Ask MRSC - Finance

Below are several examples of programs in Washington cities. These examples are a mix of grant and loan programs, but all appear to be funded with non-general fund monies, such as Community Development Block Grant (CDBG) funds.

• Chehalis Community Renaissance Team (CCRT) Façade Program – Grants provide a 50 percent match, up to $2,500 per business or property, for approved improvement costs; administered by CCRT, which is primarily a privately funded organization.
• Business Improvement Districts: Edmonds Downtown BID – Business Improvement Districts (BIDs) are special assessment areas established under chapter 35.87A RCW. This was set up by Edmonds City Council. Edmonds BID has nearly 350 members under this special assessment area. Participating businesses assess themselves in order to fund programs and activities such as beautification, marketing, security, parking, or administration. Their website provides information on how often the group meets, what the process is to join, how decisions to spend funds are spent, etc.
• Port Angeles Façade and Sign Improvement Program – Up to $10,000 for façade improvement and/or $1K for signage improvements, using CDBG funds.
• Renton Façade Improvement Program – Loan program with a minimum loan of $10,000 using CDBG funds.
• Selah Downtown Beautification Grant Program Application (2021) – Administered by the SDA, a 501(c)(3) non-profit organization. Here are the eligibility requirements.
• Tacoma Building Facade Assistance Program – Loan program for business improvements including façades.
• Downtown Association of Yakima (DAY) Façade Improvement Grant Program – Grant of up to $10K (with a 50% match required) for both business owners and commercial building owners; administered by the DAY.

Here are some additional resources that may be helpful:

• Main Street Program – Washington’s Main Street Program (MSP) is a state iteration of a nationwide program to revitalize downtown districts. Some examples of cities that participate are Kent, Bellingham, Cle Elum, Puyallup, and Yakima. This program offers funding, networking opportunities, training, and other resources to cities who have an independent 501(c)(3) or 501(c)(6) nonprofit organization dedicated solely to downtown revitalization. Nationally, there are a vast number of cities that participate in this program.
• USDA Information Center: Downtown Revitalization – Links to a variety of case studies, articles and guides, funding sources, relevant organizations, etc. Some of the topics covered on this site include Business Improvement Districts, community planning, downtown revitalization, and regional rural development.

MRSC staff have noted that an obstacle to building façade improvement loan programs from cities is the state constitutional prohibition on the loaning or gifting of public funds in Article VIII, Section 7 of the State Constitution. Programs that have been successfully implemented appear to have been funded by passing through money from other sources such as the CDBG program or the Economic Development Administration.

For more information, here are links to MRSC’s topic pages Gift of Public Funds and Economic Development in Washington State: An Introduction.

For general information on regulation of special events, including parades, see our Special Events Permits webpage. MRSC also recently published a blog article: A How-To Guide to Sponsoring Summer Celebrations. And here are a couple of examples of city parade regulations:

• Bainbridge Island Municipal Code Ch. 12.06 – Parades and Assemblies. Covers traditional parades, fun runs, roadway foot races, fundraising walks or runs, auctions, bikeathons, parades, carnivals, shows or exhibitions, filming/movie events, circuses, block parties, and street fairs.
• Coupeville Municipal Code Ch. 5.34 – Parades, Athletic Events and Other Special Events

One of the main criteria to determine eligible use of ARPA funds is: does the use respond to a negative economic impact of the COVID-19 pandemic?

On page 21 of Treasury’s Overview of the Final Rule, it states that local governments can consider the following criteria for identifying eligible businesses:

• Decreased revenue or gross receipts
• Financial insecurity
• Increased costs
• Capacity to weather financial hardship
• Challenges covering payroll, rent or mortgage, and other operating costs

The document goes on to say that the following businesses can be presumed to have been disproportionately impacted by the pandemic:

• Small businesses operating in Qualified Census Tracts
• Small businesses operated by Tribal governments on Tribal lands
• Small businesses operating in the U.S. territories

Additionally, on page 40 of the Final Rule, Treasury states:

• “As discussed in the section Designating a Negative Economic Impact, in the final rule, recipients must identify an economic harm caused or exacerbated by the pandemic on a small business or class of small businesses to provide services that respond. As discussed above, programs or services in this category must respond to a harm experienced by a small business or class of small businesses as a result of the public health emergency. To identify impacted small businesses and necessary response measures, recipients may consider impacts such as lost revenue or increased costs, challenges covering payroll, rent or mortgage, or other operating costs, the capacity of a small business to weather financial hardships, and general financial insecurity resulting from the public health emergency.” [emphasis added]

Because the Final Rule says that recipients “must identify” and “must respond to a harm experienced by a small business,” a conservative approach would be to require small businesses to show that they experienced an economic harm rather than simply certifying they did. A business that did not experience an economic harm caused by the COVID-19 pandemic should not be receiving ARPA funds. We would recommend having documentation for all businesses that receive or have received any ARPA funds. The city should have documentation that demonstrates eligibility listed above.

MRSC has consistently advised that agencies cannot waive permit fees for other public agencies or entities (except for low-income housing, RCW 35.21.685). This is based upon the "local government accountancy act," RCW 43.09.210, which reads in part:

• All service rendered by, or property transferred from, one department, public improvement, undertaking, institution, or public service industry to another, shall be paid for at its true and full value by the department, public improvement, undertaking, institution, or public service industry receiving the same, and no department, public improvement, undertaking, institution, or public service industry shall benefit in any financial manner whatever by an appropriation or fund made for the support of another (emphasis added).

In our opinion, this statute would require the city department that issues the permits to charge the agency that is proposing the development for the permits. We believe the statute applies to intra-agency permits (e.g., public works department seeking a shoreline permit from planning department), as well as inter-agency permits (e.g., hospital district applying for building permit).

One possible approach is to amend land use/building codes or the fee schedule, providing for a different fee to be paid by all governmental entities. In any case, even if the city were to reduce the amount of the fee, it would still need to recover its costs under RCW 43.09.210.

Yes, our understanding is that funds may be used in this manner provided that the costs of administering the lottery are reasonably proportional to the expected public health benefit.

The U.S. Department of Treasure has issued a series of FAQs regarding use of the Local Fiscal Recovery Funds (LFRF) included in the American Rescue Plan Act (ARPA). FAQ 2.12 asks:

• May recipients use funds to pay for vaccine incentive programs (e.g., cash or in-kind transfers, lottery programs, or other incentives for individuals who get vaccinated)?
• Yes. Under the Interim Final Rule, recipients may use Coronavirus State and Local Fiscal Recovery Funds to respond to the COVID-19 public health emergency, including expenses related to COVID-19 vaccination programs. See forthcoming 31 CFR 35.6(b)(1)(i). Programs that provide incentives reasonably expected to increase the number of people who choose to get vaccinated, or that motivate people to get vaccinated sooner than they otherwise would have, are an allowable use of funds so long as such costs are reasonably proportional to the expected public health benefit.

For more on Treasury’s guidance, see this blog written by our Finance Consultant, Eric Lowell: Treasury Issues Guidance for Local Fiscal Recovery Funds.

MRSC recommends that the city council adopt a policy providing for write-offs, stating the criteria that must be met before the write-off can occur. Such a policy should apply to all types of accounts receivable (water, sewer, garbage, court fines and other fees and charges that the city may impose). The policy should consider the variables for each type of receivable with specific criteria and internal controls in place to ensure that the city’s assets (receivables) are being safeguarded, then staff could write the debt off without further council involvement. There are several cities that have adopted write-off policies. Here are a few examples:

• West Richland Municipal Code, Section 3.09.030 Collection – Write-off
• Lakewood Municipal Code, Section 3.22.020 - Write-off
• Poulsbo Municipal Code, Section 3.72.040 - Uncollectible debts
• Bellevue Municipal Code, Section 3.32.100 - Authority of director regarding delinquent accounts
• Yelm Municipal Code, Section 13.04.290 - Nonpayment of charges

A public agency may provide incentives such as gift cards or other small gifts without violating the state’s prohibition on gifting of public funds, provided there is an articulated public purpose for doing so. From our Gift of Public Funds webpage:

In assessing whether a gift has been bestowed to a private entity, the courts have used a two-step process. First, they determine whether the funds are being expended to carry out a fundamental purpose of the government. If so, then no gift of public funds has been made. Otherwise, the court looks to see whether the government entity had a “donative intent,” and whether it received an adequate return for the transfer.

If an incentive program serves a valid purpose of government, then incentivizing participation in that program is not a gift. For example, providing wellness awards to patients that participate in annual check-ups at a hospital district are not gifts under the law. A hospital could also use gift card drawings to get patients to respond to satisfaction surveys. The hospital would be receiving something of value in exchange for the gift card – namely a response to the survey. Similarly, providing some incentive to participate in a community planning process is serving an important governmental purpose.

If a city or other public entity does choose to offer incentives, it should adopt—in advance-- a reasonable policy regarding the incentives and the policy should articulate a valid municipal purpose for the expenditures. If gift cards or other items of monetary value are given as more of an “afterthought” or thank you gift, this would look less like an incentive program and more like a gift.

We recommend discussing the specifics of any program with your city attorney. They will be in the best position to assist in developing an official policy that complies with the constitutional limitations regarding gifting of public funds.

If the council wishes to deviate from the amounts recommended by the LTAC it can do so only after following the procedural requirements of RCW 67.28.1817. This interpretation is based on an informal Attorney General opinion issued in 2016, which is discussed on our Lodging Tax (Hotel-Motel Tax) page:

• What Does the Municipality Do with the LTAC's Recommendations? The legislative body "may choose only recipients from the list of candidates and recommended amounts provided by the local lodging tax advisory committee" (RCW 67.28.1816(2)(b)(ii), emphasis added). However, an informal opinion from the Attorney General's Office in 2016 states that the legislative body may award amounts different from the LTAC’s recommended amounts, but only after satisfying the procedural requirements of RCW 67.28.1817(2). This requires the municipality to submit its proposed change(s) to the LTAC for review and comment at least forty-five days before final action is taken. For more details, see our blog post on Informal AG Opinion Clarifies Lodging Tax Awards.

So, council may accept the recommendation or reject it without any further action – a vote is all that is required. If the council wants to change the amount awarded to a recommended recipient, it must refer the proposed changes to the LTAC for review and comment.

State law only requires a simple majority vote by the city council for a regular budget amendment; changes to wages, hours, and conditions of employment RCW 35A.33.105; and appropriations of funds received in excess of estimated revenues RCW 35A.33.120(4).

A super majority vote is required when council is amending the budget due to "nondebatable emergencies" RCW 35A.33.080; when the council has declared a public emergency that is not one of the ‘nondebatable’ emergencies RCW 35A.33.090; and when the council declares by facts and findings that it is in the best interest of the city to decrease, revoke or recall an appropriation.

Note: this answer is also applicable to budget amendments for Second and Third Class Cities, Towns and First class cities under 300,000 population. See Chapter 35.33 RCW, specifically RCW 35.33.107; RCW 35.33.121(4); RCW 35.33.081; RCW 35.33.091.

The 6% limitation on a utility tax is applicable only on electricity, telephone, natural gas, and steam energy utilities (RCW 35.21.870). Any increase in excess of 6% requires voter approval. In addition, federal law prohibits taxing internet or broadcast satellite TV services and places limitations on local cable television taxes. See MRSC's Utility Taxes page for a summary of maximum utility tax rates by utility type. There is no limit prescribed by state or federal law for other utilities, such as sewer, solid waste, stormwater and water. However, if the city is proposing to increase the tax on one of these utilities a referendum clause may be required.

Yes, RCW 82.14.450 provides for a one-tenth of one percent public safety sales tax option for cities or towns. This option is also available to the county with voter approval for up to three-tenths of one percent sales tax. One-third of all money received must be used for “criminal justice purposes, fire protection purposes, or both.” If it is approved countywide then funds are shared with the cities 60/40. If a city adopts it on its own, then it is shared with the county 85/15.

An additional criminal justice sales tax option that is potentially available is RCW 82.14.340. This one-tenth of one percent sales tax option is available only to counties but requires that the counties share with cities within the county using a formula defined within the statute. This sales tax option does not require a vote.

Lodging tax has two different components. The state shared retail sales tax portion (2%) RCW 67.28.180, and the additional 2% authorized under RCW 67.28.181(1)

Here is a link to the Revenue Guide for WA Counties that explains the two components of lodging tax (aka: Hotel/Motel Tax). These are both excise tax options available to cities and counties that do not require a vote of the citizens.

There is no difference in the allowed use of these two components of the lodging tax, both of which are restricted resources that may only be used for tourism activities or tourism-related facilities. The distribution by the state for lodging tax is always remitted separately for each component of the tax because the statutory authority to impose the taxes are separate.

RCW 67.28.180 is a credit against the state’s sales tax and therefore is not an increase in taxes but rather a sharing of state sales tax with local government, while the additional 2% authorized in RCW 67.28.181 is an increase in the excise tax. All of the remaining definitions, allowed use, and distribution processes are the same.

The state decision to label one of these tax distributions as a ‘transient rental tax’ is only intended to designate a difference between RCW 67.28.180 and RCW 67.28.181.

Yes, overpayment to an employee is a gift of public funds and should be recovered. State law sets forth a process for an employer to recover the overpayment of wages. See RCW 49.48.200. If recovery of the overpayment is made by deduction from future wages, the deductions cannot exceed 5% of the employee’s disposable earning in any pay period, other than the final pay period, unless the employee agrees to a greater deduction. For more information, see our 2015 blog article, What if We Accidentally Overpaid an Employee?

If the capital project was a project listed within the capital facilities plan (CFP) of the city (RCW 82.46.010 (2)(b) and 82.46.035(3)), then yes the city can use its REET funds for debt service. The statute provides for the financing of capital projects as identified within the CFP element of the city’s comprehensive plan.

• RCW 82.46.010(2)(b) After April 30, 1992, revenues generated from the tax imposed under this subsection (2) in counties over five thousand population and cities over five thousand population that are required or choose to plan under RCW 36.70A.040 must be used solely for financing capital projects specified in a capital facilities plan element of a comprehensive plan and housing relocation assistance under RCW 59.18.440 and 59.18.450.
• RCW 82.46.035(3) Revenues generated from the tax imposed under subsection (2) of this section must be used by such counties and cities solely for financing capital projects specified in a capital facilities plan element of a comprehensive plan. However, revenues (a) pledged by such counties and cities to debt retirement prior to March 1, 1992, may continue to be used for that purpose until the original debt for which the revenues were pledged is retired, or (b) committed prior to March 1, 1992, by such counties or cities to a project may continue to be used for that purpose until the project is completed.

You did not specify what type of capital project was bonded, so here are the statutory references for the definition of capital projects within REET 1 (RCW 82.46.010(6)(b)) and for REET 2 (RCW 82.46.035(5)).

We have provided relevant guidance on our COVID-19 Frequently Asked Questions (FAQ) webpage:

• Can lodging tax allocations be changed or rescinded?
• Is it legal to expend lodging tax revenue for festivals and events that are cancelled?

These detailed FAQs cover various scenarios including when distributions have been made and costs already incurred by a recipient of funds whose event has been cancelled, or when money has been awarded but no contract has yet been executed.

As noted in the first response, both the use and the dollar amount of lodging tax allocations that have been approved by the legislative body may be changed, but the use of funds must always be consistent with RCW 67.28.1816 and RCW 67.28.080. Lodging tax funds are restricted resources that must be used according to state statute, regardless of the pandemic and its attendant financial challenges. Limits on the use of these restricted resources have not been waived by any of the governor’s proclamations to date.

The allocations of the motor vehicle fuel tax (MVFT) are done by percentage according to RCW 46.68.090, based upon the various portions of the MVFT collected in RCW 82.38.030:

• Of the first 23 cents per-gallon in RCW 82.38.030(1) – cities receive 10.6961% of the tax collected, counties receive 19.2287% and the state retains the remainder.
• Of the 2005 tax (RCW 82.38.030(3)) imposed for an additional 3 cents per gallon – the cities receive 8.3333% of the tax collected.
• Of the 2006 tax (RCW 82.38.030(4)) imposed for an additional 3 cents per gallon – the cities receive 8.3333% of the tax collected.
• Of the tax imposed in sub-section (7) and (8) for 11.9 cents per gallon the distribution by the state is a direct appropriation of $5,859,500 to cities which is allocated on a per capita basis. There is no % of allocation.

As you can see, the formulas for calculating the distribution of the various portions of the MVFT are complicated, with allocations being made to numerous programs of the state on specific portions of the tax.

There is a lot of helpful information on criminal justice/public safety sales tax options in our Revenue Guide for Counties, which was completely rewritten and republished in February 2019.

You indicated that the county is currently imposing a 0.1 percent sales tax for criminal justice. That is likely the criminal justice sales tax authorized by RCW 82.14.340. For more information on how that tax works, please see the Revenue Guide for Counties, page 81.

There are two options for imposing additional sales taxes for public safety and mental health/chemical dependency treatment. First is the mental health and chemical dependency tax authorized by RCW 82.14.460. This tax does not require voter approval, but there are requirements for use of the revenue, as explained in the County Revenue Guide, page 87:

• Any county that imposes this sales tax is also required to establish and operate a therapeutic court component for drug dependency proceedings “designed to be effective for the court’s size, location, and resources.” The revenues may be used to support the cost of the judicial officer and support staff of the therapeutic court.

The second option is the public safety sales tax authorized in RCW 82.14.450, which authorizes up to 0.3 percent, but requires voter approval. For more on that, see p. 88 of the County Revenue Guide.

In our opinion, a library amnesty program or fee waiver program for lost or damaged items is not a prohibited gift of public funds when it: (1) is established by the public agency’s governing body such as a city council or library board; (2) states the public purpose with clear guidelines for the program; and (3) is applied equally to all users.

In general, amnesty programs can be seen as revenue producing and compliance tools. Written guidelines for such programs typically use the term “have the effect of increasing revenues” to the local government. They are commonly used to collect delinquent taxes, unpaid business license fees, unpaid court fines, unpaid parking tickets, library fines, and address building permit compliance issues and animal licensing compliance.

The benefits derived are increased revenues where collection efforts have not been successful, clearing records of unpaid fines, and helping citizens gain compliance. Obtaining returns of materials belonging in the library collection is also a public purpose. So there is no donative intent with the establishment of an amnesty program – the goal is actually to generate revenues for the city that might not otherwise be realized. This is important when making an analysis for potential violation of the prohibition on gifting public funds in Article VIII, Sec. 7 set out in CLEAN v. Spokane, 133 Wn.2d 455 (1997).

Attorney General’s Opinion, 2005, No. 5 confirms the authority of public libraries to assess and collect fines for overdue books and library materials. We did not find AGO opinions or case law specifically regarding waiver or amnesty of late fees assessed by libraries.

In a past inquiry we looked at whether the state auditor’s office (SAO) would consider waivers of library fines for overdue books to be an impermissible gift of public funds. Although SAO is the ultimate authority on the financial programs they consider acceptable in this area, it looks like a library could have an amnesty or overdue fees waiver program if there is a clear and legitimate reason to do so, and those reasons are spelled out in an adopted policy applied equally to everyone.

You really can’t file an extension. However, if the council is unable to pass a new budget by year’s end, it could adopt the current year’s budget on an interim basis, adjusting the revenue expected for the new year. Here is an MRSC Insight blog article from a few years ago, Do We Really Need To Pass a Budget by Year’s End? It discusses the need to do something, and it suggests that the council could adopt the current budget for next year on an interim basis. Then, when council is able to reach agreement, it can amend the interim budget to reflect the new agreement.

We think the bingo event as proposed is fine. First, we don’t think this falls within “gambling” as contemplated in state law. The definition of “gambling” at RCW 9.46.0237 states, in relevant part (emphasis added):

"Gambling," as used in this chapter, means staking or risking something of value upon the outcome of a contest of chance or a future contingent event not under the person's control or influence, upon an agreement or understanding that the person or someone else will receive something of value in the event of a certain outcome.

Here, you do not intend to ask the employees to pay money or some other type of consideration to participate in the bingo game. Even if the city were collecting money for the opportunity to play bingo for prizes, cities are allowed to conduct bingo, raffles, and amusement games within the limitations set forth at RCW 9.46.0321. Note that although that section says it applies to “bona fide charitable or bona fide nonprofit organizations,” cities are considered to be bona fide nonprofit organizations under the state gambling laws. Per RCW 9.46.0209(3), the definition of a “bona fide charitable or nonprofit organization” includes:

[A] county, city, or town, provided that all revenue less prizes and expenses from raffles conducted by the county, city, or town must be used for community activities or tourism promotion activities

One additional thing to keep in mind is gifting of public funds. While this employee appreciation event is likely fine, any time you are providing gifts, prizes, food, or other items to employees outside the normal scope of employment, there is risk of running afoul of the constitutional prohibition on the gift of public funds. If the city has a policy that includes employee appreciation events, this could be considered compensation or a benefit of employment, which is permissible. Here is an old but still useful memo regarding Eating and Drinking at Public Expense that outlines some things to think about with regard to employee events/gifting of public funds.

In response to your information request about business façade and building improvement funds, we have found several programs from other cities in Washington. These examples are a mix of grant and loan programs, but all appear to be funded with non-General Fund monies, such as CDBG funds (which is presumably how they avoid the “Gift of Public Funds” issue). Here are the example programs:

• Chehalis Community Renaissance Team (CCRT) Façade Program – Grants provide a 50 percent match, up to $2,500 per business or property, for approved improvement costs; administered by CCRT, which is primarily a privately funded organization.
• Port Angeles Façade and Sign Improvement Program – Up to $10K for façade improvement and/or $1K for signage improvements, using CDBG funds.
• Renton Façade Improvement Program – Loan program with a minimum loan of $10K, using CDBG funds.
• Selah Downtown Association (SDA) Business Façade Improvement Grant Program – Grant of up to $10K (with a 50% match required), which is administered by the SDA, a 501(c)(3) non-profit organization.
• Downtown Association of Yakima (DAY) Façade Improvement Grant Program - Grant of up to $10K (with a 50% match required) for both business owners and commercial building owners; administered by the DAY.

It is possible for a city to place an issue on the ballot to raise revenue for “public safety” purposes, which would include monies for law enforcement. Here is an excerpt from our Revenue Guide for Washington Cities and Towns regarding the tax:

Any city or town, with voter approval and subject to the restrictions below, may impose a sales tax of up to 0.1% for public safety as authorized by RCW 82.14.450. The ballot measure must clearly state the purposes for which the tax is to be used and requires approval by a simple majority of voters. The statute requires that at least one-third of the revenue be used solely for criminal justice purposes, fire protection purposes, or both as defined in RCW 82.14.340(4)-(5).

Similar to the shared revenue requirements under RCW 82.14.340 (criminal justice), the city must share the tax with the county. 85% of this sales tax revenue is distributed to the city and 15% to the county. This local sales tax option also features a differential in the tax base from the state sales tax base, with sales of motor vehicles and the lease of motor vehicles for up to the first 36 months of the lease exempted.

Counties may also place a ballot measure before the voters for a public safety sales tax under the same statute. The county’s sales tax option may range from 0.1% to 0.3%. If the tax is approved, the county must share the revenue with the cities, with 60% distributed to the county and the remaining 40% distributed on a per capita basis to the cities within the county.

The combined city/county rate may not exceed 0.3 percent:

• If the county is already levying the full 0.3%, no city within the county may impose a new public safety sales tax.
• If the city enacted a 0.1% public safety sales tax before the county, and the county imposes a 0.3% sales tax countywide, the county must credit back 0.1% to the city.
• If the county has imposed a public safety sales tax less than 0.3%, the city may still impose its own public safety sales tax up to 0.1%, as long as the combined city/county rate does not exceed 0.3%.