June 16, 2009 - Two pieces of legislation came out of the 2009 session to expand the availability of tax increment financing (TIF) for use in Washington state. First, a new Local Revitalization Financing (LRF) was created by Laws of 2009, Chapter 270 (Second Substitute Senate Bill 5045). Second, the Local Improvement Financing Tool (LIFT) was amended by Laws of 2009, Chapter 267 (Engrossed Substitute Senate Bill 5901) to improve viability and ease of administration.

As a result, there are currently multiple forms of TIF authorized in Washington:

We have prepared a more detailed comparison chart comparing LIFT, LRF, CRF and HBZ, available here.

Local Revitalization Financing

LRF, the most recent addition to the state’s TIF laws, captures a local property tax increment based on new construction value within a designated revitalization area, and makes a state contribution available to approved jurisdictions in the form of a local option sales tax credited against the state sales tax. To use LRF, a city or county must create a revitalization area within its boundaries and identify public improvements² that will be undertaken. Local Revitalization Financing may be used to repay general obligation bonds or to pay certain public improvement costs on a “pay-as-you-go” basis. The state contribution of sales tax revenues may only be used to repay bonds, and the state contribution will not be received until after those bonds have been issued. The maximum state contribution available under this legislation is $500,000 per revitalization area per year, with an aggregate statewide limitation of $2.5 million (excluding the amounts allocated in the legislation to demonstration projects).

Application Process for State Contribution.

Beginning on September 1, 2009, the Department of Revenue (DOR) will accept applications for the state contribution under LRF from cities, towns and counties. Electronic submission is required.  (Demonstration projects identified in the legislation must apply before September 1, 2009.) The application process is not competitive, instead each application that meets the statutory requirements will receive an award, on a first-come, first-served (FCFS) basis until the aggregate limit of $2.5 million is reached. Applicants in the pool at the time the limit is reached will retain their place in line if future funding becomes available. The applications for demonstration projects will be available at the end of June, and for the FCFS round in mid-August.

Before submitting an application, the applicant must have adopted an ordinance creating a revitalization area, including requirements for notice and a public hearing, and must have compiled certain data necessary to complete the application. The local government must also have entered into a contract with, or received letter of intent from, a private developer for the development of private improvements within the designated revitalization area. So, given the notice periods required under statute, any jurisdiction hoping to submit an application should start compiling information for that application now.

Note that it may be possible to access the local property tax revenues available under the LRF legislation without applying for a state contribution. An application to DOR for approval may be necessary, and information about that process is expected to be forthcoming.

Coordination with Overlapping Taxing Districts

One major difference between LRF and LIFT is that overlapping taxing districts are automatically included as “participating” unless they “opt out” of the revitalization area. Every overlapping taxing district is entitled to receive notice at least 30 days before the sponsoring local government’s public hearing. If the overlapping taxing district desires to opt out, it must adopt an ordinance or resolution doing so before the sponsoring local government adopts its ordinance designating the revitalization area.

Additional Questions?

There are many details and procedures involved in using any of the TIF tools described above, including notice provisions, tax estimation requirements, and limitations. For further information about any of these programs, please contact Hugh Spitzer (206.447.8965), Alice Ostdiek (206.447.4663), or Mike Schechter (206.447.4669) in our Seattle office, or Jeff Nave (509.777.1601) in our Spokane office.

¹ Demonstration projects must apply before September 1, 2009; competitive pool applicants may apply after September 1, 2009. In addition, jurisdictions may take advantage of a local property tax only version by complying with the formation and ordinance requirements, and seeking “approval” of their revitalization area by Department of Revenue. DOR has not yet determined what this application and approval process might look like and the statute does not provide any related deadlines.

² Eligible public improvements include: street, road, bridge, and rail construction and maintenance; water and sewer system construction and improvements; sidewalks, streetlights, landscaping, and streetscaping; parking, terminal, and dock facilities; park & ride facilities of a transit authority; park facilities, recreational areas, and environmental remediation; storm water and drainage management systems; electric, gas, fiber, and other utility infrastructures; environmental analysis, professional management, planning, promotion, maintenance, security or historic preservation activities in the revitalization area.