Economic Development Authority and Funding Sources

Overview

Economic development is a key function of local governments in Washington State. It includes efforts to attract and support business, revitalize struggling areas, and create jobs. State law provides the legal framework for economic development activities, including the authority for cities and counties to establish programs, create special districts, and use different financing tools.

This page details the economic development statutes and a sampling of state funding resources relevant to local governments. 

General Authority

State law gives cities, counties, and other local governments the authority to engage in economic development activities. State statutes allow local governments to create programs and enter into contracts with nonprofits to promote job creation and business growth.

• RCW 35.21.703 – Provides cities authority to engage in economic development programs via contracts with nonprofit corporations; excludes for-profit corporations.
• RCW 36.01.085 – Provides counties authority to engage in economic development programs.
• RCW 36.70A.020(5) – Establishes economic development as a Growth Management Act planning goal to promote job opportunities, business growth, and equitable development across the state.

Limitations

Due to strict constitutional limitations, cities and counties in Washington State have very few avenues open for direct participation in private economic development projects. Washington is one of the more restrictive in the nation in regard to how public funds may be utilized to attract private investment, and there are potential legal issues regarding the loaning or gifting of public funds. See MRSC's Gift of Public Funds page for more information. 

Under the Washington State Constitution, Article VIII, Section 7, a city or county may not directly give or loan money to private businesses for economic development:

No county, city, town or other municipal corporation shall hereafter give any money, property, or loan its money, or credit to or in aid of any individual, association, company or corporation, except for the necessary support of the poor and infirm.

This constitutional provision has been interpreted in numerous cases in this state and generally has been interpreted very narrowly in regard to allowable uses of public funds to aid private businesses or corporations.

Court Decisions

The following cases illustrate how Washington courts have interpreted and enforced constitutional restrictions on the use of public funds for private economic development purposes.

• Carrera v. Olmstead (2017) – Discussed public use and takings in economic development projects under constitutional limits.
• Hogue v. Port of Seattle (1959) – Examined limits on port districts’ economic development authority.
• Washington Economic Development Finance Authority v. Grimm (1992) – Defined bond issuance limits for finance authorities.

State Administrative Authorities

Various agencies and organizations coordinate economic development programs in Washington and are important partners for local governments. These include the Department of Commerce, the Economic Development Finance Authority, regional planning agencies, public utility districts, ports, and tribes.

See MRSC’s page Planning for Economic Development for a more detailed discussion of regional economic development partnerships.

• ​​​​Ports (RCW 53.08.245, Ch. 53.08 RCW) – Port districts are authorized to engage in economic development programs, including workforce development, tourism promotion, and industrial development districts.
• Public Utility Districts (PUDs) (Ch. 54.16 RCW) – Public utility districts may participate in community revitalization financing, provide public improvements as defined under RCW 39.89.020, and construct and operate telecommunications facilities to support economic development activities.
• Regional Planning Agencies (RCW 35.63.070, RCW 43.330.050) – Regional planning commissions formed by counties, cities, and towns to coordinate economic development activities, administer regional development initiatives, and assist in planning processes. These agencies can receive federal grants and enter into agreements to support regional planning and economic development.
• Tribes (RCW 43.160.060) – As sovereign governments, tribes engage directly in economic development and operate business enterprises. Federally recognized tribes also may receive direct loans and grants from the state for public facilities that support economic development and infrastructure projects.
• WA State Department of Commerce: Economic Development – Coordinates and administers statewide economic development programs and provides assistance for local government projects.
• WA State Economic Development Finance Authority (WEDFA) – Issues bonds and provides financing tools for economic development projects.

Community and Economic Development Zones

State law allows local governments to designate special areas in economically distressed locations to encourage revitalization through tax incentives. These areas offer sales and use tax relief, tax exemptions on certain business activities, and tax credits for contributions supporting downtown and neighborhood business renewal.

• Sales and Use Tax for Public Facilities in Rural Counties (RCW 82.14.370) – Rural counties may use revenues to finance public facilities and economic development personnel.
• Targeted Urban Areas (Chapter 84.25 RCW) – Provides a 10-year property tax exemption for new industrial/manufacturing facilities that create at least 25 jobs in industrial-zoned lands in GMA-planning cities. See Richland Resolution No. 2023-10 designating portions of the Horn Rapids Triangle as a TUA for an industrial and manufacturing tax exemption.
• WA Department of Commerce: 
  • Community Reinvestment Program (RCW 43.79.567) – Community-led program to support neighborhoods most affected by past drug policies. Provides economic opportunities, legal help, violence prevention programs, and support for people reentering society.
  • Main Street Tax Credit Incentive Program (Ch. 82.73 RCW) – Issued by the Washington Trust for Historic Preservation, this program provides B&O or public utility tax credits for contributions to downtown or neighborhood commercial district revitalization organizations.

Local Improvement and Special Districts

State statutes authorize special districts to finance community facilities, infrastructure, and public improvements. Property assessments within these districts fund improvements including roads, utilities, and sidewalks. Cities can create districts, track sales tax revenue increases, and redirect those funds toward renewal efforts.

• Community Facilities District (Ch. 36.145 RCW) – Financing for community facilities and local, subregional, and regional infrastructure. As defined in RCW 36.45.100, community facilities are physical infrastructure and public spaces that serve the public, like roads, utilities, parks, and public buildings.
• Community Renewal Area (Ch. 35.81 RCW) – Updates the Urban Renewal Act (for more information on this program, see Seattle's Evolution of Urban Renewal page); supports revitalization in blighted areas, poverty reduction, and housing replacement. Allows limited tax increment financing and creation of local improvement districts. An example is Shoreline Place Community Renewal Area.
• Creative Districts (RCW 43.46.100) – The Washington State Arts Commission (ArtsWA) offers resources, a startup grant, capital project funding to communities that receive Certified Creative Districts authorization; this certification can promote creative jobs, tourism, housing, and livability. For examples of creative districts, see this list from ArtsWa.No
• Downtown and Neighborhood Commercial Districts (Ch. 35.100 RCW) – Cities with populations over 100,000 may designate districts, track incremental sales tax revenue, and reinvest it into revitalization projects.
• Local Economic Development Districts Tax Incentives (Ch. 82.84 RCW) – Provides tax incentives for businesses within designated local development districts.
• Parking and Business Improvement Areas (PBIA) (Ch. 35.87A RCW) – Cities use PBIAs for parking, maintenance, security, marketing, events, pedestrian improvements, aesthetics, and administration. For more information and examples, see MRSC’s page Parking and Business Improvement Areas.
• Special Sales and Use Tax for Infrastructure in Certain Districts (RCW 82.14.475) – Allows local governments to impose a special sales/use tax (up to 0.2%) to fund infrastructure projects within designated districts.

Court Decisions

The following cases provide an overview of key legal precedents shaping special district authority and assessment practices in Washington. 

• Bellevue Plaza v. Bellevue (1993) – Confirmed that cities may lawfully establish Parking and Business Improvement Areas (PBIA) and levy assessments on businesses, reinforcing the framework established in City of Seattle v. Rogers Clothing for Men, Inc. for funding local economic development.
• City of Seattle v. Rogers Clothing for Men, Inc. (1990) – Upheld the constitutionality of Parking and Business Improvement Areas (PBIA), confirming that special assessments on businesses are valid when they fund services that provide special benefits to the properties within the district.

Tax Increment Financing (TIF) and Renewal Areas

State law allows local governments to use projected property tax revenue increases from specific areas to finance infrastructure and economic development. Property tax relief is available for rehabilitating historic properties and for businesses that contribute to area renewal.

• Community Revitalization Financing (Ch. 39.89 RCW) – Authorizes counties, cities, towns, and port districts to create tax increment areas for community revitalization.
• Revitalization Area Tax Credit (RCW 39.89.050) – Provides property tax exemptions for businesses contributing to area revitalization by building or renovating infrastructure.
• Local Revitalization Financing (LRF) (Ch. 39.104 RCW) – Local governments may use increased sales, use, and property tax revenues within designated areas to finance improvements.
• Tax Incentive for Historic Preservation (Ch. 84.26 RCW) – Offers property tax exemptions for the rehabilitation and preservation of properties designated on a historic register. These may or may not coincide with any other designated renewal areas or other districts.
• Tax Increment Financing (TIF) (Ch. 39.114 RCW) – Allows local governments to designate specific areas where future property tax revenue growth is captured and redirected to fund current infrastructure investments, encouraging economic development without raising tax rates. For example, Federal Way created a tax increment area to fund parking, transportation, and community space improvements to revitalize its downtown core.

Industrial and Redevelopment Financing

State statutes authorize cities to create public corporations that issue revenue bonds to finance industrial development facilities. Local governments can establish public development authorities to improve federal grant administration, increase government efficiency, or improve urban living conditions.

• Industrial Development Revenue Bonds (Ch. 39.84 RCW) – Municipalities may create public corporations to finance industrial development facilities via revenue bonds which are paid back from revenues generated from the industrial development facilities.
• Public Corporations / Public Development Authorities (PDAs) (RCW 35.21.730-.757) – Local governments may establish PDAs to improve administration of federal grants/programs, governmental efficiency, or urban living conditions. For more information, see MRSC’s page Public Development Authorities.

Public Infrastructure Financing and Special Districts

State law authorizes various programs and special districts to finance and operate public infrastructure that supports economic development. State-administered programs through the Department of Commerce provide loans and grants for infrastructure projects. Special districts may also be created to fund and operate facilities for sports, entertainment, conventions, regional centers, transportation improvements, parks, recreational facilities, telecommunications, and tourism promotion.

Funding Bodies

All the funding bodies listed below are housed in the Washington State Department of Commerce. 

• Community Capital Facilities – Provides grants to nonprofit organizations and local governments for acquisition, construction, and renovation of community facilities including behavioral health facilities, youth recreation facilities, libraries, performing arts centers, and community service centers.
• Community Economic Revitalization Board (CERB) (RCW 43.160.030) – Provides low-interest loans and grants to local governments and federally recognized tribes for public infrastructure that supports private business growth and expansion. These projects may include water systems, wastewater, stormwater, public buildings, telecommunications, and port facilities.
• Internet for All Initiative – Coordinates broadband infrastructure development and digital equity programs through the Broadband Equity, Access, and Deployment (BEAD) program and Digital Equity programs.
• Public Works Board (Ch. 43.155 RCW) – Provides low-interest loans, grants, and financing guarantees to local governments for public works projects including roads, bridges, water systems, wastewater, stormwater, solid waste, recycling, and broadband infrastructure.

Districts/Areas

• Local Improvement Districts (LIDs) (Chapters 35.43–35.56 RCW) – Local districts levy assessments on properties to fund public improvements (roads, utilities, sidewalks). For more information, see MRSC’s page Local Improvement Districts (LIDs).
  • Court Case: SHG Garage SPE et al. v. City of Seattle (2024) – Property owners challenged Local Improvement District (LID) assessments for downtown Seattle projects, claiming the methodology was flawed. The Court of Appeals upheld the LID, ruling that courts defer to local governments unless assessments are “fundamentally wrong.”
• Metropolitan Park Districts (MPDs) (Ch. 35.61 RCW) – Districts that acquire, maintain, and improve parks, parkways, and recreational facilities, funded by permanent property taxes with simple majority voter approval. For more information, see MRSC’s page Metropolitan Park Districts.
• Park and Recreation Districts (Ch. 36.69 RCW) – Districts that support parks and recreational facilities, funded by special assessments or taxes.
• Port Districts (RCW 53.08.370 and RCW 53.08.380) – Authorizes rural port districts to construct, finance, and provide telecommunications facilities and wholesale telecommunications services to support economic development and address inadequate access to telecommunications in rural areas.
• Public Facilities Districts (PFDs) (Ch. 36.100 RCW for counties and Ch. 35.57 RCW for cities/towns) – PFDs may acquire, construct, and operate sports, entertainment, convention, or regional centers and related parking facilities. For more information and examples of PFDs, see MRSC’s page Public Facilities Districts (PFDs).
• Public Utility Districts (RCW 54.16.330 and RCW 54.16.340) – Authorizes public utility districts to construct, finance, and operate telecommunications facilities for internal needs and to provide wholesale telecommunications services within the district and by contract with other public utility districts.
• Regional Transportation Investment Districts (RTIDs) (Ch. 36.120 RCW) – Multi-county districts that may be formed by counties with populations over 500,000 to fund large-scale, regional transportation projects of significance, including highways, bridges, and multimodal improvements, through voter-approved taxes.
• Tourism Promotion Areas (TPA) (Ch. 35.101 RCW) – Areas designated to promote tourism, with funding for marketing and related activities. See, for instance, the Snohomish County TPA which was established to promote overnight stays in the county.
• Transportation Benefit Districts (TBDs) (Ch. 36.73 RCW) – Quasi-municipal corporations that cities (see also RCW 35.21.225) and counties may establish to fund local transportation improvements, including roads, transit, sidewalks, and transportation demand management, primarily through sales taxes and vehicle license fees. For more information, see MRSC's page Transportation Benefit Districts (TBDs).
• Water-Sewer Districts (Title 57 RCW) – Districts that provide water supply, wastewater collection, treatment, and disposal services within a defined area, governed by elected boards of commissioners.

For more information on special purpose district types and creation, see MRSC’s page What Is a Special Purpose District?

Bonds and Financing Authorities

State law authorizes various bond types to finance economic development and infrastructure projects. Some bonds are repaid from project-generated income, while others rely on government taxing authority. State programs offer low-interest loans for infrastructure projects.

• General Obligation Bonds (Ch. 39.36 RCW) – Bonds backed by the full faith and credit of the issuing government.
• Housing Authorities (Ch. 35.82 RCW) – Public bodies corporate created by cities and counties to provide affordable housing for persons of low income and senior citizens, with authority to issue bonds backed by project revenues, federal grants, and other sources to finance housing projects.
• Port District Financing (Ch. 53.08 RCW) – Port districts may issue bonds or use other financing tools to support trade-related development.
• Private Activity Bonds (Ch. 39.86 RCW) – Tax-exempt bonds issued for projects that provide public benefits but are largely owned or operated by private entities, subject to federal volume limitations and state allocation.
• Public Facilities District Bonds (Ch. 35.57 RCW) – Bonds issued to finance public facilities like sports complexes and convention centers.
• Revenue Bonds (Ch. 39.46 RCW) – Bonds backed by revenues generated from specific projects (e.g., tolls, utilities).
• State Building Construction Account (Ch. 43.83 RCW) – Provides state funding to construct public buildings and infrastructure.

Recommended Resources

• MRSC
  • Revenue Guide for Cities and Towns
  • Revenue Guide for Counties
• WA Department of Revenue Tax Incentive Programs – Information on state tax incentives for various types of businesses and industries.