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Below are selected “Ask MRSC” inquiries we have received from local governments throughout Washington State related to finance. Click on any question to see the answer.

These questions are for educational purposes only. All questions and answers have been edited and adapted for posting to the MRSC website, and all identifying information, including the inquirer’s name and agency name, has been removed.

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We’re looking for guidance on what substantiating proof is needed from a small business to determine if they experienced a negative economic impact related to COVID-19 before we provide direct or indirect assistance using ARPA funds.
Reviewed: April 2022

One of the main criteria to determine eligible use of ARPA funds is: does the use respond to a negative economic impact of the COVID-19 pandemic?

On page 21 of Treasury’s Overview of the Final Rule, it states that local governments can consider the following criteria for identifying eligible businesses:

  • Decreased revenue or gross receipts
  • Financial insecurity
  • Increased costs
  • Capacity to weather financial hardship
  • Challenges covering payroll, rent or mortgage, and other operating costs

The document goes on to say that the following businesses can be presumed to have been disproportionately impacted by the pandemic:

  • Small businesses operating in Qualified Census Tracts
  • Small businesses operated by Tribal governments on Tribal lands
  • Small businesses operating in the U.S. territories

Additionally, on page 40 of the Final Rule, Treasury states:

  • “As discussed in the section Designating a Negative Economic Impact, in the final rule, recipients must identify an economic harm caused or exacerbated by the pandemic on a small business or class of small businesses to provide services that respond. As discussed above, programs or services in this category must respond to a harm experienced by a small business or class of small businesses as a result of the public health emergency. To identify impacted small businesses and necessary response measures, recipients may consider impacts such as lost revenue or increased costs, challenges covering payroll, rent or mortgage, or other operating costs, the capacity of a small business to weather financial hardships, and general financial insecurity resulting from the public health emergency.” [emphasis added]

Because the Final Rule says that recipients “must identify” and “must respond to a harm experienced by a small business,” a conservative approach would be to require small businesses to show that they experienced an economic harm rather than simply certifying they did. A business that did not experience an economic harm caused by the COVID-19 pandemic should not be receiving ARPA funds. We would recommend having documentation for all businesses that receive or have received any ARPA funds. The city should have documentation that demonstrates eligibility listed above.

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A local hospital district is building a new hospital within city limits. They have asked the city for a "reduction, rebate or charitable assistance" on city permit fees set by resolution. Can the city do this?  
Reviewed: September 2021

MRSC has consistently advised that agencies cannot waive permit fees for other public agencies or entities (except for low-income housing, RCW 35.21.685). This is based upon the "local government accountancy act," RCW 43.09.210, which reads in part:

  • All service rendered by, or property transferred from, one department, public improvement, undertaking, institution, or public service industry to another, shall be paid for at its true and full value by the department, public improvement, undertaking, institution, or public service industry receiving the same, and no department, public improvement, undertaking, institution, or public service industry shall benefit in any financial manner whatever by an appropriation or fund made for the support of another (emphasis added).

In our opinion, this statute would require the city department that issues the permits to charge the agency that is proposing the development for the permits. We believe the statute applies to intra-agency permits (e.g., public works department seeking a shoreline permit from planning department), as well as inter-agency permits (e.g., hospital district applying for building permit).

One possible approach is to amend land use/building codes or the fee schedule, providing for a different fee to be paid by all governmental entities. In any case, even if the city were to reduce the amount of the fee, it would still need to recover its costs under RCW 43.09.210.

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May American Rescue Plan Act (ARPA) funds be used to hold a lottery for city residents who show proof of COVID-19 vaccination?  
Reviewed: July 2021

Yes, our understanding is that funds may be used in this manner provided that the costs of administering the lottery are reasonably proportional to the expected public health benefit.

The U.S. Department of Treasure has issued a series of FAQs regarding use of the Local Fiscal Recovery Funds (LFRF) included in the American Rescue Plan Act (ARPA). FAQ 2.12 asks:

  • May recipients use funds to pay for vaccine incentive programs (e.g., cash or in-kind transfers, lottery programs, or other incentives for individuals who get vaccinated)?
  • Yes. Under the Interim Final Rule, recipients may use Coronavirus State and Local Fiscal Recovery Funds to respond to the COVID-19 public health emergency, including expenses related to COVID-19 vaccination programs. See forthcoming 31 CFR 35.6(b)(1)(i). Programs that provide incentives reasonably expected to increase the number of people who choose to get vaccinated, or that motivate people to get vaccinated sooner than they otherwise would have, are an allowable use of funds so long as such costs are reasonably proportional to the expected public health benefit.

For more on Treasury’s guidance, see this blog written by our Finance Consultant, Eric Lowell: Treasury Issues Guidance for Local Fiscal Recovery Funds.

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Is there a process for cities to write-off bad debt? 
Reviewed: April 2021

MRSC recommends that the city council adopt a policy providing for write-offs, stating the criteria that must be met before the write-off can occur. Such a policy should apply to all types of accounts receivable (water, sewer, garbage, court fines and other fees and charges that the city may impose). The policy should consider the variables for each type of receivable with specific criteria and internal controls in place to ensure that the city’s assets (receivables) are being safeguarded, then staff could write the debt off without further council involvement. There are several cities that have adopted write-off policies. Here are a few examples:

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Can local governments provide anything of monetary value as an incentive to the public to participate in various community engagement efforts?
Reviewed: March 2021

A public agency may provide incentives such as gift cards or other small gifts without violating the state’s prohibition on gifting of public funds, provided there is an articulated public purpose for doing so. From our Gift of Public Funds webpage:

In assessing whether a gift has been bestowed to a private entity, the courts have used a two-step process. First, they determine whether the funds are being expended to carry out a fundamental purpose of the government. If so, then no gift of public funds has been made. Otherwise, the court looks to see whether the government entity had a “donative intent,” and whether it received an adequate return for the transfer.

If an incentive program serves a valid purpose of government, then incentivizing participation in that program is not a gift. For example, providing wellness awards to patients that participate in annual check-ups at a hospital district are not gifts under the law. A hospital could also use gift card drawings to get patients to respond to satisfaction surveys. The hospital would be receiving something of value in exchange for the gift card – namely a response to the survey. Similarly, providing some incentive to participate in a community planning process is serving an important governmental purpose.

If a city or other public entity does choose to offer incentives, it should adopt—in advance-- a reasonable policy regarding the incentives and the policy should articulate a valid municipal purpose for the expenditures. If gift cards or other items of monetary value are given as more of an “afterthought” or thank you gift, this would look less like an incentive program and more like a gift.

We recommend discussing the specifics of any program with your city attorney. They will be in the best position to assist in developing an official policy that complies with the constitutional limitations regarding gifting of public funds.

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Can a city council increase or decrease the awards to recipients made by their lodging tax advisory committees?
Reviewed: February 2021

If the council wishes to deviate from the amounts recommended by the LTAC it can do so only after following the procedural requirements of RCW 67.28.1817. This interpretation is based on an informal Attorney General opinion issued in 2016, which is discussed on our Lodging Tax (Hotel-Motel Tax) page:

  • What Does the Municipality Do with the LTAC's Recommendations? The legislative body "may choose only recipients from the list of candidates and recommended amounts provided by the local lodging tax advisory committee" (RCW 67.28.1816(2)(b)(ii), emphasis added). However, an informal opinion from the Attorney General's Office in 2016 states that the legislative body may award amounts different from the LTAC’s recommended amounts, but only after satisfying the procedural requirements of RCW 67.28.1817(2). This requires the municipality to submit its proposed change(s) to the LTAC for review and comment at least forty-five days before final action is taken. For more details, see our blog post on Informal AG Opinion Clarifies Lodging Tax Awards.

So, council may accept the recommendation or reject it without any further action – a vote is all that is required. If the council wants to change the amount awarded to a recommended recipient, it must refer the proposed changes to the LTAC for review and comment.

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When does a budget amendment for a code city require a super-majority vote of the city council?
Reviewed: January 2021

State law only requires a simple majority vote by the city council for a regular budget amendment; changes to wages, hours, and conditions of employment RCW 35A.33.105; and appropriations of funds received in excess of estimated revenues RCW 35A.33.120(4).

A super majority vote is required when council is amending the budget due to "nondebatable emergencies" RCW 35A.33.080; when the council has declared a public emergency that is not one of the ‘nondebatable’ emergencies RCW 35A.33.090; and when the council declares by facts and findings that it is in the best interest of the city to decrease, revoke or recall an appropriation.

Note: this answer is also applicable to budget amendments for Second and Third Class Cities, Towns and First class cities under 300,000 population. See Chapter 35.33 RCW, specifically RCW 35.33.107; RCW 35.33.121(4); RCW 35.33.081; RCW 35.33.091.

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Are Lodging Tax Advisory Committee (LTAC) grant applications a public record?
Reviewed: January 2021

Yes, Lodging Tax Advisory Committee (LTAC) grant applications are considered public records and we are not aware of any exemption within the Public Records Act (PRA) that would prevent their disclosure. An LTAC is an advisory body to the city council, created by statute under RCW 67.28.1817(1). MRSC regards the LTAC as a subagency of the public agency city under RCW 42.30.020 (1)(c). As a subagency, LTAC’s records, including grant applications submitted to LTAC for consideration, are considered public records under the PRA. As you know the definition of public record is extremely broad, encompassing essentially all records of the agency, including their subagencies and committees.

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I've been told that the public safety sales tax requires voter approval. Is this correct? 
Reviewed: January 2021

Yes, RCW 82.14.450 provides for a one-tenth of one percent public safety sales tax option for cities or towns. This option is also available to the county with voter approval for up to three-tenths of one percent sales tax. One-third of all money received must be used for “criminal justice purposes, fire protection purposes, or both.” If it is approved countywide then funds are shared with the cities 60/40. If a city adopts it on its own, then it is shared with the county 85/15.

An additional criminal justice sales tax option that is potentially available is RCW 82.14.340. This one-tenth of one percent sales tax option is available only to counties but requires that the counties share with cities within the county using a formula defined within the statute. This sales tax option does not require a vote.

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The city imposes a utility tax of 6%. I’ve been advised that this is the maximum we can impose without voter authorization. Is that correct?
Reviewed: January 2021

The 6% limitation on a utility tax is applicable only on electricity, telephone, natural gas, and steam energy utilities (RCW 35.21.870). Any increase in excess of 6% requires voter approval. In addition, federal law prohibits taxing internet or broadcast satellite TV services and places limitations on local cable television taxes. See MRSC's Utility Taxes page for a summary of maximum utility tax rates by utility type. There is no limit prescribed by state or federal law for other utilities, such as sewer, solid waste, stormwater and water. However, if the city is proposing to increase the tax on one of these utilities a referendum clause may be required.

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Do budget amendments in code cities require a public hearing?
Reviewed: January 2021

No, state law does not require a public hearing for a regular budget amendment. RCW 35A.33.105 provides the ability to adjust wages, hours, and conditions of employment, without a public hearing. RCW 35A.33.120(4) provides the authority to amend the budget if excess of estimated revenues are to be appropriated. RCW 35A.33.080 provides for "nondebatable emergencies" and there is no public hearing required. However, when the council has declared a public emergency that is not one of the "nondebatable emergencies" defined in RCW 35A.33.080 a public hearing is required (RCW 35A.33.090). Note: this answer is also applicable to budget amendments for Second and Third Class Cities, Towns and First class cities under 300,000 population. See Chapter 35.33 RCW, specifically RCW 35.33.107; RCW 35.33.121(4); RCW 35.33.081; RCW 35.33.091.

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We are looking for a definition of "Lodging Tax Funds" at the county level. Our county receives “hotel/motel special tax” and “transient rental tax” (2% for each for a total of 4%). We believe that the hotel/motel special tax is considered lodging tax funds but are unsure on the transient rental tax.
Reviewed: December 2020

Lodging tax has two different components. The state shared retail sales tax portion (2%) RCW 67.28.180, and the additional 2% authorized under RCW 67.28.181(1)

Here is a link to the Revenue Guide for WA Counties that explains the two components of lodging tax (aka: Hotel/Motel Tax). These are both excise tax options available to cities and counties that do not require a vote of the citizens.

There is no difference in the allowed use of these two components of the lodging tax, both of which are restricted resources that may only be used for tourism activities or tourism-related facilities. The distribution by the state for lodging tax is always remitted separately for each component of the tax because the statutory authority to impose the taxes are separate.

RCW 67.28.180 is a credit against the state’s sales tax and therefore is not an increase in taxes but rather a sharing of state sales tax with local government, while the additional 2% authorized in RCW 67.28.181 is an increase in the excise tax. All of the remaining definitions, allowed use, and distribution processes are the same.

The state decision to label one of these tax distributions as a ‘transient rental tax’ is only intended to designate a difference between RCW 67.28.180 and RCW 67.28.181.

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Is overpayment to an employee a gift of public funds?
Reviewed: November 2020

Yes, overpayment to an employee is a gift of public funds and should be recovered. State law sets forth a process for an employer to recover the overpayment of wages. See RCW 49.48.200. If recovery of the overpayment is made by deduction from future wages, the deductions cannot exceed 5% of the employee’s disposable earning in any pay period, other than the final pay period, unless the employee agrees to a greater deduction. For more information, see our 2015 blog article, What if We Accidentally Overpaid an Employee?

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Can REET revenues be used for interest payment on a bond issued to fund a capital project?
Reviewed: November 2020

If the capital project was a project listed within the capital facilities plan (CFP) of the city (RCW 82.46.010 (2)(b) and 82.46.035(3)), then yes the city can use its REET funds for debt service. The statute provides for the financing of capital projects as identified within the CFP element of the city’s comprehensive plan.

  • RCW 82.46.010(2)(b) After April 30, 1992, revenues generated from the tax imposed under this subsection (2) in counties over five thousand population and cities over five thousand population that are required or choose to plan under RCW 36.70A.040 must be used solely for financing capital projects specified in a capital facilities plan element of a comprehensive plan and housing relocation assistance under RCW 59.18.440 and 59.18.450.
  • RCW 82.46.035(3) Revenues generated from the tax imposed under subsection (2) of this section must be used by such counties and cities solely for financing capital projects specified in a capital facilities plan element of a comprehensive plan. However, revenues (a) pledged by such counties and cities to debt retirement prior to March 1, 1992, may continue to be used for that purpose until the original debt for which the revenues were pledged is retired, or (b) committed prior to March 1, 1992, by such counties or cities to a project may continue to be used for that purpose until the project is completed.

You did not specify what type of capital project was bonded, so here are the statutory references for the definition of capital projects within REET 1 (RCW 82.46.010(6)(b)) and for REET 2 (RCW 82.46.035(5)).

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Should organizations still receive the lodging tax awards that were approved for the 2020 Budget for events that have been cancelled due to the COVID-19 outbreak?
Reviewed: August 2020

We have provided relevant guidance on our COVID-19 Frequently Asked Questions (FAQ) webpage:

These detailed FAQs cover various scenarios including when distributions have been made and costs already incurred by a recipient of funds whose event has been cancelled, or when money has been awarded but no contract has yet been executed.

As noted in the first response, both the use and the dollar amount of lodging tax allocations that have been approved by the legislative body may be changed, but the use of funds must always be consistent with RCW 67.28.1816 and RCW 67.28.080. Lodging tax funds are restricted resources that must be used according to state statute, regardless of the pandemic and its attendant financial challenges. Limits on the use of these restricted resources have not been waived by any of the governor’s proclamations to date.

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How much of the 49.4 cents per gallon motor vehicle fuel tax is kept by the state and how much is distributed to the cities on a per capita basis?
Reviewed: August 2020

The allocations of the motor vehicle fuel tax (MVFT) are done by percentage according to RCW 46.68.090, based upon the various portions of the MVFT collected in RCW 82.38.030:

  • Of the first 23 cents per-gallon in RCW 82.38.030(1) – cities receive 10.6961% of the tax collected, counties receive 19.2287% and the state retains the remainder.
  • Of the 2005 tax (RCW 82.38.030(3)) imposed for an additional 3 cents per gallon – the cities receive 8.3333% of the tax collected.
  • Of the 2006 tax (RCW 82.38.030(4)) imposed for an additional 3 cents per gallon – the cities receive 8.3333% of the tax collected.
  • Of the tax imposed in sub-section (7) and (8) for 11.9 cents per gallon the distribution by the state is a direct appropriation of $5,859,500 to cities which is allocated on a per capita basis. There is no % of allocation.

As you can see, the formulas for calculating the distribution of the various portions of the MVFT are complicated, with allocations being made to numerous programs of the state on specific portions of the tax.

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The county currently assesses a 0.1 percent sales tax for criminal justice purposes. What are its options for increasing the sales tax for public safety purposes?
Reviewed: September 2019

There is a lot of helpful information on criminal justice/public safety sales tax options in our Revenue Guide for Counties, which was completely rewritten and republished in February 2019.

You indicated that the county is currently imposing a 0.1 percent sales tax for criminal justice. That is likely the criminal justice sales tax authorized by RCW 82.14.340. For more information on how that tax works, please see the Revenue Guide for Counties, page 81.

There are two options for imposing additional sales taxes for public safety and mental health/chemical dependency treatment. First is the mental health and chemical dependency tax authorized by RCW 82.14.460. This tax does not require voter approval, but there are requirements for use of the revenue, as explained in the County Revenue Guide, page 87:

  • Any county that imposes this sales tax is also required to establish and operate a therapeutic court component for drug dependency proceedings “designed to be effective for the court’s size, location, and resources.” The revenues may be used to support the cost of the judicial officer and support staff of the therapeutic court.

The second option is the public safety sales tax authorized in RCW 82.14.450, which authorizes up to 0.3 percent, but requires voter approval. For more on that, see p. 88 of the County Revenue Guide.

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How do library amnesty or fee waiver programs for lost or damaged items avoid gift of public funds issues?
Reviewed: July 2019

In our opinion, a library amnesty program or fee waiver program for lost or damaged items is not a prohibited gift of public funds when it: (1) is established by the public agency’s governing body such as a city council or library board; (2) states the public purpose with clear guidelines for the program; and (3) is applied equally to all users.

In general, amnesty programs can be seen as revenue producing and compliance tools. Written guidelines for such programs typically use the term “have the effect of increasing revenues” to the local government. They are commonly used to collect delinquent taxes, unpaid business license fees, unpaid court fines, unpaid parking tickets, library fines, and address building permit compliance issues and animal licensing compliance.

The benefits derived are increased revenues where collection efforts have not been successful, clearing records of unpaid fines, and helping citizens gain compliance. Obtaining returns of materials belonging in the library collection is also a public purpose. So there is no donative intent with the establishment of an amnesty program – the goal is actually to generate revenues for the city that might not otherwise be realized. This is important when making an analysis for potential violation of the prohibition on gifting public funds in Article VIII, Sec. 7 set out in CLEAN v. Spokane, 133 Wn.2d 455 (1997).

Attorney General’s Opinion, 2005, No. 5 confirms the authority of public libraries to assess and collect fines for overdue books and library materials. We did not find AGO opinions or case law specifically regarding waiver or amnesty of late fees assessed by libraries.

In a past inquiry we looked at whether the state auditor’s office (SAO) would consider waivers of library fines for overdue books to be an impermissible gift of public funds. Although SAO is the ultimate authority on the financial programs they consider acceptable in this area, it looks like a library could have an amnesty or overdue fees waiver program if there is a clear and legitimate reason to do so, and those reasons are spelled out in an adopted policy applied equally to everyone.

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Can we file an extension for our annual budget? Are there any penalties? If we can file for an extension how do we proceed?
Reviewed: July 2019

You really can’t file an extension. However, if the council is unable to pass a new budget by year’s end, it could adopt the current year’s budget on an interim basis, adjusting the revenue expected for the new year. Here is an MRSC Insight blog article from a few years ago, Do We Really Need To Pass a Budget by Year’s End? It discusses the need to do something, and it suggests that the council could adopt the current budget for next year on an interim basis. Then, when council is able to reach agreement, it can amend the interim budget to reflect the new agreement.

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Must a city hold a public hearing prior to adopting the original ordinance stating their intent to budget on a biennial basis?
Reviewed: March 2019

The change from an annual budget process to a biennial budget process does NOT require a public hearing. Chapter 35A.34 RCW is the statutory reference and RCW 35A.34.040 only requires that the city adopt an ordinance to establish a biennial process. The statute reads in part:

All code cities are authorized to establish by ordinance a two-year fiscal biennium budget. The ordinance shall be enacted at least six months prior to commencement of the fiscal biennium and this chapter applies to all code cities which utilize a fiscal biennium budget.

Which simply means that the city must adopt an ordinance to establish a biennial budget process and that the ordinance must be adopted at least 6 months prior to first biennial budget period.

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With voter approval, can a city raise the utility tax rate on outside utilities (natural gas, electricity, telephone and cable) above 6%?
Reviewed: March 2019

Yes. Voter approval is required if a city raises electricity, natural gas, steam energy or telephone tax rates above 6%. See RCW 35.21.870(1):

(1) No city or town may impose a tax on the privilege of conducting an electrical energy, natural gas, steam energy, or telephone business at a rate which exceeds six percent unless the rate is first approved by a majority of the voters of the city or town voting on such a proposition.

There is not an explicit limitation on cable utility taxes, but the Cable Communications Policy Act of 1984 requires that the rate not be "unduly discriminatory against cable operators and subscribers,” so the rate should not be higher than what the city charges other utilities.

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Are we required to have two readings on a budget amendment ordinance? Also, are we required to hold a public hearing when amending the budget?
Reviewed: February 2019

The issue of whether to have two readings on a budget amendment or any ordinance of the city is a matter of local policy. State law does not require multiple readings of the ordinance for budget amendments. Additionally, there is no requirement to hold a public hearing on a budget amendment. State law sets forth the minimum process requirements but nothing prevents a government entity from providing for multiple readings or a public hearing.

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Can the city pay for a meal for councilmembers if they will be in back-to-back meetings all evening (i.e., through the dinner hour)?
Reviewed: February 2019

The Office of the Attorney General issued a memorandum in 1987 on Eating and Drinking at Public Expense. This memorandum, while over thirty years old now, is still what MRSC cites as the leading authority on questions related to municipalities paying for food and drink. It goes into considerable depth on the issue and includes various scenarios for eating and drinking at public expense, with explanations of when and why it may or may not be justified. With regard to your specific question, the analysis on pp. 5-6 may be helpful. The fundamental question is whether providing meals is reasonable and necessary. When the council meets for an extended period of time through the normal dinner hour, it seems reasonable for a city to provide dinner to the councilmembers.

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What is the maximum B&O excise tax rate a city can charge on revenue to a business inside the City?
Reviewed: January 2019

The maximum rate is 0.2%, but a higher rate can be implemented if it is approved by a majority of the voters. RCW 35.21.710 addresses the maximum rate. There is no statutory maximum for a B&O approved by voters

B & O Taxes are levied at a percentage rate on gross receipts and may be imposed upon different sectors such as manufacturing, wholesaling, retailing and services. The tax can be levied at the same rate for all sectors, or the legislative body may opt for different rates for some sectors. For example, the city of Kent charges a higher rate for wholesaling and a lower rate for retail. Within each sector, the rate must be uniform. Here is the link to our web page on City Business & Occupation Tax, which includes the model ordinance and administrative ordinance that cities must use for B&O adoption. We have further explanation of General B & O taxes and licenses in our publication “Revenue Guide for WA Cities and Towns”. As of December 2018, 44 cities had adopted a B&O tax. Here is the list of those cities as of 2018.

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The city adopts a budget at the fund level. Does that mean that I can change the allocation of resources within a fund without going to council for an amendment?
Reviewed: January 2019

Adopting a 'fund level' budget provides the city with the ability to "adjust" its line item appropriations within a fund without having to adopt a budget amendment. RCW 35.33.121 (RCW 35A.33.120 for code cities) provides the authority for the “city’s or town's chief administrative officer” (mayor in a mayor-council form of government) to make such adjustments unless the city has adopted financial policies that would limit this authority.

Keep in mind that it’s not a requirement to adjust the individual line items throughout the year. Many cities find it helpful to leave the original appropriations for operating expenses such as the street supplies and small tools so that they can compare the actual line item appropriation vs. expenditures from a historical perspective which will assist with setting future budget appropriations.

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Can a city increase its sales tax to raise revenue for law enforcement services?
Reviewed: December 2018

It is possible for a city to place an issue on the ballot to raise revenue for “public safety” purposes, which would include monies for law enforcement. Here is an excerpt from our Revenue Guide for Washington Cities and Towns regarding the tax:

Any city or town, with voter approval and subject to the restrictions below, may impose a sales tax of up to 0.1% for public safety as authorized by RCW 82.14.450. The ballot measure must clearly state the purposes for which the tax is to be used and requires approval by a simple majority of voters. The statute requires that at least one-third of the revenue be used solely for criminal justice purposes, fire protection purposes, or both as defined in RCW 82.14.340(4)-(5).

Similar to the shared revenue requirements under RCW 82.14.340 (criminal justice), the city must share the tax with the county. 85% of this sales tax revenue is distributed to the city and 15% to the county. This local sales tax option also features a differential in the tax base from the state sales tax base, with sales of motor vehicles and the lease of motor vehicles for up to the first 36 months of the lease exempted.

Counties may also place a ballot measure before the voters for a public safety sales tax under the same statute. The county’s sales tax option may range from 0.1% to 0.3%. If the tax is approved, the county must share the revenue with the cities, with 60% distributed to the county and the remaining 40% distributed on a per capita basis to the cities within the county.

The combined city/county rate may not exceed 0.3 percent:

  • If the county is already levying the full 0.3%, no city within the county may impose a new public safety sales tax.
  • If the city enacted a 0.1% public safety sales tax before the county, and the county imposes a 0.3% sales tax countywide, the county must credit back 0.1% to the city.
  • If the county has imposed a public safety sales tax less than 0.3%, the city may still impose its own public safety sales tax up to 0.1%, as long as the combined city/county rate does not exceed 0.3%.

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Can the Town accept donations for the Police Department, and must the donations be earmarked for a specific use?
Reviewed: December 2018

It depends on whether the donor attaches “strings.”

A code city (along with any other class of city) has the express authority to accept donations (RCW 35.21.100; RCW 35A.11.040). RCW 35.21.100 provides:

Every city and town by ordinance may accept any money or property donated, devised, or bequeathed to it and carry out the terms of the donation, devise, or bequest, if within the powers granted by law. If no terms or conditions are attached to the donation, devise, or bequest, the city or town may expend or use it for any municipal purpose.

RCW 35A.11.040 states:

The legislative body of a code city may exercise any of its powers or perform any of its functions including purchasing, and participate in the financing thereof, jointly or in cooperation, as provided for in chapter 39.34 RCW. The legislative body of a code city shall have power to accept any gift or grant for any public purpose and may carry out any conditions of such gift or grant when not in conflict with state or federal law.

So, code cities may accept donations, and the donations can be earmarked to be used in a particular way (e.g., the Police Department). However, the expenditures must be for a legitimate public purpose, and not in conflict with state or federal law. The fact the money is donated does not relieve the city of ensuring that the funds are spent for a valid municipal purpose. Once the funds are donated, they become public funds, subject to all limitations for public expenditures.

We have indicated in the past that although RCW 35.21.100 could be interpreted to mean that a city must pass an ordinance to accept each and every donation it receives, a more reasonable interpretation is that the city must establish by ordinance a procedure for accepting donations. Many cities have such a procedure. Some cities authorize a particular city official, such as a clerk-treasurer or city manager/administrator, to accept donations on behalf of the city. Others provide that the council will do so by motion or resolution.

Some jurisdictions have council-adopted policies that govern the circumstances under which donations will be accepted (here is a link to a page with examples).

There is no requirement that the city accept the donation. That is a policy decision for the city council. If the donor merely makes a donation, without adding “strings” to it (e.g., must be used to purchase police uniforms), the donation, if the council accepts it, would go into the city’s general fund and could be used for any municipal purpose.

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Can vacation time be given as an incentive/bonus if incorporated into an annual review? Or is that considered a gift of public funds?
Reviewed: December 2018

The city could adopt a policy to add bonus time off as an incentive in connection with the annual review process. You will want to have objective criteria for when the additional time off is awarded so it is not left to the subjective judgment of a supervisor.

Such a new policy should be prospective only rather than retroactive in order to avoid a potential issue with the Washington Constitution’s prohibition on gifts of public funds and changes to public employee compensation previously established. If extra time off is granted for past-performance, then there is a problem with gifting of public resources. Once the policy is in place, then for city employees who continue their employment, the incentive for bonus time would be part of the compensation package.

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Our council is considering adopting $2,000 in revenue as the new business license threshold. Once it does so, when can it adjust this threshold again? Is there a waiting period?
Reviewed: November 2018

RCW 35.90.080 addresses the adoption of the model business license ordinance. Section (1)(c) refers to a four-year period for changes to the mandatory model ordinance provisions:

(c) The definitions in the model ordinance may not be amended more frequently than once every four years, except that the model ordinance may be amended at any time to comply with changes in state law or court decisions. Any amendment to a mandatory provision of the model ordinance must be adopted with the same effective date by all cities.

Furthermore, RCW 35.90.050 gives cities the authority to set fees and thresholds.

To specifically address when license changes become effective for cities that partner with the state business licensing service (BLS), RCW 35.90.070 states that:

A general business license change enacted by a city whose general business license is issued through the business licensing system takes effect no sooner than seventy-five days after the department receives notice of the change if the change affects in any way who must obtain a license, who is exempt from obtaining a license, or the amount or method of determining any fee for the issuance or renewal of a license. (emphasis ours)

Our interpretation of this statute is that the threshold can be adjusted at any time, as long as it complies with the mandatory minimum threshold of at least $2,000, and that the effect of the change will not be implemented for at least 75 days after receipt by BLS.

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Can Real Estate Excise Tax (REET) funds be used for debt service?
Reviewed: September 2018

Debt service is considered a direct result of a capital project, so REET 1 and REET 2 funds can be used for debt service of capital projects that meet the respective definitions and are listed in the city’s CIP. Use of REET 2 funds for REET 1 debt service is allowed, but subject to the REET 2 cap and other requirements of RCW 82.46.037.

RCW 82.46.037(1)(c) provides for the use of REET 2 funds for “capital projects as defined in RCW 82.46.010(6)(b) (REET 1) that are not also included within the definition of capital projects in RCW 82.46.035(5)”.

The statute further provides in sub-section (2) of RCW 82.46.037 (emphasis added):

  • (2) A city or county may use revenues pursuant to subsection (1) of this section if:
  • (a) The city or county prepares a written report demonstrating that it has or will have adequate funding from all sources of public funding to pay for all capital projects, as defined in RCW 82.46.035(5), identified in its capital facilities plan for the succeeding two-year period; and
  • (b)(i) The city or county has not enacted, after June 9, 2016, any requirement on the listing or sale of real property; or any requirement on landlords, at the time of executing a lease, to perform or provide physical improvements or modifications to real property or fixtures, except if necessary to address an immediate threat to health or safety; or
  • (ii) Any local requirement adopted by the city or county under (b)(i) of this subsection is: Specifically authorized by RCW 35.80.030, 35A.11.020, chapter 7.48 RCW, or chapter 19.27 RCW; specifically authorized by other state or federal law; or a seller or landlord disclosure requirement pursuant to RCW 64.06.080.

So the bottom line is that yes, they may use REET 2 funds for debt service of REET 1 projects if:

  1. They prepare a written report demonstrating that it has or will have adequate funding from all sources of public funding to pay for all REET 2 capital projects
  2. That the debt service being paid was for a capital project that was listed in the county CFP

Debt service is considered a direct result of the “capital project” as defined by statute, whether it is acquisition, construction, repair, replacement …..etc. and we have confirmed this interpretation with Cindy Evans, Legal Counsel for SAO.

RCW 82.46.037(2) places additional requirements on the use of REET 2 funds under RCW 82.46.037(1)(c). So a county that seeks to use REET 2 funds for REET 1 project debt service is subject to the cap in subsection (1) and the reporting requirements in subsection (2).

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If a citizen donates property to the city (no cash) valued at thousands of dollars, what tax form can the city sign for the citizen to give them a tax deduction/advantage?
Reviewed: September 2018

Generally donations to a municipality are tax deductible for federal tax purposes and municipalities can issue a donation receipt for such donations. Title 26, Section 170(c)(1), of the Internal Revenue Code states that the term “charitable contribution” includes a contribution or gift to, or for the use of a state or any political subdivision of a state if the contribution or gift is made for exclusively public purposes. Most donors will accept a statement from the city citing this title and section.

IRS Publication No. 1771, Charitable Contributions-Substantiation and Disclosure Requirements explains what documentation is needed for the donor from the municipality to allow for the donation to be written off as a charitable donation.

Here are some relevant quotations from that publication:

A key exemption relied upon by affiliates of governmental units is set forth in Section 115 of the Internal Revenue Code of 1986, as amended (“IRC”). It requires the income be derived from the exercise of an “essential government function” or that the income accrue to the benefit of the governmental unit.


IRC Section 170 provides that donations made for exclusively public purposes, to or for the use of a state or political subdivision, are deductible against the taxable income of individuals, corporations, and other taxpayers, subject to various limitations.

If you need written confirmation from the IRS they will issue a "government affirmation letter" upon request. This letter describes government entity exemption from Federal income tax and cites applicable Internal Revenue Code sections pertaining to deductible contributions and income exclusion. Most organizations and individuals will accept the government affirmation letter as the substantiation they need. To get such a letter, call the IRS Tax-Exempt/Government Entity Cincinnati Call Site at 1-877-829-5500.

Should you have any additional questions, you can contact the state’s IRS representative, Jennifer A. Macht. She may be contacted by email at or by phone at (206) 946-3477.

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Does a city manager have authority to adopt procurement policies and procedures without council action?
Reviewed: July 2018

RCW 35A.13.080 establishes the powers and duties of the city manager in a council-manager form of government including “general supervision over the administrative affairs of the code city”  and “to recommend for adoption by the council such measures as he or she may deem necessary or expedient.” By statute, the council has contract authority for the city. RCW 35A.11.010.

The council may delegate its authority to adopt procurement policies and procedures to the city manager. Typically, in approving a contract, the council will authorize and direct the city manager to sign the contract on behalf of the city. It’s common for a city council to delegate via city policy a portion of its contract authority to the city manager (e.g., for contracts of a certain type and/or contracts up to a certain dollar amount).

If your city council has delegated authority to the city manager to adopt such policies, then yes, a city manager may do so. Council action may still be needed or recommended, depending on your local ordinances and resolutions. Here is a link to MRSC’s page Procurement Policy Guidelines

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Must an entity be a non-profit or public agency in order to receive lodging tax funding? Can the City award funds to anyone?
Reviewed: July 2018

Lodging tax funds may be distributed to any organization or entity that intends to use the award as allowed by statute (RCW 67.28.1816).

The issue is not whether the organization is non-profit vs. profit or public vs. private but how the lodging tax funds are allowed to be used.

Lodging tax funds may be provided to fund tourism promotion by entities that are either nonprofit (like most chambers of commerce) or for-profit companies. The key factor is that the funds must be used to encourage tourism and overnight stays in your community.

Lodging tax funds may be distributed to those organizations (convention and visitors bureau or destination marketing organizations) that can meet the criteria as outlined in RCW 67.28.1816 (1) which states that lodging tax funds can be used for:

  • Tourism marketing;
  • Marketing and operations of special events and festivals designed to attract tourists;
  • Operations and capital expenditures of tourism-related facilities owned or operated by a municipality or a public facilities district; or
  • Operations of tourism-related facilities owned or operated by nonprofit organizations. (RCW 67.22.1816)

Additionally, all applicants should be aware of the reporting requirements outlined in RCW 67.28.1816 (2) which in part states that:

(2)(a) Except as provided in (b) of this subsection, applicants applying for use of revenues in this chapter must provide the municipality to which they are applying estimates of how any moneys received will result in increases in the number of people traveling for business or pleasure on a trip:

(i) Away from their place of residence or business and staying overnight in paid accommodations;

(ii) To a place fifty miles or more one way from their place of residence or business for the day or staying overnight; or

(iii) From another country or state outside of their place of residence or their business.

Our office can only express an opinion about the procedures for distribution of lodging tax and the allowed uses of lodging tax funds that are recommended for distribution. The Washington State Auditor’s Office (SAO) is the final authority for interpretation regarding the use of restricted resources by local government. Lodging tax is one those restricted revenues. You may submit your question to the SAO helpdesk if you would like their response to provide supporting documentation for your future audit.

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We are revising our business meals and light refreshments policy. Does RCW 43.03 apply to our Board members, which include elected county commissioners and city council members?
Reviewed: May 2018

RCW 43.03.050 would not apply to local government entities—that provision applies to state officials and employees.

MRSC has long advised that local government organizations can provide meals to councilmembers, board members, and staff when such meetings are being held during usual meal times and the expenditure is pursuant to a policy established by the local government agency. MRSC’s long standing guidance on this issue (also used by the State Auditor's Office (SAO)), is based on a 1987 memorandum by an assistant attorney general, Jim Pharris, AGO Opinion “Eating and Drinking at Public Expense.” In looking at the issue of “non-travel” meals at public expense, Pharris observes, at page 5:

  • While the necessity for eating meals away from home and therefore public expense while traveling on public business has long been recognized, the law has been slower to recognize the legitimacy of public payment for meals consumed at home but on “public business.”
  • . . . if properly authorized by local ordinance or policy, municipal officers and employees can claim reimbursement for meals consumed on official business but not necessarily in the course of official travel.

In order to support the expenditure, a local government agency should have a policy specifying what types of food and drink expenditures are authorized—especially meals eaten at public expense. It may be appropriate for a council, board, or staff to have a meal in conjunction with a meeting if the meeting is long and occurs during a mealtime. For example, it is not uncommon for city councils to schedule study sessions and regular meetings on the same evening. Such meetings may start as early as 5:00 PM and go until 10:00 PM or later. Some agencies opt to provide meals to their councilmembers if a meeting is expected to extend through a meal time.

Here are a few sample policies regarding the provision of light refreshments and meals that may be of some interest:

  1. City of Sequim Resolution No. R-2010-23 (a resolution establishing a light refreshment policy and procedure)
  2. City of Port Angeles Municipal Code, Ch. 2.06, City Meeting and Customer Service Expenses
  3. City of Olympia Policy 15 Miscellaneous Expense
  4. City of Mukilteo Meals with Meetings Policy and Light Refreshments Policy and Procedure
  5. City of Bellingham Policy – Paying for Meals and Incidental Business Expenses

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Can we pay mileage to a Planning Commissioner to attend a training event?
Reviewed: May 2018

Yes, the town can reimburse the planning commission member for the travel costs if the town feels that the training would be beneficial, and if the travel is consistent with any policies adopted by the town regarding covering travel costs of town employees or other officers. RCW 35.63.030 provides that planning commission members “shall serve without compensation” – but reimbursement of expenses is not considered to be compensation. The amounts reimbursed for business-related travel are not taxable income.

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Request for background information about the business license service provided by the Washington State Department of Revenue, including when and why it started, and the benefits.
Reviewed: May 2018

The State's Business Licensing Service (BLS) system is a division of the Department of Revenue (DOR) and was established to streamline the business licensing process for vendors who need to register in multiple locations. The BLS site provides users the ability to access licensing information and applications for all cities currently registered.

The State legislature asked for a simplification of the business licensing requirements to be addressed by a task force and reported back to the legislature with HB 2959. The report was released 12/31/2016 "Local Tax & Licensing Simplification Task Force .” This report provides an excellent review of the DOR/BLS program as well as the optional business license service called “FileLocal” that was created via an interlocal agreement with the cities of Bellevue, Everett, Seattle, and Tacoma.

As a result of the legislation (HB 2959) and the task force results, the Association of Washington Cities (AWC) was charged with working with cities to develop a “model business license ordinance” that will be required to be adopted by all cities that currently have or will be adopting business licensing requirements. For more information, see AWC’s web page on “Task force on local business tax & licensing simplification.”

The current task force consists of several cities throughout the State and the current timeline has the work group reviewing draft model licensing language in February, release to all cities in March, review of feedback from cities in April, finalizing the model in May and presenting to the cities at the AWC Conference in June with finalization of the model ordinance in July and out-reach to cities throughout the remainder of the year to assure smooth implementation on January 1, 2019.

All cities currently with business license ordinances currently in place will have to modify and implement the new requirements starting in January 2019.

At this time, the primary source of information on the draft model business license ordinance and business licensing services options is AWC. You can contact Victoria Lincoln @ 360-753-4137 or email:

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Is wholesaling taxable with regards to the City B&O tax?
Reviewed: April 2018

Yes. Here is a link to the Local B&O tax rate table for 2018. You will note that with the exception of Granite Falls and the City of Lacey, all of the remaining B&O tax cities (including Bainbridge Island) have adopted a B&O tax on “wholesale” operations.

The State of Washington uses a different matrix for imposing B&O taxes on operations within the state, however they do impose a tax on wholesalers. Here are the Department of Revenue’s Business and Occupation (B&O) taxc classification definitions, with link to the associated WAC’s and RCW’s.

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Is a meal provided for in the price of a conference/meeting registration paid for by the County considered a taxable fringe benefit to the employee attending?
Reviewed: March 2018

If the cost of the meal is included within the conference/meeting registration then the charge associated with the meal is not considered a taxable fringe benefit. Here is a link to the IRS - Fringe Benefit Guide and more specifically the topic of meal expenses associated with Trade or Professional Association Meetings can be found on page 47 and 48. Here is an excerpt from the publication:

Reimbursements for meal expenses directly related to and necessary for attending business meetings or conventions of certain exempt organizations are excludable from wages if the expenses of your attendance are related to your trade or business. These organizations include chambers of commerce, business leagues and trade or professional associations. Reg. §1.274-2(d)(3)

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Is it legal for a jurisdiction to charge a utility tax on its own public utility (e.g., stormwater)? Is it legal and/or appropriate to charge the public utility for the cost of administering the utility in addition to charging a utility tax?
Reviewed: February 2018

Yes, it is legal for a jurisdiction to charge a utility tax on its own public utility. We cover this issue on our Utility Tax webpage and in our Revenue Guide for Washington Cities and Towns. As stated in the Revenue Guide:

A city may also levy taxes on revenues earned by the city’s utility services provided both inside and outside the city limits. The utilities that may be taxed include electricity, water, sewer, solid waste, stormwater, gas, telephone, cable TV, and steam.

It is also legal to charge the utility the cost of administering the utility in addition to the utility tax. We cover this on our Overhead Cost Allocation webpage.

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If we use the CPI as the inflator in a multi-year lid lift, which index should we choose?
Reviewed: January 2018

There are all sorts of consumer price indices. It is absolutely crucial that you correctly identify the one you want to use in your ballot measure.

The considerations are the same as choosing a consumer price index for a labor contract. The Bureau of Labor Statistics has a website that will help you make that decision.

Figure out when you will want the information, for budgeting purposes, on how much your property tax levy can be increased. Then make certain that the CPI index you have chosen will be available by that date. The U.S. CPI figures are available monthly with a lag of about two and a half weeks. For example, the April statistics are published around May 19 or so.

The Seattle-Tacoma-Bellevue CPIs are published bimonthly for even-numbered months. For example, the February numbers are published in mid-March, and the next release is the April numbers, which are published in mid-May.

Effective January 1, 2018, the Portland-Salem CPI indices have been eliminated.

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Does a city or county need a vote of the people in order to levy the second quarter percent of the real estate excise tax (REET 2)?
Reviewed: September 2017

It depends. If the city or county is required to plan under the Growth Management Act, then only an affirmative vote of the legislative body is needed to levy this tax. (Don’t forget to notify the county treasurer so that you will begin to receive the second quarter).

However, if the city is located in a county that has voluntarily chosen to fully plan under GMA, this tax may be levied only "if first authorized by a proposition approved by a majority of the voters." RCW 82.46.035(2).

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What cities and counties can levy the second quarter percent of the real estate excise tax (REET 2)?
Reviewed: September 2017

Any county or city that is required to fully  plan under the Growth Management Act (RCW 36.70A.040(1)) may impose the second quarter percent of the real estate excise tax.

Any county choosing to plan under the Growth Management Act (RCW 36.70A.040(2)) and the cities located in them have the ability to impose the second quarter percent if first approved by the majority of the voters of the taxing district. (RCW 82.46.035(2))

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Can the county use real estate excise tax (REET) money for a pathway?
Reviewed: September 2017

The REET 1 statute, RCW 82.46.010(6), includes the term "trail" in its definition of "capital project" for which REET 1 funds may be used, and so that should include a "pathway." The REET 2 statute, RCW 82.46.035(5), on the other hand, does not include the term "trail" - or "path" or "pathway" - in its definition of "capital project," though it does include "sidewalks." So, it's our opinion that REET 1 funds could be used to construct improvements along the pathway, but not REET 2 funds, unless the pathway here could be considered a sidewalk.

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Can cities and counties use real estate excise tax (REET) funds for planning?
Reviewed: September 2017

Cities and counties cannot use these funds for planning in the sense of developing a capital facilities element or a capital improvements plan. However, MRSC has advised that cities and counties can use these funds for design costs, engineering costs, surveys, etc. for specific projects in their capital facilities element or capital improvements plan. REET 1 funds may only be used for REET 1 allowed projects and REET 2 funds can only be used for REET 2 allowed projects.

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Can the real estate excise tax (REET) be levied even though the city or county is not yet allowed to spend it?
Reviewed: September 2017

Yes. The tax can be levied and placed in a municipal or county improvements fund until the city or county completes the capital facilities element of its comprehensive plan.

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Is a city or county exempt from the real estate excise tax (REET) when purchasing real property?
Reviewed: September 2017

No. The sale of city or county real property is exempt from the real estate excise tax because such a sale is not included within the definition of "sale "for real estate excise tax purposes. However, in 1993 the legislature eliminated the same exemption for purchases of real property by a city, county, or other governmental entity. Thus, purchases of real property by a city or county (other than those by condemnation) are subject to the tax.

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When does the city real estate excise tax (REET) apply in an annexed area?
Reviewed: September 2017

The city's REET applies to any real property sold within an annexed area beginning on the effective date of the annexation. The REET - which, as the name clearly states, is an excise tax and not a property tax - is on "each sale of real property in the unincorporated areas of the county for the county tax and in the corporate limits of the city for the city tax . . . ." RCW 82.46.010(2)(a); RCW 82.46.035(2). Upon the effective date of an annexation, the corporate limits of the city include the area annexed.

There is no statutory connection between the REET, which is governed by chapter 82.46 RCW, and the property tax, which is governed by Title 84 RCW. RCW 84.09.030, which sets when "the boundaries of counties, cities, and all other taxing districts shall be the established official boundaries of such districts" applies only "for the purposes of property taxation and the levy of property taxes." That provision has no application to the REET.

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May a city use the first one-quarter percent real estate excise tax (REET) revenues to contribute to the improvement of a school district stadium/athletic field that the city would use for certain city recreational activities?
Reviewed: September 2017

Yes, under certain circumstances. The relevant statute, RCW 82.46.010(2) states as follows:

The legislative authority of any county or any city may impose an excise tax on each sale of real property in the unincorporated areas of the county for the county tax and in the corporate limits of the city for the city tax at a rate not exceeding one-quarter of one percent of the selling price. The revenues from this tax shall be used by any city or county with a population of five thousand or less and any city or county that does not plan under RCW 36.70A.040 for any capital purpose identified in a capital improvements plan and local capital improvements, including those listed in RCW 35.43.040.

After April 30, 1992, revenues generated from the tax imposed under this subsection in counties over five thousand population and cities over five thousand population that are required or choose to plan under RCW 36.70A.040 shall be used solely for financing capital projects specified in a capital facilities plan element of a comprehensive plan and housing relocation assistance under RCW 59.18.440 and 59.18.450.

To comply with the expenditure restrictions in this statute, the stadium/athletic field would need to be in the capital facilities plan element of the city's comprehensive plan. Nothing appears to prohibit a city from including a school stadium/athletic field in their comprehensive plan, either as part of the school district's capital facilities plan element which could be adopted by reference into the city's comprehensive plan or as a specific capital project in the city's capital facilities plan element. In fact this would be necessary if a jurisdiction were to impose impact fees for schools. RCW 82.02.050(4) provides that

Impact fees may be collected and spent only for public facilities defined in RCW 82.02.090 which are addressed by a capital facilities plan element of a comprehensive land use plan adopted pursuant to the provisions of RCW 36.70A.070 or the provisions for comprehensive plan adoption contained in chapter 36.70, 35.63, or 35A.63 RCW.

"Public facilities" includes school facilities. RCW 82.02.090(7). Also, RCW 82.02.050 contemplates that a city or county could include facilities that may be the responsibility of a special district:

If the capital facilities plan of the county, city, or town is complete other than for the inclusion of those elements which are the responsibility of a special district, the county, city, or town may impose impact fees to address those public facility needs for which the county, city, or town is responsible.

If this requirement of inclusion of the facility in the city's capital facilities plan element or in the school district's plan element adopted by reference by the city is met, these REET revenues could be used for this facility if the expenditure has a city purpose. In AGO 1988 No. 19, the attorney general's office addressed whether REET revenues may be used by a county to fund capital improvements on property owned by a city. Although, this opinion addressed by pre-GMA version of RCW 82.46.010, the opinion still applies to the issue presented in this inquiry. That opinion states:

We believe the critical question, under both the relevant statutes and the state constitution, is whether the capital improvement at issue is to be constructed or operated for a county purpose. The statutes do not establish a per se requirement that the improvement itself or the underlying real property be owned by the county. Where neither factor is present, however, it is highly problematical whether the improvement is truly intended to serve a county purpose. Absent any additional facts indicating that such a purpose would be served by the capital improvements referred to in your question, we conclude that the funding of such improvements would not be authorized.

Since the stadium/athletic field would be used for city recreational programs, it would appear that there exists the requisite city purpose.

We recommend that the city and the school district enter into an interlocal agreement that identifies the city's contribution to the improvement of the facility and what the city's use of the facility will be.

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Is a purchase by a city or county of real property through the condemnation process subject to the real estate excise tax (REET)?
Reviewed: September 2017

No. RCW 82.45.010(3)(g) specifically exempts transfers of property through condemnation proceedings from the definition of "sale" for purposes of the real estate excise tax.

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What type of tax applies to leasing of public property to private individuals?
Reviewed: June 2017

The tax that applies to public property leased to private individuals is called the leasehold excise tax. The state Department of Revenue’s (DOR’s) Leasehold Excise Tax webpage states that the leasehold excise tax is the tax on the use of public property by a private party that is in lieu of property tax. The tax doesn’t apply to leases to public entities since they are exempt from property taxes; it only applies to private entities leasing from public bodies.

DOR has a leasehold excise tax Q&A publication that provides more information on this tax.

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Is there a statutory limitation on how soon a levy lid lift proposition can be brought before the voters after a previous unsuccessful vote?
Reviewed: May 2017

A: No, the statute governing levy lid lifts, RCW 84.55.050, does not impose any limitations on how soon a lid lift proposition may be placed on the ballot after an unsuccessful vote. Obviously, there are political considerations.

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How much should a city or county have in general fund reserves?
Reviewed: April 2017

In short, it depends. The Government Finance Officers Association (GFOA) used to provide recommended ranges, but GFOA stopped doing so because there is too much variability and it really depends on the specific needs and circumstances of each jurisdiction. For more guidance, including key questions to consider, examples from other jurisdictions, and links to best practices, see our page on Fund Balance and Reserve Policies.

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May an agency use public funds to purchase a gift card to be given as a prize to a randomly drawn individual who participated in a survey put out by the agency?
Reviewed: March 2017

Assuming that the survey is collecting information that would assist the agency in its official business (i.e., there is a valid municipal purpose), it is likely permissible to use city funds to purchase the gift card.

For there to be an impermissible “gift” of public funds under article 8, section 7 of the state constitution, the agency would have to receive nothing in return and have the intent that it receive nothing in return.

In this scenario, there is a public/municipal purpose for the drawing—to get greater participation in the survey, which would presumably provide valuable information to be used toward a public purpose. So, the agency receives something of “value” (i.e., information) in return for its expenditure on the drawing prize. Therefore, the expenditure of public funds on a drawing prize to increase participation in an agency’s survey is likely a permissible expenditure of public funds.

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Can a city, through a vote of the people, institute a public safety property tax levy for its own police/fire when the county it is in has already instituted a public safety levy for its own (county) function?
Reviewed: February 2017

Yes. When it comes to property tax levies, the city and the county do not overlap.

RCW 84.52.052 provides the city with the ability to present to the voters an "excess levy" for general government purposes for a one year levy, or, if the city has levy capacity remaining, it can present a levy lid lift to the voters (RCW 84.55.050).

For more information on levy lid lifts, see MRSC’s Levy Lid Lift topic page, as well as MRSC’s Revenue Guide for WA Cities and Towns.

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Is a Lodging Tax Advisory Committee limited to reviewing funding applications once per year or can this be done on an on-going, case-by-case manner?
Reviewed: January 2017

Reference should be made to RCW 67.28.1817(2):

(2) Any municipality that proposes imposition of a tax under this chapter, an increase in the rate of a tax imposed under this chapter, repeal of an exemption from a tax imposed under this chapter, or a change in the use of revenue received under this chapter shall submit the proposal to the lodging tax advisory committee for review and comment. The submission shall occur at least forty-five days before final action on or passage of the proposal by the municipality. The advisory committee shall submit comments on the proposal in a timely manner through generally applicable public comment procedures. The comments shall include an analysis of the extent to which the proposal will accommodate activities for tourists or increase tourism, and the extent to which the proposal will affect the long-term stability of the fund created under RCW 67.28.1815. Failure of the advisory committee to submit comments before final action on or passage of the proposal shall not prevent the municipality from acting on the proposal. A municipality is not required to submit an amended proposal to an advisory committee under this section.

While typically, we think, a city or county will solicit requests for funding once a year and then have its lodging tax committee review all of the requests before making a funding recommendation to the legislative body, the above statute does not require that. The statute merely requires that final action be delayed for 45 days and that the committee submit its comments before the commission takes its action. We do not read this statute as requiring review of proposals all at one time. Perhaps that would be the fairest way to consider all possible proposals (assuming that funds are limited), but the statute does not require it. Thus in our opinion, the county could consider a proposal (or proposals) throughout the year.

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Can cities go out for a Maintenance & Operations (M&O) levy?
Reviewed: December 2016

Yes. There are a few options available to cities with regards to property tax levies:

  • 1 year M&O levy (also known as the excess levy). Here is a link to our Revenue Guide, which includes a section on excess levies for general government purposes. You will note that an excess levy can only be run for one (1) year and it requires at least a 60% approval from a voter turnout of 40% of the numbers of people voting in the last general election (or the equivalent of those number of yes votes in the event that you have less than 40% turnout from the last general election).
  • Banked capacity. Does the city have any banked capacity? If it’s unclear, the city should review the DOR’s tax levy detail reports and discuss the issue with its county assessor.
  • Levy Lid lift. This is another option available to cities in the event that there is no banked capacity available. A levy lid lift requires a vote, but if the city has sufficient levy capacity available to meet the M&O needs the lid lift can be for multiple years rather than just one year like the excess levy. Here is a link to our topic page on levy lid lifts and the various options for the number of years that a levy lid lift may be imposed.

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We are interested in creating a meal/refreshments policy for employees in local work-related meetings and training; do you have some good sample policies?
Reviewed: November 2016

Please see the following sample policies:

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How many budget hearings are cities required to hold?
Reviewed: September 2016

We believe the number is no less than three. Our Budget Hearings: How Many Do You Need to Hold? blog post additionally speaks to these requirements. Here's a quick overview of the three required hearings:

  • The first public hearing that cities must hold is the revenue hearing (also known as the property tax levy setting). This hearing is required under RCW 84.55.120.
  • The second public hearing is required under RCW 35.33.057, which states that cities and towns must hold hearings on the budget, or its parts, prior to the final budget hearing.
  • RCW 35.33.071 then requires a final budget hearing to be held on or before the 1st Monday in December.

A city may desire to hold more public hearings then state law requires, or it may want to hold additional budget workshops. All of these meetings and hearings are certainly allowed. It's just important to have a minimum of three public hearings in order to meet the requirements under state law.

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Does the LTAC need a quorum to vote and make recommendations?
Reviewed: August 2016

Yes, the LTAC needs a quorum before it can take any action, including voting and making recommendations. This conclusion is based on the general rule that any such public "governing body" needs a quorum to take action. See RCW 42.30.020(3) (“Final action” means “a collective positive or negative decision, or an actual vote by a majority of the members of a governing body when sitting as a body or entity, upon a motion, proposal, resolution, order, or ordinance." [Emphasis added]).

So, if you have two members who are often absent, three of the five members may make lodging tax recommendations on behalf of the LTAC. As an option with respect to absent members, the LTAC could authorize participation by absent members in LTAC meetings by speakerphone, Skype, or similar technology, as long as there is two-way communication regarding members participating remotely and those LTAC members who are physically present at the meeting.

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What must applicants for funding from the lodging tax include in their applications to the LTAC?
Reviewed: August 2016

In accordance with RCW 67.28.1816(2), applicants for lodging tax funding must submit their applications to the LTAC in cities, towns, or counties with more than 5,000 in population. The application must include the following information:

Estimates of how any moneys received will result in increases in the number of people traveling for business or pleasure on a trip:
(i) Away from their place of residence or business and staying overnight in paid accommodations;
(ii) To a place fifty miles or more one way from their place of residence or business for the day or staying overnight; or
(iii) From another country or state outside of their place of residence or their business.

The LTAC then reviews the applications, selects the candidates for funding from the applicants, and provides a list of the candidates and recommended amounts of funding to the legislative body of the city, town, or county. Based on RCW 67.28.1817(2), there must be a 45-day time period between submission of the application to the LTAC and when the city, town, or county legislative body can take final action on or passage of the proposal.

A post-event report must also be submitted by those awarded funding evaluating the actual benefits from the estimated benefits in the application.

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With respect to annual financial report requirements, are we required to identify restricted and unrestricted fund balances for fiduciary funds?
Reviewed: July 2016

No. Fiduciary funds are, by definition, funds that belong to others (see BARS, Fund Types and Accounting Principles). Fiduciary funds are described in the "cash basis" BARS manual as follows:

Fiduciary Funds - should be used to account for assets held by a government in a trustee capacity or as an agent for individuals, private organizations, other governmental units, and/or other funds. These include (a) investment trust funds, (b) pension (and other employee benefit) trust funds, (c) private-purpose trust funds, and (d) agency funds.

The application and classification of fund balance is a result of the implementation of GASB 54 to both GAAP and Cash Basis accounting and reporting entities by the State Auditor's Office (SAO) through its BARS manuals. GASB 54 provides for fund balance classifications of "governmental" funds, which are the general, special, debt, capital, and permanent fund classifications. The SAO has extended this fund balance classification to the "proprietary" funds for cash basis entities (GAAP was already designating fund balance by class).

As a bit of further explanation, all fiduciary funds, in theory, are restricted to the extent that the funds belong to others, but, for accounting purposes, there are no requirements to designate them as restricted funds, because GASB and/or BARS requirements apply only to governmental and proprietary funds.

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Does the city (or its residents by way of ballot) have the option to add a fee or tax to the motor vehicle fuel tax to fuel sales within its boundaries?
Reviewed: May 2016

No, the city does not have the authority to add a fee or tax to the motor vehicle fuel tax with respect to fuel sales within its boundaries. RCW 82.36.440(1), effective until July 1, 2016, states:

The tax levied in this chapter is in lieu of any excise, privilege, or occupational tax upon the business of manufacturing, selling, or distributing motor vehicle fuel, and no city, town, county, township or other subdivision or municipal corporation of the state may levy or collect any excise tax upon or measured by the sale, receipt, distribution, or use of motor vehicle fuel, except as provided in chapter 82.80 RCW and RCW 82.47.020.

Effective on July 1, 2016 (after consolidation of the motor vehicle fuel tax and special fuel tax statutes), RCW 82.38.280(1) states basically the same thing:

The tax levied in this chapter is in lieu of any excise, privilege, or occupational tax upon the business of manufacturing, selling, or distributing fuel, and no city, town, county, township or other subdivision or municipal corporation of the state may levy or collect any excise tax upon or measured by the sale, receipt, distribution, or use of fuel, except as provided in chapter 82.80 RCW and RCW 82.47.020.

(Concerning the statutes referred to as exceptions in the above statutes, RCW 82.20.010 authorizes a local option gas tax, but that can only be levied by the county and it applies countywide (at a rate equal to 10 percent of the state rate). RCW 82.47.020 authorizes cities located no more than 10 miles from an international border to levy an additional one cent per gallon gas tax with voter approval to mitigate the effects of tourism on their streets.)

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Can a sister city pay travel expenses for officials to visit?
Reviewed: March 2016

Our office has taken the position that a city is authorized to pay reasonable travel expenses for city officials to officially visit a sister city, under the city's sister city program. Since the city can itself pay for these expenses, the city may accept a gift that would be used for the payment of those expenses, just as it may accept any gift. The gift should be made to the city, not to the city officials chosen to make the trip; the city would then directly pay those travel expenses.

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Can you provide a link to the most current data on assessed valuation of Washington cities?
Reviewed: January 2016

MRSC's Tax and Population Data webpage provides current and recent historical information on locally assessed values and property tax levies for each city and county, as published each year by the state Department of Revenue (DOR).

You can also get more detailed information directly from DOR, including new construction assessed values, annexation assessed values, and state assessed property. See their data portal for Statistics and Reports, and in particular the Local Taxing District Levy Detail. DOR will now be providing more timely information and periodic updates to tables throughout the year, instead of just once a year.

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May the city impose the criminal justice tax under RCW 82.14.340 and RCW 82.14.450? When is the city required to have the vote to impose this tax? Is the vote city- or county-wide?
Reviewed: December 2015

Under RCW 82.14.450(2)(a), the city council has the authority to present to the voters a sales tax option of up to 0.1%, for criminal justice purposes, as long as the county has not imposed the full 0.3% it is authorized to impose under RCW 82.14.450(1). The maximum combined city and county tax rate is 0.3%. If a city tax is approved by the voters, 15% of the revenues is distributed to the county and the remaining 85% is distributed to the city.

The sales tax measure under RCW 82.14.450(2)(a) may be presented to city voters at either a primary or general election. The vote is city-wide.

Only counties may impose the criminal justice sales tax under RCW 82.14.340, though cities share in the revenues from that tax.

You can use the MRSC Local Ballot Measure Database to review criminal justice sales tax ballot measures that have passed and ballot language used.

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Looking for recommended requirements for petty cash handling and department self-audits.
Reviewed: August 2015

Internal controls, including those for petty cash funds are an integral part of any organization's financial and business policies and procedures. The use of petty cash funds should be limited by your organization.

The Association of Public Treasurers' Guide to Internal Controls section on petty cash funds states that internal controls for these funds should include the following:

  • The petty cash fund should be locked in a secure place.
  • Access to petty cash should be restricted to the custodian and the backup person; and disbursed by these two individuals as well.
  • Require original receipts in order to disburse petty cash and maintain the receipts in the petty cash fund box for reconciling.
  • The individual to be reimbursed should indicate on the original receipt or petty cash receipt the business purpose and the fund and the account to be charged.
  • The original receipt should be approved and signed by the department head.
  • The petty cash fund should not be used for personal expenses, personal loans, or cashing of personal checks.
  • The custodian of the petty cash fund is responsible for reconciling the petty cash fund account.
  • The department head should perform periodic, surprise counts of the petty cash fund.
  • Any shortage in the fund should be investigated, analyzed, and documented.

Additionally, the petty cash fund should be evaluated to determine if a procurement card may be of better use for the organization.

Departmental self-audits are done to improve internal control and are the responsibility of management. They should be done to evaluate whether policies and procedures are operating efficiently and also provide recommendations for improvement.

The MRSC webpage on Petty Cash Funds includes information on petty cash policies per the BARS Manual and includes code provisions.

The Washington State Auditor's Office Performance Center Internal Controls Checklist for Local Governments is a great departmental self-assessment in which you can use to evaluate areas in which new policies or improvements are needed.

Additionally, the Association of Public Treasurers' Guide to Internal Controls is a guidebook that can be purchased on the Association's website. This guidebook could be used to implement internal control functions agency-wide.

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Can lodging tax revenues be used to purchase fireworks for 4th of July activities?
Reviewed: July 2015

RCW 67.28.1816 allows lodging tax revenues to be spent for "tourist promotion," and RCW 67.28.080(6) defines that term to include "the operation of special events and festivals designed to attract tourists." A fireworks display for 4th of July activities can, in our opinion, qualify as part of the operation of a special event to attract tourists as well as local residents. The 4th of July event should, however, be intended to draw tourists to the city and be more than just a local celebration.

MRSC has a webpage on the lodging tax that you may find helpful.

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What is the difference between a contingency fund and a cumulative reserve fund?
Reviewed: March 2015

A contingency fund and a cumulative reserve fund are not the same and are often used to fund completely separate activities.

A contingency fund is a sub-fund of the general fund and it supports general fund activities.  RCW 35A.33.145 (for code cities) provides:

Every code city may create and maintain a contingency fund to provide moneys with which to meet any municipal expense, the necessity or extent of which could not have been foreseen or reasonably evaluated at the time of adopting the annual budget, or from which to provide moneys for those emergencies described in RCW 35A.33.080 and 35A.33.090. Such fund may be supported by a budget appropriation from any tax or other revenue source not restricted in use by law, or also may be supported by a transfer from other unexpended or decreased funds made available by ordinance as set forth in RCW 35A.33.120: PROVIDED, That the total amount accumulated in such fund at any time shall not exceed the equivalent of thirty-seven and one-half cents per thousand dollars of assessed valuation of property within the city at such time. Any moneys in the contingency fund at the end of the fiscal year shall not lapse except upon re-appropriation by the council to another fund in the adoption of a subsequent budget.  

The funds set aside in the contingency fund do not lapse at year end; however, these funds are "not restricted" and can be re-appropriated to another fund in a subsequent budget. It is important to note that the monies set aside in the contingency fund must be expended according to RCW 35A.33.080 (Emergency) or RCW 35A.33.090 (Other Emergencies), both of which require a supermajority vote. RCW 35A.33.090 requires that the public be allowed to be heard for or against the emergency ordinance.

Additionally, the following statute applies to withdrawals from this fund. No money can be withdrawn from the contingency fund except when authorized by a resolution or ordinance of the city council, adopted by majority vote of the entire council and stating the facts constituting the reason for the withdrawal. RCW 35A.33.146 states:

No money shall be withdrawn from the contingency fund except by transfer to the appropriate operating fund authorized by a resolution or ordinance of the council, adopted by a vote of the majority of the entire council, clearly stating the facts constituting the reason for the withdrawal or the emergency as the case may be, specifying the fund to which the withdrawn money shall be transferred.

Cumulative reserve funds are different. If the city used RCW 35.21.070 to establish the cumulative reserve fund for specific municipal purposes, once the fund has been established, the moneys in the fund may not be expended for any other purpose than those specified, unless authorized by a two-thirds majority vote of the council

Also, RCW 35.21.080 provides

An item for said cumulative reserve fund may be included in the city or town's annual budget or estimate of amounts required to meet public expense for the ensuing year and a tax levy made within the limits and as authorized by law for said item; and said item and levy may be repeated from year to year until, in the judgment of the legislative body of the city or town, the amount required for the specified purpose or purposes has been raised or accumulated. Any moneys in said fund at the end of the fiscal year shall not lapse nor shall the same be a surplus available or which may be used for any other purpose or purposes than those specified, except as herein provided.

RCW 35.21.080 affirms that the city "may" include an annual budget appropriation but is not required to, which allows the fund to build up reserves. The reference to "any moneys in said fund at the end of the fiscal year shall not lapse" refers to the accumulation of funds and not the issue of budget appropriations. 

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Must the city council approve a transfer between individual appropriations within one fund or can this be done administratively?
Reviewed: February 2015

Under state law, a transfer within the same fund can be accomplished administratively without council approval, unless your city has adopted specific regulations that limit the ability of the city administration to do this. RCW 35.33.121 provides in relevant part:

Transfers between individual appropriations within any one fund may be made during the current fiscal year by order of the city's or town's chief administrative officer subject to such regulations, if any, as may be imposed by the city or town legislative body. Notwithstanding the provisions of RCW 43.09.210 or of any statute to the contrary, transfers, as herein authorized, may be made within the same fund regardless of the various offices, departments or divisions of the city or town which may be affected.

For code cities, see RCW 35A.33.120.

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