Transcript Slide 1
Local Revitalization
Financing (LRF)
June 2009
1
Presentation Outline
1. 2009 Legislation and Intent
2. Overview of Program
3. Application Process and Steps
4. State-shared Local LRF Tax (state contribution)
5. Local Matching Funds
6. Estimating/Measuring Growth in Revenues
Property Tax Allocation Revenue
Sales and Use Tax Increments
7. Annual Reporting
2
LRF Legislation
Chapter 270, Laws of 2009
Second Substitute Senate Bill 5045
Community Revitalization Financing
Effective Date: 07/26/2009
3
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.
4
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
5
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”
6
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.
7
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
8
What kinds of public improvements
can be financed?
For a complete list of public improvements and
public improvement costs, see the 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
9
Application Process for
a State Contribution
10
Two types of applicants that will apply
for state funding under LRF
1. Demonstration projects
– Specified in statute
– Must apply no later than Sept. 1, 2009
2. Projects applying on a first-come basis
– Applications may be accepted beginning Sept. 1,
2009
11
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 firstcome 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
12
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 firstcome basis
13
Demonstration projects –
max awards per year
• Whitman County
– $200,000
• University Place
– $500,000
• Tacoma
– $500,000
• Auburn
– $250,000
• Vancouver
– $220,000
• Spokane
– $250,000
• Bremerton
– $330,000
14
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
15
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 demonstration project 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
16
Steps to take before applying to DOR
(All Projects)
• 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)
17
More steps to take before applying
• 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
18
More steps - continued
• 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
19
Limitations on boundaries of Revitalization
Areas (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
20
Limitations on boundaries of Revitalization
Areas (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
21
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
22
Partnering continued
• Participating taxing 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”
23
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
24
If approved for a LRF award, what are
some next steps?
• 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
25
State-shared Local LRF
Tax (State Contribution)
26
Mechanism for receiving the
state 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
27
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)
28
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
29
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
30
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)
31
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
32
What types of funds cannot be
included in my local match?
• State grants
• State loans
• Any other state moneys, including state-shared local
taxes
33
Measuring growth in
tax revenues
34
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
35
Property Tax
Allocation Revenues
36
Property Tax Allocation Revenues
Important points to remember
• LRF is a program that measures tax revenues in a
specific geographic area called a revitalization area (RA)
• It’s a method of allocating 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)
37
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
38
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
39
Local property tax allocation
revenue 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”
40
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”
41
Sales and Use Tax
Incremental
Revenues
42
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
43
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.)
44
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
45
Annual Reports
46
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
47
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”)
48
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
49
DOR Contacts
General Program Questions:
• James Petit, DOR Tax Account Administration, [email protected],
(360) 902-7037
Property Tax Questions:
• Leslie Mullin, DOR Property Tax Division, [email protected], (360)
570-5865
• Diann Locke, DOR Property Tax Division, [email protected], (360)
570-5885
Questions about estimating incremental tax revenues:
• Diana Tibbetts, DOR Research Division, [email protected], (360)
570-6085
50