2008 Vancouver Washington State Sales Tax Rate by cii15704


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									                Washington Public Ports Association
              2009 Finance and Administration Seminar
                         Financing Tools for Public Ports

June 18, 2009
Vancouver, Washington
Cynthia Weed, K&L Preston Gates Ellis
Financing Tools for Public Ports

   Outline of Presentation
     State tools for funding infrastructure: A focus on recent
        Levy lid lifts
        Tax Increment Financing – Washington style
     The American Recovery and Reinvestment Act of 2009
        Build America Bonds
        Recovery Zone Economic Development Bonds
        Recovery Zone Facility Bonds

State tools for funding infrastructure:
A focus on recent developments
 Levy Lid Lifts
    A simple majority of voters can approve a “levy lid
     lift,” allowing the taxing district to levy an amount
     approved by its voters up to the applicable statutory
     rate limitations (RCW 84.55.050).
    The new base can apply for a limited or unlimited
       But nine year limit for debt service

Levy Lid Lifts
 With a majority vote of its electors, a taxing district
  may lift its levy for the following year or for up to six
  consecutive years, within statutory rate limitations
  (RCW 84.55.050).
 In approving a multi-year (up to six years) levy lid
  lift, voters may approve the amount of the initial lift
  plus a growth factor (such as the consumer price
  index) for calculating the amount of increases in
  subsequent years.

Legislative Update: Levy Lid Lifts

 SB 5433, Delivered to Governor for signature
 Eliminates non-supplanting language for multi-year
  levy lid lifts
 King County: eliminated only for lifts in 2009-2011

State tools for funding infrastructure:
Tax-increment Financing
      Bond $              Infrastructure

             Attracts Development

             Taxes              Pay Bonds

What taxes?
   Traditional TIF financing taps increased property taxes
    generated by development.

   A particular development will be located within various
    overlapping taxing district.

Overlapping taxing districts

                                        REPRESENTATIVE LEVY RATES – 2007

                                                          Minimum             Maximum
                          Taxing District             (Tax Code Area 10)   (Tax Code Area 5)
                    Pierce County                           $ 1.18            $ 1.18
                    State Schools                              2.29             2.29
                    The City                                   2.42             2.58
                    School District No. 10                     0.00             5.51
                    School District No. 83                     0.00             5.68
                    School District No. 400                    0.00             4.26
                    School District No. 402                    0.00             4.61
                    School District No. 417                    0.00             4.64
                    Port of Tacoma                             0.19             0.19
                    Emergency Medical Services                 0.50             0.50
                    Metropolitan Park District                 0.50             0.76
                             Total                           $ 7.08          $ 32.20

       Source: Pierce County Office of the Assessor/Treasurer.

Include state taxes for the common schools?
   State property taxes are collected to fund schools.
   Constitution requires:
      “But the entire revenue derived from the common school
       fund and the state tax for common schools shall be
       exclusively applied to the support of the common schools.”
      Article IX, Section 2

Struck down
 Leonard v. Spokane, 127 Wash.2d 194, 897 P.2d 358 (1995)
    Reviewed the 1982 statute to determine whether it violated
     Article IX, Section 2, of the state constitution
    Concluded that the Act redirected incremental property taxes,
     including the state property tax, to pay for public infrastructure.
    Diversion of state property tax inconsistent with Article IX,
     Section 2, which requires application of such taxes to the
     support of the common schools.
    Rejected the city’s argument “in the absence of the Act the tax
     dollars allegedly diverted would not have been generated.”

TIF is constitutional in most states
 Annot., "Validity, Construction, and Effect of
  Statutes Providing for Urban Redevelopment by
  Private Enterprise," 44 A.L.R.2d 1414, 1418 (1955)
  (In the overwhelming majority of cases in which the
  validity of redevelopment statutes have been
  questioned, the courts have upheld them.)
 D. Mandelker, "Public Entrepreneurship: A Legal
  Primer," 15 Real Est.L.J. 3, 13 (1986) (Almost all
  state courts hold tax increment financing

So where does this leave us?
 Constitutional prohibition addresses only the state
  property tax for the common schools
 So the Legislature and municipalities have tried to
  achieve TIF-like (or “TIF-lite”) financing by focusing
    Local property taxes
    Excise taxes

101% and TIF
 Because traditional TIF applies the increased
  property taxes generated by new development to
  finance the infrastructure to attract this
  development, the 101% cap on increased property
  taxes disrupts the TIF mechanism.
 Can only capture increased property taxes from the
  new construction, not from any resulting
  appreciation in the property values of neighboring

Three TIF-lite statutes
 Ch. 39.89 RCW, which permits local jurisdictions to
  agree to divert local property taxes to finance public
 Local Infrastructure Financing Tool (“LIFT”), which
  provides a state sales tax credit for qualifying local
  tax increment districts.
 NEW legislation: “Community Revitalization Areas”,
  also providing a state sales tax credit for qualifying
  local tax increment districts

Chapter 39.89 RCW
 Cities, counties, ports and any combination
 May designate an increment area, finance public
  improvements expected to encourage private
  development within the increment area
 Repay this financing with the additional regular local
  property taxes generated by such private

LIFT (Chapter 39.102 RCW)
 Local Infrastructure Financing Tool (“LIFT”) program
 Provides a form of tax increment financing for public
  infrastructure projects within revenue development areas
  (“RDAs”) created by a local government
 State sales and use tax credit
 Local infrastructure projects intended to encourage private
  development to generate increased tax revenues within the
 Increased state and local tax revenues are, in turn, necessary
  preconditions to receipt of the state sales and use tax credit
  (BUT see legislative update).

LIFT funding components
 Three main sources of tax revenues to project
    local property taxes
    local sales and use excise taxes
    state sales and use tax credit
 These funding sources interact and are subject to
  complicated limitations under the LIFT statute.


             State                                                                                    80/20 Limit
                                                                                                 (beginning in 5th year)

         RCW 82.14.475                                  *Local Excise
                                                                                                 *Other Local (non-                                *Local Property Tax
       State sales and use                          (Sale and Use) Tax
                                                                                                    state) Funds                                   Allocation Revenue
            tax credit                              Allocation Revenues

                                                                                 dic                                                               d
                     Aggregate $7.5m annual limit                                      ate                                              ic   ate
                                                                                             d                                       ed
                     Limited to project award (No more
                     than $1m per project)
                     **Limited to increased state excise
                                                                                     PUBLIC IMPROVEMENTS
                     and property tax revenues from prior                          (Debt service or pay-as-you-go
                     calendar year                                                    until debt service begins)
                     *Limited to dedicated Local Excise
                     Tax Allocation Revenues, Local                                                     Private
                     Property Tax Allocation Revenues                                                 Development
                     and other local funds in prior
                                                                                                                                                           Property tax
                     calendar year
                                                                                                                                                           allocation revenue
                     Sponsoring (or co-sponsoring) local                                         **Increased state                                         value (75% of new
                     government must issue bonds within                                      property and excise (sales                                    construction)
                     five years                                                                and use) tax revenues

                                                                Increased local                                                          Increased property
                                                                  excise taxes                                                                 values

                                                                                                          Distributed to                                   25% of new
                                                                                                          participating districts                          construction and
                                                                                                          and sponsoring                                   other increases in
                                                                                                          local government                                 assessed value
Architecture of LIFT Financing                                                                                                                                             20
Legislative update: LIFT
 Chapter 267, 2009 Laws; Effective date 7/26/2009
 Technical amendments to make LIFT more
 State tax increment  estimated and reported

Community Revitalization Areas
 Chapter 270, 2009 Laws
 Signed by the Governor April 29, 2009
 Effective date July 26, 2009

Allowable Projects
 Public infrastructure projects
 Planning, analysis, retail promotion, maintenance
  and security of common areas

Sources of Funding
 State contribution through state sales tax credit
       Lesser of award amount and
       Local match for prior calendar year
       Must be used for debt service on general obligation bonds

Sources of Funding…
 Local match through local tax increment
         75% of increased property taxes from new construction
         Sales taxes (percent determined by interlocal agreement)
         Plus federal sources and private sources
         Can carry forward excess match
         Can be used for debt service or pay as-you-go

Taxes collected in Revitalization Area?
 Property taxes: counties, cities and ports
    That do not “opt out”
    Within 30 day notice period
    By ordinance
 Sales taxes
    That do not opt out
    Within same time frame

                                                                             Funding Public Improvements in Revitalization Area
                                                                               (Under SSB 5045, Passed Legislature 4/20/09)

                            State Contribution                                                               General Obligation
                        (though sales tax imposed                                                                (LTGO)                  Pledge and use for debt service
                        by city/county and credited                                                               Bonds
                               against states)                                                                                                                                                            Local
                                                                                                                                                                       OR                                 Public

                       Lesser of:                                                                                                                    Obligate
                       ● $500k                                                                                                                       to pay as
                       ● project award                                                                                                               you go
                       ● Local public sources* from preceding                                                                                                                                                       Federal source
                       calendar year (excess may be carried                     Public Improvements:
                       forward)                                                 Competitive project award?                                                                                                          Private sources
                                                                                ● Infrastructure
                                                                                          --street, road, bridge, rail                                                                                              xxxx No state sources
                                                                                          --water, sewer
                                                                                          --gas, electric, fiber, other utilities
                                                                                          --sidewalks, street lights, land/street scaping
                                                                                          --parking, terminals, docks
                                   Competitive project award?                             --transit park & ride
                                   ● July 1, 2011 or later (if apply after                --park facilities, recreational areas, environmental remediation
                                   2009)                                                  --stormwater, drainage
Demo project?                      ● After bonds issued                         ● Planning/analysis, managing/promoting retail, maintenance/security of                       75% of increase from
                                   ● When state property and sales tax          common areas, historic preservation state                                                       new construction                               % specified in
Starting July 1, 2010 or
                                   increase for prior calendar year ≥                                                                                                           initiated after RA                              interlocals
later and after bonds issued
                                   project award
                                   ● When state

                                                                                               Encourage private investment and
                                                                                                   increase property values

                                                                                                                                                                               Property Taxes                           Local Sales Taxes
                                                                                                                                                                            Starting 2nd calendar year                  Starting date specified in
                                                                                                                                                                                     after RA                                   interlocals

                                                                                                 Generate increased tax receipts


Two pots of money for state contribution
 Demonstration projects (annual awards)
      Whitman - $200k
      University Place - $500k
      Tacoma - $500k
      Bremerton - $330k
      Auburn - $250k
      Vancouver - $220k
      Spokane - $250k
         Demonstration project award winners can “opt out” of
          demonstration project status to try for more $$
 Competitive Pool - $2.5m in annual awards

Application Process
 Tight timeline
      Send notice to taxing districts
      Conduct public hearing
      Adopt ordinance forming RA
      Enter into interlocal agreement
      Enter into developer contract or LOI
      Apply to DOR September 1, 2009
         DOR is creating an electronic application (anticipated release is
         Program will have date/time stamp feature
         Demonstration projects must submit application as well
    DOR to decide within 60 days

Finance-related Legislation continued..
 Special election dates changed/eliminated
    ESHB 1018, delivered to Governor for signature
    Eliminates March special election
    Moves February special election to 2nd Tuesday
    May special election is only for tax levies that failed
     previously in that calendar year and new bond issues
    May special election eliminated after 2011
    52 day notice reduced to 45 days

The American Recovery and Reinvestment Act
of 2009 (“ARRA”)

•   Build America Bonds (“BABs”)
•   Recovery Zone Economic Development Bonds
•   Recovery Zone Facility Bonds (“RZ-FB”)
•   Other stimulus provisions

Build America Bonds (“BABs”)
 New taxable financing option authorized in ARRA
 Designed to stimulate economy by encouraging
 Two Types:
   Direct Subsidy
      Payments are made directly to the issuer
      Market has responded to this new type of financing tool
   Tax Credit
      Credit is allocated to the bondholder
      Market has yet to respond

BABs (Direct Subsidy)
Direct Subsidy to Issuer equal to 35% of Interest


          $ Subsidy
                          $ Debt
   Governmental                        Owner of
      Issuer                           Taxable Bond
                           $ Bond

    $$$ Project

BABs (Tax Credit)
Tax Credit to Bondowner equal to 35% of Interest

     Federal                       $ Tax Credit

                         $ Debt
   Governmental                              Owner of
      Issuer                                 Taxable Bond
                          $ Bond

   $$$ Project

Direct Subsidy BABs
 All State and local government issuers may issue BABs
 Limited and unlimited tax general obligation bonds and revenue
  bonds may be issued as BABs
 The interest on BABs is “taxable”
 Must be issued before January 1, 2011
 Bonds must otherwise qualify as “governmental bonds”
 Bonds must be issued to pay or reimburse new money capital
 Bonds may also be issued to refund short-term new money
  financings issued after 2/17/09 to pay new money expenditures paid
  or incurred after that date
 Subsidy funds can be used to offset interest expense on the bonds,
  finance capital projects or finance working capital

BABs – Other Requirements
 Issuers of BABs must comply with all requirements
  applicable to the issuance of tax-exempt
  governmental bonds, including
      the private business use and private loan restrictions,
      the arbitrage and rebate rules,
      the registration requirements,
      federal guaranty limitations,
      advance refunding limitations,
      reporting requirements, and
      hedge bond limitations

Direct Subsidy BABs – lessons learned so far ….

 Examples of successful direct subsidy BABs issues
 Market review – when does it make sense to issue
 Permitted uses of subsidy payment
 Treatment of direct subsidy payment for purposes of
  bond covenants
 Refunding and defeasance options
 Will the money go away?
    Extraordinary call in the event that the subsidy is

How the Subsidy is Paid
 A federal subsidy equal to 35% of interest will be paid directly
  to the issuer
 For fixed rate debt, subsidy will be paid on each interest
  payment date
 For variable rate debt, subsidy will be paid quarterly, in

Procedural Requirements for Direct Subsidy BABs

 Issuer must elect to treat obligations as Direct
  Subsidy BABs by making election on books and
  records on or before issue date
 8038-G must indicate that election has been made
 Debt service schedule must be attached to 8038-G
 For fixed rate BABs, file 8038-CP between 45 and
  90 days prior to each interest payment date
 For variable rate BABs, file 8038-CP with 45 days
  after last payment in each calendar quarter

Recovery Zone Bonds
 New financing options authorized in ARRA
 Designed to finance certain kinds of business
  development activities in areas of significant
  economic distress
 Two types:
    Recovery Zone Economic Development Bonds
    Recovery Zone Facility Bonds (“RZ-FB”)

Recovery Zone Bonds - Issuers
 Eligible Issuers: States, political subdivisions and “on behalf of”
 Volume cap allocated to counties and large municipalities (greater
  than 100,000 in population) based on proportionate decline in
  employment from December 2007 to December 2008
 An eligible issuer may issue Recovery Zone Bonds based on the
  allocation received by the eligible issuer itself or by a conduit
  borrower or other ultimate beneficiary of the bond issue
 States (with respect to allocations waived or deemed waived by any
  county or large municipality), counties and large municipalities may
  allocate volume cap to ultimate beneficiaries in any reasonable
  manner as they shall determine in good faith in their discretion for
  use for eligible costs for qualified economic development purposes
  or recovery zone property, as applicable

Designating a Recovery Zone
 Recovery zone is defined as
    any area designated by the issuer as having significant poverty,
      unemployment, rate of home foreclosures, or general distress;
    an area that has already been federally designated as an
      Empowerment Zone or Renewal Community.
 Recipient of volume cap may designate areas within its jurisdiction
  as a recovery zone
 The locality must use the proceeds in a recovery zone, but the
  issuer itself can designate the zone and it appears that issuers have
  broad discretion in defining the zone (can be made in any
  reasonable manner so long as made in good faith)

Recovery Zone Economic Development Bonds (“RZ-EDB”)

 Eligible expenditures:
    Proceeds must be used to finance “qualified economic
      development purposes” within designated “recovery zones,”
         New money capital expenditures for property located in a
          recovery zone
         Public infrastructure (wherever located) that promote
          economic activity in a recovery zone
         Expenditures for job training and educational programs
         Includes working capital expenditures to promote
          development or other economic activity in a recovery zone
 Volume Cap
    $10 billion total ($90,000,000 to Washington) for 2009 and 2010

Recovery Zone Economic Development Bonds
 Similar to BABs (Direct Payment)
    Bonds are issued as “taxable”
    Issuers must comply with all requirements applicable to the
     issuance of tax-exempt governmental bonds
    Designation and reporting requirements apply
    Bonds must be issued prior to January 1, 2011
 Unlike BABs:
    Subsidy is 45% (instead of 35%)
    Project must be located in a “recovery zone”
    Volume Cap limitations
    Federal Davis-Bacon prevailing wage rules apply

Recovery Zone Facility Bonds (“RZ-FB”)
   New category of tax-exempt private activity bonds to finance
    depreciable property for use in areas designated as recovery zones
   Eligible Expenditures:
      Private activity bonds issued to finance “recovery zone property”
        located in “recovery zones”
           Property that was constructed, reconstructed, renovated or
            acquired by purchase after it was deemed in a recovery zone,
           Property first used in a recovery zone by a taxpayer, and
           Substantially all of the property is in the recovery zone and is being
            used as a qualified business
      A qualified business is any trade or business except residential rental
        property or certain businesses such as private golf courses, massage
        parlors, hot tub facilities, suntan facilities, gambling facilities or liquor
      The property may be privately owned and operated
   Volume Cap
      $15 billion total ($135,000,000 to Washington) for 2009 and 2010

Recovery Zone Bonds – Volume Cap
 Volume Cap allocated among the States and counties and large
  municipalities within the States based on relative declines in
  employment in 2008
 Treasury Notice 2009-50, released June 12, 2009, allocates the
  bonds to all 50 states, the District of Columbia and American
  territories, and made sub-allocations within each State

Washington State Volume Cap
     Area                RZ-EDB        RZ-FB
   City of Bellevue    $2,491,000    $3,736,000
   City of Seattle     $13,278,000   $19,918,000
   City of Spokane     $104,000      $156,000
   City of Tacoma      $3,320,000    $4,979,000
   City of Vancouver   $1,639,000    $2,459,000
   Asotin County       $9,000        $14,000
   Clallam County      $806,000      $1,209,000
   Clark County        $2,627,000    $3,940,000
   Cowlitz County      $3,668,000    $5,502,000

Washington State Volume Cap (cont.)
       Area             RZ-EDB         RZ-FB
   King County        $23,169,000    $34,754,000
   Kitsap County      $7,527,000     $11,290,000
   Lewis County       $494,000       $740,000
   Pacific County     $580,000       $870,000
   Pierce County      $9,741,000     $14,612,000
   Skagit County      $5,276,000     $7,914,000
   Skamania county    $100,000       $149,000
   Snohomish County   $13,210,000    $19,816,000
   Spokane County     $136,000       $204,000
   Whatcom County     $1,825,000     $2,738,000

Other Stimulus Provisions
   Temporary suspension of AMT
   Expansion of “bank qualified”
   Expansion of IRS 2% De Minimis Rule to Banks
   Expansion of tax-exempt funding for
    “manufacturing” facilities

 Contact Information
   Cynthia.Weed@klgates.com
   Stacey.Crawshaw-Lewis@klgates.com
   Deanna.Gregory@klgates.com


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