Municipal Finance & Economic Development

ACTION ITEM: Streamlined Sales Tax (SSB 6594)

AWC priority bill SSB 6594 is scheduled for hearing in the House Finance Committee on Wednesday, February 15, at 1:30 pm. This version of the bill passed the Senate last month and includes full mitigation for impacted cities. AWC will be coordinating a panel of city officials to testify at the hearing.

Cities are encouraged to contact your representatives today and express support for the bill. Please, also reach out to your local businesses and chambers of commerce to have them contact House members in support of the bill. Remind your House members that legislation must pass this year to level the playing field for Washington businesses.

ACTION ITEM: Farm Equipment (SHB 2457)

SHB 2457 provides a sales and use tax exemption for sales of replacement parts for farm machinery and equipment to a farmer. This legislation could have significant impacts on revenues for cities in agricultural communities. The substitute version of the bill is preferable to the original bill, which would also have exempted used farm machinery and equipment and repair or replacement services.

However, the bill is likely to be amended when it is considered by the full House to return back to the original language that includes parts and machinery and equipment. If so, the fiscal impact will be a loss of $6.4 million for local governments in the first year.

Farm Fuel Exemption (HB 2424)

This legislation would exempt diesel fuel for agricultural operations from sales and use tax. The exemption is limited to farm fuel users for non-highway farm use. This bill has already passed the House and is in the Senate Rules Committee. This legislation would also negatively impact cities in agricultural regions.

ACTION ITEM: Sales Tax & Levy Lid Lift Flexibility (HB 2988, SSB 6789, 2SSB 5333)

HB 2988 and SSB 6789 address flexibility on the 0.3% voter approved sales tax authority. Both bills currently sit in the respective Rules Committees. These bills relax the supplanting requirements and expand the definition of eligible criminal justice purposes for the .3% sales tax. Further refinements are expected. At this time, we simply need to ensure that these bills are advanced. Please contact your House and Senate members to ask them to advance HB 2988 and SSB 6789.

2SSB 5333, regarding the six-year voter approved property tax levy lid lift authority, passed out of the Senate Ways & Means Committee on February 7. This bill would eliminate the non-supplanting language and allow additional local governments to use the multi-year lid lift authority granted to cities and counties in 2003. Please contact your Senators to ask them to support this bill.

Local Infrastructure Finance Tools (2SHB 2673, SB 6700, SB 5325)

A number of bills to address local infrastructure financing tools are still moving through the Legislature. 2SHB 2673 passed out of the House Finance Committee on February 7 and the House Rules Committee thereafter. The bill awaits full House action. This bill would create six demonstration projects using incremental sales and property tax growth to finance infrastructure related to economic development.

SB 6700 did not pass out of the Senate Ways & Means Committee before the cut-off on February 7, but, given the impact on the State budget, is deemed necessary to implement the budget and therefore exempt from the cut-off deadlines. We expect action on this bill by the full Senate later. SB 5325, a proposal from last year to give cities an additional financing tool for infrastructure using incremental sales tax growth, passed the full Senate on February 8.

Regional Fire Protection Districts (SHB 2345, SB 6163)

This legislation clarifies the existing authority to create regional fire protection districts that was granted in 2004, and adds authority to provide regional emergency medical services.

The bill also clarifies the financing of the regional authority, which must be approved by voters. If a regional district financing plan authorizes the district to impose benefit charges or tax levies that require the approval of 60 percent of the voters, then the plan itself must be approved by 60 percent of the voters. The plan and revenues can be adopted by a majority vote if the revenue sources do not require 60 percent approval.

SHB 2345 was amended prior to passing out of the House Local Government Committee on February 1 to include additional procedures and findings the district must make prior to setting up ambulance services. SB 6163 passed out of the Senate Government Operations & Elections Committee on February 1 without amendment.

Card Room Freeze (SSB 6615)

This bill passed out of the Senate Labor, Commerce, Research & Development Committee on February 3, and may move to the floor calendar soon if agreement can be reached on a substitute bill. As introduced, the bill freezes the number and location of current gaming establishments.

In an attempt to reach agreement with the Recreational Gaming Association, an alternative has been developed which would allow cities to ratify existing grandfather clauses and moratoriums if council action is taken in the 2006 calendar year. City ordinances outlining grandfather clauses or moratoriums have been overturned by recent court decisions. Cities would not be required to take such action, but many believe without such action, as authorized by the State, those cities with partial bans will have these bans voided when challenged in court. In this bill, cities would retain the ability to ban but could not rescind the ban.

Please contact Jim Justin or Sheila Gall if you would like to discuss this issue in further detail.

City Business License Authority (SB 6138)

SB 6138, which would have limited city license authority to businesses that had a physical location in the city, did not pass out of the Senate Government Operations & Elections Committee before the cut-off and is considered dead for the session. Thanks to those cities that provided impact information on the bill.

Attorney General Releases Opinion on Uses of Hotel/Motel Tax (AGO 2006 No. 4)

On February 3, the Attorney General’s Office released a Formal Opinion addressing some long-standing questions about the use of hotel/motel taxes for tourism facilities. AWC and the City of Olympia requested that Senator Fraser ask the Attorney General to review an opinion released in 2000 that limited use of hotel/motel taxes for tourism facilities to city-owned facilities.

The opinion reaffirms the 2000 AGO and further clarifies that a city lacks authority to spend lodging taxes to operate a tourism-related facility in which it has no ownership interest. In addition, the opinion found that municipalities may not spend lodging tax revenue on operating expenses of special events and festivals if they are operated by non-governmental entities. Finally, cities may not provide advance payments to outside organizations for tourism promotion.

We expect the State Auditor to issue further guidance on this issue and begin reviewing these issues again during the next audit cycle. It is possible that AWC will need to seek legislative clarification next session.

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