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June 2009

Local Revitalization Financing (LRF). June 2009. Presentation Outline. 2009 Legislation and Intent Overview of Program Application Process and Steps State-shared Local LRF Tax (state contribution) Local Matching Funds Estimating/Measuring Growth in Revenues Property Tax Allocation Revenue

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June 2009

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  1. Local Revitalization Financing (LRF) June 2009

  2. Presentation Outline • 2009 Legislation and Intent • Overview of Program • Application Process and Steps • State-shared Local LRF Tax (state contribution) • Local Matching Funds • Estimating/Measuring Growth in Revenues • Property Tax Allocation Revenue • Sales and Use Tax Increments • Annual Reporting

  3. LRF Legislation Chapter 270, Laws of 2009 Second Substitute Senate Bill 5045 Community Revitalization Financing Effective Date: 07/26/2009

  4. Intent and Purpose • Invest in public infrastructure to stimulate business activity and help create jobs, stimulate redevelopment of brownfields and blighted areas in inner cities, lower housing costs, and promote efficient land use. • Provide local governments with an additional tool for financing local infrastructure—one that includes a state investment in local infrastructure when the local government can demonstrate the expected returns to the state. • Increase WA competitiveness with other states who use some form of tax increment financing to attract businesses. Other types of tax increment financing statutes in WA are either closed to additional applications or do not include a state investment.

  5. What is Local Revitalization Financing(LRF)? • Essentially a form of tax increment financing • Estimates the growth of certain state and local tax revenues from economic development in a specified area as a result of local public improvements • Allows use of incremental local tax revenues to pay for local public improvements • Provides a limited amount of state funding to pay for public improvements as long as there is a local match and anticipated growth in state revenues that equal or exceed the state contribution

  6. How is LRF different from other forms of tax increment financing in WA? • LRF encourages partnerships between local entities but does not mandate participation • Local governments may use the LRF program at the local level with or without a state contribution • Part or all of the program elements may be used (local property tax and/or local sales/use tax and/or state contribution) • Note: For more information on tax increment financing programs in WA, see “Financing programs for local public infrastructure”

  7. Who can apply for a state contribution through the LRF program? • Only cities, counties, and ports can be sponsoring local governments and apply for a state contribution Note: If a port applies, a city or county must be a joint sponsor because the state contribution comes in the form of a state-shared local sales tax that must be imposed.

  8. What kinds of infrastructure projects are a best fit for the program? • Local public improvement projects that will encourage private development or redevelopment in an area in need • Local Revitalization Financing is used only for funding local public improvement projects, not private development • Projects that can be ready to move forward fairly quickly • Projects that once complete will generate enough increases in state and local sales/use tax revenue and/or increases in state and local property tax revenue to meet the funding mechanism requirements and other conditions

  9. What kinds of public improvements can be financed? For a complete list of public improvements and public improvement costs, seethe definition in sections 102(15) & (16) of 2SSB 5045. Some of the improvements include such things as: • Roads, bridges, rail, sidewalks, streetlights • Water & sewer systems, utility infrastructures • Parking facilities, recreation areas • Environmental remediation

  10. Application Process for a State Contribution

  11. Two types of applicants that will apply for state funding under LRF • Demonstration projects • Specified in statute • Must apply no later than Sept. 1, 2009 • Projects applying on a first-come basis • Applications may be accepted beginning Sept. 1, 2009

  12. Differences in types of project applicants Demonstration projects • Max award less than $500,000 per year per project, in most cases • May impose state-shared LRF tax beginning July 1, 2010 as long as general obligation bonds have been issued • Can opt-out of demo project status and instead apply on a first-come basis Projects applying on a first-come basis • Maximum award amount is $500,000 per year per project • May impose state-shared LRF tax beginning July 1, 2011 as long as general obligation bonds have been issued; and • Estimate that in the previous calendar year the state has benefited through increased tax revenues as much as the award for state contribution

  13. What level of state funding is available for the LRF program statewide? $4.75 million statewide per year for state contributions • $2.25 million a year set aside for the total number of demonstration projects • $2.5 million a year set aside for the total number of projects approved on a first-come basis

  14. Whitman County $200,000 University Place $500,000 Tacoma $500,000 Bremerton $330,000 • Auburn • $250,000 • Vancouver • $220,000 • Spokane • $250,000 Demonstration projects – max awards per year

  15. How will DOR select projects on a first-come basis? • Applications must be completed fully and submitted electronically to be approved • DOR system will accept only one application at a time • Projected state and local incremental revenues must justify the amount of award requested • The sponsoring local government’s taxable base for sales/use tax, combined with the available state-shared LRF sales tax rate, must be able to produce the award amount requested

  16. When will LRF applications be ready for distribution? • DOR is currently working on applications for both demonstration projects and projects that will apply on a first-come basis • Target date for demonstrationproject application to be ready for circulation is June 30, 2009 • Mock applications, spreadsheets, and a second webinar will be available at a future date to be determined (first webinar is on June 9) • Target date for electronic application form for projects applying on a first-come basis is mid August

  17. Develop boundaries for the proposed RA Decide what public improvements will be proposed for financing Provide notices to, and partner with, other local governments and taxing districts Publish notices and hold a public hearing to establish a “revitalization area” (RA) Steps to take before applying to DOR (All Projects)

  18. Enter into a contract with or obtain a letter of intent to develop in the RA from a private developer Ensure that proposed development is consistent with countywide planning, comp plan, and development regulations Estimate the expected state and local incremental tax revenues resulting from public improvements and private development Note: If DOR assistance is needed to estimate incremental revenues, contact DOR early in the process More steps to take before applying

  19. Determine the rate of LRF tax that is needed to generate the LRF award amount that will be requested (DOR can assist if needed) Make findings as required in 2SSB 5045, Section 103 Adopt an ordinance/resolution creating the RA and enter into interlocal agreement with participating local government, if needed If the RA boundaries overlap a revenue development area (RDA) under chapter 39.102 RCW, the ordinance/resolution creating the RDA may need to be repealed More steps - continued

  20. Limitations on boundaries of RevitalizationAreas (RA) • RA boundaries cannot overlap: a Revenue Development Area under chapter 39.102 RCW; an increment area under chapter 39.89 RCW; a hospital benefit zone under chapter 39.100 RCW; or another RA • Must have contiguous tracts, lots, pieces, or parcels of land without creating islands of property • Boundaries may not purposely exclude parcels where economic growth is unlikely to occur • The public improvements must be located in the RA boundaries

  21. Limitations on boundaries of RevitalizationAreas (RA) - continued • Cannot comprise an area containing more than 25% of the total assessed value of the taxable real property within the boundaries of the sponsoring local government • Boundaries of RA may not be changed and are restricted to location of the public improvements and the adjacent locations that have a high likelihood of receiving direct positive business and economic impacts due to the public improvement, such as a neighborhood or block Note: DOR will NOT set up unique local sales/use tax location coding for taxpayers to report sales/use taxes

  22. Partnering with local entities • Notices must be provided (at least 30 days before the date when the ordinance/resolution creating the RA is expected to be adopted) to the taxing authorities and taxing districts that have boundaries within the proposed RA to allow the local entities to opt-out • Both taxing authorities and taxing districts that have boundaries within the proposed RA must take formal action by passing an ordinance/resolution if the local entity does not want to participate in sharing the incremental tax revenue Note: Timeframes for the formal opting-out process may be tight; sponsors may want to provide notice as early as possible

  23. Partnering continued • Participatingtaxing authorities (for sharing incremental local sales/use tax revenue) • Interlocal agreements must be obtained from participating taxing authorities specifying the amount of sales/use tax to be shared and the start date • Participating taxing districts (for sharing local property tax allocation revenue) • Taxing districts may automatically become a participating taxing district and participate in sharing the local property tax allocation revenue if no action is taken to “opt-out”

  24. When will my jurisdiction know if it has been approved for state funding? • DOR has 60 days to approve or disapprove applications • Applications that are not approved as a result of limited state funding will be kept in a queue for future state funding, if available • Those first in line in the queue will have the first opportunity to update an application for any new funding that becomes available • DOR will stop accepting applications after the full $2.5 million has been awarded on a first-come basis

  25. Proceed with public improvements and development or redevelopment project Work with county assessor and treasurer to implement the RA, measure and distribute the local property tax allocation revenues Estimate incremental state and local sales/use taxes (with assistance from DOR if needed) Issue general obligation bonds to finance public improvements in the RA File annual reports to DOR each year • Use increases in certain local tax revenues from the RA and funds from other local public sources to pay for public improvements in the RA or principal and interest on the bonds • Adopt an ordinance imposing the state-shared LRF tax on July 1st of the appropriate year • Use revenue from LRF tax to pay principal and interest on the bonds If approved for a LRF award, what are some next steps?

  26. State-shared Local LRF Tax (State Contribution)

  27. Mechanism for receiving thestate contribution • Authority to impose a new local sales/use tax (“local LRF tax”) that is credited against the state sales and use tax (No increase in tax rate paid by consumers) • Local ordinance/resolution must be adopted to establish the rate and effective date of the LRF tax. However, an appropriate maximum rate must be pre-selected when creating the RA and applying to DOR • Annual reports will be submitted to DOR March 1st each year and a “threshold” for LRF tax distributions will be determined each year • Distributions from the local LRF tax will continue throughout the state fiscal year until the “threshold” is met and then distributions will cease until July of the next state fiscal year

  28. The Local “LRF” Tax • Rate of tax can be no greater than 6.5% minus: • Rates of all other local taxes credited against the state sales/use tax within the RDA (such as Rural County 0.09 tax, PFD 0.033 tax, Stadium taxes, LIFT tax, 2% Lodging tax, etc.) • A percentage amount of distributions (0.16%) required for performance audits under RCW 82.08.020(5) multiplied by the state sales tax rate of 6.5% (the result is 0.0104%) • All rates of LIFT, HBZ, or LRF taxes that have been selected and reported to DOR for approved projects but not yet imposed • The tax is imposed jurisdiction-wide (not just within RDA) • Rate must be reasonable and allow the full state contribution for the year to be distributed within at least a 10 month period (based on taxable retail sales within the sponsoring jurisdiction)

  29. When can the LRF Tax be imposed? • Demonstration projects – July 1, 2010 • Bonds must be issued for the public improvements in the RA • Projects awarded on a first-come basis – July 1, 2011 • Bonds must be issued • The estimated state benefit in the preceding calendar year must be as much or greater than the award

  30. How long will the LRF tax (state contribution) last? The LRF tax will cease on the earlier of the dates when: • The bonds are retired • 25 years from the time the tax is first imposed

  31. A project’s state funding is linked to a local match requirement The state contribution is the lesser of: • The amount of project award granted by DOR (No more than $500,000 dollars or for Demo projects, the maximum amount specified in statute) • The local match --The total amount of local sales/use tax incremental revenue, local property tax allocation revenues, and other revenues from local public sources, that are dedicated to paying for the RA public improvements (bonds or pay-as-you-go basis) in the previous calendar year (or carried over from prior years)

  32. What can be included in my local match? See definition of “Revenues from local public sources” in 2SSB 5045, section 102(19). Some funds that can be included as local match include: • Local incremental tax revenues from LRF • Local revenues derived from federal and private sources Note: Revenues from local public sources dedicated in the preceding calendar year that are in excess of the project award may be carried forward and used in later years for the local match

  33. What types of funds cannot be included in my local match? • State grants • State loans • Any other state moneys, including state-shared local taxes

  34. Measuring growth in tax revenues

  35. Types of growth in tax revenues being measured • Local Property Tax Allocation Revenues and State Property Tax Increments • State and Local Sales & Use Tax Increments

  36. Property Tax Allocation Revenues

  37. Important points to remember Property Tax Allocation Revenues • LRF is a program that measures tax revenues in a specific geographic area called a revitalization area (RA) • It’s a method ofallocating targeted tax revenues to fund local public improvements in the RA • LRF requires no change in levy calculations or rate setting) • It’s a voluntary program – taxing districts may take action to “opt-out” • There is no limit on the number of RAs that can be created at the local level (however, work with county assessor to determine what is reasonable)

  38. What property tax revenue is used to pay for public improvements in the RA? • Only the local property tax allocation revenues are used to pay for public improvements • Includes those from the sponsoring local government and any participating taxing district • State property taxes are not used (only measured) • Using state property taxes would be unconstitutional. They must be used for support of the common schools

  39. How is local property tax allocation revenue calculated? • Local property tax allocation revenue is the amount of regular property taxes levied by the sponsor and any participating taxing districts on the “RA value” • The “RA value” is referred to as the “property tax allocation revenue value” • Primarily, “RA value” means 75% of any increase in the assessed value of real property in a RA resulting from new construction or improvements to property initiated after the RA is approved by DOR

  40. Local property tax allocationrevenue and “RA Value” • For more information on how to calculate the “RA Value” and “local property tax allocation revenue”, see: Section 102 of 2SSB 5045: • Subsection 14 for definition of “Property tax allocation revenue value” • Subsection 17 for definition of “Real property” • Subsection 18 for definition of “Regular property taxes”

  41. State property tax increment (measured only) • The state property tax increment is calculated by using the state property tax rate (the actual rate used by the county) levied on the “RA value”

  42. Sales and Use Tax Incremental Revenues

  43. Measuring sales & use tax increments • The sponsoring local government estimates, for each calendar year, increases in sales/use tax revenue from the RA as a result of revitalization in the area • DOR, upon request, must assist sponsoring local governments in estimating sales/use tax revenue in the proposed or adopted RA

  44. What sales/use tax revenues are measured and used? Measured and Allocated • Local 0.5% Basic and 0.5% Optional sales/use taxes (RCW 82.14.030) dedicated by the sponsoring local government and any participating local government Measured only • State 6.5% sales/use tax (Chapters 82.08 and 82.12 RCW) minus any local taxes that are credited against the state sales (examples: 0.09% Rural County Tax, 2% Transient Lodging Tax, 0.033% PFD Regional Centers Tax, LIFT Tax, HBZ Tax, Annexation Services Tax, etc.)

  45. Accountability and review of program • There is always the possibility of more legislation to change or expand the LRF program • Annual Reports will be key to determining whether the program is effective • Estimates for incremental tax revenues should be as accurate and realistic as possible

  46. Annual Reports

  47. What sales/use tax related information is needed from the Annual Reports? • The amount of incremental local basic and optional sales/use tax revenues estimated to have been received by the sponsoring local government and any participating taxing authority • The amount of local sales/use tax increments dedicated by the sponsors and any participants for LRF • At least once every three years, provide estimates of the amount of state sales/use tax increments during the years after the RA was created

  48. What property tax related information is needed from the Annual Reports? • The “RA value” and local levy rates for sponsor and participating tax districts • The amount of local property tax allocation revenues received by the sponsoring local government and any participating taxing district • The amount of local property tax allocation revenues dedicated by the sponsors and any participants for LRF • The estimated state property tax increment (State equalized levy rate multiplied by the “RA value”)

  49. Other information to include in the annual reports • Local match broken down by type or source • Anticipated date when bonds will be retired • Names of businesses located in the RA as a result of public improvements • Estimate of the cumulative number of permanent jobs created in the RA as a result of public improvements • Estimate of average wages and benefits received by all employees of businesses locating in the RA as a result of the public improvements • List of public improvements financed by bonds

  50. DOR Contacts General Program Questions: • James Petit, DOR Tax Account Administration, JamesP@dor.wa.gov, (360) 902-7037 Property Tax Questions: • Leslie Mullin, DOR Property Tax Division, LeslieM@dor.wa.gov, (360) 570-5865 • Diann Locke, DOR Property Tax Division, DiannL@dor.wa.gov, (360) 570-5885 Questions about estimating incremental tax revenues: • Diana Tibbetts, DOR Research Division, DianaT@dor.wa.gov, (360) 570-6085

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