Economic Development Statutes

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

• Public Development Authorities, MRSC
• Giving for the City, Constitutional Limits on Municipal Economic Development Programs (2012), by Steve DiJulio and Mark Greenough, Foster Pepper, CityVision
• Land Assembly and Financing for Community Renewal Projects: A Handbook (2002) by Hugh Spitzer, Foster, Pepper, Shefelman

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

• Department of Revenue Tax Incentive Programs – Information on state tax incentives for various types of businesses

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)
• 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 (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) – Ch. 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," which have become known as public development authorities (PDAs), to improve the administration of authorized federal grants or programs, improve governmental efficiency and services, or improve the general living conditions in the urban areas of the state. For more information, see our page on Public Corporations/Public Development Authorities (PDA).
• Public Facilities Districts – Public facilities districts (PFDs) may acquire, construct, and operate sports facilities, entertainment facilities, convention facilities or regional centers and related parking facilities. There are two enabling statutes, Ch. 36.100 RCW for counties and Ch. 35.57 RCW for cities and towns. For more information, see our page on Public Facilities Districts.
• Sales and Use Tax for Public Facilities in Rural Counties – RCW 82.14.370 - Rural counties may use these revenues to finance public facilities serving economic development purposes as well as personnel in economic development offices.
• 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.

Tourism Promotion

For information on tourism promotion and statutes, see our page Tourism and Local Governments.

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. For more information, see our page on Competitive Bidding Exemptions.
• 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 - Facilitates joint municipal utility services.
• 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." However, note that this authority is separate from impact fees under the Growth Management Act, which is much more widely used.
• Transportation Benefit Districts (TBD) – Cities, towns, and counties may establish a transportation benefit district to fund transportation improvements that are consistent with any existing state, regional, and local transportation plan. For more information, see our page Transportation Benefit Districts.