Targeted Urban Area Exemption

See Addendum A for 2021 legislative changes.

Arlington, Lake Stevens, and Marysville initially offered the preference

The legislation authorizing the preference outlines criteria for cities to offer the preference.

Only Snohomish County met the county population requirement in 2015. Within the county, the cities of Arlington, Lake Stevens, and Marysville met the additional population and geographic criteria. The three cities enacted ordinances to offer the preference in 2016. Snohomish County adopted an ordinance that allows an exemption from county taxes in the cities’ target areas

The legislation's prime sponsor and city representatives testified they sought the local property tax exemption to encourage development on undeveloped and underutilized Undeveloped and underutilized property with no existing building improvements or portions of property targeted for new or expanded industrial or manufacturing uses. land in the Stillaguamish Valley.  Arlington and Marysville noted they were coordinating long-term efforts to encourage new industry and create local jobs, including the pursuit of other regional economic development incentives.

Qualifying developments must meet size, investment value, and job creation criteria

Statute requires that developments eligible for the exemption must be located in a city's designated target area, defined as undeveloped or underutilized properties near other economic development areas.Innovation partnership zones, foreign trade zones, or EB-5 regional centers.

Exhibit 1.1: Targeted areas are undeveloped or underutilized properties in or near other economic development zones

Source: JLARC staff analysis of city boundaries and established targeted areas within them.

Developments eligible for the preference must meet several requirements.

Property owners and cities are required to file annual reports

Property owners of qualifying facilities apply to the city for the exemption. Facilities are exempt from local property taxes for ten years after construction is complete. Per statute, property owners may not apply for the exemption after December 31, 2022.

After construction is complete, the property owner must report annually to the city. Cities report annually to the Department of Commerce (Commerce).

Exhibit 1.2: Property owners apply for the local tax exemption and report to the city. Cities report to the Department of Commerce.

Property owners report to cities	Cities report to Commerce
The number of family living wage jobs at the facility on the anniversary date of construction. If property use has changed, and any changes or improvements added since the exemption certificate was issued.	The total number of exemptions approved. The total number and type of manufacturing or industrial facilities built. The number of family living wage jobs created by the new facilities. The exemption value of each project and the total value of all exemptions.

Source: JLARC staff analysis of RCW 84.25.120.

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See Addendum A for 2021 legislative changes.

Snohomish County exceeded the statutory population range in 2018

In 2018, Snohomish County's population exceeded 800,000. The Department of Revenue (DOR) determined that the local tax exemption cannot be legally offered by any city in the county. According to DOR, Arlington, Marysville, and Lake Stevens have been ineligible to offer the preference since 2018.

Exhibit 2.1: Snohomish County exceeded the statutory population limit for cities to offer the preference in 2018

Source: JLARC staff analysis of chapter 84.25 RCW, JLARC staff analysis of city ordinances, and Office of Financial Management documentation.

DOR stated that no other city currently meets the statutory criteria to offer the preference.

No data available to evaluate preference's performance

As of November 2020, there is no data available to evaluate whether the preference achieves the stated objectives of encouraging manufacturing and industrial development and creating family living wage jobs. No property owners applied for the local property tax exemption in Arlington, Lake Stevens, or Marysville prior to 2018.

DOR and cities disagree about eligibility to offer preference

Although DOR states that no cities are eligible to offer the preference, all three city codes allow the preference to be offered. The cities reported to JLARC staff that they interpret the statute to allow them to offer the preference through December 31, 2022, regardless of population changes.

The cities indicate that they intended the preference to complement other industrial development incentives in their target areas. For example, Arlington and Marysville pursued designating their target areas as a manufacturing/industrial regional centerRegional centers guide local and regional growth and transit planning, and receive priority for federal transportation funding. by the Puget Sound Regional Council (PSRC). The PSRC certified the Cascade Industrial/Manufacturing Regional Center in May 2019. The cities anticipated that the regional center designation, combined with the local property tax exemption, would bring new industrial development to their target areas.

Legislative action needed if Legislature wants to ensure the preference is available for future use

If the Legislature wants the preference to be available in the future, it will need to:

• Modify the statutory population criteria.
• Determine an expiration date for new applicants.

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Findings.

RCW 84.25.010

The legislature finds that:

(1) Many cities have planned under the growth management act, chapter 36.70A RCW, and designated and zoned lands for industrial and manufacturing use;

(2) The industrial and manufacturing industries provide family living wage jobs;

(3) In the current economic climate the creation of additional family living wage jobs is essential;

(4) It is critical that Washington state promote its continued strength in the fields of aerospace, technology, biomedical, and other industries that will provide family-wage job growth; and

(5) Planning for industrial and manufacturing use is inadequate to attract new industry and manufacturing and an incentive should be created to stimulate the development of new industrial and manufacturing uses in the existing inventory of lands zoned for industrial and manufacturing use in targeted urban areas through a tax incentive as provided by this chapter.

[2015 1st sp.s. c 9 § 1.]

Purpose.

RCW 84.25.020

It is the purpose of this chapter to encourage new manufacturing and industrial uses on undeveloped or underutilized lands zoned for industrial and manufacturing uses in targeted urban areas, thereby increasing employment opportunities for family living wage jobs. Cities that plan under the growth management act meeting the criteria of this chapter where the governing authority of the affected city has found there is insufficient family living wage jobs for its wage earning population may designate a portion of the city's industrial and manufacturing zoned and undeveloped land to receive an ad valorem tax exemption for the value of new construction of industrial/manufacturing facilities within the designated area.[ 2015 1st sp.s c 9 § 2.]

*** CHANGE IN 2021 *** (See EHB 1386, Chapter 218, Laws of 2021) ***

Definitions.

RCW 84.25.030

The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.

(1) "City" means any city that: (a) Has a population of at least eighteen thousand; and (b) is north or east of the largest city in the county in which the city is located and such county has a population of at least seven hundred thousand, but less than eight hundred thousand.

(2) "Family living wage job" means a job with a wage that is sufficient for raising a family. A family living wage job must have an average wage of eighteen dollars an hour or more, working two thousand eighty hours per year on the subject site, as adjusted annually for inflation by the consumer price index. The family living wage may be increased by the local authority based on regional factors and wage conditions.

(3) "Governing authority" means the local legislative authority of a city having jurisdiction over the property for which an exemption may be applied for under this chapter.

(4) "Growth management act" means chapter 36.70A RCW.

(5) "Industrial/manufacturing facilities" means building improvements that are ten thousand square feet or larger, representing a minimum improvement valuation of eight hundred thousand dollars for uses categorized as "division D: manufacturing" by the United States department of labor in the occupation safety and health administration's standard industrial classification manual.

(6) "Lands zoned for industrial and manufacturing uses" means lands in a city zoned as of December 31, 2014, for an industrial or manufacturing use consistent with the city's comprehensive plan where the lands are designated for industry.

(7) "Owner" means the property owner of record.

(8) "Targeted area" means an area of undeveloped lands zoned for industrial and manufacturing uses in the city that is located within or contiguous to an innovation partnership zone, foreign trade zone, or EB-5 regional center, and designated for possible exemption under the provisions of this chapter.(9) "Undeveloped or underutilized" means that there are no existing building improvements on the property or portions of the property targeted for new or expanded industrial or manufacturing uses.

[2015 1st sp.s. c 9 § 3]

*** CHANGE IN 2021 *** (See EHB 1386, Chapter 218, Laws of 2021) ***

Exemption—New construction of industrial/manufacturing facilities.

RCW 84.25.040

(1)(a) The value of new construction of industrial/manufacturing facilities qualifying under this chapter is exempt from property taxation under this title, as provided in this section. The value of new construction of industrial/manufacturing facilities is exempt from taxation for properties for which an application for a certificate of tax exemption is submitted under this chapter before December 31, 2022. The value is exempt under this section for ten successive years beginning January 1st of the year immediately following the calendar year of issuance of the certificate. (b) The exemption provided in this section does not include the value of land or nonindustrial/manufacturing-related improvements not qualifying under this chapter.

(2) The exemption provided in this section is in addition to any other exemptions, deferrals, credits, grants, or other tax incentives provided by law.

(3) This chapter does not apply to state levies or increases in assessed valuation made by the assessor on nonqualifying portions of buildings and value of land nor to increases made by lawful order of a county board of equalization, the department of revenue, or a county, to a class of property throughout the county or specific area of the county to achieve the uniformity of assessment or appraisal required by law.

(4) This exemption does not apply to any county property taxes unless the governing body of the county adopts a resolution and notifies the governing authority of its intent to allow the property to be exempted from county property taxes.

(5) At the conclusion of the exemption period, the new industrial/manufacturing facilities cost must be considered as new construction for the purposes of chapter 84.25 RCW.

[ 2015 1st sp.s. c 9 § 4]

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2021 Legislature made changes to chapter 84.25 RCW

The following table details JLARC staff analysis of changes made in 2021 legislation (Engrossed House Bill 1386) to the local property tax preference provided in chapter 84.25 RCW (Targeted Urban Area Construction). These changes are effective July 25, 2021.

Statute prior to 7/25/2021	Changes effective 7/25/2021, per EHB 1386
A qualifying city must: Be located in a county with a population between 700,000 and 800,000. Have a population of at least 18,000. Be located east or north of the largest city in the county.	All population and location qualification criteria removed. Any city or town in Washington may use the preference if all other requirements are met.
“Family living wage job” is defined as a job with an average wage of $18 or more an hour, working 2,080 hours per year on the subject site.	“Family living wage job” is defined as a job that offers health care benefits with an average wage of $23 an hour or more, working 2,080 hours per year on the subject site.
“Industrial/manufacturing facilities” are defined, in part, for uses categorized as "division D: manufacturing" by the United States Department of Labor in the occupation safety and health administration's standard industrial classification (SIC) manual.	“Industrial/manufacturing facilities” are defined, in part, for uses categorized as either “division D: manufacturing” or “division E: transportation (major groups 40-42, 45, or 47-48)” by the United States Department of Labor in the occupation safety and health administration's SIC manual. Although transportation uses were added, cities may limit the tax exemption to manufacturing uses.
The preference expires to new applicants December 31, 2022.	The preference expires to new applicants December 31, 2030.
Each project must create a minimum of 25 new family living wage jobs at the subject site as a result of the new construction within one year of building occupancy.	Each project must create a minimum 25 new family living wage jobs at the subject site as a result of the new construction within one year of building occupancy. Priority must be given to applications that meet the following labor specifications during construction and the ongoing business operations: Compensate workers at the prevailing wage rates as determined by the Department of Labor & Industries. Buy from and contract with women-owned, minority-owned, or veteran-owned businesses. Buy from and contract with businesses with a history of complying with federal and state wage and hour laws and regulations. Use state-registered apprenticeship programs. Give preferred entry for workers living in the area where construction occurs. Maintain certain labor standards for workers employed primarily at the facility after construction, including production, maintenance, and operational employees.
	Details steps for cities to follow if they discover that a facility maintains fewer than 25 family living wage jobs after the local property tax exemption has been filed. These include loss of exemption for the facility and the owner being billed for the additional property tax that would have been due.

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