MRSC Inquiries

Finance

Contents:

• Accounting & Reporting
• Budgets
• Expenditures
• Gambling Tax
• Gifts and Donations
• Hotel-Motel Tax
• Investments
• Legality of Expenditures
• Motor Vehicle Fuel Tax
• Property Tax
• Purchasing
• Real Estate Excise Tax
• Reimbursement for Expenses
• Reserve Fund
• Sales Tax
• Tax Exemptions
• User Fees
• Utility Funds
• Utility Taxes
• Warrants

Accounting & Reporting

1. How does a city or county go about implementing GASB 45?

   GASB 45 does for “Other Post-Employment Benefits” (OPEBs) what an earlier GASB (Governmental Accounting Standards Board) pronouncement did for pensions. It makes entities that are accounting according to GAAP (generally accepted accounting principles) recognize that promises to pay these benefits are a liability of the entity and, in most cases, are unfunded. In Washington, there are probably only two kinds of benefits: medical payments for LEOFF 1 retirees and any subsidization an entity is doing for medical insurance for other retirees. Even if the retirees are paying for their own insurance, it is subsidized if they get to pay the same rate as the city is paying for those currently employed. That subsidization is a liability. Another kind of post-employment benefit would employer-paid or subsidized life insurance.

   Entities are required to hire an actuary to measure the outstanding liability of OPEBs. They then can decide not to fund the benefits, but it will show up on their balance sheet and make bond rating agencies and underwriters unhappy. Or, they can go on a plan to fund the liability over a period of time and it will be shown in a more favorable manner on their balance sheet. Or, they could do the funding all in one year (they can issue bonds to do this).

   The rule is being phased in over three years because GASB was concerned that there would not be enough actuaries to do all the work if they did it all at once. For example, entities that had total revenues of $100 million or more in fiscal or calendar year 1999, must have their actuarial studies done during 2007; revenues of $10 million or more, but less than $100 million, during 2008. They then have to have the study updated every two years for plans that administrate OPEBs for 200 or more (current employees plus retirees) and every three years for fewer people. Apparently certain small plans will be able to do some kind of alternative measure that does not involve an actuary.

   Note that many of Washington’s small cities and counties do not account according to GAAP – they use single-entry rather than-double entry book-keeping – and, therefore, have no balance sheet and don’t have to comply with GASB 45. Most folks think, however, that it is important for small entities to have some idea of what kind of future liabilities they have out there. The State Actuary was given a bit of money in the budget and will be coming up with a spreadsheet for these smaller entities. Here are some helpful links: 

   • GASB Statement 45 on OPEB Accounting by Governments: A Few Basic Questions And Answers ( 35 KB)
   • GASB Statement 45 and Its Impact on Your Financial Statements ( ), by Barbara Reid, New Hampshire Town and City, April 2006
   • Dispelling OPEB "Urban Legends" ( 221 KB),  by Stephen J. Gautier, Government Finance Review, June 2006 
   • Coming to Grips with Other Post-Employment Benefits ( 500 KB), Government Finance Review, August 2006.

   Budgets

   1. Does the proposed preliminary budget that the chief administrative officer (CAO) has to give to city council under RCW 35.33.135 and RCW 35A.33.135 have to be balanced?
      

      We don't think so, although some city councilmembers might argue otherwise (and some CAOs wouldn't want to give the council something that wasn't balanced). If the city is strictly following the dates in the budget calendar, the CAO does not have time to balance the budget between the time he or she gets the proposed preliminary budget from the clerk (the first business day in October) and the first Monday in October when the proposed preliminary budget is to go to the council. As a practical matter, the CAO will have to give the council what he or she gets from the clerk. What the CAO would get from the clerk would most likely be revenue estimates and department requests, not a balanced budget document. The balancing gets done during the remainder of October and the preliminary budget is filed with the clerk no later than November 1. Note that cities can always start the budget process earlier than the dates given in the budget calendar.
      

      For more information on these statutes, see the material we have excerpted from Budget Suggestions for 1996.

   2. Can you charge the public for copies of the preliminary budget? The final budget?
      

      The statutes dealing with budgets are not clear on this issue.  For cities, RCW 35.33.055, RCW 35.34.080, RCW 35A.33.052, and RCW 35A.34.080 provide, in part:
      

      The clerk shall provide a sufficient number of copies of such preliminary budget and budget message to meet the reasonable demands of the taxpayers . . .

      And, RCW 35.33.061 and RCW 35A.33.060 require the clerk to publish a notice stating that a copy of the preliminary budget "will be furnished to any taxpayer who will call at the clerk's office therefor . . ."  RCW 35.34.100 and RCW 35A.34.100, dealing with biennial budgets, have similar language that states that a copies of the preliminary budget will be made "available" to taxpayers at the clerk's office. 

      For counties, RCW 36.40.060 states, in part:

      The county legislative authority shall then publish a notice stating that it has completed and placed on file its preliminary budget for the county for the ensuing fiscal year, a copy of which will be furnished any citizen who will call at its office for it . . .

      None of the above statutes specify that a city or county may or may not charge taxpayers for copies of the preliminary budget.  While it is a reasonable interpretation of these statutes that they imply that copies should be provided at no charge, it is also reasonable to argue that, while cities and counties must make copies available at no charge for the public to review, the statutes must be more specific to require them to provide, free of charge, documents that they otherwise would have the authority to charge for.   Particularly in larger cities, it would be impractical from a financial standpoint to make an unlimited number of copies of what is typically a large document available for the taking at no charge.  MRSC recommends that cities and counties adopt a policy as to how they handle this issue.
      

      As to the final budget, there are no statutes that address providing copies to the public.  So, cities and counties may provide copies under the same rules that they provide copies of other public records.   They can charge 15 cents a page (see RCW 42.17.300), if they have to copy it, or the price of printing it, whichever is less.
      

   3. Do cities and counties need to have public hearings on the preliminary budget?

      We believe that cities must have such hearings. RCW 35.33.057, RCW 35.34.090(2), RCW 35A.33.055, and RCW 35A.34.090(2) all provide:

      Prior to the final hearing on the budget, the legislative body or a committee thereof shall schedule hearings on the budget or parts thereof, and may require the presence of department heads to give information regarding estimates and programs.

      Because the statutes themselves make no reference to notice, it is likely that less cumbersome notice requirements are necessary for the preliminary budget hearings than for the final budget hearing. (Recall that for the latter, the statutes require that the clerk publish a notice of the final hearing during each of the first two weeks of November.)  RCW 35.22.288, RCW 35.23.221, RCW 35.27.300, and RCW 35A.12.160 require the council to "establish a procedure for notifying the public of upcoming hearings."

      If a city council holds workshops at which citizens may comment and ask questions, it is likely that these workshops would satisfy the hearings requirement for the preliminary budget.

      There is no such statutory requirement for counties. Only a final hearing on the budget is required. RCW 36.40.060, RCW 36.40.070, RCW 36.40.071. As a practical matter, citizens can listen to the commissioners deliberate budget matters during their meetings and, in most cases, contribute comments. This is not a hearing, but input is provided.

   4. Do we need to have a hearing on revenue sources and possible property tax increases for the budget?
      

      Yes. In 1995, language was added to RCW 84.55.120 that provided that a all taxing districts must hold a hearing on revenues and discuss any property tax increase. This hearing must be held even if your taxing district does not plan to increase property taxes.
      

      If the only proposed increase in tax revenue will come from new construction and increases in state-assessed utility revenue, this increase should be discussed at the hearing.

   5. What procedures do we need to follow if we are planning to increase our property taxes?
      

      In addition to holding a hearing to discuss this increase, all taxing districts must pass a separate ordinance or resolution authorizing the increase in both dollars and percentage. RCW 84.55.120. This provision was added by the passage of Referendum 47 in 1997. In practice, many jurisdictions include this provisions in their levy ordinance. Check with your assessor.

   6. What is the maximum amount that a city or county may increase its property tax levy without a vote of the people?
      

      Here are the "rules" since the passage of Initiative 747.

      In taxing districts with a population of under 10,000, the legislative body may, by a simple majority, vote to increase its levy by a maximum of one percent of the highest levy of the past three years (note WAC 458-19-065 says since 1986 and that is the date that the assessors use) plus the revenue for new construction and any change in value of state-assessed utility property. If the taxing district has a population of 10,000 or more, it can only increase its levy by an amount equal to the increase in the implicit price deflator (IPD) from the prior July or one percent, whichever is less, plus new construction and state-assessed utility revenue. This can be done with a simple majority vote. RCW 84.55.010.
      

      However, if a majority plus one of the city or county council finds "substantial need," it can increase its levy by an amount up to one percent, assuming that its maximum statutory rate is not reached. The vote of two of three county commissioners is needed, plus a finding of substantial need. RCW 84.55.0101. Of course, since the increase in the IPD is likely to be greater than one percent, this provision is not as useful as it was before the passage of Initiative 747.

   7. What is the definition of "substantial need?"
      

      None is given in the statutes. Presumably, determination of substantial need will be unique for each jurisdiction.
      

   8. Where do we get information on the implicit price deflator (IPD)?
      

      During the year, MRSC makes "forecasts" of the implicit price deflator on the Finance page, using data from the Survey of Current Business, which is published by the Bureau of Economic Analysis.  The July IPD, which may affect allowable property tax levy increases in ch. 84.55 RCW, is published in the September issue.  We post this information on our Focus page around the first of September.
      

   9. What is the impact of Initiative 747 on the "you don't lose it, if you don't use it" statute, RCW 84.55.092
      

      Some background. This is the statute that allows a taxing district to increase its levy by less than the maximum amount authorized by law and "bank" that capacity for future use. Before the passage of Initiative 747 in November 2001, a taxing district was allowed to bank the difference between a six percent increase and the increase it actually increased its levy. If the district had a population under 10,000, the county assessor automatically banked any unused capacity. If the district had a population of 10,000 or more, the only capacity that could be automatically banked was the difference between the increase in the implicit price deflator (IPD) or six percent (whichever was less) and the amount it actually increased its levy. However, in October 1998, the Department of Revenue issued an interpretation (347 KB) saying that if the increase in the IPD was less than six percent, a taxing jurisdiction could "bank" an amount up to six percent upon a finding of a "future substantial need." The resolution or ordinance making such a finding must be passed with a vote of a majority plus one (or two out of three commissioners).
      

      The passage of Initiative 747 did not change this statute in any way. (Note, however, that if Initiative 722 had not been found unconstitutional, this statute would have been repealed.) What Initiative 747 did, however, was change the definition of the "limit factor," the maximum amount by which a levy may be increased without a vote of the people. Every place that "six" percent appeared in the statutes was amended to read "one" percent.
      

      So, taxing districts with a population under 10,000 may now only bank the difference between a one percent increase and the increase it actually levies. As in the past, the assessor will bank this capacity automatically. If the taxing jurisdiction has a population of 10,000 or over, the assessor will automatically bank the difference between the increase in the implicit price deflator (IPD) or one percent (whichever was less) and the amount it actually increases its levy. If the increase in the IPD is less than one percent, the district may bank an amount up to one percent by a finding a future substantial need. The resolution or ordinance making such a finding must be passed with a vote of a majority plus one (or two out of three commissioners).
      

      The bottom line: You still "don't lose it, if you don't use it." However, since the percentage increase allowed is now so much lower, there isn't much to "lose," or bank, anymore.
      

   10. Has the passage of Initiative 747 affected our ability to use levy capacity that we "banked" in the past?
       

       No. As mentioned above however, it has reduced your ability to bank in the future. But, any capacity you banked in the past may still be levied ("unbanked") with a simple majority of the legislative body because Initiative 747 did not repeal RCW 84.55.092, the statute that provides for banking.

   11. What are the consequences of not adopting the budget by December 31?
       

       Your jurisdiction is likely to get an audit finding.
       

       State law requires that cities adopt a budget in its final form and content "prior to the beginning of the fiscal year" or "fiscal biennium." RCW 35.33.075, RCW 35.34.120, RCW 35A.33.075, RCW 35A.34.120. There is no similar language in the county budget statutes, but RCW 36.40.071 states that the final budget hearing must begin no later than the first Monday in December and RCW 36.40.070 provides that the hearing last no more than five days, after which the budget is adopted. In practice, the State Auditor's Office is happy if it is passed by December 31.
       

       If no budget is passed before the fiscal year or biennium begins, the city or county will, legally, be unable to make any expenditures at all. Practically, essential police and fire department functions, at least, would need to be provided and the city or county would be spending illegally. We advise cities and counties to pass something. The budget can be amended in the coming year.

   12. When are budget amendments required and by what vote must they be passed?

       Cities

       Budget amendments are required for cities only when the appropriation level in a fund is being changed. The statutes give four different examples.

       1. RCW 35.33.081, RCW 35.34.140, RCW 35A.33.140, and RCW 35A.34.140 discuss "nondebatable"emergencies, such as natural disasters and wars, and say that the council may approve expendituresincident to these events with the vote of a majority of the entire council plus one, without notice ora hearing.
       2. RCW 35.33.091, RCW 35.34.150, RCW 35A.33.090, and RCW 35A.34.150 all deal with "emergencies" of a lesser sort. The city finds it needs or wants to make some expenditures that were not foreseen at the time the budget was adopted. Because this will require increasing the appropriation level in one or more funds, an amendment is needed. The statutes stipulate that the budget-amending ordinance must be introduced five days before being voted on, that citizens must be heard, and that the vote be by a majority of the entire council plus one.
       3. RCW 35.33.121(4), RCW 35.34.200(1)(d), RCW 35A.33.120(4), and RCW 35A.34.200(1)(d) discuss the situation where a city receives more revenue during the year than anticipated in thebudget. If the city council chooses, it may spend the money during the year. However, since theappropriation level in a fund is being changed, a budget amendment is required. Only a simple majority vote is needed, presumably because spending unanticipated revenue requires less scrutiny than, for example, spending reserves under RCW 35.33.091, RCW 35.34.150, RCW 35A.33.090, or RCW 35A.34.150.
          Note that a city need not pass a budget amendment to recognize unanticipated revenue unless it wishes to spend it during the current year. If "ignored," it will simply "drop down" into ending fund balance and will be available for appropriation in the next year.
       4. If a council wishes to decrease the appropriation levels in any fund during the year, it may do so by a vote of a majority of the entire council plus one. It is not completely clear why this level of approval is required, but since a council sometimes reduces the appropriation level in one fund and transfers it to another fund, perhaps the legislature thought this higher level of approval to be necessary. See final paragraph in RCW 35.33.121 and RCW 35A.33.120; and RCW 35.34.200(3) and RCW 35A.34.200(3).

       RCW 35.33.121(5) and RCW 35.34.200(2) address the situation where the appropriation level in the fund is not changed. They state:

       Transfers between individual appropriations within any one fund may be made during the current fiscal year by order of the city's or town's chief administrative officer subject to such regulations, if any, as may be imposed by the city or town legislative body. Notwithstanding the provisions of RCW 43.09.210 or of any statute to the contrary, transfers, as herein authorized, may be made within the same fund regardless of the various offices, departments or divisions of the city or town which may be affected.

       There is similar language in RCW 35A.33.120(5) and RCW 35A.34.200(2). Except when restricted from doing so by the council, the chief administrative officer may make transfers within a fund without a budget amendment.

       Counties

       Counties have similar language. RCW 36.40.180 discusses nondebatable emergencies, such disasters and threats to public health. A unanimous vote of the commissioners present at the meeting is required, and no public notice or hearing is necessary. "Emergencies," such as those described in item 2 for cities above, are addressed in RCW 36.40.140. The commissioners must adopt a resolution, stating how much money is required to meet the emergency. The resolution must be published with a notice of a public hearing to be held not less than one week after the publication.

       Unique to counties is a procedure set out in RCW 36.40.150 - .170 by which any taxpayer may petition the superior court to review the order issued under RCW 36.40.140 stating the emergency and authorizing the expenditure. The filing of such petition will suspend the order until the court determines it propriety.

       RCW 36.40.100 somewhat parallels the city statutes listed in item 3 above, but limits any increase in appropriations to revenues from unanticipated federal or state funds. The commissioners must provide notice for two consecutive weeks prior to the meeting at which the supplemental appropriation will be adopted. The statute provides for this same procedure for transfers or revisions within departments. There is no explicit discussion of transfers between departments. We believe that those fall under the emergency provisions of RCW 36.40.140. Finally, there is no county statute that discusses what must be done when an appropriation level in a fund is decreased. Presumably the board or council passes a resolution to that effect with a simple majority.

   13. Do cities and counties need to have a public hearing to amend the budget?

       It may be good public policy, but there is no statutory requirement for cities to have hearing. Counties, however, do need a public hearing for all "emergency" amendments made under RCW 36.40.140.

   
   

   
   

   Expenditures

   1. Finance Charges - Must a city or county pay finance charges?

      Yes, if it does not pay a bill within 30 days. RCW 39.76.011(1) says, in part:

      every state agency, county, city, town, school district, board, commission, or any other public body shall pay interest at a rate of one percent per month, but at least one dollar per month, on amounts due on written contracts for public works, personal services, goods and services, equipment, and travel, whenever the public body fails to make timely payment.

   

   Gambling Tax

   1. May a city differentiate in the gambling tax rate for punchboards and pull-tabs between commercial businesses and nonprofit organizations?
      

      Yes. This is clearly provided in RCW 9.46.110(3)(e). That statute provides that taxation of punchboards and pull-tabs for charitable or non-profit organizations is based on gross receipts from the operation of the games less the amount awarded as cash or merchandise prizes, and shall not exceed a rate of ten percent.

      In regard to commercial operators, the tax may be based on gross receipts from the operation of the games, and may not exceed a rate of five percent, or may be based on gross receipts from the operation of the games less the amount awarded as prizes, and may not exceed a rate of ten percent.
      

   2. Does the gambling tax lien authorized by RCW 9.46.110 apply to real property owned by a landlord if the individual operating the gambling business is the tenant?
      

      Probably. The lien authorized by RCW 9.46.110 for unpaid gambling taxes applies to the personal and real property used in the gambling activity. In a similar way, the lien authorized by RCW 35.67.200 for unpaid sewer charges applies to the real property, even if the service is provided to the tenant. It is not unusual to have government liens for unpaid services or taxes apply to the real property even if the services or taxes involve the tenant on the premises.
      

   3. Does city have lien for unpaid gambling taxes?
      

      No, not directly. The gambling tax statute, ch. 9.46 RCW, does not separately provide for a lien for unpaid taxes. However, pursuant to RCW 9.46.350, a city may bring a civil suit to recover unpaid taxes, seeking a writ of attachment. The procedures for obtaining such a writ are set out in ch. 6.25 RCW. If the court issues a writ, the county sheriff may put a lien on real property or seize personal property. See RCW 6.25.140 and RCW 6.17.160..
      

   4. May a city tax satellite parimutuel horse racing?
      

      No. The statute that governs city and town gambling taxes (RCW 9.46.110) does not list parimutuel horse racing as an activity that a city may tax. In addition, the state preempts this area, in RCW 82.02.020, with regard to a B&O tax.

   
   

   Gifts and Donations

   1. Is a gift to a city or county tax deductible?
      

      A gift to a city, county, or other political subdivision is tax deductible if it is made "for public purposes." The IRS Code, 26 U.S.C.170(c)(1), defines a "charitable contribution" (which is tax deductible) to include "a contribution or gift to or for the use of ": A State, a possession of the United States, or any political subdivision of any of the foregoing, or the United States or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes. It will, of course, depend upon the circumstances of a particular gift as to whether it was made for public purposes.
      

      We have heard that the Internal Revenue Service will issue a "government affirmation letter" upon request. A portion of this letter discusses the applicable code sections pertaining to deductible contributions and affirms that your city or county is a government entity. To get such a letter, call the IRS Tax-Exempt/Government Entity Cincinnati Call Site at 1-877-829-5500.

   Hotel-Motel Tax

   1. May a city use hotel-motel tax funds to pay for the operation of a museum that is owned by the city and managed by a private historical society?
      

      Yes, if the city has a valid contract for services. RCW 67.28.1815 provides that these funds be "used solely for the purpose of paying all or any part of the cost of tourism promotion, acquisition of tourism-related facilities, or operation of tourism-related facilities." Operating and/or maintaining an historical museum, which is a tourist-related capital facility, falls within this list of uses. Absolutely crucial in giving an affirmative response is the fact that the museum is city-owned and on city property. The historical society is in effect managing the museum on behalf of the city through a service contract.

      In AGO 2000 No. 9, the conclusion was reached that lodging tax funds could not be used to pay for the operating costs of a privately owned and operated museum, even if the owner was a non-profit. The Office of the Attorney General indicated that the city must own the museum individually or jointly with another government entity or a private firm before lodging tax funds may be used to help pay the costs of operation of the museum.

      This answer also applies to a county's use of lodging tax revenues with respect to a county-owned museum on county property.

   2. If a hotel has part of the building leased out long-term, is the charge for these rooms exempt from the hotel-motel tax?
      

      Yes. The hotel-motel tax (and the sales tax also) only applies to stays of less than one month. RCW 67.28.180 and RCW 82.04.050(2)(f).  If, in addition to the basic two percent tax, a city or county levies a "special tax" under RCW 67.28.181(1) it will, of course, not receive these funds either for long-term stays.
      

   3. May lodging (hotel-motel) tax revenues may be used to build a public restroom in city park used by tourists?

      Yes. Lodging tax revenues may be used for construction and/or maintenance of public restrooms that would be used by tourists. The relevant statute regarding the purposes for which lodging tax revenues may be spent is RCW 67.28.1815, which states as follows:

      All revenue from taxes imposed under this chapter shall be credited to a special fund in the treasury of the municipality imposing such tax and used solely for the purpose of paying all or any part of the cost of tourism promotion, acquisition of tourism-related facilities, or operation of tourism-related facilities.

      "Acquisition" is defined in RCW 67.28.080(1) to include "construction," and a "tourism-related facility" is defined in RCW 67.28.080(7) to mean:

   [R]eal or tangible personal property with a usable life of three or more years, or constructed with volunteer labor, and used to support tourism, performing arts, or to accommodate tourist activities.

   It is our opinion that a public restroom in an area used by tourists accommodates tourist activities, for obvious reasons.

   The lodging tax statutes prior to 1997 contained a specific provision (the former RCW 67.28.210) for use of these tax revenues by cities with a population under 5,000 for public restroom facilities for the use of visitors. The major overhaul of the lodging tax statutes in 1997, which repealed this provision, actually acted to expand the authority of cities to use lodging tax revenues for this use by employing the statutory language discussed above.

   In summary, revenues from the city's lodging tax may be used, in our opinion, for construction of the public restroom in question. Nevertheless, we would recommend seeking the concurrence of the state auditor's office in advance of use of these funds for the purpose in question.

   1. May a city use hotel-motel (lodging) tax monies to pay the salary of an employee who engages in tourism promotion?
      
      We believe that a city council may establish an employee position that engages in tourism promotion and have that position funded by hotel-motel tax monies. However, the position could be funded only in proportion to the amount of time the employee engages in tourism promotion.
      
      RCW 67.28.1815 provides that hotel-motel tax funds may be used "solely for the purpose of paying all or any part of the cost of tourism promotion, acquisition of tourism-related facilities, or operation of tourism-related facilities." (Emphasis added.) "Tourism promotion" is defined in RCW 67.28.080(6) as:

   activities and expenditures designed to increase tourism, including but not limited to advertising, publicizing, or otherwise distributing information for the purpose of attracting and welcoming tourists; developing strategies to expand tourism; operating tourism promotion agencies; and funding marketing of special events and festivals designed to attract tourists.

   Having an employee position that would involve tourism promotion, as defined above, and that is funded by hotel-motel tax moneys would be permissible under the above statutes. However, if the employee position also involves duties not associated with tourism promotion, that part of the position could not be funded with hotel-motel tax moneys. So, for example, if this position involved tourism promotion for half of the time, then 50 percent of the salary for the position, and no more, could be funded with hotel-motel tax moneys.
   
   If the city's population exceeds 5000, it is required to establish a "lodging tax committee" pursuant to RCW 67.28.1817 that must first review various matters relating to the hotel-motel tax, including a change in the use of tax funds, before the council may act upon such matters. The composition and duties of that body are set out in RCW 68.17.1817. So, before a city council in a city of that size could use hotel-motel tax moneys to fund a tourism promotion position, it must establish a lodging tax committee, if it has not already done so, and it must submit that proposal to the committee for its comments in accordance with the process set out in RCW 67.28.1817.

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   Investments

   1. Can the city invest trust fund monies in mutual funds?
      

      The general statutes governing investment of municipal funds are chapters 35.39 and 39.59 RCW. RCW 39.59.030 provides that some kinds of mutual funds are a permitted investment vehicle if the monies being invested are subject to section 148 of the IRS code. Also, RCW 35.39.060 allows a city to invest its retirement system funds in just about any place it desires, and this could include mutual funds. Similarly, fire pension funds can now be invested in many different kinds of vehicles. RCW 41.16.040(4). These are exceptions, however. In general, most of the city's money cannot be invested in mutual funds.

   2. Can a city or town give a third party a "power of attorney" over part of their investment portfolio?
      

      No, says the state auditors office. An investment firm was proposing that a city give it control over the portion of the city's portfolio that was not needed on a short-term basis. The firm would make trades without conferring with the city and send it monthly reports. The auditor says even though all of the investments are going to be made in authorized investments as listed in Ch. 39.59 RCW, the investments must be made by city officials.

   

   Legality of Expenditures

   1. May the city pay for dinner for councilmembers and planning commission members at a working dinner held within the city?
      

      Yes, this likely is permissible so long as official city business is being conducted during the dinner. It is not required that travel occur before city officials can be reimbursed for meal expenses in all cases.

      This is the conclusion in a memo from the Office of the Attorney General, dated May 14, 1987, from James Pharris, to Lee Reaves, Chief Examiner, Office of the State Auditor entitled "Eating and Drinking at Public Expense." As far as we are aware, this is still the position of the Office of the Attorney General.
      
      

   2. May the city or county offer a prize of $100 for the best motto for the city? May a city or county award cash prizes to employees as incentives?
      

      Yes, if the legislative body establishes the amount of the prize, and it is reasonable in view of the goal of the contest. It is not a gift of funds because the city receives value for the rights to the motto, logo, or other product of the contest.
      

      Yes, if such a policy is established by the legislative body. The policy should include a description of the basis on which the city will make the awards, the process by which such awards will be made, and a description of the type of award to which the employee will be entitled.

      Note that these payments are considered wages for income tax purposes and are subject to withholding and deductions for social security and Medicare.
      
      

   3. May a city hire a private auditor?
      

      Yes, but it might not prove to be cost effective. RCW 43.09.230 specifies that the annual reports shall be certified by the Office of the State Auditor. Also, RCW 43.09.260 gives the Office of the State Auditor the power to examine all the financial affairs of every public office and officer. Therefore, even if a private auditor has examined the city's financial records and declared them satisfactory, the state examiner has the right to do a full-scale audit and charge the city the full amount for the audit services.
      

   4. May a city pay for placement of large flower pots along the sidewalks of a private shopping center?
      

      A city has the authority to beautify the public sidewalks in the commercial district of the city. However, although the beautification purpose is the same, city funds may not be used to enhance the appearance of the private shopping center. The shopping center is responsible for doing its own beautification. Note that hotel-motel tax money may not be used for beautification.

   5. May a city or county spend municipal funds on Christmas cards?
      

      MRSC's legal staff has generally taken the position that it is probably not an appropriate use of public funds, and that such an expenditure might be questioned by the State Auditor. Spending public funds for this purpose would probably be a violation of Article I, Section 11 of the Washington State Constitution, which provides that public money shall not be appropriated or applied for any religious worship or the support of any religious establishment. Sending Christmas cards is not a proper municipal function and does not accomplish an appropriate municipal purpose. 

   6. May a city or county expend funds to determine why the voters voted as they did in recently rejecting a city property tax levy or other tax increase?
      

      Yes. This would be a proper expenditure of unrestricted general fund revenues.

      The proposed expenditure does not violate RCW 42.17.130, which prohibits the use of the "facilities" (including funds) of a public office or agency to support or oppose a ballot proposition, because the ballot proposition in question (the property tax levy) has already been voted upon. Also, the proposed expenditure is neutral as to that proposition.

      We are not aware of any other law or constitutional provision the proposed expenditure would violate. It has a proper municipal purpose - to determine why the voters voted as they did, presumably so that the city or county can determine what kind of a property tax levy the voters may in the future be willing to support. It goes without saying that a city or county may expend its funds to decide whether to place a levy before the voters and what that levy should ask for. This proposed expenditure would help the city or county make that decision. 

   7. May cities spend money on hosting and gifts related to sister city visits?
      
      No, this would be an unconstitutional gift of public funds. Although article 8, section 8 of the state constitution permits port districts to do promotional hosting, there is no similar authority for cities. Consequently, a city’s provision of meals, gifts, and the like to private individuals under a sister city program would violate article 8, section 7 of the state constitution, which prohibits cities from making a gift of public funds. An August 30, 1999 Attorney General Memorandum (No. 13), from Mary Jo Diaz, Asst. Attorney General, to Karen Stromme, King County Audit Manager addresses this issue in more detail.
      
      Also, note that not only is a city prohibited from spending its funds on such activities directly, they also cannot do so indirectly by donating moneys to a private organization that is hosting a sister city.
       

   
   

   Motor Vehicle Fuel Tax

   1. Can Counties levy a local option fuel tax for local transportation improvements?
      

      Yes, the authority has been in place since 1990, through RCW 82.80.010. Any county may levy a local option fuel tax of up to 10% of the state motor vehicle fuel tax, currently $0.23 per gallon. The commission or council must first approve the measure and then have it approved by a majority of the voters. The proceeds are then distributed to the county and its cities and towns based on a formula where each county resident is given a weight of 1.5 and each city and town resident a weight of 1.0. For example, if there are 400 people in the unincorporated area, they would be counted as the equivalent of 400 x 1.5 = 600 people. If there are 300 people living in cities and towns, then the total "population" is 600 + 300 = 900. The county share would be 600/900 = 66.6%.

   
   
   

   Property Tax

   1. Is the property tax levy rate established by a city council subject to the initiative process?

      No. This is a power that has been specifically given to the city council for all classes of city and so is beyond the scope of the initiative power in those code and first class cities that have adopted the powers of initiative and referendum.

      RCW 35A.33.135 and RCW 35.33.135 each provide that "the legislative body shall determine and fix by ordinance the amount to be raised by ad valorem [property] taxes." Also, RCW 35A.11.020 provides that the "legislative bodies of code cities shall have within their territorial limits all powers of taxation for local purposes except those which are expressly preempted by the state."

      These provisions provide the basis for the conclusion that such taxes are not subject to the initiative process. Also, note that RCW 35A.11.090 makes clear that code city ordinances authorizing the levy of taxes cannot be affected by the referendum process either.

   
   

   Purchasing

   1. Is there a statutory provision that imposes a fee if a local government is late making a payment on a contract?

      Yes. RCW 39.76.010 provides that every state agency and unit of local government must pay interest at a rate of one percent a month on amounts due on written contracts for public works, personal services, goods and services, equipment, and travel whenever the state agency or local government fails to make timely payment. The statute then defines what constitutes timely payment.

      There are some exceptions outlined in RCW 39.76.020, such as for intergovernmental contracts.

   2. Is the sole owner of a business subject to prevailing wage laws?

      No, there is an exemption in WAC 296-127-026 which exempts the owner of a sole proprietorship from the requirements of Ch. 39.12 RCW. These companies are not exempt from the remaining requirements of the statute, including the filing of Intent and Affidavit forms. Any worker who owns less than 30% of the company is not exempt and must be paid the prevailing wage rate.

   3. Local Preference - May a county or city grant a preference for bids submitted by local vendors or contractors?

      A county or city may not grant a local preference for bidders unless there is specific authorization in state law for granting the preference. There is only one preference authorized in state law in relation to the bid law. RCW 39.30.040 was enacted in 1985 and provides that whenever a city or county is required to make purchases from the lowest responsible bidder, it can take into consideration tax revenue it would receive from purchasing the supplies from a source located within the jurisdiction. Tax revenues that may be considered include sales taxes and business and occupation taxes. This preference only applies to purchases of supplies, materials, and equipment, not public works contracts.

   4. Are there any procedural requirements for a bid protest?
      

      There are no statutory requirements as to the procedure for a bid protest. If a city or county does not have any rule regarding bid protests, it probably should allow a bidder to protest the award to the appropriate official or body, who can then make a determination whether the protest is valid. If the city or county rejects the protest, the objecting bidder, to preserve the protest, will have to bring suit for injunctive relief in superior court before the city or county and the low bidder sign the contract. BBG Group, LLC v. City of Monroe, 96 Wn. App. 517, 521 (1999).

   5. Is it legal to piggyback onto a bid from a municipality from another state?
      

      Yes, a city or county of this state may enter into an interlocal agreement with "any political subdivision of another state," which would include a municipality.  See definition of "public agency" in RCW 39.34.020. Piggybacking, which is a form of interlocal agreement, with a municipality of another state would be permissible as long as the municipality in the other state has complied with the requirements of RCW 39.34.030(5)(b), as amended by HB 2615 (Chapter 190, Laws of 2004).
      

   6. May a city contract with a county for resurfacing work on city streets without calling for bids?
      

      Yes, this type of contract is statutorily authorized. RCW 35.77.020 authorizes a city to contract with the county for repair of city streets on such terms and conditions as may be mutually agreed upon. Also, RCW 47.24.050 provides that a city council may authorize the county to perform any construction, repair, or maintenance needed for city streets. The city's payment for the work is to be based on the actual cost, and the payment received by the county is to be deposited in the county road fund.
      

   7. May a city or county reform a defective low bid where bid contains error (bid would be low bid regardless of error)?
      

      No. The choices available to the city or county are:

      • Reject all bids;
        
      • Allow the bidder to escape performance under the defective bid by withdrawing the bid. The city or county would then award the contract to the next low bidder. (If the city or county was contacted immediately, the error was apparent, and there is no detriment to the city or county, the bidder would not be liable to the city or county); or
        
      • If the bidder is willing to proceed with his bid regardless of the error (or if the bidder takes action inconsistent with withdrawal of the bid), the city or county may award its contract to the low bidder.
      
      

      The city or county may not now reform the bid, by correcting the error and allowing the corrected bid to be considered along with the other bids. Courts will generally refuse to reform a bid or contract, as to do so would be contrary to the general concept of competitive bidding.

   8. May a city or county enter into a contract for a public works project with a contractor who is not licensed with the state?
      

      No. This is specifically prohibited by RCW 39.06.010. This is true regardless of whether the contract is required to be let after a call for public bids or not. The above statute forbids a city or county from executing a contract with a contractor who is not registered or licensed as required by the laws of the state.
      

   9. Must cities and counties pay their public contract bills within a certain time period to avoid paying interest on the unpaid bill?
      

      Yes.  RCW 39.76.011(1) states that interest is due on unpaid public contracts at a rate of one percent a month if not paid within 30 days. This applies to counties, cities, and towns for all types of contracts, including personal services, goods and services, public works, travel, etc.

   10. May a city or county ask for the hourly rate for engineering firms in their announcement for a job?
       

       No. The city or county must request statements of qualifications from engineering firms pursuant to Ch. 39.80 RCW.  However, the city or county may not consider price or cost in determining which firm is the most highly qualified.  Price and cost may be considered only after the most qualified firm has been selected, at which time negotiations may take place over price. Therefore, asking for the hourly rate before the most qualified firm has been selected is not allowed.

   11. What is the required advertising period for a public works construction project for cities?
       

       First class cities and code cities with populations above 20,000 population have no required advertising period under state statutes. Their own municipal codes will govern their advertising procedures. RCW 35.23.352(1) requires all other cities to publish at least 13 days prior to the bid opening a notice of the project in their official newspaper or a newspaper of general circulation most likely to bring responsive bids.
       
       

   12. Do bid requirements apply to contracts for services?
       

       As a result of 1994 legislation, competitive bidding for contracts for services is no longer required for second and third class cities, towns and code cities under 20,000 population (Ch. 273, Laws of 1994). (Other classes of cities were already exempt from bidding for these services).   However, when contracting for architectural and engineering services, the procedures in chapter 39.80 RCW must be followed. 

   13. What should be in the advertisement for a city public works project?
       

       The advertisement in the newspaper should include, as a minimum, the following items:

       
       
       1. Title of project.
          
       2. Nature and scope of the work to be performed.
          
       3. Where contract documents (plans and specifications) may be reviewed and/or obtained.
          
       4. Cost to obtain a set of contract documents.
          
       5. The place, date, and time set for opening of the sealed bids.
          
       6. Requirements for an accompanying bid bond.
          
       7. Statement that the city retains the right to reject any and all bids and to waive minor irregularities in the bidding process.
          
   14. Must the bid opening for a public works project be public?
       

       The bidding statutes do not specifically require that bid openings be public. However, many cities have ordinances that require all bid openings be public, and most bid packets contain information sheets stating that bids will be opened at a certain time and place. Opening bids in public helps assure all parties that the procedures are fair.
       

   15. Must cities and counties require public works contract bidders to submit the names of subcontractors for a public works contract on which they are bidding?
       

       Yes, under RCW 39.30.060, a city or county  must require this if the public works contract is estimated to cost more than $1,000,000 and the subcontracts will be for the performance of the work of: HVAC (heating, ventilation, and air conditioning); plumbing as described in chapter 18.106 RCW; and electrical as described in chapter 19.28 RCW.  Or, the contractor may name itself for this work.. The contractor must submit these names as part of the bid or within one hour of the published bid submittal time.  Failure of a bidder to comply renders the bid nonresponsive.
       

   16. Who has the authority to negotiate a contract on behalf of the city, the council or the mayor?
       

       There is no statute that clearly defines who has contract negotiation authority. Since the council has the ultimate authority to approve city contracts, the council also has the power to deal with the details of contracts. Though many councils frequently authorize the mayor/city manager/administrator to conduct contract negotiations, there is no statute that prohibits a council from taking over that role.
       

   17. Must the bid specifications for a public works project state that prevailing wages must be paid and that a performance bond be provided if the bid is awarded?
       

       Under RCW 39.12.030, bid specifications for all public works projects must state the prevailing wage that is to be paid to workers. There is no similar, specific statutory requirement for notification of the requirement that a performance bond be provided on a public work's project. However, as a practical matter, that should also be stated in the bid specifications.
       

   18. If the lowest bidder on a project on the small works roster withdraws his bid, may a city or county use the next lowest bidder?
       

       Yes, this does not violate the bid law in any way.  It is not necessary to start over soliciting bids if there is another available bidder. The city or county may contact the next low bidder and award the contract. The city or county should document that the low bidder withdrew voluntarily.
       

       For more on this topic, see our "Purchasing and Bidding" page.
       

   19. If a code city under 20,000 population receives bids for a public works project but none are responsive, may the city proceed to negotiate with a contractor without a further call for bids?
       

       Yes. RCW 35.23.352(1) provides in part as follows:
       

       If no bid is received on the first call the council or commission may readvertise and make a second call, or may enter into a contract without any further call or may purchase the supplies, material or equipment and perform the work or improvement by day labor.

       The issue here is whether receiving bids that are not responsive is equivalent to receiving no bids. According to AGO 1977 No. 18, it is equivalent. Footnote 1 to that opinion states in relation to this language in RCW 35.23.352: "It goes without saying, we think, that a bid which, by its terms, is not responsive to the call is, in reality, no bid at all."

   20. Does a city have the right to reject all bids?
       

       Yes. Usually, the bid specifications indicate that the city reserves the right to reject any and all bids. Also, RCW 35.23.352 (which applies to code cities under 20,000 population, second class cities, and towns) indicates that the city council has the right to award the contract to the lowest responsible bidder, or to reject any and all bids. This would alson be an option for first class cities and code cities with a population of 20,000 or more.  
       

   21. Must the prevailing wage be paid to an employee temporarily working on a public works project?
       

       Yes. Even if the employee works only a short time on the public works project, then returns to work for his or her employer on a non-prevailing wage job, the employee must be paid the prevailing wage for the time worked on the public work's project.
       

   22. If all the bids come in over the amount that the city or county has budgeted for a project, does that make the bids nonresponsive so that the city or county can negotiate with the bidders?
       

       No. A bid that is over the amount estimated for the project is not a nonresponsive bid. A responsive bid is defined as one which meets the material terms of the invitation for bids in all material respects when judged on its face. But, price is not one of the specifications in a call for bids and so the fact that the bids are higher than the city or county estimated does not make the bids nonresponsive. 

   23. Is a performance bond required when a city is undertaking a public works project in an emergency situation where it is avoiding competitive bidding procedures?
       

       Unless it is an extreme emergency that falls under the provisions of Ch. 38.52 RCW, a performance bond is probably still required. The requirement of a performance bond in RCW 39.08.010 is separate from competitive bidding requirements in RCW 35.23.352 or RCW 35.22.620. The exemption from competitive bidding requirements in RCW 39.04.280(1)(e) in the event of an emergency does not address performance bonds. However, for "extreme emergencies," RCW 38.52.070(2) provides:
       
       

       Each political subdivision is authorized to exercise the powers vested under this section in the light of the exigencies of an extreme emergency situation without regard to time-consuming procedures and formalities prescribed by law (excepting mandatory constitutional requirements), including, but not limited to, budget law limitations, requirements of competitive bidding and publication of notices, provisions pertaining to the performance of public work . . .

       The emphasized language probably includes the requirement of a performance bond under RCW 39.08.010.
       

       Nevertheless, as a practical matter, even if it does not rise to the level of an emergency situation addressed by chapter 38.52 RCW, a situation may call for such immediate action that a city would find it prudent to forgo the requirement of a performance bond if procuring it would cause a delay that would result in further damage or costs that the city would not wish to incur. The ultimate consequence of failing to require a performance bond is potential liability for the contractor's debts with respect to the project (e.g., payments to workers and suppliers). RCW 39.08.015. A city may be willing to incur that risk rather than delay a project in the event of an emergency. Also, it may well be the case that, if a city avoids requiring performance bonds even in the event of an extreme emergency that would qualify under the provisions of chapter 38.52 RCW, it still may be subject to potential liability under RCW 39.08.015. So, it would appear that common sense and an assessment of relative risks should govern the decision in an emergency situation whether or not to require a performance bond.
       

   24. May a city or county comply with affirmative action plan requirements in federal contracts without violating Initiative 200?

       
       

       Affirmative action was effectively abolished in Washington State by Initiative 200 (codified as RCW 49.60.400), passed by the voters in 1998. This statute contains the following exemption:
       

       This section does not prohibit action that must be taken to establish or maintain eligibility for any federal program, if ineligibility would result in a loss of federal funds to the state.

       "State" as used in this statute includes a city or county. There are no court cases that have addressed this exemption. However, the state attorney general's office has analyzed this exemption in an Issue Paper on Initiative 200, stating:
       

       Section 1(6) [RCW 49.60.400(6)] provides that the Initiative "does not prohibit action that must be taken to establish or maintain eligibility for any federal program, if ineligibility would result in a loss of federal funds to the state." Federal agencies often require states to have "affirmative action" programs, but most allow discretion in how to operate those programs. Rather than specifying requirements, the federal law will call for state agencies to submit, as part of a funding request, a proposal describing how the state would meet the general "affirmative action" program requirements. The federal agency then approves or disapproves the program. On rare occasion, federal law will vary the nature of requirements depending on whether a certain component is prohibited by state law. Thus, the interaction of federal law and Initiative 200 could be somewhat complex for agencies who must submit proposals which will satisfy federal funding requirements without overstepping any limits imposed by Initiative 200. [32] The Initiative imposes two conditions to actions "excused" under this subsection: (a) the action "must be taken" to establish or maintain eligibility for a federal program, and (b) ineligibility would result in a loss of federal funds. The limits of this exception to the Initiative's "no-preference" rule, then, depend on whether federal funds would be lost if the state agency's practice were changed. In some cases, the agency's current practices are part of a contract with a federal agency, presumably subject to enforcement under contract principles. In other cases, federal law may provide the federal government with various enforcement mechanisms, including loss of federal funds. Thus, there may be arguments about the likelihood of loss of federal funds with regard to various programs. The Initiative also raises questions as to whether state agencies should look strictly to the letter of federal law in deciding what action "must be taken," or might also assess such factors as a federal agency's administrative interpretations of the law and the likelihood of impacts on federal funding. There may be occasions in which no federal statute explicitly requires "affirmative action" but where the administering federal agency contends that affirmative action measures are required. In such a case, the state agency must determine whether to look to the agency's policies or strictly to the letter of federal law.

       So, if an affirmative action plan is required of a city or county through a federal program to establish or maintain eligibility for that program and eligibility for the program is necessary for the receipt of federal funds, then establishing such a plan would not violate Initiative 200 (RCW 49.60.400). The city or county needs to find out if and where (and probably under what authority) an affirmative action plan is required by a federal program in which it is participating.

   
   

   Real Estate Excise Tax

   1. Is a purchase by a city or county of real property through the condemnation process subject to the real estate excise tax?
      

      No. RCW 82.45.010(3)(g) specifically exempts transfers of property through condemnation proceedings from the definition of "sale" for purposes of the real estate excise tax.
      

   2. Is a city or county exempt from the real estate excise tax when purchasing real property?
      

      No. A sale of city or county real property is exempt from the real estate excise tax because such a sale is not included within the definition of "sale "for real estate excise tax purposes. However, in 1993, the legislature eliminated the same exemption for purchases of real property by a city, county, or other governmental entity. Purchases of real property (other than those by condemnation) by a city or county are thus subject to the tax.
      

   3. On what is the real estate excise tax based?
      

      The real estate excise tax is levied on all sales of real estate. The amount of the tax is based on the full selling price, including the amount of any liens, mortgages, and other debts given to secure the purchase.
      

   4. What cities and counties can levy the second quarter percent of the real estate excise tax (REET2)?
      

      Counties that are required or have chosen to plan under the Growth Management Act (GMA) and the cities located in them. RCW 82.46.035(1).
      

   5. Does a city or county need a vote of the people in order to levy the second quarter percent of the real estate excise tax (REET 2)?
      

      It depends. If the city or county is required to plan under the Growth Management Act, then only an affirmative vote of the legislative body is needed to levy this tax. However, if the city is located in a county that has chosen to plan under GMA, this tax may be levied only "if first authorized by a proposition approved by a majority of the voters." RCW 82.46.035(2). Only cities planning under GMA may levy this tax.
      

   6. How and when can a city that is planning under the Growth Management Act (GMA) and that has a population of 5,000 or less spend its real estate excise tax revenues?
      

      The receipts from the first quarter percent (REET 1) can be spent on "any capital purpose identified in a capital improvements plan and local capital improvements, including those listed in RCW 35.43.040." RCW 82.46.010(2). RCW 35.43.040 lists projects for which local improvement districts (LIDs) may be formed and includes everything from street projects to parks to sewers to swimming pools. For a complete list, consult the statute.
      

      The second quarter percent (REET 2) cannot be spent until the city or county has completed the capital facilities element of its comprehensive plan. This part of the tax has more limited uses. It can only be spent on street projects, water and sewer projects, and parks projects (excluding the acquisition of land). RCW 82.46.035(5).
      

   7. When and how can a city or county that is planning under the Growth Management Act (GMA) and that has a population of over 5,000 spend its real estate excise tax revenues?
      

      Revenues from the first quarter percent (REET 1) may be spent only on capital projects in a capital facilities plan element of a comprehensive plan. RCW 82.46.010(2). RCW 82.46.010(6) lists these projects and the list seems to include everything a city or county might ever put in a capital facilities element, including the acquisition of land for parks. Since the projects must be in the capital facilities plan, obviously, the plan must be complete before any REET funds can be spent.
      

      Like REET 1 revenues, those from the second quarter percent of the real estate excise tax (REET 2) cannot be spent until the capital facilities element is finished. Allowable expenditures are street projects, water and sewer projects, and parks projects (excluding the acquisition of land). RCW 82.46.035(5).
      

   8. When and how can a city or county (of any size) that is not planning under the Growth Management Act spend its real estate excise tax revenues?
      

      The receipts from the first quarter percent (REET 1) can be spent on "any capital purpose identified in a capital improvements plan and local capital improvements, including those listed in RCW 35.43.040." RCW 82.46.010(2). RCW 35.43.040 lists projects for which local improvement districts (LIDs) may be formed and includes everything from street projects to parks to sewers to swimming pools. For a complete list, consult the statute.
      

   9. Can the real estate excise tax be levied even though the city or county is not yet allowed to spend it?
      

      Yes. The tax can be levied and placed in a municipal or county improvements fund until the city or coutny completes the capital facilities element of its comprehensive plan.
      

   10. Can cities and counties use real estate excise tax funds for planning?
       

       Cities and counties cannot use these funds for planning in the sense of developing a capital facilities element or a capital improvements plan. However, MRSC has advised that cities and counties can use these funds for design costs, engineering costs, surveys, etc. for specific projects in their capital facilities element or capital improvements plan. Funds from the second quarter percent (REET 2) can only be used in conjunction with street, water, sewer, and parks projects. RCW 82.46.035(5).
       

   11. Can real estate excise tax funds be used for maintenance?
       

       Only if it's a major maintenance project in a capital facilities element or capital improvements plan. Sometimes it's hard to tell if a project qualifies. Painting is almost certainly not an accepted use. Putting a new roof on a building would probably be a permitted use. If the project is considered a "public work" for bidding purposes, then REET funds can be used. The second quarter percent (REET 2) can only be used for street, water, sewer, and parks major maintenance because its uses are limited to those kinds of projects.
       

   12. May a city or county use real estate excise tax revenues to pay debt service on a councilmanic bond?
       

       Yes, as long as the project is one for which these revenues may be used. For example, revenues from the second quarter percent (REET 2) can only be spent on street, water, sewer, and parks projects. Therefore, these revenues could not be used to pay debt service on a new city hall or county courthouse. Note that if the real estate excise tax receipts fall short of the amount needed to pay debt service, the general fund must make up the difference.
       

   13. May a city may use the first one-quarter percent real estate excise tax (REET) revenues to contribute to the improvement of a school district stadium/athletic field that the city would use for certain city recreational activities?
       

       Yes, under certain circumstances. The relevant statute, RCW 82.46.010(2) states as follows:
       

       
       

       The legislative authority of any county or any city may impose an excise tax on each sale of real property in the unincorporated areas of the county for the county tax and in the corporate limits of the city for the city tax at a rate not exceeding one-quarter of one percent of the selling price. The revenues from this tax shall be used by any city or county with a population of five thousand or less and any city or county that does not plan under RCW 36.70A.040 for any capital purpose identified in a capital improvements plan and local capital improvements, including those listed in RCW 35.43.040.

       
       

       After April 30, 1992, revenues generated from the tax imposed under this subsection in counties over five thousand population and cities over five thousand population that are required or choose to plan under RCW 36.70A.040 shall be used solely for financing capital projects specified in a capital facilities plan element of a comprehensive plan and housing relocation assistance under RCW 59.18.440 and 59.18.450.

       
       

       To comply with the expenditure restrictions in this statute, the stadium/athletic field would need to be in the capital facilities plan element of the city's comprehensive plan. Nothing appears to prohibit a city from including a school stadium/athletic field in their comprehensive plan, either as part of the school district's capital facilities plan element which could be adopted by reference into the city's comprehensive plan or as a specific capital project in the city's capital facilities plan element. In fact this would be necessary if a jurisdiction were to impose impact fees for schools. RCW 82.02.050(4) provides that

       Impact fees may be collected and spent only for public facilities defined in RCW 82.02.090 which are addressed by a capital facilities plan element of a comprehensive land use plan adopted pursuant to the provisions of RCW 36.70A.070 or the provisions for comprehensive plan adoption contained in chapter 36.70, 35.63, or 35A.63 RCW.

       
       

       "Public facilities" includes school facilities. RCW 82.02.090(7). Also, RCW 82.02.050 contemplates that a city or county could include facilities that may be the responsibility of a special district:
       

       If the capital facilities plan of the county, city, or town is complete other than for the inclusion of those elements which are the responsibility of a special district, the county, city, or town may impose impact fees to address those public facility needs for which the county, city, or town is responsible.

       
       

       If this requirement of inclusion of the facility in the city's capital facilities plan element or in the school district's plan element adopted by reference by the city is met, these REET revenues could be used for this facility if the expenditure has a city purpose. In AGO 1988 No. 19, the attorney general's office addressed whether REET revenues may be used by a county to fund capital improvements on property owned by a city. Although, this opinion addressed by pre-GMA version of RCW 82.46.010, the opinion still applies to the issue presented in this inquiry. That opinion states:

       
       
       
       

       We believe the critical question, under both the relevant statutes and the state constitution, is whether the capital improvement at issue is to be constructed or operated for a county purpose. The statutes do not establish a per se requirement that the improvement itself or the underlying real property be owned by the county. Where neither factor is present, however, it is highly problematical whether the improvement is truly intended to serve a county purpose. Absent any additional facts indicating that such a purpose would be served by the capital improvements referred to in your question, we conclude that the funding of such improvements would not be authorized.

       
       

       Since the stadium/athletic field would be used for city recreational programs, it would appear that there exists the requisite city purpose.

       
       

       We recommend that the city and the school district enter into an interlocal agreement that identifies the city's contribution to the improvement of the facility and what the city's use of the facility willbe.

   
   

   Reimbursement for Expenses

   1. What is reimbursement on mileage for 2006?

   Effective January 1, 2006, the federal (and Washington State) mileage reimbursement rate for privately owned vehicles is $0.445 per mile. The following are links to the federal General Services Administration and the Washington Office of Financial Management information on mileage reimbursement:

   • Privately Owned Vehicle (POV) Mileage Reimbursement Rates, U.S. General Services Administration
   • Reimbursement Rates for Lodging, Meals and Private Vehicle Mileage, State Administrative and Accounting Manual, Washington State Office of Financial Management

   Please note that this reimbursement rate is the maximum that can be reimbursed as non-taxable. The rate of reimbursement does not have to conform to the state rate, and local governments may set lower rates. Many cities do use the same rate of reimbursement as the state, but this is not required. Also note that the federal reimbursement rate was higher in September - December 2005, but since gasoline prices are lower now, the rate has been adjusted downward for 2006.

   
   
   

   Reserve Fund

   1. How much should a city or county have in general fund reserves?

   For a long time, the Government Finance Officers Association's (GFOA) recommendation was 5 percent of general fund operating revenues or one month's operating expenditures (which would be 8.33 percent). Now, however, GFOA is recommending 5 to 15 percent of operating revenues or an amount equal to two months's expenditures. See GFOA's Recommended Practice, "Appropriate Level of Unreserved Fund Balance in the General Fund." (86 KB) No one can point to any study that has been done to establish these numbers. And, of course, if some disaster (read Initiative 695 or 864) comes along, maybe no amount of reserves will be enough for some cities.

   
   
   

   Sales Tax

   1. For what purposes can the .08 rural county sales tax authorized in RCW 82.14.370 be used?

      RCW 82.14.370 allows a rural county to levy a sales and use tax of not more 0.08 percent. This tax is not an additional tax. A portion of the 6.5 percent state sales and use tax is paid to the eligible counties. When the law establishing this tax was originally passed in 1997, it was the intent of the sponsors that the proceeds be used in ways to promote economic development. Not all counties have been using the funds in this fashion. Some legislators are very unhappy with how the money has been spent.

      Ch. 130, Laws of 2004 explicitly amended RCW 82.14.370 to restrict the use of the funds to financing public facilities that facilitate the creation or retention of businesses and jobs in the county. In addition to consulting with cities and port districts, counties must also consult with the economic development organization in the county before expending the funds.

      By no later than October 1 of each year, counties must file a report with the state auditor, listing new projects for the prior fiscal year and showing how they reflect the intent of the law. Projects that have been started or to which these sales tax revenues have been pledged before the effective date of this law (June 10, 2004) are not considered to be new projects subject to this law.

   2. Is labor on street project subject to sales tax?
      

      No. Although the retail sales tax is imposed upon each retail sale in this state (RCW 82.08.020(1)), the terms "sale" and "sale at retail" and "retail sale" exclude the charge made for labor and services rendered in respect to the building, repairing, or improving of any street, place, road, highway, easement, right-of-way, mass public trans-portation terminal or parking facility, bridge, tunnel, or trestle which is owned by a municipal corporation or political subdivision of the state and which is to be used primarily for foot or vehicular traffic.
      

   3. What is the streamlined sales tax project?

      This is a national effort by a coalition of states to make sales and use taxes simpler and more uniform. It is focused on convincing Congress to pass enabling legislation allowing states to collect sales and use taxes on remote sales (such as the Internet).

      Washington adopted legislation in 2003 that implemented the majority of the Streamlined Sales and Use Tax Agreement provisions with which Washington State did not already comply. However, Washington still does not conform with one key provision of the model agreement: the "sourcing" rule, which would allocate sales tax to the place of delivery.

      This is a very divisive issue for cities because it will affect local jurisdictions very differently. Some cities are winners and some are losers in regard to revenue.

      For more information, see AWC's Streamlined Sales Tax Web page.

   4. Must sales tax be paid on construction of pathways in a park project?
      

      Yes. RCW 82.04.050(7) provides an exemption from the sales tax for labor and services used for a sidewalk or pedestrian path within a street right-of-way. Pathways within a park are not exempt from sales tax.
      

   5. Request for clarification regarding a city or county's responsibility for paying sales or use tax on items purchased over the Internet, especially given the so-called "Internet Tax Freedom Act".
      

      By law, consumers who purchase a product out-of-state, that is taxable in Washington, are required to pay a use tax to DOR in an amount equal to the difference between the amount of the sales tax they actually paid in the other state and the amount they would have paid if they had purchased that item in their home town. (Never mind that the product may not have been available in their home town).
      

      As we all know, consumers do not do this (except in the case of vehicles, where they have to pay the use tax to get a license). Most local governments are aware, however, that even though their citizens do not, their city or town must pay a use tax on items purchased in stores in Idaho (where the sales tax is five percent) and in Oregon (where there is no sales tax). They also must pay use taxes on mail order sales from out-of-state. It may well be their awareness was a result of a DOR audit.
      

      Ignorance (or confusion) reigns, however, on Internet purchases. In 1998, Congress passed the Internet Taxation Freedom Act, which put a moratorium on new taxes on Internet activity. Note the word "new." This moratorium does not apply to existing sales taxes because they are not "new." It does apply to taxes on Internet access (the monthly fee users pay to companies like America Online to connect to the Internet), band width and "bit" taxes. Even though individuals are not remitting use taxes on Internet purchases, local governments must. If your city or county does not remit them, you will owe back taxes and interest if your failure to pay is discovered in an audit.

   6. What taxes does the city pay in connection with swimming pools?
      

      The examples in WAC 458-20-189(9) are helpful on swimming pools and other recreation activities.

      
       First, is the pool a governmental or an enterprise activity? An enterprise activity is one where user fees cover more than 50 percent of the direct and indirect costs as defined in WAC 458-20-183(2)(d) and (h).

      If it is a governmental activity, the only tax due is sales tax on admission fees. Physical fitness classes (here, it would be water exercise classes) are considered a "retail sale" (RCW 82.04.050(3)(g)), but municipalities' physical fitness classes are exempt from the sales tax. RCW 82.08.0291.

      If it is an enterprise activity, all revenue is subject to the B&O tax. Retailing B&O must be paid on all revenue except lessons. That includes the exercise class. Lessons are considered a service and so B&O tax must be remitted at the service rate. WAC 458-20-189(4)(a)(v). Sales tax must be collected on admissions.

   

   Tax Exemptions

   1. Military Leave - Are there any state laws that provide tax exemptions or restrictions on penalties and interest for delinquent taxes for persons on active duty military leave?

      The 2004 legislature, in SSB 6302 (Chapter 161, Laws of 2004), amended RCW 84.56.020(6) as follows (the language in parentheses was deleted and the language underlined was added):

      no interest or penalties may be assessed for the period April 30, (1996) 2003, through (December 31, 1996) April 30, 2005, on delinquent taxes imposed (in 1995) for collection in (1996) 2003 or 2004 which are imposed on the personal residences owned by military personnel who participated in the situation known as "(Joint Endeavor) Operation Enduring Freedom."

      This legislation has an emergency clause and was effective when it was signed by the governor on March 26, 2004.

      For more information on this topic, see our "Military Leave" Web page.

   2. What federal or state law says that cities may not tax the monthly fee paid by subscribers to satellite broadcast services?
      

      The federal Telecommunications Act of 1996 , at 602(a), preempts all local government taxation of DBS services, except sales of equipment (such as satellite reception dishes). The exact wording of the federal statute is: A provider of direct-to-home satellite service shall be exempt from the collection or remittance, or both, of any tax or fee imposed by any local taxing jurisdiction on direct-to- home satellite service. The definitions of terms used in the above sentence are provided in 602(b) of the Act.

   
   

   User Fees

   1. Request for county building permit fee data

      The most recent survey of county building fees that we have, a 1998 WSAC survey, is a bit dated. We were able to find quite a number of up-to-date building fees that some counties have posted on their websites:

      • Snohomish County commercial permit fees by type and residential permit fees
      • Clark County 2004 Adopted Building Fees
      • King County Permit fee Estimates (effective January 1, 2004)
      • Spokane County 2004 Fee Schedule (Building & Planning)
      • Kitsap County Residential Building Permit Fees
      • Kitsap County Code, See Secs. 14.04.120 (Building permit fees) - 14.04.210
      • Benton County Fee Schedule
      • Thurston County Development Fee Schedule (2006)
      • Pierce County Code, Sec. 17C.10.070 - Building Permit Fees
      • Cowlitz County Permit Application Fees 2007
      • Mason County Building Department Fees 2007
      • Chelan County Building Fee Schedule 2007
      • Grays Harbor County Planning & Building Fees
   2. If a golf course is run as an enterprise fund, may nonresidents be charged a higher fee once the G.O. bonds are paid off?
      

      Possibly. Nonresidents may be charged a higher fee if it can be justified because of additional taxes paid by city residents to support the golf course. As long as city residents are paying off a bond issue with property taxes, a rate differential is supported. However, once the bond is paid off, it will be harder to justify.
      

      It might be possible to justify higher rates for nonresidents because the residents of the city did purchase the golf course at one time with city funds. The city provides police and fire protection from general fund money for the golf course. Therefore, while it may be more difficult to justify, it is possible to argue that a higher rate for nonresidents is still justified.
      

   3. Can a library charge user fees for services provided to non-residents?
      

      Yes. AGO 1992 No. 31 reviews this issue, noting that basic library services must be provided free of charge to residents of the political jurisdiction which supports the library through taxation. The corollary is that public libraries can charge user fees to those who do not live within the jurisdiction which provides the tax revenues to pay for the library. In fact, if a public library provides services to non-residents without charging a fee, an argument can be made that the library is violating the "gift clause" of the state constitution. Libraries can charge for ancillary services such as copying machines, phones, fax machines, etc. - that issue is also covered in the AGO.

   4. 
      

      May a city sell advertising space on public benches installed in main street right-of-way, and, if so, what restrictions may they place on advertising?
      

      The city may sell advertising space on its public benches. Doing so does not interfere with any public use of the benches; the flat surface of the benches is essentially "surplus" for these purposes. Advertising on public property, such as buses, is not uncommon.
      

      If the city decides to allow advertising on its public benches, it may not, with some exceptions, prohibit certain advertising based on content. However, the city may limit advertising only to commercial messages, excluding noncommercial messages such as political advertisements or religious statements. Lehman v. City of Shaker Heights, 418 U.S. 300, 41 L.Ed 2d 770 (1974); Children of the Rosary v. City of Phoenix, 154 F.3d 972 (9th Cir. 1998), cert. denied, 119 S.Ct. 797 (1999). In that context, a nonpublic forum, as opposed to a public forum (in which noncommercial messages, including political and religious, are allowed), is established. In a nonpublic forum, the government may make distinctions based on the subject matter and speaker identity, but not based on the speaker's viewpoint. Children of the Rosary, supra.; see also United Food & Commercial Workers Union v. Southwest Ohio Regional Transit Authority, 163 F.3d 341 (6th Cir. 1998). Restrictions in the context of a nonpublic forum will be upheld if they are reasonable. Examples of reasonable restrictions include no tobacco advertising or advertising involving nudity.

   
   

   Utility Funds

   1. May monies from the general fund be used to support the water utility fund should a deficit develop?
      

      Yes. In fact, RCW 35.37.020 provides that "any deficit for operation and maintenance of utilities and institutions owned and controlled by cities and towns having less than twenty thousand inhabitants, over and above the revenue therefrom, shall be paid out of the current expense fund."

   
   

   Utility Taxes
   

   1. Is a vote of the people necessary to impose or raise utility tax rates?
      

      If a city wants to initially levy a tax with a rate of 6 percent or less on an electric, gas, or telephone utility, council action is all that is needed. If a tax rate of more than 6 percent is proposed, then voter approval must first be obtained (RCW 35.21.870(1). Also, no rate change for the tax on these businesses may take effect until at least sixty days have elapsed following the enactment of the ordinance (RCW 35.21.865).
      

      No vote is needed to raise the rate over 6 percent for other utilities such as water, sewer, stormwater and cable television.
      

      MRSC recommends that every utility tax ordinance include a referendum clause. This is because a utility tax may be considered a business and occupation tax for which a referendum procedure is statutorily required, both when the tax is first imposed and when it is increased. If a citizen files a referendum petition with enough signatures, then a vote of the people is required for any utility tax rate action.

   
   

   Warrants

   1. May mayor use a signature stamp to sign warrants?
      

      Yes, the mayor may use a signature stamp to sign warrants, if the provisions of the "Uniform Facsimile Signature of Public Officials Act," contained in chapter 39.62 RCW, are followed. This act requires that the mayor or other "authorized officer" must file with the secretary of state his or her manual signature before a facsimile signature (e.g., signature stamp) may be used on a "public security," such as a bond or note, or an "instrument of payment," such as a warrant or a check. An "authorized officer" is defined as an official whose signature on a public security or instrument of payment is required or permitted.