Tribal Lands Used for Economic Development

This report focuses on the use of the 2014 preference from 2015 through 2019

Federally recognized Indian tribesA federally recognized Indian tribe is a tribal entity that is recognized as having a government-to-government relationship with the U.S. and possessing certain inherent rights of self-government (i.e., tribal sovereignty). in Washington do not pay property tax on fee land that is used for essential government services. Starting in 2014, tribes were also exempt from owing property tax on fee land that is used for economic development as long as the land was acquired prior to March 1, 2014. The exemption for economic development property is the subject of this JLARC review.

The intent of the 2014 preference was to create jobs and improve the economic health of tribal communities

The 2014 Legislature stated that it enacted this preference to promote economic development for tribal communities.

The preference defined economic development as "commercial activities, including those that facilitate the creation or retention of businesses or jobs, or that improve the standard of living or economic health of tribal communities."

Tribal governments may also operate commercial activities on land that is held in trust by the federal government. However, under federal law, trust lands are already exempt from state and local property taxation.

2014 preference included eligibility requirements, a payment in lieu of taxation (PILT), and an expiration date

To qualify for the property tax exemption, a federally recognized Indian tribe had to:

• Purchase the property prior to March 1, 2014.
• Negotiate annual payments in lieu of taxes (PILT) for certain properties. PILT payments are intended to help offset costs to local governments for services provided at the exempt property. The payments are negotiated between the tribes and counties where the properties are located. PILT is owed on properties that are used for economic development, located outside of the tribe's reservation, not otherwise exempt from taxation under federal law, and where no leasehold excise taxLeasehold excise tax (LET) applies to property owned by a tribe but occupied by a tenant. is owed because there is no lease on the property.
• Apply to the Department of Revenue (DOR) by October 1 for an exemption. Tribes had to include copies of any relevant PILT agreements and file for renewals each year. Tribes also had to submit annual accountability reports to DOR.

The 2014 preference was scheduled to expire on January 1, 2022.

The Legislature directed JLARC staff to provide an economic impact report

The Legislature directed JLARC staff to provide an economic impact report on exempt tribally owned lands used for economic development. The legislation specified which metrics to assess:

• Number of parcels and uses of land.
• Economic impacts to tribal governments.
• State and local government revenue reductions, increases, and shifts.
• Impacts on public infrastructure and public services.
• Impacts on business investment and business competition.
• Description of the types of business activities affected.
• Impacts on the number of jobs created or lost.

The preference was amended during the 2020 session

The 2020 Legislature passed HB 2230, which made a number of changes to the 2014 tax preference. These changes took effect in June 2020.

• Added a new public policy objective. The 2014 public policy objective of creating jobs and improving the economic health of tribal communities no longer applies. The new inferred objective is to treat tribal governments the same as state and local governments for property taxation.
• Removed purchase date and expiration date. To qualify for the preference, land no longer has to be purchased prior to March 1, 2014. The amended preference has no expiration date.
• Removed accountability requirements. The Legislature also exempted the preference from the requirements that all new or amended tax preferences include performance statements and accountability reporting.

The economic development exemption is part of a broader tax preference for tribally owned land used for essential government services. This essential government services tax preference is part of the Citizen Tax Preference Commission's 2020 expedited review process.

Exhibit 1.1: How the 2014 tax preference compares to the 2020 amended tax preference

Preference Details	ESHB 1287 (2014)	HB 2230 (2020)
RCW	84.36.010 (1)	84.36.010 (1)
Public Policy Objective	Create jobs and improve the economic health of tribal communities.	Treat tribal governments the same as state and local governments.
Tax preference performance statement	Yes	No. RCW 82.32.808, which requires a performance statement, does not apply.
Date by which the tribe must own the property to qualify for the exemption	March 1, 2014	None
Initial application to DOR and annual renewal	Yes	Yes
DOR's accountability reporting required	Yes	No
Expiration date	January 1, 2022	No. RCW 82.32.805, which requires an expiration date, does not apply.
Leasehold excise tax provisions apply	Yes. If the economic development property is occupied by a tenant.	Yes. If the economic development property is occupied by a tenant.
Negotiated PILT	Yes. If the economic development property is located outside of the reservation and occupied by the tribe.	Yes. If the economic development property is located outside of the reservation and occupied by the tribe.
Parties involved in the PILT negotiation	Tribe and county where the property is located.	Tribe and county and, if applicable, city, where the property is located.

Source: JLARC staff analysis of RCW 84.36.010 and HB 2230 (2020).

The remainder of this report will focus on the use of the 2014 preference through 2019, before it was amended.

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Three federally recognized tribes used the 2014 property tax exemption

The exact economic impact of the 2014 tax preference is unclear

While businesses located on the exempt properties have created jobs and other economic benefits for tribal members and the broader local communities, the 2014 preference by itself likely had limited impact on the economic health of tribal communities.

Businesses located on the exempt properties were operating prior to 2014

Businesses located on the exempt properties were established before the preference passed in 2014. Based on press reports and business websites, the primary economic activities on these properties have remained consistent over time.

Specific details about the businesses are not widely available. JLARC staff compiled public data from cities and counties. There is more information available on Emerald Downs than the other properties.

Local authorities collect general information, but do not routinely track impacts of exempt properties

King County and the cities of Auburn and Fife report that they do not track economic and infrastructure-related impacts associated with the exempt properties and the businesses located on them. They provided general information about the tribal properties in their communities.

• Properties appear to have limited impact on public infrastructure and public services. In interviews with JLARC staff, local officials did not report significant changes in public infrastructure planning and upkeep or demands on public services due to activities taking place at the exempt properties.
• Preference unlikely to have impacted business investment and business competition. Local officials were unable to offer specific insights on business investment activity and possible business competition from the exempt properties.
  

  It is unlikely that the preference itself significantly impacted investment or competition in the area. The businesses on the exempt properties were established and operating before the preference passed in 2014. Additionally, the tribes report that the revenue they earn from tribal businesses is generally used to provide services to their tribal members.

• Some businesses on tribal properties are large employers in their communities. Data from several jurisdictions indicates that tribal properties contribute to the local economy and community. The data available is not specific to the six exempt properties.
  • City of Auburn financial reports show that Muckleshoot Tribal Enterprises and Emerald Downs were the second and seventh largest employers in the city in 2018, with 3,494 and 1,150 employees, respectively. These rankings are identical to the ones these businesses had in 2009.
  • Pierce County's fifth largest public employer was the Puyallup Tribe of Indians and Emerald Queen Casino with 3,312 employees in 2018. The casino is not one of the properties that is exempt under the preference.
  • Kitsap County's second largest private employer, according to the Kitsap Economic Development Alliance, was Port Madison Enterprises owned by the Suquamish Tribe. It had 925 employees in 2018.

There is no public information on how tribal governments spend the savings from the property tax exemption. Without this data, it is not possible to determine whether the tribes invested their savings into the exempt properties and businesses or invested it elsewhere.

The impact of the preference on the operations of Emerald Downs is unclear

Emerald Downs is the largest and only for-profit horse racing track in Washington. There is more public information available about Emerald Downs than the other properties that are exempt under the 2014 preference.

The Muckleshoot Indian Tribe acquired business operations for the track in 2014. Two years later, the Seattle Times reported significant growth in wagering, pursesThe amount of prize money offered for each race., and attendance at Emerald Downs. This pattern is counter to national trends showing declining interest in horse racing over the last few decades.

In 2018, the Tribe also opened a new card room, restaurant, and other amenities as part of a partial renovation of the existing grandstand building.

Publicly available data indicates that Emerald Downs was responsible for more than 99% of the parimutuelBets are pooled together and payoffs are shared. wagering that occurred at horse racing facilities in Washington between 2013 and 2019. It also hosted approximately 92% of all the state's races over the same time period.

However, in documents the Muckleshoot Indian Tribe filed as part of its application for trust land status, it reported that the operation of Emerald Downs does not generate sufficient income to cover its costs. Washington Horse Racing Commission (WHRC) data also shows a decline in numbers for several activities, including parimutuel wagering, races, and race days at Emerald Downs since 2012. The Horse Racing Commission data is specific to the horse racing season and does not include data on other activities that occur on the Emerald Downs property.

Economic modeling of Emerald Downs suggests limited employment gains related to the property tax exemption

JLARC staff used REMI's Tax-PI model to simulate the employment impact of the 2014 preference for Emerald Downs. JLARC staff chose to model the Emerald Downs property because it accounts for 93% of the assessed value of the exempt properties and is the only remaining property under the 2014 preference that requires a PILT payment. This payment significantly impacts the revenue analysis for both the tribes and local governments.

Estimated gain of 14 jobs statewide

The results of the REMI analysis indicate that both King County and the state may have experienced small positive employment gains related to the property tax exemption for Emerald Downs. King County likely gained 12.5 jobs and all other counties in Washington likely gained an additional 1.5 jobs. This is a total estimated gain of 14 jobs statewide.

These estimates are based on the assumption that the Muckleshoot Indian Tribe reinvested its property tax savings in the gaming industry. If that is not the case, the estimated job numbers would likely be different.

JLARC staff does not have sufficient information to establish causality between the preference and the new jobs. Also, the estimates are not generalizable to other exempt properties. Based on available evidence, it is unlikely that the tax preference had a major impact on job creation or the economic health of tribal communities.

JLARC staff made the following assumptions in the model to account for changes in property taxes and government revenue for the Emerald Downs property tax exemption:

• The exemption (net the amount of the PILT payment) resulted in property tax savings for businesses in the amusement, gambling, and recreation industry. We assumed in the economic impact model that the tax savings were reinvested in the gaming industry.
• The portion of the exemption shifted to other taxpayers is modeled as a property tax increase on all other property. We determined that 88% of the tax savings were shifted to other taxpayers.
• Any revenue changes to local governments resulted in changes to local government expenditures. We determined that 12% of the tax savings resulted in a loss of government revenues. This reduction was more than offset by PILT payments to some local governments.

Acquisition and expiration dates may have narrowed the opportunities for economic development

To qualify for the 2014 exemption, all property had to be acquired prior to March 1, 2014 and the exemption had an expiration date of January 1, 2022. While JLARC staff cannot definitively conclude whether these dates influenced property decisions, these dates may have diminished the influence of the incentive.

The tribes acquired all of the qualifying properties prior to the enactment of the 2014 tax preference. Further, any new property purchases or investments that occurred after March 2014 did not qualify for tax savings and were unlikely to be influenced by the preference.

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Tribal property tax savings resulted in a mix of gains, losses, and shifts for other taxpayers

To calculate beneficiary savings, JLARC staff compiled the amount of property tax savings that each tribe reported to DOR between 2015 and 2018. The savings for 2019 is an estimate based on county assessor data. JLARC staff did not estimate savings for future years because the 2020 Legislature made changes to the 2014 preference that may impact its use.

Payments in lieu of taxes (PILT) offset some revenue losses in King County

Most of the properties exempt under the 2014 preference are located on tribal reservations and did not require PILT payments. King County is the only local jurisdiction that had PILT agreements with the Muckleshoot Indian Tribe for Emerald Downs and the Salish Lodge, prior to its sale in 2019. The PILT amounts are factored into property tax savings to determine the net beneficiary savings.

Exhibit 4.1: Beneficiary savings from 2015 through 2019

Calendar Year	Property Tax Savings (All qualifying properties combined)	PILT Payments (King County only)	Net Beneficiary Savings
2015	$1,429,000	$103,000	$1,326,000
2016	$1,245,000	$328,000	$917,000
2017	$1,362,000	$358,000	$1,004,000
2018	$1,412,000	$395,000	$1,017,000
2019	$1,171,000	$423,000	$748,000

Source: JLARC staff analysis of DOR's accountability reports 2015-2018, PILT memoranda 2015-2019, and JLARC staff estimate based on 2019 assessor data.

Note: The PILT payments in 2015 were lower than successive years because one property paid leasehold excise tax (LET) that year. When LET is paid, PILT is not required.

Property tax savings were mostly shifted onto other taxpayers but may have resulted in a revenue loss for some levies

The total estimated property tax savings for all exempt properties in 2019 was $1,171,000. Based on JLARC staff's analysis of assessor, levy, and tax district data, the property tax exemption resulted in a mix of revenue losses, levy rate increases, and shifted property tax burden.

For 2019 specifically,

• $1,080,500 (92%) was shifted on to other taxpayers and $90,500 (8%) was lost revenue for some local jurisdictions.
  • Most levies were able to absorb the exemptions by increasing the levy rate, thereby shifting tribal tax savings to other taxpayers.
  • However, some levies were already at their statutory maximum and could not increase to absorb revenue lost due to the exemption. In these cases, the exemption resulted in a revenue loss to the tax district.
• King County received $423,000 in PILT payments from the Muckleshoot Indian Tribe.

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RCW 84.36.010