Preserving tax increment financing

One of the biggest economic development news stories in our state occurred in 2021 when, after decades of effort, AWC and our partners were finally able to convince the Legislature to authorize a property tax-based Tax Increment Financing (TIF) tool. That effort succeeded in large part because of legislative champions including Rep. Davina Duerr (D–Bothell), Sen. Mark Mullet (D–Issaquah), and Sen. Matt Boehnke (R–Kennewick), among others (shout-out to former Sen. David Frockt).

Before 2021, Washington was one of only two states—Arizona is the other—without TIF as an economic development tool, putting our state and communities at a competitive disadvantage with our neighbors. A lot of care went into crafting Washington’s TIF tool to protect other local taxing districts and to ensure that it wasn’t simply a “handout” for developers. Washington’s TIF tool requires a “but-for” finding that means that future economic development wouldn’t occur but for the TIF investments occurring. TIF funds can only be used for publicly owned infrastructure, so TIF-generated funds can’t just be used to give cash to developers.  Washington’s TIF tool also includes provisions intended to hold other taxing districts harmless and to allow for mitigation for service impacts created by the TIF development.

Unfortunately, in 2024 the fire districts and fire chiefs brought forth legislation that would have effectively gutted TIF. HB 2354 initially called for all taxing districts to be able to opt out of a TIF project, effectively eliminating the ability to use TIF to fund critical infrastructure investments. The fire districts and fire chiefs claimed that TIF was taking revenue from them, and that mitigation already included in TIF was insufficient to address potential service increases.

In the end, AWC was able to reach a compromise to save this invaluable economic development tool. A big thanks to our champions on this issue, Rep. Duerr and Sen. Liz Lovelett (D-Anacortes), whose support was critical. Additionally, we greatly appreciate the work of Rep. Chipalo Street (D-Seattle). While he was the sponsor of the original bill language that we opposed, he was gracious to work with and embraced the opportunity for a compromise. Thank you also to the many cities who weighed in, as well as our partners at the ports who have been long-time supporters of creating and protecting TIF.

In its final form, HB 2354 enhances the mitigation negotiation requirements and increases the notice periods for taxing districts that may be impacted by a TIF project. However, the fire districts and fire chiefs as well as the public hospital districts and library districts have indicated that they will likely continue to pursue legislation that will allow them to opt out of TIF areas, effectively hobbling the tool’s use.

For jurisdictions considering using TIF as an economic development tool, it is critical to begin work early with impacted taxing districts. Cities should be ready to walk through the proposed TIF project with affected taxing districts and discuss potential service and financial impacts to those districts. TIF is a complex tool that can be challenging to fully explain, and partnering with other taxing districts is crucial for TIF’s success.