Municipal Finance

AWC Priority
Streamlined Sales Tax Bill Passes Legislature (SSB 5089)

With the legislative cutoff behind them, the House turned its attention to SSB 5089 and passed the bill without amendment on Friday, March 16.

AWC would like to thank all the cities that worked so hard on this legislation, and Sen. Regala (D-Tacoma) and Rep. McIntire (D-Seattle) for their work on behalf of cities in sponsoring the Senate and House versions of the bill. SSB 5089 now goes on to the Governor for her signature, which must take place within five days of final passage.

Please take a moment to thank your House members for passing the bill so early in the session.

House Proposed State Budget (HB 1128)

As discussed in last week’s Bulletin the House Appropriations Committee Chair will release her budget on Tuesday, March 20. HB 1128 is scheduled for public hearing by the Appropriations Committee on the same day at 3:30 pm. The bill is scheduled for executive session the following day, Wednesday, March 21.

On Thursday, March 15 the Revenue Forecast Council released the March revenue forecast. The forecast shows projected General Fund revenues over the next three fiscal years to be $126.5 million more than expected. All of the revenue increase is for the current 2005-2007 budget cycle, which is forecasted to be $144.3 million more than the previous forecast. However, for the 2007-09 budget cycle, which begins July 1, 2007, revenues are forecasted to decrease $17.9 million.

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

SHB 2368 failed to pass out of the House before the legislative cutoff and is considered dead for the session.

Cities and the business community did not reach agreement on the provisions of the bill, which would have included a number of technical changes to the model ordinance and apportionment provisions:

• Addition of a property factor in the apportionment formula and aligning the formula with the Multi-State Tax Commission (a national organization of state tax administrators used by many other states);
• Technical corrections to the model ordinance requirements; and
• An exception to apportionment requirements that would have assisted smaller businesses that did not want to adopt new accounting procedures that will be required to comply with the mandatory apportionment provisions.

Because the apportionment provisions go into effect on January 1, 2008, AWC will be working with a group of B&O tax cities as soon as the legislative session ends to revise the model ordinance for adoption by cities later this fall. If your city would like to take part in the revision process, please contact Sheila Gall at sheilag@awcnet.org.

Cities with B&O taxes should also review the conclusions of the 2005 Department of Revenue Apportionment Study and begin planning for any revenue impacts in the upcoming budget process.

Requiring State Administration of Municipal B&O and Utility Taxes (HB 2260)

HB 2260 also failed to pass out of the House prior to the fiscal cutoff and is considered dead for the session. The bill would have required state collection and administration of city B&O and utility taxes.

While the bill never had a formal hearing, its provisions were discussed in conjunction with the debate on SHB 2368, and the Association of Washington Business used the issue of state collection and administration of city B&O taxes to question the need for SHB 2368. AWC opposed this loss of local control over two major revenue sources for cities.

AWC Priority
Removing Non-Supplanting Requirements (SB 5498, HB 1369)

These two bills would remove non-supplanting requirements in the 6-year voter-approved levy lid lift authority. Additionally, SB 5498 would remove non-supplanting requirements in the three-tenths percent voter-approved sales tax. Neither bill passed out of its house of origin by the cutoff date – HB 1369 died in House Rules and SB 5498 died on the Senate calendar late on March 14. We understand SB 5498 was likely to be acted upon but died when the Senate adjourned a little early due to unrelated issues. SB 5498 addressed both the lid lift and sales tax supplanting issues, so it was our preferred bill.

There remains significant interest by key legislators in advancing this bill and we have already begun to seek alternative routes to pass the legislation.

AWC Priority
Tourism Promotion (SSB 5647)

SSB 5647 would expand the definition of "tourism-related facility" to include facilities owned by a public entity or nonprofit organization and redefine "tourism promotion" to include operations of special events and festivals. This bill passed the Senate and was referred to the House Committee on Community & Economic Development & Trade. Earlier in the session, the House companion bill died in this committee, so cities are encouraged to ask their representatives to support this bill. It has not yet been scheduled for a hearing.

AWC Priority
Providing Dedicated Public Health Funding (E2SHB 1825)

This bill, which would provide a dedicated funding source for public health, passed out of the House unanimously on Tuesday, March 13. The bill is scheduled for public hearing by the Senate Committee on Health & Long-Term Care on Thursday, March 22 at 10 am.

E2SHB 1825 would distribute funds from the Public Health Financing Account, created by the bill, to local health jurisdictions. A maximum of $5.425 million would be equally distributed amongst all jurisdictions and additional money would be distributed on a per capita basis. At this point, the legislation does not include any money. Budget writers are still determining the appropriate funding level. While we may not obtain our goal of an additional $100 million for the biennium, we are likely to receive more from the Legislature than the Governor’s proposal of an additional $10 million.

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

This bill would give code cities the same authority currently granted to non-code cities regarding the allocation of interest income from commingled investments. The bill was heard and approved by the Senate Government Operations & Elections Committee on Thursday, March 15. AWC supports this bill and thanks Sen. Darlene Fairley (D-Lake Forest Park), chair of the Committee, for scheduling and moving the bill so quickly.

Sales and Use Tax Exemption of Repairs to Farm Machinery and Equipment (EHB 1902, SHB 1901)

Last week’s Bulletin discussed two bills, SHB 1901 and HB 1902, that would provide a sales and use tax exemption for parts and services related to farm vehicles and qualifying farm machinery and equipment. EHB 1902 passed out of the House on Saturday, March 10, on a vote of 88-9. The engrossed House bill essentially combined HB 1901 and HB 1902.

EHB 1902 is scheduled for public hearing by the Senate Committee on Agriculture & Rural Economic Development on Monday, March 19 at 10 am.

The anticipated fiscal impact for local governments as a result of these exemptions is over $1 million dollars by 2009. We believe smaller rural cities and counties will incur a significant share of this revenue loss. We have expressed our opposition to the bill and will continue to do so. If you have concerns about this bill please contact your senator and Alicia Seegers Martinelli at aliciam@awcnet.org or (360) 753-4137.

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

SHB 1910 was amended and approved by the full House on March 13. As approved, cities above 15,000 may provide a 10-year property tax exemption for multi-family housing in an urban area. A city must establish a local housing affordability component if they are going to use this tool.

An amendment was offered on the House floor to lower the population threshold to 5,000, but it was defeated on a voice vote. The bill is improved but still needs work. We will continue to refine the bill and attempt to lower the population threshold that defines which cities can use this very valuable density tool.

The bill has been referred to the Senate Consumer Protection & Housing Committee but has not yet been scheduled for a hearing. For additional background, please see the Municipal Finance Section of the March 2 Bulletin. Please contact Jim Justin, jimj@awcnet.org, if you have any comments or questions on this issue.

Sunday Liquor Sales (SB 5902)

SB 5902 would expand Sunday liquor sales. Currently a limited number of liquor stores are open on Sundays. This bill would provide for an additional 29 stores to operate on Sundays. Additional liquor taxes and profits to the state, counties and cities are expected as a result of the expansion.

The bill provides that $1.9 million of the new money, otherwise allocated to the state’s general fund, will be deposited into a new Public Benefit and Research Services Account to fund interpreter services for Superior Courts and Municipal Research and Service Center services to special purpose districts. City and county liquor tax and profit distributions are not expected to be impacted by this transfer.

SB 5902 passed the Senate on March 10 and is scheduled to be heard by the House Commerce & Labor Committee on Friday, March 16 at 1:30 pm.

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

Some cities have recently inquired about the status of this bill. HB 2022 would provide additional assistance for low tax base cities. See the February 23 Bulletin for more information. The bill didn’t meet the committee deadline a couple of weeks ago and remains in the House Appropriations Committee – apparently dead.

Increasing assistance for low tax base cities is an AWC priority and we continue to advocate for this bill given the tie to the budget and possible exemption from legislative cutoffs. However, key legislators remain opposed to the bill and chances of passage appear slim.

Property Tax Bills

In last week’s Bulletin we discussed several property tax bills of interest to cities. While none of the bills moved out of the house of origin by March 14, all of them could be tied to the budget and therefore remain active vehicles. The debate over property taxes continues in Olympia and AWC will keep you informed of any new information.

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