April 24, 2007

Municipal Finance

State Operating Budget (SHB 1128)

As noted in previous Bulletins budget negotiations have been underway between the House, Senate and Governor. The operating budget was released on Saturday, April 21 and was passed by each house on Sunday, April 22.

The budget appropriates $33.4 billion, with an ending fund balance of $558.6 million and $165.4 million in the Budget Stabilization Account, created by ESSJR 8206 and ESSB 5311.

SHB 1128 does not differ significantly from previous Governor, House and Senate budgets.

  • It provides full mitigation to negatively impacted jurisdictions as a result of the new Streamlined Sales Tax legislation.
  • Twenty million dollars is provided for local public health jurisdictions (in addition to continued backfill). Funds are to be used for core public health functions as defined in E2SSB 5930. The amount of funding for distribution, before the administrative deduction, shall be the greater of:
    • $100,000 or
    • $75,000 plus a per capita amount for jurisdictions with a population of 400,000 or fewer or
    • $25,000 plus a per capita amount for jurisdictions with a population greater than 400,000.
  • The final budget also provides $3.346 million in additional funds for the Basic Law Enforcement Academies, closer to the $3.464 million requested by the Governor and supported by AWC.

More information about the operating budget and its impacts on cities can be found on AWC’s website www.awcnet.org. See the Infrastructure, Transportation & Economic Development section of this Bulletin for more information about the capital and transportation budgets.

AWC Priority
Lodging Tax Revenues (SSB 5647)

This bill clarifies the allowable uses of city lodging tax revenues to support special events and festivals, and facility partnerships with nonprofit organizations. It also requires local governments to annually report on the economic impact associated with the specific uses of the tax. As noted in last week’s Bulletin, SSB 5647 passed the House on April 12. The Senate concurred on Tuesday, April 17 by a vote of 41-8. The bill was delivered to the Governor on Thursday, April 19.

Although this bill passed the legislature it still receives opposition from the hotel/motel industry and visitor and convention bureaus. All cities are encouraged to write a letter to the Governor expressing support for the bill and asking her to sign SSB 5647.

AWC Priority
Revising Voter-Approved Funding Sources (ESB 5498)

While ESB 5498 does not eliminate non-supplanting language in the voter-approved multi-year levy lid lift and three-tenths percent sales tax, it will allow cities to supplant certain funds or loss of funds due to events impacting expenditures. See the April 6 Bulletin for a more detailed description of the bill.

This bill passed the House on Friday, April 13 by a vote of 74-23. The bill has been delivered to the Governor for review.

AWC Priority
Multi-Family Property Tax Exemption (E2SHB 1910)

E2SHB 1910 passed out of the Senate with a 41-2 (6 excused) vote on Monday, April 9 and the House concurred with the Senate amendments on April 14. The bill was delivered to the Governor on April 20. For details about the bill’s provisions, please see the Municipal Finance section of the April 6 Bulletin.

AWC supports this bill and the expansion of this property tax abatement tool to other cities. We have written the Governor and asked her to sign the bill. We know she will also receive requests to veto the bill. Interested cities should contact the Governor this week and encourage her to sign the bill as presented her. For questions on this issue, please contact Jim Justin, jimj@awcnet.org.

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

EHB 1902 will provide a sales and use tax exemption for parts and services related to farm vehicles and qualifying farm machinery and equipment. On Wednesday, April 18 the Senate Committee on Ways & Means took action on an amended form of this bill. The Senate passed the bill on Friday, April 20, by a vote of 32-12. The House concurred later the same day.

The amended bill makes allowances for exemptions of qualifying itemized charges for labor and services even if provided in a transaction with nonexempt services. The bill also changes "calendar year" to "tax year" and allows a declaration under perjury as an alternative proof of income.

EHB 1902’s local government fiscal impact is more than $1 million by fiscal year 2009. AWC opposed this bill.

Revenue to Release Proposed Rule on Hotel "Intermediaries"

The Department of Revenue (DOR) will soon release a proposed rule regarding lodging taxes which may impact city and county collections. Specifically, DOR will be considering the tax treatment of on-line travel businesses that negotiate rates with hotels and sell rooms with a mark-up. At issue is whether these travel businesses should remit lodging and sales taxes based on the amount they receive from customers, or the wholesale rate received from the on-line companies by the hotels, or some combination of the two.

DOR held a stakeholder meeting with cities last week to outline the issue. Cities are encouraged to research the fiscal impact of the application of tax on the amount received from the on-line companies by the hotels compared with the amount paid by the customer for the hotel. Please watch for a draft rule for comment and public hearing within the next few weeks.

This issue also has a national component. The Multi-State Tax Commission has a task force working on finding a consistent interpretation across states, and the U.S. Senate is expected to hold a hearing on this issue in the near future.

 

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