Municipal Finance

State Operating Budget (SHB 1128)

On Monday, March 26 the House of Representatives passed their version of the state budget (62-35-1). See last week’s Bulletin for more information about the House budget.

On Wednesday, March 28 the Senate Ways & Means Committee released a striking amendment for the budget bills. The Senate operating budget was passed by the committee the following day and will likely be voted on by the full Senate on Saturday, March 31.

The Senate budget is similar to the House and Governor’s budgets. Some highlights include:

• Full mitigation of Streamlined Sales Tax legislation;
• $20 million for local public health jurisdictions in addition to $48 million of continued backfill;
• $9 million for local government stormwater programs in the operating budget and $27 million for stormwater projects in the capital budget;
• An assumption of passage of ESSSB 5115 for the local infrastructure financing tool (LIFT), which would increase the annual contribution from $5 to $10 million per year.

The Senate budget also assumed enactment of SJR 8206, which would amend the constitution to establish a Budget Stabilization Account if approved by voters.

For a detailed explanation of the Governor, House and Senate proposed budgets and how they impact cities, please visit our website at www.awcnet.org.

Streamlined Sales Tax-Related Bills Heard in House Finance Committee (HB 2381, HB 2380)

On Wednesday, March 28, the House Finance Committee heard two bills that are follow-up issues related to SSB 5089, the Streamlined Sales Tax bill that was signed into law on March 22.

HB 2381 would allocate the additional voluntary compliance sales tax revenues to the state, in excess of an amount equal to the amount of state general fund allocations needed for mitigation to negatively impact cities and other local governments, beginning in July 2009. The additional voluntary compliance revenues would be shared equally between the LEOFF 2 pension fund and to cities, counties, and fire districts for local public safety needs. The additional funding for public safety purposes is apportioned based on the number of law enforcement officers and firefighters employed within the local jurisdiction as a percentage of the total number of officers and firefighters employed in all local jurisdictions.

AWC testified in favor of the additional funding for local public safety needs, but reemphasized that the bill could not impact the mitigation mechanism and funding approved in SSB 5089. It appears this is simply an informational hearing and we do not expect the bill to be advanced any further this year.

HB 2380 would expand the state assistance to businesses for implementing the destination-based sourcing provisions. SSB 5089 provided $11.8 million in state tax credits to businesses with tax nexus, earning less than $500,000 total revenues, and for which deliveries are at least 5% of their sales revenues. HB 2380 would expand the credits to businesses with revenues between $500,000 and $3 million if deliveries were at least 95% of their sales revenues. This bill is scheduled for executive action by the House Finance Committee on Friday, March 30.

AWC Priority
Lodging Tax Revenues (SSB 5647)

SSB 5647 was heard by the House Community & Economic Development & Trade Committee on Monday, March 26, and a substitute version of the bill passed out of committee on Thursday, March 29. Currently, the bill maintains the definitions that were in the original bill, expanding "tourism promotion" to include operations and "tourism-related facility" to include property owned by a nonprofit organization (501(c)3 or 501(c)6), as well as business organizations, destination marketing organizations, main street organizations, lodging associations and chambers of commerce.

The bill adds new reporting requirements. Local jurisdictions that levy the tax must submit an annual economic impact report for lodging tax expenditures to CTED beginning in January 1, 2008. The report would include revenues received, a list of organizations or festivals that received funds, the estimated number of tourists and lodging stays generated per event or tourism organization, and the estimated increased sales and use tax revenue attributed to the event or tourism organization. The Joint Legislative Audit Review Committee is mandated to report to the Legislature in September of 2012 on the uses of the hotel/motel tax proceeds.

The bill does sunset all of these changes in 2013. We, obviously, will work to eliminate this sunset clause.

AWC Priority
Removing Non-Supplanting Requirements (SB 5498)

SB 5498, which would remove non-supplanting requirements in the six-year voter-approved levy lid lift and the voter-approved three-tenths percent sales tax, remains on the Senate Calendar and could be acted upon at any time. The bill is also referenced in the Senate budget implying the bill is still alive. We continue to work to secure passage of the bill and we encourage you to contact your senator seeking support for the bill.

AWC Priority
Providing Dedicated Public Health Funding (E2SHB 1825)

E2HB 1825 would provide the means of allocating additional funds for local health jurisdictions to meet local health functions such as communicable diseases, public health emergencies, chronic disease, healthy families and children, health assessment, and environmental health. Both the House and the Senate budgets included $20 million for local public health, in addition to the ongoing backfill of $48 million per biennium. We had hoped for more but given both budgets appropriated $20 million, it appears the deal has been struck. The Governor had appropriated only an additional $10 million.

On March 22 E2HB 1825 passed out of the Senate Committee on Health & Long-Term Care and was referred to Ways & Means. The bill is scheduled for executive session in the Senate Ways & Means Committee Friday, March 30, at 3:30 pm.

AWC Priority
Multi-Family Ten Year Property Tax Exemption (2ESHB 1910)

2ESHB 1910 was passed out of the Senate Consumer Protection and Housing Committee on March 29, with amendments. The amendments result in allowing all cities above 15,000 population, cities above 5,000 population in the six buildable lands counties and the largest city in a GMA planning county to:

1. Provide an eight-year property tax exemption for multi-family housing in an urban area with no required state or local affordability component, and or;
2. Provide up to a twelve-year property tax exemption with a state required 20% affordability component. The bill also outlines a number of reporting requirements to determine how the tax exemption is being used.

AWC supports 2ESHB 1910 with these amendments and as moved out of the committee. The bill was referred to the Senate Ways and Means Committee and must be approved by this Committee by Monday, April 2, or considered dead for the year. The Ways and Means Committee has not been receptive to this legislation in the past. Please contact Jim Justin, jimj@awcnet.org, if you have any comments or questions on this bill.

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

This bill would provide a sales and use tax exemption for parts and services related to farm vehicles and qualifying farm machinery and equipment. See the March 16 Bulletin> for more information. This bill was heard by the Senate Committee on Agriculture & Rural Economic Development on March 22 and referred to the Ways & Means Committee several days later. The bill is scheduled for public hearing by the Ways & Means Committee on Friday, March 30 at 3:30 pm.

This bill’s local government fiscal impact is more than $1 million by 2009 and AWC believes this would negatively impact smaller rural communities. We will testify against the bill and encourage cities to contact their senators to express concerns.

Tax Preference Review (EHB 1069)

During the 2006 legislative session, EHB 1069 was enacted, mandating the Joint Legislative Audit and Review Committee (JLARC) to undergo performance reviews of Washington’s tax preferences at least once every ten years. The bill created the Citizen Commission for Performance Management of Tax Preferences, responsible for developing JLARC’s review schedule. The first report of reviews will be delivered for the 2008 legislative session. However, because the state business and occupation tax deduction for beef processors due to US beef bans will expire before the 2008 legislative session, JLARC recently released their review on this tax preference. JLARC recommended the legislature retain the current expiration date, which means the tax preference would terminate at the end of 2007.

We will follow the work of JLARC very closely as they review other exemptions.

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