Tax Increment Financing Comes to Washington
Washington communities have a new tool to drive economic development: tax increment financing. Sometimes called “TIF,” this funding method allows local governments to self-finance public improvements that encourage development without imposing new taxes. The 2021 Washington legislature passed a TIF program and Governor Inslee signed it into law on Monday, May 10, 2021.
Under the TIF legislation, a local government may designate one or two areas targeted for development, and may incur indebtedness or issue general obligation bonds to finance public improvements within the area or areas. Certain limitations steer TIF developments toward areas in particular need of infrastructure investment. For example, the assessed values of the designated TIF areas cannot exceed the lesser of $200,000,000 or more than 20 percent of the sponsoring jurisdiction’s total assessed valuation. Thus, a local government must carefully delineate the geographic boundaries of a TIF area.
The legislation also sets requirements likely to maximize the public benefits of TIF programs. A sponsoring governmental entity must hold public briefings and pass an ordinance that specifies the public improvements involved, and it may not add additional improvements after adopting the ordinance. The local government must expressly find that it expects the improvements will encourage private development that would not otherwise occur within the designated area. It must also find that the TIF area’s assessed value will likely increase more with the improvements than without them, thus increasing the tax revenue generated in the area. That increased revenue—the “tax increment”—is pre-allocated to pay or repay the costs associated with the public improvements.
Until the TIF legislation, Washington communities lacked this funding source used by 48 other states and Washington, D.C. The City of Milwaukee, WI, for instance, used TIF funding to redevelop a former railyard that sat vacant for 20 years. A TIF program funded demolition, site remediation, storm water improvements, and new roads, utilities, and landscaping. As the light industrial area with over 60 acres of recreational space revitalized, the development created 5,000 new jobs and increased property values by over 1,400 percent.
Washington’s new TIF legislation gives localities a new ability to renovate public spaces in ways that attract new development, removing a competitive disadvantage Washington cities previously faced in comparison to neighboring Oregon and Idaho municipalities.
This article summarizes aspects of the law, it does not constitute legal advice. For legal advice for your situation, you should contact an attorney.