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Finance


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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What is a county’s authority to require and issue business licenses in unincorporated areas?  
Reviewed: October 2022

As we note in MRSC’s Revenue Guide for Washington Counties (see footnote 56 in p.173), counties do not have the same authority as cities to require general business licenses, and there is no single county statute addressing business licensing. However, counties do have authority to require licenses and charge fees for certain specific businesses or activities within unincorporated areas – for example, gambling (RCW 9.46.295) (RCW 9.46.110), massage therapists (RCW 36.32.122), retail liquor (RCW 67.14.040), public dances and other public recreational or entertainment activities (RCW 67.12.021), and pool halls, billiard halls, and bowling alleys (RCW 67.12.110).

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What options have cities used to financially support downtown façade and building improvements?
Reviewed: May 2022

Below are several examples of programs in Washington cities. These examples are a mix of grant and loan programs, but all appear to be funded with non-general fund monies, such as Community Development Block Grant (CDBG) funds.

Here are some additional resources that may be helpful:

  • Main Street Program – Washington’s Main Street Program (MSP) is a state iteration of a nationwide program to revitalize downtown districts. Some examples of cities that participate are Kent, Bellingham, Cle Elum, Puyallup, and Yakima. This program offers funding, networking opportunities, training, and other resources to cities who have an independent 501(c)(3) or 501(c)(6) nonprofit organization dedicated solely to downtown revitalization. Nationally, there are a vast number of cities that participate in this program.
  • USDA Information Center: Downtown Revitalization – Links to a variety of case studies, articles and guides, funding sources, relevant organizations, etc. Some of the topics covered on this site include Business Improvement Districts, community planning, downtown revitalization, and regional rural development.

MRSC staff have noted that an obstacle to building façade improvement loan programs from cities is the state constitutional prohibition on the loaning or gifting of public funds in Article VIII, Section 7 of the State Constitution. Programs that have been successfully implemented appear to have been funded by passing through money from other sources such as the CDBG program or the Economic Development Administration.

For more information, here are links to MRSC’s topic pages Gift of Public Funds and Economic Development in Washington State: An Introduction.

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We are looking for guidance on hosting city-sponsored summer events, such as parades.
Reviewed: May 2022

For general information on regulation of special events, including parades, see our Special Events Permits webpage. MRSC also recently published a blog article: A How-To Guide to Sponsoring Summer Celebrations. And here are a couple of examples of city parade regulations:

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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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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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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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Is it ok to sponsor a bingo game as an employee appreciation event?
Reviewed: May 2019

We think the bingo event as proposed is fine. First, we don’t think this falls within “gambling” as contemplated in state law. The definition of “gambling” at RCW 9.46.0237 states, in relevant part (emphasis added):

"Gambling," as used in this chapter, means staking or risking something of value upon the outcome of a contest of chance or a future contingent event not under the person's control or influence, upon an agreement or understanding that the person or someone else will receive something of value in the event of a certain outcome.

Here, you do not intend to ask the employees to pay money or some other type of consideration to participate in the bingo game. Even if the city were collecting money for the opportunity to play bingo for prizes, cities are allowed to conduct bingo, raffles, and amusement games within the limitations set forth at RCW 9.46.0321. Note that although that section says it applies to “bona fide charitable or bona fide nonprofit organizations,” cities are considered to be bona fide nonprofit organizations under the state gambling laws. Per RCW 9.46.0209(3), the definition of a “bona fide charitable or nonprofit organization” includes:

[A] county, city, or town, provided that all revenue less prizes and expenses from raffles conducted by the county, city, or town must be used for community activities or tourism promotion activities

One additional thing to keep in mind is gifting of public funds. While this employee appreciation event is likely fine, any time you are providing gifts, prizes, food, or other items to employees outside the normal scope of employment, there is risk of running afoul of the constitutional prohibition on the gift of public funds. If the city has a policy that includes employee appreciation events, this could be considered compensation or a benefit of employment, which is permissible. Here is an old but still useful memo regarding Eating and Drinking at Public Expense that outlines some things to think about with regard to employee events/gifting of public funds.

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Our city would like to start a fund for façade revitalization grants that businesses could apply for. What restrictions should we be aware of? Are there any examples we could follow?
Reviewed: May 2019

In response to your information request about business façade and building improvement funds, we have found several programs from other cities in Washington. These examples are a mix of grant and loan programs, but all appear to be funded with non-General Fund monies, such as CDBG funds (which is presumably how they avoid the “Gift of Public Funds” issue). Here are the example programs:

  • Chehalis Community Renaissance Team (CCRT) Façade Program – Grants provide a 50 percent match, up to $2,500 per business or property, for approved improvement costs; administered by CCRT, which is primarily a privately funded organization.
  • Port Angeles Façade and Sign Improvement Program – Up to $10K for façade improvement and/or $1K for signage improvements, using CDBG funds.
  • Renton Façade Improvement Program – Loan program with a minimum loan of $10K, using CDBG funds.
  • Selah Downtown Association (SDA) Business Façade Improvement Grant Program – Grant of up to $10K (with a 50% match required), which is administered by the SDA, a 501(c)(3) non-profit organization.
  • Downtown Association of Yakima (DAY) Façade Improvement Grant Program - Grant of up to $10K (with a 50% match required) for both business owners and commercial building owners; administered by the DAY.

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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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