2010 Public Finance Legislative Update April 2010 The following - - PDF document

2010 Public Finance Legislative Update

The following provides a brief overview of recent federal and state legislation of interest to Washington state and municipal entities (primarily from a public finance perspective). Please let us know if you have any questions or would like more information regarding any of the following.

Washington State Legislation

Transportation Benefit Districts

2010 Wash. Laws Chapter 105 may assist transportation benefit districts (“TBDs”) in financing transportation improvements. The legislation clarifies that TBDs may finance transportation improvements that are contained in a city, county or certain other local transportation plans, not only in state and regional transportation plans. The legislation provides flexibility for another entity to actually construct the transportation improvements, removing a requirement that impact fees imposed by the district be used for transportation improvements constructed by the TBD. Finally, the voter- approved sales tax that may be imposed by a TBD may now be imposed for longer than ten years (if the tax is initially imposed after July 1, 2010, and if the tax revenues are pledged to bonds). In a separate law (2010 Wash. Laws Chapter 251), the Legislature also amended the TBD statute to permit cities in King County to pursue supplemental public transit and to require coordination between that supplemental transit and other public transit. The legislation permits these cities to petition any TBD that the cities are part of to provide partial or full funding for the supplemental

• transit. The legislation directs a TBD that receives such a petition to address the request incorporating

the supplemental transit into its existing services, using different processes depending on whether the TBD is asked to provide part or all of the funding for the supplemental transit. The third revision to the TBD statute (2010 Wash. Laws Chapter 250) provides for an alternative governance structure for multi-jurisdiction TBDs. Multi-jurisdiction TBDs may now be governed by the governing body of any metropolitan planning organization serving the TBD, but only if the TBD and the metropolitan planning organization boundaries are identical.

School Levies

A new law, 2010 Wash. Laws Chapter 237, enhances the authority of school districts to levy property taxes for maintenance and operations purposes. Among other things, the legislation raises the lid on M&O levies, increases Local Effort Assistance program payments for qualified districts, and permits school districts to seek voter approval for additional levy authority within a levy cycle, under certain circumstances.

Nonvoted School Bonds

A new law, 2010 Wash. Laws Chapter 241, requires that school districts publish notice of, and hold, a public hearing prior to issuing nonvoted bonds in any amount over $250,000. The new requirement applies only to new financings, not to refundings of existing non-voted or voted bonds. April 2010

Practice Group(s): Public Finance

Seattle Scott A. McJannet Robert D. Starin David O. Thompson Cynthia M. Weed Spokane/Coeur d’Alene Kevin R. Connelly Laura D. McAloon Brian M. Werst

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Impact Fees for Fire Protection Facilities

2010 Wash. Laws Chapter 86 expands the types of facilities that can be funded with impact fees imposed under Chapter 82.02 RCW. Specifically, all fire protection facilities can be funded under the act, as opposed to fire protection facilities only in jurisdictions that are not part of a fire district.

Voter-Approved Financing through the state LOCAL Program

2010 Wash. Laws Chapter 115 authorizes local governments to use the State Local Option Capital Asset Lending (“LOCAL”) program for voter-approved financings (rather than just for limited tax general obligation or nonvoted financings). With this amendment, local governments may use excess property tax levies approved by voters to pay lease obligations incurred through the State LOCAL program to finance equipment and real estate.

Expanding Access to LGIP

2010 Wash. Laws 1st Special Session Chapter 10 expands the list of governmental entities that may invest surplus cash in the State Treasurer’s Local Government Investment Pool to include, among

• thers, federally-recognized tribes, public development authorities, entities created under the

Interlocal Cooperation Act, and parties to state financing contracts under Chapter 39.94 RCW.

Community Facilities Districts

A new law authorizes a new type of special purpose district to finance community facilities and public infrastructure (2010 Wash. Laws Chapter 7, the “CFD Act”). Community facilities districts (“CFDs”) are authorized to be formed in urban growth areas. CFDs can be used to facilitate special assessment financing, through a process that is in some ways similar to traditional local improvement district (“LID”) financing but with a few differences. A CFD may be formed by petition to the city and/or county in which the district will be located signed by 100 percent of the property owners within the proposed district. The petition must describe the facilities to be financed and certify that the petitioners wish to be assessed for the cost of the facilities. The requirement that 100% of the property owners in the proposed CFD must be on board to initiate the CFD means that the tool is probably best suited for projects with one or a handful of motivated property owners (similar to a developer LID). Once formed, a CFD will be a new special purpose district, governed by a board of supervisors appointed by the city or county. A CFD is authorized to impose special assessments on property within the district and to issue bonds paid from assessments. CFDs also have extensive authority to acquire, lease, finance, manage, construct and sell real or personal property. The CFD Act authorizes CFDs to finance a broad range of community facilities and public infrastructure, including water, sewer, drainage and flood control systems; streets, highways and parking facilities; pedestrian malls, parks, recreational and open space facilities; landscaping; public safety, community facilities and other public buildings; natural gas or electric transmission and distribution facilities and communication facilities; lighting systems; traffic control systems; railway, tramway, bus or other transportation facilities; library, educational and cultural facilities; auditoriums, field houses, gymnasiums, and swimming pools; bridges, culverts and trestles; bulkheads and retaining walls; sidewalks, curbing and crosswalks; and aquatic plant control, lake and river

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3 restoration and water quality enhancements. A CFD may not finance residential, nonprofit, health care, higher education or certain economic development facilities. A city or county is not required to form a CFD upon receipt of a CFD formation petition. The city or county must hold a public hearing on a petitioned CFD, and may approve formation of the CFD if it determines that the formation is in the best interest of the city or county, consistent with the Growth Management Act.

Credit Unions may Receive Public Funds

The Legislature has approved 2010 Wash. Laws Chapter 36 permitting state-chartered credit unions to serve as public depositories for public funds (less than $100,000 or the amount insured by federal deposit insurance, whichever is less).

Public Records Provided Electronically

A new law (2010 Wash. Laws Chapter 69) permits a response to a public records request that directs the requester to an Internet address and link to records on the agency’s web site. This response can be provided instead of providing the public records directly for public inspection and copying. If the requester notifies the agency that he or she cannot access the on-line records, then the agency must provide copies or access through an agency computer.

Local Revitalization Financing Expanded

A new law (2010 Wash. Laws Chapter 164) extends the availability of the state sales tax credit for local revitalization financing (“LRF”) by approving additional demonstration projects: Richland Revitalization Area ($330,000 per year), Lacey Gateway Town Center ($500,000 per year), Mill Creek East Gateway ($330,000 per year), Puyallup River Road Project ($250,000 per year), Renton South Lake Washington Project ($500,000 per year) and Newcastle Downtown Project ($40,000 per year). The legislation also adds a couple of points of flexibility to the LRF statute, including making clear that participating taxing districts may agree by interlocal agreement to a property tax contribution lower than would otherwise be dictated by the statutory contribution formula.

Public Hospital Districts

A new law (2010 Wash. Laws Chapter 95) authorizes public hospital districts to grant a lien on property, through a mortgage, deed of trust, security agreement or other security interest, in connection with an issuance of bonds. To use this new tool, the bonds must be issued in connection with a federal program providing mortgage insurance, such as the mortgage insurance programs administered by the U.S. Department of Housing and Urban Development.

Legislative Bodies of Transportation Agencies

2010 Wash. Laws Chapter 278 requires public transit agencies (including metropolitan transit commissions, county transportation authorities, and public transportation benefit areas) to add a nonvoting member recommended by the labor

• rganization representing the public transportation employees within the agency to its legislative
• body. The new member is required to comply with all bylaws and policies of the legislative body, and

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4 will be excluded from executive sessions held for the purpose of discussing negotiations with labor

• rganizations, and may be excluded by the chair or co-chair from other executive sessions.

Public Facilities Districts

2010 Wash. Laws Chapter authorizes King County to create a new public facilities district (the “PFD”) for the purpose of acquiring and operating the Washington State Convention and Trade

• Center. The Convention Center is currently owned and operated by the Washington State Convention

and Trade Center (the “CTC”), a state-chartered public nonprofit corporation. The legislation authorizes the transfer of the Convention Center to the new PFD if certain conditions are satisfied, including payment of state bonds issued to finance the Convention Center. In connection with such transfer, the PFD may impose lodging taxes to replace state and local taxes currently imposed under chapter 67.40 RCW. The PFD’s lodging taxes would not affect the existing authority of the state, county, cities, and other municipal corporations to impose lodging taxes under existing caps on the aggregate rate that may be charged.

Other Washington State Legislation

Other state legislation extended the time period during which energy conservation loans by public utility districts must be repaid (to 240 months) (2010 Wash. Laws 1st Special Session Chapter 4), and extended the time period for municipal water conservation loan repayment in the same manner (2010

• Wash. Laws 1st Special Session Chapter 5). 2010 Wash. Laws Chapter ___ permits cities to impose an

additional sales and use tax for public safety. The tax may not exceed 0.1%, requires voter approval, and is subject to aggregate limitations depending on whether the county also imposes a public safety

• tax. The act includes other excise tax provisions.

Federal Legislation

“Babification” of Municipal Tax Credit Bonds: Issuing QSCBs, QZABs, QECBs, and CREDs as taxable bonds with a direct federal interest subsidy

The Hiring Incentives to Restore Employment Act (the “HIRE Act”) permits issuers of four categories

• f municipal tax credit bonds – Qualified School Construction Bonds (“QSCBs”), Clean Renewable

Energy Bonds (“CREBs”), Qualified Zone Academy Bonds (“QZABs”), and Qualified Energy Conservation Bonds (“QECBs”) – to issue the bonds as taxable bonds with a direct federal interest

• subsidy. This may make such bonds more readily marketable.

Under the HIRE Act, issuers of QSCBs and QZABs would be authorized to receive periodic payments from the federal government in an amount equal to the lesser of (i) 100% of the interest payable to bondholders or (ii) the interest that would have been payable if the interest were determined at the tax credit rate. Although the tax credit rate is referenced in determining the amount of the interest subsidy, bondholders would not receive a tax credit. Issuers of CREBs and QECBs would be authorized to receive a lower subsidy in the form of periodic payments from the federal government in an amount equal to 70% of the amount described above. Permitting issuers of these four categories of municipal tax credit bonds to instead issue taxable bonds with a direct federal interest subsidy will allow issuers to tap into the “Build America Bond” or “BAB” model that was authorized by the American Recovery and Reinvestment Act of 2009. The

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5 HIRE Act permits use of this model for qualified school and energy projects, but with deeper federal interest subsidy levels than are provided for BABs. QSCBs, QZABs, CREBs and QECBs are subject to additional requirements that do not apply to

• BABs. First, issuers must have an allocation of the national limitation on the amount of bonds that

can be issued. In Washington, certain large cities, counties and tribes received formula-based allocations of authority to issue QECBs and the balance was allocated by the state Department of

• Commerce. The Office of the Superintendent of Public Instruction allocates QZAB and QSCB

authority (certain large school districts also received formula-based allocations of QSCB authority). The U.S. Treasury allocated most of the available CREBs authority in October 2009. Links to the agencies’ websites for more information regarding the status of allocations are provided below. DOC: http://www.commerce.wa.gov/site/862/default.aspx OSPI: http://www.k12.wa.us/SchFacilities/EconomicStimulus/SchoolBondOpport.aspx IRS: http://www.irs.gov/taxexemptbond/article/0,,id=214748,00.html. Second, there are limitations on the maximum maturity for these four categories of bonds. The maximum maturity is set periodically by the U.S. Treasury, along with the maximum rate that can be earned on any sinking fund established to pay the bonds. Third, the bonds are targeted for specific types of projects. QSCBs are issued to finance construction, rehabilitation, or repair of public school facilities or for the acquisition of land on which a public school facility will be constructed. QZABs are issued to finance renovations, repair, and equipment purchases for certain schools in connection with a required private contribution. CREBs are issued to finance facilities that generate electricity from the following sources: wind, closed-loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, marine renewables and trash combustion facilities. QECBs are issued for the purpose of reducing energy consumption in publicly-owned buildings by at least 20 percent, implementing green community programs, or financing rural development involving the production of electricity from renewable energy resources, or other renewable energy projects. QECBs may also be used for research into specified energy technologies; mass commuting facilities, green demonstration projects and public education campaigns to promote energy efficiency.

Other Pending Federal Legislation

We also are tracking the Small Business and Infrastructure Jobs Tax Act of 2010 (H.R. 4849, approved by the U.S. House of Representatives on March 24, 2010) (the “Small Business Bill”) and

• ther legislation to extend the BABs program beyond this year. Under the Small Business Bill, the

BABs program would be extended for approximately three years at progressively reduced subsidy levels: 33% in 2011, 31% in 2012 and 30% in early 2013. The Small Business Bill also increases the allocations for Recovery Zone bonds, expands the Housing Credit Exchange Program to include the 4% low-income housing tax credit, and adds provisions that would be helpful for certain private activity bonds.

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