HB 1406, one of AWC’s priority housing bills, provides cities with a tool to address affordable housing in their communities. HB 1406 passed the Legislature during the wee hours on the last day of session. The bill creates a sales tax revenue sharing program, allowing cities to access a portion of state sales tax revenue to make local investments in affordable housing. The bill now heads to the Governor for signature.

During the final days of session there was an attempt to tie the ability to levy this tax with actions in HB 1923, the housing density bill. A final floor amendment struck that provision.

Here’s what HB 1406 does:

• County and city legislative authorities are authorized to implement a local sales tax—in turn, proportionally reducing the state sales tax—to fund affordable or supportive housing. This results in no impact to the consumer.
  • Housing and services may only be provided to persons whose income is at or below 60 percent of the county median income.
  • A county or city may enter into an interlocal agreement with one or more other counties, cities, or housing authorities to provide affordable or supportive housing.
• To impose the tax, a county or city legislative authority must adopt a resolution of intent within six months of the effective date of the bill and impose the tax within one year.
  • The tax expires 20 years after the jurisdiction first imposes the tax.
• A county or city may use funds on a cash basis or bond against the revenue. The revenue collected or bonds issued may only be used for:
  • Acquiring, rehabilitating, or constructing affordable housing, including new units of affordable housing within an existing structure or facilities providing supportive housing services to individuals with mental or behavioral disorders; or
  • Operations and maintenance costs of new units of affordable or supportive housing.
  • Counties with a population of 400,000 or less and cities with a population of 100,000 or less may also use the revenue to provide rental assistance to tenants.

There is a somewhat complicated revenue sharing formula in the bill, essentially designed to share the money among cities and counties unless a city adopts a separate local housing or mental health levy. In that case, the city would also receive access to the county’s share of revenues generated within their city. If either the city or the county chooses not to access this resource after one year, then the other party may levy the second share of the tax.

To see what your city could raise (based on 2017 data) annually for the next 20 years under this new taxing authority, see our chart.

For the first 12 months after the effective date of the bill, the following occurs:

• Both cities and counties may access their half of the resources provided by the state – by adopting a local sales tax of up to .0073%.
• The maximum rate of 0.0146% is available to:
  • A city levying a qualifying local housing or mental health levy, including those newly adopted within the first year;
  • A city located in a county that declares it will not levy the tax; and
  • A county within its unincorporated areas and within the limits of a city that declares it will not levy the tax.

After the bill has been effective for one year:

• Cities without a qualifying tax may impose a rate of 0.0073%.
• A county may impose a rate of 0.0073% within the unincorporated areas and the limits of a city that levies this HB 1406 tax but does not impose a qualifying tax.
• The maximum rate of 0.0146% is available to:
  • A city levying a qualifying local tax (in which case a county may not levy the tax within the limits of the city)
  • A county within its unincorporated areas and within the limits of a city that is not levying the HB 1406 tax.
  • A city that is in a county that has chosen not to levy the HB 1406 tax.

A "qualifying local tax" is defined as the affordable housing levy, property tax levies dedicated to affordable housing, the sales and use tax for housing and related services, or the sales and use tax for chemical dependency and mental health treatment services or therapeutic courts.