RCW 39.114.020: Designation of increment areas by local governments—Project analysis—Fees may be charged to private developers—Mitigation plan with fire protection districts or regional fire protection service authorities—Increment areas taking effect after June 1, 2026—Reimbursement of costs—Ordinance adoption requirements.

(1) A local government may designate an increment area under this chapter and use the tax allocation revenues to pay public improvement costs, subject to the following conditions:

(a) The local government must adopt an ordinance designating an increment area within its boundaries and describing the public improvements proposed to be paid for, or financed with, tax allocation revenues;

(b) The local government may not designate increment area boundaries such that the entirety of its territory falls within an increment area;

(c)(i) Except as provided in (c)(ii) of this subsection, the increment area may not have an assessed valuation of more than $200,000,000 as adjusted annually by the consumer price index, beginning on June 1, 2027, or more than 20 percent of the sponsoring jurisdiction's total assessed valuation, whichever is less, when the ordinance is passed. If a sponsoring jurisdiction creates two increment areas, the total combined assessed valuation in both of the two increment areas may not equal more than $200,000,000 as adjusted annually by the consumer price index, beginning on June 1, 2027, or more than 20 percent of the sponsoring jurisdiction's total assessed valuation, whichever is less, when the ordinances are passed creating the increment areas.

(ii) During the 2026 fiscal year, a sponsoring jurisdiction may enact a tax increment area or areas with a combined assessed valuation greater than $200,000,000 but no more than $500,000,000 if:

(A) The sponsoring jurisdiction is a city with a population over 150,000 but less than 170,000 and is located in a county with a population of over 1,500,000;

(B) The tax increment area is connected to Interstate 405 and the transportation-related public improvements that will be funded enhance the integration and connection of neighborhoods within and adjacent to the increment area;

(C) The sponsoring jurisdiction enacted an ordinance designating the increment area no later than June 30, 2026; and

(D) A governing body of any taxing district within the increment area approves by a majority vote, and according to the governing body's ordinance and publication procedures, the taxing district's partial or full participation in the tax increment project. If the governing body does not approve its participation, the taxing district's property taxes are not subject to apportionment under this chapter and the taxing district is excluded from the provisions of this section;

(d) Except as otherwise provided in (c)(ii) of this subsection, a local government can create no more than two active increment areas at any given time. Active increment areas may not physically overlap by including the same land in more than one increment area created by any local government at any time;

(e) The ordinance must set a sunset date for the increment area, which must be the earlier of no more than 25 years after the first year in which tax allocation revenues are collected from the increment area or the date on which the obligations issued in reliance on the tax allocation revenues to finance the public improvements are no longer outstanding;

(f) The ordinance must identify the public improvements to be financed and indicate whether the local government intends to issue bonds or other obligations, payable in whole or in part, from tax allocation revenues to finance the public improvement costs, and must estimate the maximum amount of obligations contemplated;

(g) The ordinance must provide that the increment area takes effect on June 1st following the adoption of the ordinance in (a) of this subsection;

(h) The sponsoring jurisdiction may not add additional public improvements to the project after adoption of the ordinance creating the increment area or change the boundaries of the increment area. The sponsoring jurisdiction may expand, alter, or add to the original public improvements when doing so is necessary to assure the originally approved improvements can be constructed or operated;

(i) The ordinance must impose a deadline by which commencement of construction of the public improvements shall begin, which deadline must be no more than five years into the future and for which extensions not to exceed two years shall be made available for good cause;

(j) The local government must make a finding that:

(i) The public improvements proposed to be paid or financed with tax allocation revenues are necessary to encourage private development within the increment area and to increase the assessed value of real property within the increment area;

(ii) Private development that is anticipated to occur within the increment area as a result of the proposed public improvements will be permitted consistent with the permitting jurisdiction's applicable zoning and development standards;

(iii) The private development would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future without the proposed public improvements; and

(iv) The increased assessed value within the increment area that could reasonably be expected to occur without the proposed public improvements would be less than the increase in the assessed value estimated to result from the proposed development with the proposed public improvements; and

(k) The ordinance may not include areas within an increment area that already have the necessary public improvements that are required for the private development expected to be made possible by the adoption of the increment area and may not include areas within an increment area where a private building or structure is under construction, has an active application for construction, has a valid permit for construction, or is undergoing a project-level environmental review process under chapter 43.21C RCW, unless the sponsoring jurisdiction can demonstrate that the public improvements developed in the increment area are necessary for the private development of projects that are seeking permit applications or under construction at the time the increment area is approved.

(2) In considering whether to designate an increment area, the legislative body of the local government must prepare a project analysis that shall include, but need not be limited to, the following:

(a) A statement of objectives of the local government for the designated increment area;

(b) A statement as to the property within the increment area, if any, that the local government may intend to acquire;

(c) The duration of the increment area;

(d) Identification of all parcels to be included in the area;

(e) A description of the expected private development within the increment area, including a comparison of scenarios with the proposed public improvements and without the proposed public improvements;

(f) A list of the public improvements, including individual improvements in priority order with each improvement's nexus to encouraging private development, estimated completion date, estimated public improvement costs, proposed funding sources, and the estimated amount of bonds or other obligations expected to be issued to finance the public improvement costs and repaid with tax allocation revenues that can reasonably be expected to be completed within the first seven years of the project. The list should reflect the capital plans of the sponsoring jurisdiction and the reliance of those plans on investments by partners. When capital plans change, the sponsoring jurisdiction may reprioritize the list of public improvements. When the list is not reflected in the capital plans of the sponsoring jurisdiction, those public improvements shall be allowable only if the governing body makes a finding that the public improvements serve the goals and objectives of the capital plans;

(g) The assessed value of real property listed on the tax roll as certified by the county assessor under RCW 84.52.080 from within the increment area and an estimate of the increment value and tax allocation revenues expected to be generated;

(h) An estimate of the job creation reasonably expected to result from the public improvements and the private development expected to occur in the increment area;

(i) An assessment of any impacts on the following:

(i) Affordable and low-income housing;

(ii) The local business community;

(iii) The local school districts; and

(iv) The taxing districts; and

(j) The assessment of impacts under (i) of this subsection (2) must be done in consultation with any impacted taxing district consistent with RCW 39.114.040 and include:

(i) An estimate of the revenue impacts to each taxing district in the area, including tax allocation revenues, levy rate adjustments, and other revenues including, but not limited to, impact fees, fire benefit charges, sales tax, and utility tax, over the term of the increment area; and

(ii) Any necessary mitigation to the taxing districts.

(3) The local government may charge a private developer, who agrees to participate in creating the increment area, 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 related to establishing the increment area.

(4) Nothing in this section prohibits a local government from entering into an agreement under chapter 39.34 RCW with another local government for the administration or other activities related to tax increment financing authorized under this section.

(5)(a) If the project analysis indicates that an increment area will impact at least 20 percent of the assessed value in a public hospital district, fire protection district, or regional fire protection service authority, or if the public hospital district's or the fire service agency's annual report, or other governing board-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 for a mitigation plan with the impacted public hospital district, fire protection district, or regional fire protection service authority to address level of service issues in the increment area.

(b) If the parties cannot agree pursuant to (a) of this subsection (5), the parties must proceed to arbitration to determine the appropriate mitigation plan. The board of arbitrators must consist of three persons: One appointed by the local government seeking to designate the increment area and one appointed by the junior taxing district, both of whom must be appointed within 60 days of the date when arbitration is requested, and a third arbitrator who must be appointed by agreement of the other two arbitrators within 90 days of the date when arbitration is requested. If the two are unable to agree on the appointment of the third arbitrator within this 90-day period, then the third arbitrator must be appointed by a judge in the superior court of the county within which the largest portion of the increment area is located. The determination by the board of arbitrators is binding on both the local government seeking to impose the increment area and the junior taxing district.

(6)(a) For increment areas that take effect after June 1, 2026, the local government designating the increment area and any impacted taxing district must begin negotiations to develop an agreement if such impacted taxing district, within 30 days of receiving the project analysis as required in subsection (8) of this section, indicates to the local government designating the increment area any of the following conditions:

(i) The increment area will create an increase in residential development of at least 50 units or impact at least 10 percent of the assessed value in the impacted taxing district;

(ii) The impacted taxing district can demonstrate or has forecasted an increase in the service demands directly related to the increased development in the increment area;

(iii) The project analysis forecasts a loss of property tax revenue over the term of the increment area; or

(iv) A taxing district is subject to more than one tax increment area and the proposed increment area will result in more than 20 percent of the taxing district's assessed value being subject to tax increment areas.

(b) If voters in the impacted taxing district elect to authorize an increase in regular property tax levies under RCW 84.55.050, the impacted taxing district and the local government designating an increment area must review the agreement and address impacts related to the levy lid lift. Either party may initiate a review of any agreement no more frequently than every five years. Subsequent revisions of an agreement are not subject to arbitration.

(c) If the parties cannot agree to a final agreement pursuant to (a) of this subsection (6), the parties must proceed to mediation within 30 days of the end of the notice and consultation period in RCW 39.114.040 to further attempt to reach an agreement.

(d) If, after 30 days, the parties cannot agree in mediation, the parties must proceed to arbitration within 90 days of the end of the notice and consultation period in RCW 39.114.040 to determine the appropriate mitigation plan. The board of arbitrators must consist of three persons: One appointed by the local government seeking to designate the increment area and one appointed by the impacted taxing district, both of whom must be appointed within 30 days of the date when arbitration is requested, and a third arbitrator who must be appointed by agreement of the other two arbitrators within 30 days of the date when arbitration is requested. If the two are unable to agree on the appointment of the third arbitrator within this 60-day period, then the third arbitrator must be appointed by a judge in the superior court of the county within which the largest portion of the increment area is located. The determination by the board of arbitrators is binding on both the local government seeking to impose the increment area and the impacted taxing district. In making a determination, the board of arbitrators must consider:

(i) Whether new service demands will be created directly by the new development in the increment area that are not funded by the corresponding revenue generated by the new development;

(ii) Whether the impacted taxing district will experience a loss of property tax revenue beyond the base level and has taken steps to address impacts to property tax revenues as allowed under RCW 84.55.010;

(iii) How the increment area may impact taxpayers outside of the increment area;

(iv) Other revenues generated for the impacted taxing district in the increment area; and

(v) The overall 25-year impact of the increment area on the impacted taxing district, including the broader economic impacts of the development.

(e) Mitigation may include reductions or suspensions in the percentage or term of tax allocation revenues transferred to the local government designating the increment area, the use of tax allocation revenues to fund public improvements to serve the projected development in the increment area, and other provisions designed to mitigate the impacts on taxing districts. Mitigation may not include allowing a taxing district to opt out or be removed from participation in the tax allocation and increment area. Any decision must be consistent with the uniformity requirement of Article VII, section 1 of the state Constitution.

(7) The local government must reimburse the assessor and treasurer for their costs as provided in RCW 39.114.010(7)(e).

(8) Prior to the adoption of an ordinance authorizing creation of an increment area, the local government must:

(a) Hold at least two public hearings for the community solely on the tax increment project that include the description of the increment area, the public improvements proposed to be financed with the tax allocation revenues, and a detailed estimate of tax revenues for the participating local governments and taxing districts, including the amounts allocated to the public improvements. The hearings must be announced at least two weeks prior to the date being held, including publishing in a legal newspaper of general circulation and posting information on the local government website and all local government social media sites, and must occur no earlier than 90 days after submitting the project analysis to the office of the state treasurer and all local governments and taxing districts impacted by the increment area;

(b) Submit the project analysis to all local governments and taxing districts impacted by the increment [area] at the same time as submitting the analysis to the office of the treasurer; and

(c) Submit the project analysis to the office of the treasurer for review and consider any comments that the treasurer may provide upon completion of their review of the project analysis as provided under this subsection. The treasurer must complete the review within 90 days of receipt of the project analysis, may receive comments from taxing districts, and may consult with other agencies and outside experts as necessary. Upon completing their review, the treasurer must promptly provide to the local government, and any taxing district that submitted comments, any comments regarding suggested revisions or enhancements to the project analysis that the treasurer deems appropriate based on the requirements in subsection (2) of this section.