On HB 1406 and its potential to increase cities’ funding for housing.

Basics. The recently enacted HB 1406 provides cities and counties with a new 20-year revenue source to combat housing issues without adding a new tax at the register. Instead, a slice of the state sales and use tax will be returned to cities and counties that (i) adopt a resolution stating their intention to levy the new tax before January 31, 2020, and (ii) formally enact via ordinance the sales and use tax authorized by HB 1406 before July 27, 2020.

Governments can use the funds to buy, build, and rehabilitate affordable housing (including adaptive reuse and supportive housing facilities); to pay operating and maintenance costs on new units of affordable or supportive housing; and (except for certain large cities and counties) to provide rental assistance. The funds must benefit households earning no more than 60 percent of area median income for the jurisdiction.

The amount of funds available to a jurisdiction will depend on several factors, including whether a city has a “qualifying local tax” and how much overlap may exist between cities and counties imposing the new tax. Generally, however, the tax will be either 0.0146 percent or 0.0073 percent of taxable sales for the jurisdiction (with a cap based on the taxable sales for the jurisdiction during the state fiscal year ending June 30, 2019) and can be imposed for 20 years. The tax receipts may also be pledged as a repayment source for bonds.

Next steps. Cities and counties should move quickly to adopt the resolution and ordinance by the deadlines. Cities should also consider whether it makes sense to seek to pass a qualifying local tax before July 31, 2020, in order to double the sales tax receipts they are eligible to collect. For other timing considerations that may apply in certain circumstances, see the details in “Due Dates” at left.

Local officials may want to collaborate with local housing authorities or statewide housing agencies, such as the Washington State Housing Finance Commission, to help deploy the funds.

In addition, cities and counties should evaluate whether to pool receipts through interlocal agreements to maximize impact. Interlocal agreements can also help participants pledge tax collections to bonds and allocate collected taxes to authorized affordable housing projects. Local officials may want to collaborate with local housing authorities or statewide housing agencies, such as the Washington State Housing Finance Commission, to help deploy the funds. City officials should also keep an eye on developments from the Department of Revenue, which will administer the program (at no cost to the cities) and will be providing further guidance, and the Department of Commerce, which will write rules as to the reporting requirements.

Jon Jurich is a partner at Pacifica Law Group in Seattle. He concentrates his practice in public finance and general municipal law, with an emphasis on nonprofit and affordable housing issues.