Municipal Finance

AWC Priority
Streamlined Sales Tax (SSB 5089/SHB 1072)

SSB 5089 is currently in the House Rules Committee and no further action took place on the streamlined sales tax bills last week.

All cities are encouraged to contact their House members in support of bringing SSB 5089 to the floor of the House for a vote soon. Remind them of the importance of passing this legislation this year for cities, counties, the business community, and the economic health of our state.

AWC Priority
Municipal Business & Occupation (B&O) Taxes (HB 2368)

HB 2368 is expected to be heard by the House Finance Committee on Monday, March 5 at 10 am. AWC will organize a panel of city officials to testify at the hearing.

The bill would reduce the estimated $30 million annual impact of apportionment provisions scheduled to go into effect in January 2008 for the 40 cities that impose a local B&O tax. The bill would change the apportionment formula and use the factors recommended by a national organization of state tax administrators (Multi-state Tax Commission), make technical corrections to the model ordinance requirements, provide for a small business exception to apportionment requirements, and delay the implementation date one year.

The bill makes some changes to the legislation passed during the 2003 legislative session (Chapter 35.102 RCW) which required cities to:

• adopt a model ordinance by December 2004;
• ensure that double taxation could not occur via the model ordinance; and
• adopt an apportionment method that requires businesses to allocate income effective January 1, 2008.

Cities were supportive of the first two provisions of the legislation, and all of the 40 B&O tax cities have adopted the model ordinance.

However, we did not support the apportionment provisions and have questioned whether the current formula will work. In 2005 a DOR study concluded that cities will lose approximately $23.3 million, based on 2004 data. Projected for inflation, this impact could be approximately $30 million in 2008.

Other groups have also questioned the current formula. Last session, the newspaper and publishing industry secured passage of SHB 2033 to exempt them from apportionment requirements. In response to questions from small businesses, the Department of Revenue (DOR) attorneys have noted that implementation of the apportionment provisions is mandatory for all businesses.

We believe this bill will make the 2003 provisions more workable for cities and the business community.

AWC Priority
Fiscal Flexibility Bills

AWC has been advocating for a number of changes that would allow cities greater flexibility with current revenues.

• HB 1369, which would remove non-supplanting language on the voter-approved property tax lid lifts, passed out of the Finance Committee on Thursday, March 1.
• SSB 5647 would expand the definition of "tourism-related facility" to include facilities owned by a public entity or nonprofit organizations and redefine "tourism promotion" to include operations. This bill is now eligible for second reading and cities should contact their senators to support it. The House companion bill, HB 1342, is dead.
• SB 5498 would eliminate non-supplanting requirements in the voter-approved property tax lid lifts and the three-tenths voter-approved sales tax. To date, this bill has not been scheduled for executive session by the Ways & Means committee. City officials should contact committee members and ask them to pass this bill.

AWC Priority
Property Tax Bills (HB 2334, HB 2117)

Several bills relating to property tax limits are in the House Finance Committee. HB 2334 would allow cities to increase property taxes to 100% plus the implicit price deflator (IPD) in lieu of imposing impact fees. Proceeds above 101% would be used for infrastructure needs. HB 2117 would reenact the limitations on regular property tax growth adopted under I-747.

AWC testified in support of HB 2334 and opposed HB 2117. We have been told both bills are likely to move as House Democrats continue their discussions on property taxes.

AWC Priority
Providing Dedicated Public Health Funding (SHB 1825/SSB 5729)

HB 1825 and SB 5729 were companion bills coming from the recommendations of the Joint Select Committee on Public Health Finance. Both bills have since been substituted and remain similar. SHB 1825 was heard by the House Appropriations Committee on Thursday, March 1 and SSB 5729 was heard by the Senate Ways & Means Committee on Wednesday, February 28.

These bills would create a Local Public Health Financing Account in the state treasury, funded by a portion of cigarette taxes currently sent to the general fund. The bills direct $5.425 million to be divided among local health jurisdictions and eliminate the Public Health Improvement Committee.

AWC supports additional resources for public health.

Modifying Local REET Provisions (SHB 1161)

Currently, cities can impose a real estate excise tax (REET) at the rate of 0.25% or 0.5%. Cities also have the authority to impose an additional 0.5% REET in lieu of levying the second 0.5% optional sales tax.

SHB 1161 passed out of the House Finance Committee on Thursday, March 1 with an amendment that would modify the tax rate cities may impose. The original version of HB 1161 would have prohibited cities from levying the additional 0.5% REET if the county in which they were located levied any portion of the second 0.5% optional sales tax. As amended, SHB 1161 would require that, if the county in which the city is located chooses to levy a portion of the second optional sales tax, the city additional REET must be reduced by the same rate.

Currently only two cities levy the additional 0.5% REET and they are not located in a county that imposes the second 0.5% optional sales tax.

Providing Consistency Between Code and Non-code Cities (HB 2161)

HB 2161 would provide code cities the same authority currently granted non-code cities regarding the allocation of interest income from commingled investments. See the February 16 Bulletin for more information. This bill passed out of House Local Government Committee on Monday, February 26 and is now in the Rules Committee eligible for second reading.

AWC Priority
Increasing the City-County Assistance Account (HB 2022)

HB 2022, which would provide an additional $10 million annually for the city-county assistance account and favorably amend the formula, is in the House Appropriations Committee and may not move. Cities are asked to contact their representatives and encourage their support of this bill.

AWC Priority
Local Sales & Use Tax for Criminal Justice Purposes (HB 1851)

This bill would give cities councilmanic authority to levy an additional one-tenth of one percent sales and use tax to pay for criminal justice services. This bill is still in the House Finance Committee. Cities should call their legislators NOW asking for passage of this bill. If the bill does not move by March 5 it will be considered dead for the year.

Objections to Issuance of Liquor Licenses (HB 2113)

HB 2113 would require the Liquor Control Board to give substantial weight to objections by cities and counties regarding the issuance or renewal of liquor licenses (see last week’s Bulletin for more information). The bill passed to the Rules Committee on Wednesday, February 28. AWC supports this legislation.

AWC Priority
Multi-Family Ten Year Property Tax Exemption (SHB 1910)

AWC’s preferred bill, HB 1737, did not move out of the House Housing Committee and appears dead for this session. HB 1737 would simply have lowered the population threshold to 5,000 and allowed a partial exemption to be used for rental properties, currently only authorized for owner-occupied units.

SHB 1910, which would lower the population threshold to 15,000, moved out of the House Housing Committee on February 28. The state affordability mandate was eliminated and each city using the tool is now required to establish a local affordability component. This is preferred over the state mandate. Although improved, we continue to seek refinement of the legislation, including lowering the population threshold for use of this tool.

SHB 1910 was referred to the House Finance Committee and must be advanced by that committee by March 5 or it will be deemed dead for the year.

For additional background, please see last week’s Bulletin. Please contact Jim Justin, jimj@awcnet.org, if you have any comments or questions on this issue.

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