The city does not have the authority to impose an affordable housing fee on development projects. Cities must have statutory authority to impose taxes. And while local governments have general authority to charge fees to recoup various costs (see Carrillo v. City of Ocean Shores (2004)), RCW 82.02.020 limits the fees a local government can collect associated with development. The statute provides, in relevant part:
Except as provided in RCW 64.34.440 and 82.02.050 through 82.02.090, no county, city, town, or other municipal corporation shall impose any tax, fee, or charge, either direct or indirect, on the construction or reconstruction of residential buildings, commercial buildings, industrial buildings, or on any other building or building space or appurtenance thereto, or on the development, subdivision, classification, or reclassification of land.
The statute (RCW 82.02.020) then makes an exception for reasonable permit fees:
Nothing in this section prohibits cities, towns, counties, or other municipal corporations from collecting reasonable fees from an applicant for a permit or other governmental approval to cover the cost to the city, town, county, or other municipal corporation of processing applications, inspecting and reviewing plans, or preparing detailed statements required by chapter 43.21C RCW, including reasonable fees that are consistent with RCW 43.21C.420(6), 43.21C.428, and beginning July 1, 2014, RCW 35.91.020. [Emphasis added]
Applying this statute, the Washington State Court of Appeals struck down a surcharge on building permits imposed by the City of Bainbridge Island to fund an affordable housing trust fund. See Home Builders Ass'n of Kitsap Cty. v. City of Bainbridge Island (2007).
So, cities are limited to charging fees for permits to cover costs associated with processing applications, inspecting and reviewing plans, and preparing statements required by the State Environmental Policy Act (SEPA). For further examples and discussion of fees that cities can charge, see MRSC’s Revenue Guide for Cities and the section Other Fees and Charges (p. 152).
Impact fees may also only be imposed as allowed under state law. Currently, impact fees are authorized for transportation, parks, schools, and fire facilities. See RCW 82.02.050-.110. An impact fee could therefore not be imposed to generate funds for affordable housing.
Here are some funding options currently available to cities for affordable housing:
- Affordable Housing Levy – This is an additional property tax levy up to $0.50 per $1,000 of assessed valuation. The revenues may only be used to finance affordable housing for “low-income” and “very low-income” households. A “low-income household” is defined as households with income below 80% of the county median income.
- Housing & Related Services Sales Tax – If the county hasn’t already done so, the city can impose a sales tax up to 0.1% for affordable housing and related services including behavioral health facilities and treatment programs.
- Lodging Tax – Lodging tax revenues can be used for general obligation bonds (RCW 67.28.150) and revenue bonds (RCW 67.28.160) for “financing loans or grants to nonprofit organizations or public housing authorities for affordable workforce housing within one-half mile of a transit station.” A transit station includes: all passenger facilities, structures, stops, shelters, bus zones, properties, and rights-of-way of all kinds that are owned, leased, held, or used by a transit authority for the purpose of providing public transportation services.
- REET 2 – Through January 1, 2026, REET 2 can be used for affordable housing projects. The amount is restricted to $100,000 or 25% of available REET 2 (not to exceed $1 million). The affordable housing project must be listed on the city’s capital facilities plan.
- Affordable Housing Sales Tax Credit (HB 1406) – Cities had to pass an ordinance to participate in this sales tax credit by July of 2020, and it is no longer an option for those cities that choose not to participate.
For additional options, see MRSC’s Affordable Housing Funding Sources webpage.
