Analysis Complete for Substitute Senate Bill 5571

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The Office of Financial Management has identified this bill as requiring a ten-year projection of increased cost to the taxpayers or affected fee payers.

Ten-year projection:

Note:  This fiscal note reflects language in draft legislation SSB 5571 (S-1453.3), 2019 Legislative Session.

This legislation creates a new local military benefit financing program. It authorizes cities and counties to create "military benefit zones" (MBZ) and allows certain increases in local sales and use tax revenues and local property tax allocation revenues generated from within the MBZ, additional funds from other local public sources, and a state contribution for use as payment of bonds issued for financing local public improvements within the MBZ.  The new program constitutes a new chapter in Title 39 RCW.  The Department of Commerce and the Department of Revenue (Department) administer the new program. 

"Local government" is limited to any city, town, or county within two miles of the boundary of Joint Base Lewis-McChord, Naval Base Kitsap, Naval Station Everett, Fairchild Air Force Base, and Naval Air Station Whidbey Island.

The local government that has created the MBZ must apply to the Department of Commerce and seek a state contribution.  This legislation designates one demonstration project for the city of Lakewood that must be approved for $1 million by the Department of Commerce if it meets the applicable conditions, limitations and requirements.  Local government sponsors must submit applications  by no later than September 1, 2019.

The state contribution is provided through a new local sales and use tax that is credited against the state's sales and use tax.  The rate for the new sales/use tax may be up to 6.5 percent less the rates of existing local sales/use taxes that are credited against the state sales/use tax, anticipated rates of taxes previously approved through the Local Infrastructure Financing Tool (LIFT) program, the Hospital Benefit Zone (HBZ) program and the Local Revitalization Financing (LRF) program, and distributions of state sales/use tax revenues diverted to performance audits. The rate must also be no greater than what is reasonably necessary for the sponsoring local government to receive the full amount of state contribution over ten months. The tax revenue must be used to pay off bonds that finance public improvements. The state contribution must also be matched with funds from local public sources that are dedicated to either paying the bonds or used to pay for public improvements in the revitalization area on a pay as you go basis. The tax can continue for 25 years or until the bonds are paid off, whichever is first.  The soonest the new local tax for projects can be imposed is July 1, 2020.  A sponsoring military community may have more than one military benefit zone.

The annual statewide contribution is limited to $5 million per fiscal year plus the additional amounts approved for demonstration projects.  

The total amount that a local government can receive in any fiscal year from the state through the MBZ tax is limited to the lesser of: 1) The state contribution, 2) the amount of project award granted by the Department of Commerce, 3) The total amount of revenues from local public sources dedicated or, in the case of carry forward revenues, deemed dedicated in the preceding calendar year, as reported in the required annual report.

For 5 years after the project award has been approved, local governments are required to report specific information for the MBZ to the Department.  At least once in the first three years, the local governments are required to provide updated estimates of the state and local sales and use tax increments estimated to have been received since the approval of the project award.  The Department must summarize the information in the annual reports and report to the Legislature by June 1 of each year.

At the end of the 5-year reporting period, the Joint Legislative Audit and Review Committee must provide a final report to the appropriate committees of the legislature by September 1st of that year. 

This program does not have an expiration date and is effective 90 days after the legislative session ends if the legislature adopts this proposal.  

ASSUMPTIONS

- This proposal is specific to Joint Base Lewis-McCord, it is assumed that the demonstration project will proceed in 2020 for a $1 million award.  

- After 2020, one project will be approved for $500,000 per fiscal year until the annual state contribution limit it met.

- The annual state contribution limit is $5 million plus any demonstration project awards.   

- Depending on how many projects are approved, the cap could be met earlier.

REVENUE ESTIMATES 

TOTAL REVENUE IMPACT: 

      State Government (cash basis, $000): 

           FY 2020 -       $        0

           FY 2021 -      ($ 1,000) 

           FY 2022 -      ($ 1,500)

           FY 2023 -      ($ 2,000)

           FY 2024 -      ($ 2,500)

           FY 2025 -      ($ 3,000)

      Local Government, if applicable (cash basis, $000): 

           FY 2020 -      $        0

           FY 2021 -      $ 1,000

           FY 2022 -      $ 1,500

           FY 2023 -      $ 2,000

           FY 2024 -      $ 2,500

           FY 2025 -      $ 3,000