Tax Increment Financing (TIF)
This page provides an overview of tax increment financing (TIF) for cities, counties, and port districts in Washington State, including authorized public improvement costs, the process for creating a tax increment area, limitations, and examples of how the property tax calculations work.
This page addresses tax increment financing under chapter 39.114 RCW. Previously, the state legislature had created several other, more limited TIF-like programs including Community Revitalization Financing (chapter 39.89 RCW), Local Infrastructure Financing Tool Program ("LIFT," chapter 39.102 RCW), and Local Revitalization Financing (chapter 39.104 RCW). These programs are not discussed on this page.
Tax increment financing (TIF) is a financing tool that local governments in Washington State – defined as cities, towns, counties, port districts, or any combination thereof – can use to fund public infrastructure in targeted areas to encourage private development and investment (chapter 39.114 RCW).
A local government wishing to utilize TIF will designate an "increment area” surrounding the site of the public improvements. The property tax portion of increases in assessed value of properties within the increment area is allocated towards paying for the public improvement costs.
Regular property tax levies are generally limited to an annual maximum growth rate of one percent plus new construction (see RCW 84.55.005-.0101).
With TIF, properties within an increment area are assessed property tax on the increase in assessed value (the "increment value") of the property (minus new construction and other "add-ons" such as changes in state-assessed utility value). This increment value is taxed at the levy rates for all taxing districts (with limited exceptions) in the increment area, referred to as the "tax allocation rate." This portion of the property tax is received by the local government which created the increment area to pay for the public improvements.
The increment area takes effect on June 1, but the tax allocation revenues will not be collected until the following calendar year. (In Washington's property tax system, a property's value is assessed one year – the "assessment year" – but the taxes based on that assessment are not collected until the following year – the "tax year.")
The tax allocation rate includes all "regular property taxes" as defined in RCW 39.114.010(8) and RCW 84.04.140, including those that are subject to the $5.90 aggregate limitation in RCW 84.52.043 and/or the constitutional 1% aggregate limit codified at RCW 84.52.050, with just a few exceptions. The only property tax levies that are excluded from TIF are:
- The state school levy;
- Regular property taxes levied by port districts or public utility districts to the extent necessary to repay general obligation bonds; and
- Excess levies, including school district excess levies, excess operations and maintenance levies for any taxing district, and any excess levies for the repayment of general obligation bonds.
For more details on the property tax calculations, see the examples at the bottom of this page.
- TIF revenues are not subject to the 101% levy lid limit and may increase more than 1% in any given year.
- Voted regular levies such as a levy lid lift (RCW 84.55.050), emergency medical services levy (RCW 84.52.069), or affordable housing levy (RCW 84.52.105) are subject to the limits in RCW 84.52.043 and, as a result, are included in the calculation of the tax allocation rate.
The tax allocation revenues may be used to pay for a wide variety of “public improvement costs,” as defined in RCW 39.114.010(6) and (7). The TIF ordinance must identify the specific public improvements to be financed, as well as whether the local government intends to issue bonds or other obligations payable in whole or in part from the TIF revenues.
The local government must make a finding that:
- The proposed public improvements are expected to encourage private development and increase assessed valuations within the increment area;
- The private development would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future without the proposed public improvements;
- The expected assessed value within the increment area without the proposed public improvements would be less than the expected assessed value with the public improvements; and
- The anticipated private development within the increment area is allowed under the permitting jurisdiction's zoning and development standards.
The public improvements may be located inside or outside the tax increment area, but they must be necessary for the ensuing private development within the increment area. The public improvements may be undertaken and coordinated with other programs undertaken by the local government or other taxing districts, and they may be funded in part from revenue sources other than tax allocation revenues.
Public improvement costs also include various administrative costs, including costs that may have been incurred before the adoption of the TIF ordinance, as well as expenses incurred by the county assessor and county treasurer (and reimbursed by the local government) for revaluing the properties and apportioning the property taxes.
After the ordinance is adopted, the local government may not add any additional public improvements to the project unless it is necessary to assure the originally approved improvements can be constructed or operated.
When creating increment areas, local governments are limited to the following:
- The local government can have up to two active increment areas which cannot overlap.
- The assessed value of an increment area cannot exceed $200 million or 20% of the sponsoring jurisdiction's total assessed value, whichever is less, when the ordinance is passed. If the jurisdiction creates two increment areas, the total combined assessed valuation cannot exceed $200 million or 20% of the jurisdiction's assessed value, whichever is less, when the ordinances are passed.
- The sunset date for the increment area is up to a maximum of 25 years from the first year the allocation revenues are collected.
If the TIF revenues exceed the amount necessary to finance the public improvements, the excess revenues must be allocated back to the other taxing districts within the increment area in proportion to their regular property tax rates for collection that year. The apportionment of tax allocation revenues must cease when the city, county, or port district certifies to the county assessor in writing that the revenues are no longer necessary or obligated to pay public improvement costs (not to exceed the original sunset date).
To create a tax increment area and begin collecting revenues, a local government must follow the procedures set out by state law.
Prepare a Project Analysis
When considering whether to create an increment area, the local government must prepare a project analysis (RCW 39.114.020)(2) that includes the following elements at a minimum:
- Objectives of the local government for the increment area
- Property that the local government may wish to acquire within the increment area
- The duration of the increment area (maximum of 25 years)
- Identification of the parcels to be included in the increment area
- A description of the expected private development within the increment area, including comparisons with and without the proposed public improvements
- A description of the public improvements, the costs of the improvements, and the amount of financing instruments expected to be issued and paid with the tax allocation revenues
- The assessed values of the properties in the increment area and an estimate of the increment value and expected revenues to be generated from the tax allocation
- An estimate of the job creation and private development reasonably expected to occur from the public improvements
- An assessment of any impacts and any necessary mitigation needed to address:
- Affordable and low-income housing
- The local business community
- The local school districts and fire service
If a private developer agrees to participate in creating the increment area, the local government may charge the developer a fee sufficient to cover the cost of the project analysis and establishing the increment area, including staff time, professionals and consultants, and other administrative costs.
If the project analysis indicates that an increment area will impact at least 20% of the assessed value in a fire protection district or regional fire protection service authority, or the fire service agency’s annual report demonstrates an increase in the level of service directly related to the increment area, the local government must negotiate a mitigation plan with the fire service agency to address level of service issues in the increment area.
A local government may also enter into an interlocal agreement with another local government for the administration or other activities related to the tax increment area.
Hold at Least Two Public Briefings
Local governments wishing to create increment areas must hold at least two public briefings for the community that are solely on the tax increment project (RCW 39.114.020(7)). The public briefings must include the following elements:
- A description of the increment area
- The public improvements proposed to be financed with tax allocation revenues
- A detailed estimate of tax revenues for the participating local governments and taxing districts, including amounts allocated to the public improvements
The local government must publish an announcement two weeks prior to each public briefing in a legal newspaper of general circulation as well as post the announcement on the local government’s website and social media accounts.
Submit Copy of Project Analysis to State Treasurer
Local governments must submit a copy of the project analysis for the proposed increment area to the State Treasurer’s Office for its review. Within 90 days of receiving the project analysis, the State Treasurer’s Office must submit its review of the project analysis to the local government. The review should include any revisions or enhancements deemed appropriate based on the requirements of the law.
The local government must consider any comments that the State Treasurer’s Office provides.
Adopt Ordinance Creating Increment Area
Following receipt and consideration of the comments from the State Treasurer’s Office, the local government must adopt the ordinance establishing the increment area. The ordinance must contain the following (RCW 39.114.020(1)):
- The boundaries of the increment area
- The sunset date for the increment area (up to 25 years)
- Identification of the public improvements to be financed and whether the local government intends to issues bonds or other financing payable in whole or in part from the tax allocation revenues, and an estimation of the maximum obligations to be issued
- A provision that the increment takes effect on June 1 following adoption of the ordinance
- A deadline by which construction of the public improvements will begin, with the deadline being at least five years in the future with extensions allowed for good cause
The local government must publish a notice in a legal newspaper of general circulation within the jurisdiction of the local government that:
- Describes the public improvements,
- Describes the boundaries of the increment area, and
- Identifies the location and times where the ordinance and other public information concerning the public improvement may be inspected.
Additionally, a certified copy of the ordinance must be delivered to the county treasurer, county assessor, and each taxing district within the increment area.
The following tables provide a simplistic example of tax allocation for a tax increment area.
The first table shows hypothetical property tax levy rates per $1,000 assessed value (AV) for all taxing districts in the increment area. To calculate the “tax allocation rate,” add up all of the levy rates except the state school levy, local excess levies, and levies for port districts or public utility districts specifically to make payments for general obligation bonds.
|Taxing District/Levy Type||Levy Rate per $1,000 AV|
|City regular levy||$0.88|
|County current expense levy||$0.95|
|Conservation futures regular levy||$0.04|
|Flood district regular levy||$0.10|
|Fire district regular levy||$1.50|
|Fire district excess levy||$1.49|
|Port regular levy (not for G.O. debt)||$0.17|
|Library district regular levy||$0.44|
|Local school regular levy||$2.50|
|Local school excess levy||$2.16|
|State school levy||$2.93|
|TOTAL PROPERTY TAX RATE||$13.16|
|Minus fire excess levy||-$1.49|
|Minus local school excess levy||-$2.16|
|Minus state school levy||-$2.93|
|TAX ALLOCATION RATE||$6.58|
Important: For simplicity's sake, the local levy rates and the tax allocation rate in our examples will stay the same each year. However, in reality the levy rates for each taxing district may go up or down each year based on changes in assessed valuation, the 101% levy lid limit, voter-approved levy lid lifts, and other factors. As a result, the tax allocation rate will also change every year.
2022 (Increment Area Created)
In the following example, a city created a tax increment area before June 1, 2022. The increment area becomes effective on June 1, 2022 following the adoption of the ordinance. However, tax allocation revenues will not be collected until 2023. (In Washington's property tax system, a property's value is assessed one year – the "assessment year" – but the taxes based on that assessment are not collected until the following year – the "tax year.")
Parcels A, B, and C are located outside the tax increment area, while Parcels D, E, and F (in bold) are located inside the increment area. For Parcels D-F, the January 1, 2021 assessed value (for collection in 2022) becomes the "base value" that will be used to calculate the increment value and levy amounts in future years.
|Property||"Base Value" (2021 AV for 2022 Levy)||City Regular Levy Rate||New Construction||Increment Value||Tax Allocation Rate||City Regular Levy Revenues||Tax Allocation Revenues|
In this example, 2023 is the first year that tax increment revenues will be collected. Property values have increased on all properties compared to the base value, and none of the increases are due to new construction. The increase in the assessed valuation for Parcels D-F (inside the increment area) becomes the "increment value," which is multiplied by the tax allocation rate to generate the tax allocation revenues that will go to the city that created the increment area.
The value of Parcels D-F will increase for purposes of computing the state school levy and local excess/bond levies, but it will remain the same as the previous year for the purposes of computing all other property tax levies.
For instance, the value of Parcel D is calculated as follows:
- $6,090,000 for the state school levy and local fire/school excess levies.
- $6,000,000 (the "base value") for all other levies, including the city's regular levy.
- $90,000 (the assessed value minus the base value) for the tax increment value.
|Property||2022 AV for 2023 Levy||City Regular Levy Rate||New Construction||Increment Value||Tax Allocation Rate||City Regular Levy Revenues||Tax Allocation Revenues|
In the second year of the TIF, property values again went up, but the increase in value for Parcels D and F was due solely to new construction. The value of new construction is added to the values of those properties for calculating the property taxes of all taxing districts and is not included in the tax allocation revenues for the first year.
As a result, the increment values for those two parcels remain the same as the previous year, while the increment value for Parcel E increased since its increase in value was not due to new construction. Meanwhile, the regular levy amount for Parcels D and F increased due to the new construction, while the regular levy amount received from Parcel E remains unchanged.
It is possible for a property to have an increase in assessed value in addition to new construction. In that case, the new construction would be added to all taxing districts, while the remaining increase in assessed value other than new construction would be added to the increment value and increase the tax allocation revenues.
In this example, the value of Parcel D is calculated as follows:
- $97,000,000 for the state school levy and local fire/school excess levies.
- $96,910,000 (the "base value" plus new construction) for all other levies, including the city's regular levy.
- $90,000 (the assessed value minus the base value and new construction) for the tax increment value.
|Property||2023 AV for 2024 Levy||City Regular Levy Rate||New Construction||Increment Value||Tax Allocation Rate||City Regular Levy Revenues||Tax Allocation Revenues|
In the final year of this example, all property values increased and none of the increases were due to new construction. The increment value for all parcels in the increment area has increased by the amount of increase in assessed value, as well as (for Parcels D and F) the new construction from the previous year. This results in a significant increase to the increment value and tax allocation revenues. (As noted earlier, TIF revenues are not subject to the 101% levy lid limit and may increase more than 1% in any given year.)
For instance, the value of Parcel D is calculated as follows:
- $98,450,000 for the state school levy and local fire/school excess levies.
- $6,000,000 (the "base value") for all other levies, including the city's regular levy.
- $92,450,000 (the assessed value minus the base value) for the tax increment value.
While Parcels D and F contribute a significant amount to the tax allocation revenues, the amount that those two parcels contribute to the city regular levy drops again following the one-year bump for new construction. However, the total citywide regular levy amount – as well as the regular levy dollar amounts for all other taxing districts – is unaffected, since the total levy for a taxing district each year is determined by the total district-wide levy from the previous year plus 1%, new construction, and other add-ons (RCW 84.55.010(1)). In most instances, the highest lawful levy for each taxing district will still increase every year.
|Property||2024 AV for 2025 Levy||City Regular Levy Rate||New Construction||Increment Value||Tax Allocation Rate||City Regular Levy Revenues||Tax Allocation Revenues|
Below are selected examples of tax increment financing ordinances, resolutions, and other documents adopted by local governments in Washington. We will add more documents as they become available.
- Port of Pasco Resolution No. 1569 (2021) – Creating a 150-acre, 25-year tax increment area to finance LTGO bonds to help construct publicly owned infrastructure improvements and enable development of $500 million milk processing facility; includes TIF procedural outline and state treasurer's response