The Issaquah City Council has unanimously approved a resolution declaring its intent to adopt legislation to authorize a sales and use tax for affordable and supportive housing. The resolution does not create a new tax.
The decision, during a Sept. 3 meeting, is the first step cities need to take in order to receive state tax revenue for affordable housing since the state Legislature passed HB 1406 in April. HB 1406 which encourages cities and counties to invest in affordable housing by providing a share of the state sales tax revenue to participating local governments. The sales tax credit will be available for 20 years.
“The potentially confusing mechanism for local governments to obtain their share of the state’s revenue is to adopt a sales tax,” said executive office management analyst Gene Paul, who presented the new resolution. “But to be clear, in spite of the mechanism, this is a tax credit that comes from the State’s portion of the existing tax rate. There is no additional tax for consumers.”
First, the city must adopt a resolution of intent by January 2020. Second, the city must adopt legislation to authorize the tax by July 27, 2020, which is now scheduled for the first quarter of 2020.
King County is already set to receive millions of dollars in funds after the county council passed a pair of ordinances in August. If cities like Issaquah do not adopt resolutions of intent followed by the proper legislation, King County would instead receive that portion of the shared tax revenue as well, and the city would have decreased control of how those sales tax dollars collected in Issaquah are spent.
The total funds each city can receive is based on the amount of taxable retail sales in the 2019 fiscal year in that area. The resolution agenda bill explains that there are two increments for the amount of sales tax credit available to local governments.
The first increment is 0.0073 percent of the amount of taxable retail sales within a jurisdiction. The second increment is an additional 0.0073 percent, for a total 0.0146 percent of the taxable retail sales within a jurisdiction.
The agenda bill notes that the specific increment of revenue available for any jurisdiction is based on three factors: The city’s decision to participate in the program, whether that city has already adopted a qualifying local tax voter approved by July 30, 2020, and the county’s decision to participate in the program.
The bill states that while the city of Issaquah has not yet levied a qualifying local tax, the city would only be eligible for 0.0073 percent of taxable retail sales after adopting a sales tax and use tax ordinance. King County is eligible to receive the second 0.0073 percent of shared revenue.
An estimate for the maximum total annual amount the city of Issaquah could receive each year, based on data from the 2018 fiscal year, is $122,725. That is the cap, not a guarantee, and could be less if retail sales are less.
The new law states the revenue can only be used to support “persons whose income is at or below (60) percent of the median income of the county or city,” which data from the U.S. Department of Housing and Urban Development defines as $65,160 for a family of four in the Seattle-Bellevue Metro Area.
A new Affordable Housing Committee has formed to implement recommendations of the Regional Affordable Housing Task Force. One major recommendation is to pool money together to maximize the impact.
Currently, Paul said city administration plans to propose contributing the shared tax revenue to ARCH – A Regional Coalition for Housing created by Eastside cities and King County. A majority of ARCH funding goes to individuals at 50 percent of the area mean income or below.
Some $25,000 would supplement the funding of new full-time ARCH employees and an additional $97,000 would be added to the Housing Trust Fund, which is used to construct and preserve affordable housing.
“These numbers are provided for informational purposes only,” Paul said. “The actual allocation decisions will be made during budget deliberations and are not required in order to adopt the resolution tonight.”
Council President Tola Marts again clarified: “This isn’t something that anybody in the public would experience as a new tax,” he said. “This is a tax that already exists, that the money is sent to Olympia and we have the opportunity to redirect some of that money to local housing efforts.”