Washington is one of only two states in the country that generally prohibits a financing tool that’s popular among local governments to encourage economic development in areas lacking public infrastructure. Now however, the state legislature appears on the verge of passing ESHB 1189, a measure which would allow local governments to use tax incremental financing (TIF) while avoiding the constitutional issues plaguing similar past efforts.
The bill first cleared the House on March 3 by a 64-33 vote and was recently approved by the Senate on April 5 by 45-2.
“As Washington competes for new, 21st century jobs, this financing tool will provide the necessary capital for public benefit infrastructure costs and will make a meaningful difference in the feasibility of many projects,” Commercial Real Estate Development Association NAIOP Washington Chapter President Marty Goodman said in a statement.
As local governments look to incentivize business growth in their communities, one of the potential challenges is the lack of public resources or other investments necessary for a project to occur. These investments can at times be outside the financial means of cities, counties, and ports. One such example is that of Lakepointe, a proposed mixed-use development in the city of Kenmore that has been proposed since the 1980s, but soil conditions at the site need improvement.
TIF takes the appreciated value of a site accumulated after the project is completed and uses the increased property tax revenue to cover the costs of the infrastructure or service improvements within that area. The state first enacted the 1982 Community Development Refinancing Act. However, it was struck down by the State Supreme Court in 1995 in Spokane v. Leonard.
Association of Washington Cities Government Relations Director Candice Bock told Lens that “there’s been an effort ever since, off and on, to come up with something constitutional. What’s appealing for folks is it’s a way for a development to pay for itself, particularly when the development needs extraordinary infrastructure investment to make it possible. It’s really hard to come up with money for infrastructure overall. It’s an area our state struggles with, and local governments struggle with.”
Under ESHB 1189, cities, counties, and ports can use TIF for an area worth no more than $200 million by adopting an ordinance specifying the area’s boundaries. However, unlike prior proposals, the bill would only apply to the local property tax to avoid constitutional violations.
Local government must conduct an analysis of the proposed area, in part to determine mitigation impacts to local fire district services demand and two public hearings must be held. If approved by the local governing entity, only two TIFs can be active at the same time with a combined worth of less than $200 million, a TIF cannot take up the entire jurisdiction, and the TIF area must be retired within 25 years.
Bock said TIF can be used for a variety of projects ranging from downtown redevelopment to an office park. She added that by not allowing TIFs, Washington cities have been put at a competitive disadvantage compared with neighboring states such as Oregon and Idaho the mechanism has been used in metro areas like Portland.
ESHB 1189 will now require concurrence from the House due to revisions made by the Senate.