Looking for a boost in agility as they work to fund affordable housing and address local needs, Washington cities led the charge for legislation that makes a subtle—but impactful—change to how real estate excise tax revenues can be spent.
Story by Jennifer Krazit
The police station in Oak Harbor needs some work. In fact, it probably just needs to be replaced altogether. Finding the funding for such a big capital project isn’t easy, but thanks to HB 1791—a bill that originated in Oak Harbor and passed both legislative chambers with bipartisan support in 2025—city leaders now have more options.
Bellingham Councilmember Hannah Stone testified in support of HB 1791, which originated with the City of Oak Harbor and gives cities more flexibility in allocating revenue raised by real estate excise taxes (REET) to help fund high-priority initiatives. (Photo by Chona Kasinger)
The new law gives cities of all sizes the flexibility to direct revenue raised by the real estate excise tax (REET) to fund high-priority initiatives, from capital campaigns and affordable housing to operational and maintenance costs.
The bill essentially makes permanent some temporary provisions in state law regarding the use of REET revenues that were put in place at the height of the COVID pandemic.
The state levies a tax on property sales, and cities and counties can opt to impose a local tax as well. These local taxes, known as REET 1 and REET 2, each represent an additional 0.25% tax on property sales, and the funds generated from them come with restrictions on what local governments can spend the money on.
Prior to the COVID-era rule changes, “REET 1 was decently broad,” says David Goldman, Oak Harbor’s deputy city administrator and finance director, who drafted HB 1791 and worked to get it passed. “The projects had to be in the capital facilities plan, and REET 1 funds could be used for streets or parks, but also for general government stuff, public safety, infrastructure, and the like. REET 2 was more restrictive and really focused on utilizing the money for streets and parks.”
Oak Harbor Police Chief Tony Slowik, Mayor Ronnie Wright, and Deputy City Administrator and Finance Director David Goldman outside the city’s police station, a priority capital project that is outdated and undersized and needs to be replaced. (Photo by Chona Kasinger)
In addition, a set percentage of REET revenue could be used for ongoing maintenance of capital projects in the same category. Local governments did have some flexibility in how funds could be divvied up between projects, with the ability to use a certain percentage of REET 2 funds for projects that technically fell under the REET 1 umbrella. However, the two buckets of funding were largely separate.
And then there was the mandatory report. In order to apply REET 2 funds to a REET 1 project, a detailed report had to be filed with the state.
“You had to figure out what total projects were eligible for REET 1, what total projects were eligible for REET 2, and what percentage of funds you were spending for REET 1 that was coming from REET 2,” says Goldman. “It would take a couple of days of staff time every year to put the report together. Then, once we published it, we never got a comment on it from our elected body, the state Legislature never saw it, and the state auditor never asked about it.”
For larger cities with dedicated finance teams on staff, the report was just another layer of bureaucratic red tape that consumed staff bandwidth. But for smaller cities, the report could be overly burdensome, preventing some jurisdictions from using the allowed flexibility. “It was a convoluted report, and a lot of cities said they had trouble figuring out exactly what the Legislature wanted from it,” adds Goldman. “I talked to some cities that said they would never use the flexibility provisions because they didn’t understand exactly what was required; they were afraid to run afoul of the report requirements.”
Financing flex
That all began to change in 2021, when temporary changes were put into place as a result of the pandemic. Predicting that local governments would take a hit on revenue from sales taxes as COVID lockdowns kept people from traveling, shopping locally, and going out to eat, the Legislature eased what local governments could do with their REET funds. The temporary provisions not only allowed local governments to use more REET 2 revenue for projects that typically fell un-der REET 1, but also expanded the types of projects that were covered to include affordable housing and public safety initiatives. In addition, the percentage of REET revenue that could be put toward maintenance costs was bumped up from 25% to 35% (with operational costs also permitted)—and the state stopped requiring that pesky report.
If you see something that needs improvement, don’t procrastinate or hope that somebody else will get to it. If you have a good idea…go ahead and run with it.
– David Goldman, Deputy City Administrator and Finance Director, Oak Harbor
These changes gave cities valuable flexibility in how they used some of the tax revenue they had coming in, making it easier to keep maintaining streets and operating parks even as sales tax revenue was dropping. It also gave them the chance to put some of that revenue toward affordable housing and homeless-ness services, which hadn’t been allowed before. Even better, this new flexibility came without having to increase taxes since it was revenue that was already being collected.
The REET rule changes were initially intended to be a temporary solution to the financial strains created by the pandemic. As such, they were set to automatically expire in 2023. In an attempt to raise new revenues for affordable housing investments and preserve the temporary provisions, HB 1628 was introduced in the 2023 legislative session. That bill carried forward the more relaxed REET rules. But it also increased the maximum amount of tax that could be collected by the state, raised the rate charged by the state on high-value properties that sold for more than $3 million, and introduced a third REET category that could be charged by cities and counties. The bill stalled in the House.
Righting REET
By the time the temporary provisions expired, many cities across the state had seen the benefit of this added financial agility. Back in Oak Harbor, Goldman knew the city would soon need to find new ways to fund public safety. Despite the failure of HB 1628, he saw value in trying to revive the now-expired REET changes.
Decades prior, in another city, he’d worked with a human resources director who had a philosophy for business and life: Don’t walk by something that’s wrong without attempting to fix it. That lesson gave Goldman some inspiration.
“The idea was basically that if you see something that needs improvement, don’t procrastinate or hope that somebody else will get to it,” he says. “If you have a good idea, run it past some people who might be affected, see what they say, and, if they agree it’s a good idea, go ahead and run with it.”
So he did.
Goldman floated his idea past a group of city clerks and finance directors from other cities. The mayor and city council in Oak Harbor adopted it as one of their legislative priorities for 2025, and AWC supported it.
From the start, Goldman wanted to get support not only from across the state, but also from both sides of the aisle. “I wanted it to be bipartisan because our district is bipartisan,” he says. “Our senator is a Republican, and our representatives are Democrats, and they all said they would support it.”
He found an advocate in Rep. Dave Paul, D-Oak Harbor, who agreed to sponsor the bill. After passing the House and the Senate, the bill was signed by the governor on April 24.
Prioritizing local needs
HB 1791 officially went into effect in July. Because many cities and towns operate with biennial budgets, it might take some time before they can start taking advantage of the changes. But with the relaxed rules now made permanent, local jurisdictions can plan for the future with more flexible finances in mind.
That means Oak Harbor can start thinking about what to do with its police station. The building is more than 70 years old and was last renovated in 1989. One-off upgrades, like a new roof and a new HVAC system, have been made in recent years. But a larger issue looms: The structure has reached the end of its projected design life.
“It comes to a point where you ask, ‘Is it cheaper to continue doing that, or is it cheaper to build a new building?’” says Goldman, who points out that a new building with the latest technology and design specifications would both fix what isn’t working and save money by reaping other benefits, such as improved energy efficiency and reductions in ongoing maintenance costs.
Approaching the problem through incremental improvements also does nothing to address a fundamental problem with the building: It’s too small. As Oak Harbor’s population has grown, so has its police force. Five new positions were added last year with no additional space to accommodate them. At its current size, says Goldman, “the building is not optimally functional.”
Goldman inside the city's police station and jail. More flexible use of REET revenue could allow the city to bank funds to help pay for construction of a new facility. (Photos by Chona Kasinger)
Even with more flexible use of REET funds, Oak Harbor wouldn’t raise enough revenue in a year to pay for a new building. But the flexibility could enable the city to bank some REET revenue for the project each year in a targeted savings fund, should the city council decide to do that. The important thing, according to Goldman, is that this new law gives decision-makers another potential option to consider when the time comes to find a solution.
Another way Oak Harbor might use its REET revenue came as a surprise. The city is designing a universal playground, creating a fun and safe space for children of all abilities. It was expecting to use grant money to fund that project, but in October, city leaders received an email from the Washington State Recreation and Conservation Office informing them that, due to the shutdown of the federal government, its grant program would likely be put on hold. Without that grant money, construction of the playground would need to be delayed. REET flexibility gives Oak Harbor, and other cities facing similar circumstances, the potential to keep projects on track when confronting unpredictable events.
Supporting the community
Bellingham is one city that took advantage of the temporary provision allowing use of REET revenue to address homelessness during the pandemic. In October 2021, the city opened the doors to the Gardenview Village tiny house project. The 35 tiny homes in the complex provide stable housing for vulnerable residents—primarily elderly people and adults who are medically fragile—as they transition from homelessness to more permanent housing. The project was funded in part by the city’s general fund, American Rescue Plan Act funding, and revenue from the affordable housing sales and use tax (which went into effect in 2020 and which Bellingham opted to adopt). In addition, REET funds were instrumental to the project, with about half a million dollars of REET revenue supporting the initiative.
In 2021, the City of Bellingham partnered with a nonprofit and used a temporary provision allowing use of REET revenue to address homelessness to open Gardenview Village, providing emergency shelter in 35 tiny homes for residents experiencing homelessness, on land adjacent to the city's community garden. (Photos by Chona Kasinger)
“The ability of local jurisdictions to make decisions on how funds are allocated to best meet the needs of their community is a huge win,” says Bellingham Councilmember Hannah Stone, who testified in support of HB 1791. “The fact that the bill eliminates the confusing and burden-some differences between the allowed uses for REET 1 and REET 2 is helpful, and it provides certainty that we can continue to allocate certain funding for operations and maintenance.”
In Bellingham’s 2026 budget, REET revenue will help the city in a different way. Of the roughly $4 million Bellingham receives from the tax each year, about $2 million will be earmarked for a library renovation project.
The ability of local jurisdictions to make decisions on how funds are allocated to best meet the needs of their community is a huge win.
– Hannah Stone, Councilmember, Bellingham
“It’s a big capital project that has needed to be completed for many years,” says Stone.
The library hasn’t been renovated since the 1980s, and the city has struggled to come up with the money to fund the project. Once complete, Stone says, the benefits will be far-reaching.
“The library really is a hub for the community,” she says. “It serves as sort of a quasi-day shelter for unhoused community members who don’t have places to go during the day. It helps bridge the digital divide for members of the community who do not have internet access at home. The library does so much more than just provide access to physical books or digital books.”
Councilmember Stone at Bellingham's Central Library; in 2026, the city will use REET revenue flexibility to fund a $2 million library renovation. (Photo by Chona Kasinger)
For her part, Stone hopes even more changes will come to the REET structure in the future. Although she appreciates the flexibility cities now have in how they spend REET funds, it doesn’t increase the amount of money cities have access to, even as the costs to run municipal services continue to rise and the affordable housing crisis worsens.
“Bellingham continues to top the list of unaffordable places to live, which isn’t the place where you want to be excelling,” she says. “The need for us to grow the affordable housing pool far exceeds what we’re able to do financially, and we’re going to come up short.”
She’s hopeful that one day, cities will have more flexibility in the REET taxes they are able to levy.
“The ongoing struggle is related to how those REET dollars are collected,” says Stone. “The state can fluctuate its collection of REET dollars based on a more graduated rate system so it’s more of a progressive tax with higher-end properties paying a higher REET tax, but that hasn’t ever been passed on to the local authority.”
Whether or not that ever happens, the updated law is a clear win for cities throughout Washington, empowering local leaders to decide what the most pressing needs are in their communities in a given year and then put available funds toward addressing them. And its origin story is a reminder that local elected officials and city staff collectively have the power to effect positive change that impacts the entire state.
Oak Harbor’s Goldman hopes this bill—and the process it took to get it passed—will inspire peers around the state to take action in similar circumstances.
“If you see something that you think needs to be fixed, and other people in your area feel the same way, don’t let the fact that you haven’t done it before stop you from asking questions and working with other groups that could benefit from it, too,” he says. “An idea is a pretty amazing thing. It can go far, and it can really make changes to benefit everybody.”