Washington State Legislature Wrap-Up
New Biennial Budget
The Washington State Legislature adjourned at midnight on Sunday, April 28, after passing a number of policy and tax bills in the final hours. This was the first on-time adjournment of a budget session in recent years.
The budget will spend $52.4 billion over the next two years, including $1.9 billion in new policy spending. A maintenance-level budget would have cost $50.5 billion. State spending will increase by nearly $8 billion from the previous two-year budget. The 17.5% increase in state spending is one of the largest increases in the last 25 years and comes on the heels of double-digit growth in the previous two budgets.
The overall spending level does not include the impact of House Bill 2158, a B&O surcharge targeted for investments in higher education. HB 2158 will generate almost $1 billion over the next four years.
Some of the taxes included in the final budget include the below. Dollar figures indicate anticipated revenue over the two-year budget biennium:
- Higher taxes on service-sector businesses and large high-tech firms to pay for workforce and higher education: $380M;
- graduated real-estate excise tax (REET): $244M;
- higher B&O tax on banks: $133M;
- higher MTCA tax: $165M;
- tax on institutional investment services: $59M;
- tax on vapor products;
- change in the non-resident sales tax exemption: $54M;
- and a tax on travel agents and tour operators: $5M.
NAIOP Issues
Graduated Real Estate Excise Tax (REET)
Senate bill 5998 imposes a substantial increase in REET taxes on property transactions in Washington state. NAIOPWA aggressively opposed the measure throughout the session. The Coalition for More Affordable Washington, organized by NAIOPWA, focused on grassroots communication with renters, encouraging them to call their local legislators and oppose the tax. More than 19,000 calls were made to legislators in opposition to the tax. In Olympia, coalition members coordinated the opposition messages using materials developed by NAIOP to illustrate the negative impacts of the proposal. NAIOPWA and representative members testified in opposition to the bill at five different hearings during the session. The final bill imposes the highest REET in the nation on sales of real estate over $3 million.
The final bill adopts the following rates:
- 1.1% on properties valued at less than $500,000
- 1.28% (the current rate) for properties valued between $500,000 and $1.5M
- 2.75% for properties valued between $1.5M and $3M
- 3% for properties valued above $3M
Marginal rates are included. The local REET, up to half a percent, is in addition to the new state rate. The act takes effect on January 1, 2020.
B&O Tax Increase on Selected Services
House bill 2158 increases the B&O tax from 1.5% to 1.8% for selected services, including most professional scientific and technical services, and imposes higher levels of the B&O tax on “advanced computing services.” The taxes raised will be dedicated to a special account for higher education and connected learning, called the Workforce Education Investment Account.
Deep Energy Retrofits for Existing Commercial Buildings
In early January, Governor Inslee introduced a package of bills aimed at reducing greenhouse gas (GHG) emissions in the state. One of those bills proposed to reduce the GHG emissions from buildings by 4.3 million metric tons (MMT) by 2035 by developing a new energy standard for large commercial buildings. The new energy standard will be based on ANSI/ASHRAE/IES standard 100-2018. This will be used to develop energy use intensity targets for building types.
The building owner of a commercial building must report to Commerce its compliance with the energy standard according to the following reporting schedule:
- for a building with more than 220,000 gross square feet, by June 1, 2026;
- for a building with between 90,000 and 221,000 gross square feet, by June 1, 2027;
- for a building with between 50,000 and 91,000 gross square feet, by June 1, 2028.
NAIOPWA was actively involved in responding to this legislation and identifying issues of concern. Many of the “workability” issues were addressed. In particular, the governor’s office committed to a robust stakeholder process where industry can work with the Department of Commerce to develop the new rule. We also asked that the Department provide an annual program status update including a report on costs to building owners as well as an accounting of available incentives. Finally, we addressed issue of “cost effectiveness” of the retrofits and adopted more robust language to guide this process.
The governor’s office presented the proposal as a having financial incentives to assist building owners with the cost of the deep energy retrofits. However, it is clear that the financial incentives will be a very small portion of the overall cost of the new standard, and the financial incentives may not even be available to most building owners.
Financial incentives will be capped at $0.85 per square foot, while fines for non-compliance are $1.00 per square foot. Incentives will go only to the worst-performing buildings (15 times worse than average) and are capped at $75 million statewide. As a consequence, there may not be sufficient funds for all eligible building owners, yet the owners still must meet the standard.
House bill 1257 passed the house 55-39 and the senate 25-23. It is now before the governor who is expected to sign the legislation. NAIOPWA will work with the Department of Commerce to develop the stakeholder process. We will look for NAIOP members who can participate and assist with development of the new standard called for in the legislation.
Voluntary Cleanup Program
House bill 1290 addresses the Department of Ecology’s (DOE) Voluntary Cleanup Program (VCP), which allows a site owner to apply to DOE for technical assistance and written opinions on the sufficiency of their site cleanup. A “no further action” (NFA) opinion provides owners with regulatory closure. However, the VCP has not kept pace with demand. DOE has had to create a waitlist, which has delayed or discouraged many cleanup projects.
NAIOP met with DOE in the spring of 2018 to discuss possible reforms to the program. We looked at best practices in other states and focused on a program in Illinois that allowed for an expedited review process.
Senate bill 1290 would provide a project applicant an opportunity to pay for the up-front costs of the permit review, essentially creating a VCP fast lane, if the applicant met certain conditions, such as having ready-to-review plans and reports and a ready-to-go cleanup plan. For those applicants not wishing to pay the entire cost of review, the current VCP process remains in place.
The bill passed the legislature unanimously, was signed into law by the governor on April 23, and takes effect July 28, 2019. NAIOPWA will work with DOE on the policy development around implementation.
Other Proposals
Condo Liability
Senate bill 5002 reforms the Condominium Liability Statute, including revisions to the definition of damages and to the responsibilities of condo board members. The legislation passed unanimously in both houses; it was signed into law on April 17, and takes effect July 28, 2019.
Tenant Eviction
Senate bill 5600 extends the notice of eviction period from 3 days to 14 days.
Urban Density
House bill 1923 addresses issues that limit up-zones and density around transit centers, including the issue of excessive litigation. Originally written a mandate to cities, the final bill is voluntary. It funds a grant program for local governments to plan for growth and to maintain affordable housing. The final amendment adopted into the bill has the effect that adopting or amending ordinances or development regulations to increase residential building capacity under the act are not subject to legal challenges under the Growth Management Act.
Notice of Rent Increases
House bill 1440 requires a landlord to provide a tenant at least 60 days prior written notice of an increase in rent, except in the case of rental agreements governing subsidized tenancies where the rental amount is based on the income of the tenant or circumstances specific to the subsidized household. HB 1440 passed the house 62-36 and the senate 29-18, was signed into law on April 23, and has an effective date of July 28, 2019.
Statewide Impact Fees
As part of a gas tax/carbon tax/transportation package, senate bill 5971 included statewide impact fees on development to pay for transportation-related programs. The bill passed out of the Senate Transportation Committee, but did not advance.
Land Use Petition Act (LUPA)
House bill 1781 changed several provisions of LUPA that were problematic for development. NAIOPWA joined with AWB and other real estate organizations to oppose; a group letter composed by NAIOPWA and AWB was effective in identifying concerns with the bill. The bill passed out of the policy committee, but died in the Rules Committee.
Greenhouse Gas (GHG) Budget Proviso
NAIOPWA supported house bill 1549, which directed the Department of Ecology to enter rulemaking to determine how the agency manages greenhouse gas emissions during the permitting process. The bill had a hearing but did not advance. NAIOPWA worked with AWB and the Ports on budget proviso language to consider this issue, but the proviso was not included in the final budget.
2019 Interim
Post-session work for NAIOPWA will largely focus on the implementation of house bill 1257, energy efficiency for large buildings, for which we will be seeking active member participation in the stakeholder process. Additionally, we will work with the Department of Ecology in implementing house bill 1290, Voluntary Cleanup Program reform legislation. To participate in NAIOP’s response, please contact Peggi Lewis Fu at peggi@naiopwa.org.
