Laws of 2006 (ESHB 2871)) (149 KB) - A county or a city (jurisdictions within King, Pierce, and Snohomish counties may not participate prior to  December , 2007)  may establish a transportation benefit district to fund transportation improvements that are consistent with any existing state, regional, and local transportation plan.  Port and transit districts may participate in the establishment of a district, but may not initiate one.   New revenue options include a 0.2 percent sales and use tax, vehicle fees of up to $100 annually, and tolls, all subject to voter approval. If any improvement exceeds its original cost by more than 20 percent, a public hearing must be held to solicit public comment on how the cost change will be resolved.

Transportation benefit districts are quasi-municipal corporations with independent taxing authority (RCW 36.73.040.) Transportation benefit districts are given authority to levy a property tax (RCW 36.73.060), issue general obligation bonds (RCW 36.73.070), establish LIDs (RCW 36.73.080), and impose impact fees (RCW 36.73.120) to fund transportation improvements. As of April 2006 only three have been formed (Point Roberts TBD in Whatcom County, Liberty Lake TBD in Spokane County). For additional information  Transportation Benefit District Information in the Legislature's  Joint Transportation Committee's 2007 Transportation Resource Manual and MRSC Web Page section Transportaton Benefit Districts