Understanding a key economic development tool.

For years, city leaders across Washington lamented the lack of a key economic development tool available almost everywhere else in the United States. Until 2021, Washington was one of only two states—Arizona being the other—that lacked a tax increment financing (TIF) tool, leaving it at a competitive disadvantage regarding economic development.

What is TIF?

At its most basic level, TIF is an economic development tool that allows growth to pay for itself. Under TIF, the incremental increase in property tax created by new development is used to pay for the infrastructure costs needed to make the new development possible.

Why didn’t Washinton have TIF?

In the 1980s, Washington tried to adopt TIF, but the law was struck down as unconstitutional under our state’s uniform taxing requirements. Instead of trying to design a property tax–based TIF that would pass constitutional muster, the state created a myriad of TIF-like grant programs that relied on a share of the state’s sales tax. By 2021, however, all the programs were closed to new projects and there was little legislative appetite for sharing additional state sales tax.

TIF comes to Washington

In 2021, the stars aligned and—with the help of legislative champions and a huge coalition of cities, counties, ports, and business interests—the legislature finally passed a property tax–based TIF tool. Washington’s TIF was carefully crafted to address concerns around the constitutional uniform taxation requirements, to ensure that TIF wasn’t just a handout to private developers, and to protect other taxing districts from unintended harm.

Washington’s TIF specifically includes a provision that the sponsoring jurisdiction (city, county, or port) find that the development wouldn’t occur “but for” the use of TIF and that TIF funds can only be used for publicly owned infrastructure. Additionally, TIF requires a project analysis that includes reviewing impacts on other taxing districts, local fire services, affordable housing, and local businesses. TIF also requires that the sponsoring jurisdiction identify any needed fiscal mitigation.

New changes to the law adopted in the 2024 legislative session include requiring mitigation negotiations with fire and hospital districts, with the ability to enter arbitration if an agreement isn’t reached, and additional notice requirements for other taxing districts.

Who is using TIF?

Almost immediately after TIF was adopted, Washington cities started using the new tool, with the City of Pasco as the vanguard. Now, roughly a dozen cities and about seven ports have submitted the required project analysis to the State Treasurer’s office. Not all the proposed projects will move forward, but they demonstrate the pent-up interest in this versatile economic development tool. For several of them, TIF is just one part of the overall funding package but makes up a critical financing piece without which the project wouldn’t occur. The potential impact of these TIF projects is significant, with projected estimates including the creation of over 14,000 housing units and 22,000 new jobs.

City of Pasco Broadmoor Tax Increment Financing Program

In 2017, Pasco started creating a master plan for the 1,600-acre Broadmoor area. The site has unprecedented potential for development and the ability to support the area’s growth projections. The master planning effort involved an analysis of various land use designations, roadway alignments, and relevant best practices related to land use planning.

Over the last several years, the city has worked with the largest property owner in the Broadmoor area on a large-scale mixed-use development of 671 acres within the site. Both the city and Broadmoor Properties recognize that the development of this site represents a once-in-a-lifetime opportunity to provide significant housing, office, retail, and placemaking elements while also achieving the goals

of the local community and region. Pasco officials anticipate the project will create over 1,000 jobs and 4,800 housing units.

City of Ridgefield Tax Increment Area (TIA)

The City of Ridgefield’s proposed TIA is centered on the intersection of I-5 and SR 501/Pioneer Street and includes 942.2 acres of developable land. Development here is a vital element of the city’s goal of becoming a regional employment center for Clark County and Southwest Washington that provides living-wage employment opportunities for residents.

While establishing the TIA, Ridgefield worked with the affected local special purpose districts and created a voluntary mitigation plan. A key part of the plan included creating an interlocal agreement with the city’s fire district; the agreement was unanimously approved by Ridgefield’s City Council and Fire Commission.

While TIF is a complex tool, it has the potential to support transformational change. Early community and stakeholder engagement is critical to the success of TIF projects.”

To achieve the TIA’s economic goals, Ridgefield must complete many significant infrastructure projects, estimated to cost $97.5 million in nominal dollars, and TIF revenue from the proposed TIA would provide essential funding. The TIA is expected to generate substantial economic benefits for the local and regional economy, including $3.4 million in state and local sales tax revenue. The total estimated economic impacts (direct, indirect, and induced) from the construction phase are roughly 2,300 ongoing jobs, 200 housing units, and $700 million in private investment.

Storm clouds on the TIF horizon

While cities worked for years to gain the ability to use TIF—and are using it for exciting projects that will benefit their communities for decades to come—some challenges have emerged. Earlier this year, significant objections were raised by other taxing districts, specifically fire districts and fire chiefs associations as well as public hospital and library districts. These special purpose districts argued that TIF would take away much-needed revenue and impact their ability to provide services.

Even though TIF is specifically designed to limit impacts on taxing districts’ existing revenue and, in the case of fire and hospital districts, to provide specific mitigation measures for new service demands, fire and hospital districts were so concerned that they proposed legislation that would have significantly curtailed the tool’s effectiveness.

AWC worked out a compromise with these stakeholders to address their concerns about mitigation and timing of notice to impacted taxing districts. Despite these measures, worries persist, making it even more imperative that any city planning to use TIF work with the other impacted taxing districts to explain the tool and address concerns.

Is TIF right for your community?

While TIF is a complex tool, it has the potential to support transformational change. Early community and stakeholder engagement is critical to the success of TIF projects. Any city looking to use TIF should first consult with financial and bonding experts to ensure that project funding is appropriate. TIF may be new to Washington, but it is already positively affecting the economy, new developments, and our communities.