10-15-2019 Investments in Affordable HousingOrdinance: Encouraging Investments in Affordable Housing through Sales Tax (SHB 1406)
City Council
October 15, 2019
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Policy Question
Should City Council impose a sales and use tax for affordable and supportive housing in accordance with Laws of 2019, Chapter 338?
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SHB 1406 Overview
The Washington State legislature passed HB 1406 in 2019, focusing on affordable housing.
SHB 1406 allows cities and counties to recapture a portion of the existing sales tax by adopting a sales and use tax that will be deducted from the existing sales and use tax.
Passage of the ordinance does not increase the current sales tax rate.
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Use of Funds
The funds may used in the following ways:
Acquiring, rehabilitating, or constructing affordable housing;
Funding operations and maintenance costs of new units; and/or
For cities with populations less than 100,000, provide rental assistance.
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Gaps in Housing
Gap between needed and available units.
Gap between needed and available units.
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Cost Burden
More than half of renter-occupied housing units are cost-burdened (spending > 30% on housing costs)
Source: ACS 13-17
7,737
7,800
7,200
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Impact for the City
Unique funding opportunity and tool to address housing without increasing the existing tax
Provides flexible funding for up to 20 years
Funds will be available quickly
Funds may be pooled regionally to maximize impact
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Funding via SHB 1406
Without a qualifying tax: the City of Federal Way would be eligible to recapture 0.0073% of the existing sales tax and the same amount would go to King County if it participates in SHB
1406.
With a qualifying tax: The City of Federal Way does not currently have a qualifying tax. If it were to pass a voter approved qualifying tax, the City would be eligible to recapture 0.0146%
of the existing sales tax and revenue from the qualifying tax.
*Revenue estimates are based on 2018 sales tax; actual revenue will be based on 2019.
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Qualifying Taxes
SHB 1406 allows the City of Federal Way to access the higher amount of funds if it were to enact one of four voter approved qualifying taxes, if eligible.
The City is not eligible to enact the tax authorized by RCW 82.14.460 as King County has already enacted this tax.
The City would be eligible to for the following taxes, provided that the funds be used for affordable housing:
Property tax:
RCW 84.52.105
RCW 84.55.050
Sales tax:
RCW 82.14.530
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Process for Participating
To participate, a city must:
Pass a resolution of intent by January 2020.
Pass an ordinance by July 2020.
There is no financial impact for participating, though there may be staff time associated with implementing the plan for the use of the funds.
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Prioritizing and Using Funds
Should City Council pass the ordinance, policies and recommendations for prioritizing use of the funds will be prepared.
Rehabilitation, acquisition, and construction are generally encouraged as they have longer term impact on affordable housing in the community.
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Pooling Funds
SHB 1406 allows for pooling of funds with a regional entity.
Engage in discussion with South King Housing and Homelessness Partners (SKHHP).
A capital fund may be established, allowing for funds to be pooled and better leveraged.
SKHHP participants, in general, support pooling of funds as the most effective means by which to invest in affordable housing.
Pooling funds may allow for investment in larger projects, increasing the impact of funds and stability of affordable housing in the City and region.
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Recommendation
Become a participating city by imposing the sales and use tax allowed by SHB 1406, which will be deducted from the existing sales and use tax.
This tax will not increase the existing tax rate.
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Questions?
City Council
October 15, 2019
Staff Contacts:
Sarah Bridgeford, Community Services Manager
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