Tax Increment Financing (TIF)

What is Tax Increment Financing?

Tax increment financing (TIF) in Washington State is a property tax financing tool that cities, towns, counties, port districts, or any combination thereof can use to fund public infrastructure in targeted areas to encourage private development and investment. See 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.

The local government may designate up to two increment areas that must be fully within the jurisdiction's boundaries, subject to certain limitations as described later on this page.

What Can TIF Be Used For?

Tax increment financing can be used to pay for a wide variety of "public improvement costs"—as defined in RCW 39.114.010(6) and (7)—that are necessary to encourage private development within a targeted geographic area.

Any jurisdiction considering the use of TIF will need to read the definitions carefully, but in general this includes various expenses related to the following facilities and infrastructure:

• Streets, roads, sidewalks, and nonmotorized transportation
• Water, sewer, stormwater, and drainage systems
• Fire, life, and public safety facilities and equipment
• Parking, terminal, and dock facilities
• Parks, community facilities, and recreational areas
• Electric, broadband, or rail service
• Brownfield mitigation
• Certain affordable housing and childcare facilities
• Historic preservation
• Relocation, renovation, or construction of a government-owned facility
• Maintenance and security for the public improvements

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. After the ordinance is adopted, the local government may not add any additional public improvements to the project unless it is necessary to ensure the originally approved improvements can be constructed or operated.

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. Public improvement costs also include funding for mitigation to impacted taxing districts as allowed under the TIF statutes.

Allocation of Property Taxes

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, each property within an increment area has a "base value" that is fixed at the time the tax increment area takes effect. Each local taxing district (city, county, fire district, etc.) continues to receive revenues calculated on this base value.

However, any future increases in the assessed value of the property (the "increment value") are 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.

Limitations on Increment Areas

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).

Creating a Tax Increment Area

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 on:
  • Affordable and low-income housing;
  • The local business community;
  • Local school districts, fire services, public hospital services, and emergency medical services; and
  • Any other junior taxing districts
• Any necessary mitigation for the local fire service, public hospital service, and emergency medical services

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.

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.

Notify and (If Applicable) Negotiate With Other Taxing Districts

The sponsoring agency must provide written notice of the proposed increment area to the governing body of each taxing district at least 90 days before submitting the project analysis to the Office of the State Treasurer (discussed below).

The sponsoring agency also must submit the project analysis to all local governments and taxing districts impacted by the increment area at least 90 days before adoption of the TIF ordinance.

If the project analysis indicates that an increment area will impact at least 20% of the assessed value in a public hospital district, fire protection district, or regional fire protection service authority, or if the public hospital/fire service agency’s annual report or adopted capital facilities plan demonstrates an increase in the level of service directly related to the increased development in the increment area, the local government must enter into negotiations with the public hospital/fire service agency to address level of service issues in the increment area. If the parties cannot reach agreement, they must proceed to arbitration.

Some of the anticipated TIF proceeds may be used to compensate the impacted taxing districts, as such mitigation funding is included in the definition of eligible “public improvement costs.”

Submit Project Analysis to State Treasurer

The sponsoring agency must submit the project analysis to the State Treasurer’s Office for 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.

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 briefings must occur no earlier than 90 days after submitting the project analysis to the State Treasurer’s Office and all impacted local governments and taxing districts.

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.

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.

The notice must be published at least two weeks prior to the date on which the ordinance creating the increment area is adopted. Additionally, a certified copy of the ordinance must be delivered to the county treasurer, county assessor, and each taxing district within the increment area within 10 days of the date on which the ordinance was adopted.

Examples of TIF Ordinances and Documents

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.

• Kirkland Ordinance No. O-4846 (2023) – Creating tax increment area to finance streets, parks, and water/sewer infrastructure to enable a mixed-use, transit-oriented, and walkable development near bus rapid transit station; includes project analysis and State Treasurer's review
• 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 review
• Wenatchee Ordinance No. 2023-02 (2023) – Creating tax increment area to finance street grade separation/extensions to improve access to developable property and create opportunities for redevelopment. Includes final staff report, project analysis, and State Treasurer’s review.

Recommended Resources

• WA State Treasurer Tax Increment Financing – View TIF project analysis content requirements as well as all TIF reviews completed by the Office of the State Treasurer