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Washington Statutes Relating to Financing Economic Development

This page provides an overview of statutes that authorize local government funding tools for economic development purposes and other statutes that relate to economic development projects, including links to resources on the program.

Limitations on Local Government Economic Development Financing

As financial partners in economic development, cities and counties can invest public funds in a limited, but meaningful manner to promote industrial and commercial growth. This investment may include infrastructure improvements and/or increasing the number of industrial and commercial properties. Local government investment in the state of Washington is restricted by the state constitution under what is known as the lending of credit clause. [Excerpted from Yakima County Comprehensive Plan, "Role of Government in Economic Development."] A number of economic development councils have listed economic development incentives on their websites for new and expanding businesses that illustrate some of the programs authorized by the statutes.

Recommended Resources

General Authority

  • RCW 35.21.703 - Provides general authority for cities to engage in economic development programs. This statute gives authority for cities to contract with private nonprofit corporations for the purpose of engaging in economic development programs, assuming the underlying transaction is constitutional. The statute precludes cities from entering into contracts with for-profit corporations.
  • RCW 36.01.085 - Provides general authority for counties to engage in economic development programs.

Program Descriptions

Authority for Specific Programs

  • B&O Tax Credit for New Employment for International Services Activities in Eligible Areas (RCW 82.04.44525) - Provides tax exemptions for businesses in community empowerment zones that provide selected international services
  • Community Empowerment Zones and Rural Enterprise Zones (RCW 43.31C.020)
  • Community Empowerment Zones Tax Deferral Program (Ch. 82.82 RCW)
  • The Community Redevelopment Financing Act - Ch. 39.88 RCW; ruled unconstitutional by the Washington State Supreme Court in Leonard v. Spokane, 127 Wn.2d 195 (1995).
  • Community Facilities District - Ch. 36.145 RCW provides financing for community facilities and local, subregional, and regional infrastructure. See Legislature Enacts Community Facilities District Legislation - A Very Modest Step, by Hugh Spitzer, Foster Pepper PLLC, Budget Suggestions for 2011, MRSC Information Bulletin No. 536, 2010
  • Community Renewal Area - Ch. 35.81 RCW - Revises and updates the Urban Renewal Act to improve the ability of cities, towns, and counties (municipalities) to implement economic development projects in blighted areas. A community renewal plan may include activities designed to reduce poverty and unemployment within the community renewal area. A community renewal plan may also address the replacement of housing that is lost as a result of community renewal activities. The plan must be consistent with the municipality’s plans adopted under the state’s Growth Management Act, or any other applicable planning statutes. The law provides a limited form of tax increment financing. It allows a municipality to pledge any excess local excise taxes generated by business activity within the boundaries of the community renewal area to pay for bonds issued to finance public improvements of that area. A community renewal agency may establish a local improvement district within a community renewal area, and levy special assessments used to pay off bonds issued to finance the local improvements.
  • Community Revitalization Financing - Ch. 39.89 RCW - Authorizes counties, cities, towns, and port districts to create tax increment areas within their boundaries where community revitalization projects and programs are financed by diverting a portion of the regular property taxes imposed by local governments within the tax increment area.
  • Downtown and Neighborhood Commercial Districts - Ch. 35.100 RCW - Authorizes cities over 100,000 population to designate certain areas as "downtown" or "neighborhood commercial districts" to undertake certain kinds of revitalization activities, measure the increase in its local sales tax revenue in the areas, and spend that increase on revitalization costs, debt service on bonds issued for projects in these districts, etc.
  • Local Infrastructure Financing Tool Program (LIFT) - chapter 39.102 RCW; only available to state-approved applicants prior to 2009
  • Main Street Tax Credit Incentive Program - Ch. 82.73 RCW - Creates a Washington Main Street program to provide technical and financial assistance for the revitalization of downtown and neighborhood commercial districts. The program is funded by a business and occupation (B&O) tax credit or public utility tax (PUT) credit for private contributions given to eligible downtown or neighborhood commercial district revitalization organizations or to the Department of Community, Trade and Economic Development’s (now Department of Commerce) Main Street Trust Fund for downtown and neighborhood commercial district revitalization efforts. Eligible programs are in cities and towns with a population of less than 190,000.
  • Industrial Redevelopment Bonds - Ch. 39.84 RCW - Authorizes municipal corporations (including cities and counties) to pass ordinances creating public corporations "for the purpose of facilitating economic development and employment opportunities in the state of Washington through the financing of the project costs of industrial development facilities" (RCW 39.84.030). The public corporations so formed are separate from the municipality that created them, and municipalities cannot give or lend money to these public corporations (RCW 39.84.060). The powers of these public corporations are listed in RCW 39.84.080, and include the power to issue revenue bonds to construct and maintain one or more industrial development facilities. The definition of "industrial development facilities" is quite broad, and even includes public sports facilities and parking facilities. See RCW 39.84.020(6) for the complete definition. Note the following: "No public corporation created under this chapter may operate any industrial development facility as a business other than as lessor, seller, or lender." RCW 39.84.070.
  • Local Revitalization Financing (LRF) - Ch. 39.104 RCW - Participating local governments, such as cities, counties, and port districts, may create “ revitalization areas” and may use certain tax revenues which increase within the area to finance local public improvements. The following sources of revenues are used for the payment of bonds which are issued to finance improvements: increased local sales/use tax revenues and property tax revenues generated from within the revitalization area; additional funds from other local public sources; and a local sales/use tax that is credited against the state tax. On final passage, the bill was amended to include seven pilot projects, and established a first come, first serve project award process that will take effect in the next biennium. Variations of this legislation have been proposed for the past decade; this was a major policy advancement for our cities, other local governments, and for the private sector that will look to partner with local governments. Excerpted from AWC 2009 Legislative Bulletin.
  • Parking and Business Improvement Areas (PBIA) - Ch. 35.87A RCW - Cities use PBIAs for a variety of purposes, including parking improvements, security and maintenance of common areas, business retention and recruitment, marketing programs, special events and promotion, programs to improve the pedestrian environment, projects to enhance aesthetic appearance, and administrative costs. In some cities, the establishment of a PBIA has been quite controversial. Questions have been raised concerning the constitutionality of chapter 35.87A RCW, and two state supreme court cases have ruled on its validity. See City of Seattle v. Rogers Clothing for Men, Inc., 114 Wn.2d 213 (1990), and Bellevue Plaza v. Bellevue, 121 Wn.2d 397 (1993). In both cases, the court affirmed the authority of cities to utilize the provisions of Ch. 35.87A RCW to establish parking and business improvement areas. See MRSC webpage on Parking and Business Improvement Areas.
  • Public Corporations - RCW 35.21.730-.757 - Under RCW 35.21.730, et seq., general purpose local government may establish "public corporations, commissions or authorities." These special purpose quasi-municipal corporations have become known as "PDA's." The statutory purpose for the creation of a public corporation under this statute is to improve the administration of authorized federal grants or programs, to improve governmental efficiency and services, or to improve the general living conditions in the urban areas of the state. The provision was initially enacted to authorize counties, cities, and towns to participate in and implement federally-assisted programs, including revenue sharing. See MRSC webpage on Public Corporations/Public Development Authorities (PDA).
  • Public Facilities Districts - Public facilities districts (PFDs) are municipal corporations, have independent taxing authority, and are taxing districts under the state constitution. There are two enabling statutes, Ch. 36.100 RCW for counties and Ch. 35.57 RCW for cities, towns, and contiguous group of cities and towns. Public facilities districts may acquire, construct, and operate sports facilities, entertainment facilities, convention facilities or regional centers and related parking facilities. For more information, see MRSC's page on Public Facilities Districts.
  • Sales and Use Tax for Public Facilities in Rural Counties - RCW 82.14.370 - Moneys collected under this section shall only be used to finance public facilities serving economic development purposes in rural counties and finance personnel in economic development offices.
  • Stadium, Convention, Arts and Tourism Facilities - Ch. 67.28 RCW - Authorizes municipalities to impose taxes on lodging facilities under this chapter and acquire and operate tourism-related facilities. For more information, see MRSC's page on Lodging Tax (Hotel-Motel Tax).
  • Provision of Telecommunications Services by Public Utility Districts and Rural Port Districts - Public Utility Districts RCW 54.16.330 and RCW 54.16.340; Port Districts RCW 53.08.370 and RCW 53.08.380
  • Tax Increment Financing - Chapter 39.114 RCW applies to cities, counties, and port districts; for more information see our page Tax Increment Financing.
  • Tourist Promotion - RCW 35.21.700 - Provides power to cities and towns to expend moneys and conduct tourist promotion of resources and facilities.
  • Tourist Promotion Area - Ch. 35.101 RCW - A county with a population of more than 40,000, and the cities in it, may form a "tourist promotion area." (In King County, legislative authority for purposes of establishing a tourism promotion area must be comprised of two or more jurisdictions acting under an interlocal agreement.) Within that area, they may assess a charge of up to two dollars  per night on the sale of lodging. The revenue must be used for "tourism promotion," which is defined as "activities and expenditures designed to increase tourism and convention business, including but not limited to advertising, publicizing, or otherwise distributing information for the purpose of attracting and welcoming tourists and operating tourism destination marketing organizations." Formation of an area is initiated by a petition to the legislative body that must have the signatures of people in the lodging industry that would be paying at least 60 percent of the charges in the area. Up to six different classifications are allowed, each with a different charge, but no charge can be more than two dollars per night. Unless a county and city sign an interlocal agreement to do otherwise, a county can form an area only in an unincorporated area, and a city can do so only within the boundaries of the city. See MRSC webpage on Tourism Promotion Areas.

Other Statutes with Economic Development Applications

  • Contracts with Community Service Organizations - RCW 35.21.278 - Authorizes county, city, town, school district, metropolitan park district and recreation district, or park and recreation service area to contract with community service organizations for public improvements.
  • Essential Rail Assistance Account - RCW 47.76.250
  • Local Improvement District - Ch. 35.43 RCW - Permits formation of local improvement districts.
  • Interlocal Cooperation Act - Ch. 39.34 RCW - Permits local governments to cooperate with other local governments to provide public facilities and services.
  • Joint Municipal Utility Services Act - Ch. 39.106 RCW - In 2011 the Legislature passed the act to facilitate joint municipal utility services. See Expanded Authority for Joint Utility Operations (ESHB 1332, Laws of 2011, ch. 258) in Budget Suggestions for 2012, MRSC Information Bulletin 539, August 2011. See Interlocal Cooperation
  • Local Transportation Act - Ch. 39.92 RCW - Authorizes local governments to develop and adopt programs for the purpose of jointly funding, from public and private sources, transportation improvements necessitated in whole or in part by economic development and growth within their respective jurisdictions. Local governments operating under this chapter are authorized to impose transportation impact fees on development to pay for "reasonable and necessary off-site transportation improvements to solve the cumulative impacts of planned growth and development in the plan area." RCW 39.92.030(4). The Act specifies various requirements for transportation programs. The authorized programs must be based on an adopted transportation plan and the fee must be calculated from a specified list of capital projects. Traffic impact fees cannot exceed an amount that the local government can demonstrate is reasonably necessary as a direct result of the proposed development.
  • Transportation Benefit Districts (TBD) - A county or a city may establish a transportation benefit district to fund transportation improvements that are consistent with any existing state, regional, and local transportation plan. Port and transit districts may participate in the establishment of a district, but may not initiate one. For more information, see our page Transportation Benefit Districts.

Last Modified: December 29, 2022