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October 2019

Representative 2019 Advocacy and Legislative Successes

October 7, 2019

Advocacy Focused on Increasing Housing Supply

While increased housing supply is at the core of most every issue SKCR addresses, some specific successes are highlighted below.

 

Seattle's Mandatory Housing Affordability Program

Advocacy Success! Seattle Completed Voting to Approve Mandatory Housing Affordability Program

The Seattle City Council completed the neighborhood upzones associated with the Mandatory Housing Affordability (MHA) program.

While there was district-by-district and street-by-street tinkering with specific streets and groups of parcels to be upzoned, the program will result in a significant amount of new market-rate housing and income-qualified housing throughout the city.

Seattle King County REALTORS® expressed its support of the work and the need to act swiftly to enable the unzones to be utilized in this market cycle, with the overall goals of getting units to the market as quickly as possible. REALTORS® cautioned the council to avoid constraining the upzones with requirements that unduly add costs and limit development such as excessive energy code requirements, water service connection fees, potential impact fees and green building mandates.

The council also approved a resolution which identifies issues the Council will seek to address that are outside the scope of the MHA program. The resolution recognizes that while the implementation of MHA citywide will result in the production of more affordable housing, it is just one necessary step to achieve all of the city's racial equity goals, and the goals of Seattle's different neighborhoods.

Accessory Dwelling Units

Seattle King County REALTORS® views ADUs as a valuable housing tool for cities throughout the region. ADUs enable greater utilization of existing houses and residential lots, without a significant change in community character. The added units offer important, affordable, housing opportunities for tenants as well as income for the owner --- easing the owner's mortgage. In addition, ADU's offer important housing stability options for "empty nesters" and seniors on a fixed income.

 

Seattle ADUs and DADUs

The Seattle City Council instituted major changes to regulations governing Accessory Dwelling Units (ADUs). The changes will both ease restrictions on ADUs and promote development of ADUs by limiting the size of new single-family homes.

 

Summary of ADU ordinance:

  • Allow two ADUs on one lot
  • Increase maximum household size to 12 unrelated people on lots with two ADUs
  • Allow Detached Accessory Dwelling Units (DADUs) on lots of at least 3,200 square feet & allow DADUs of up to 1,000 sq. ft.
  • Increase DADU height limits by 1-2 feet, with flexibility for green building strategies
  • Increase rear lot coverage to provide flexibility for one-story DADUs, provided the increase rear lot coverage does not result in removal of trees over a certain size
  • Remove the off-street parking requirement
  • Remove the owner-occupancy requirement
  • Use FAR to limit the size of new single-family homes and encourage ADUs

 

Black Diamond ADUs and DADUs

The REALTORS® were successful in supporting major changes to the Accessory Dwelling Unit (ADU) ordinance in the city of Black Diamond. Space permitting, the changes allow three accessory dwelling units, in addition to the principal residence, in single-family zones:

  • One ADU can be included inside the primary residence (for example, in the basement) so long as no change is required to the footprint of the structure
  • A second ADU can be included in a converted garage or other attached portion of the structure of the primary residence, and the code changes allow modification of the building footprint as necessary to accommodate an ADU of up to 1,000 square feet.
  • Space permitting, a third ADU is allowed as a detached structure (DADU) appurtenant to the primary residence

Detached ADUs must be architecturally and athletically similar in height to the nearest adjacent structure, and limited to 25 feet in height, except that in Business/Industrial Park, and Industrial Zones, heights of 35 feet are allowed.

The city's ordinance includes performance requirements for ADUs, recognition of existing ADU's and regulations for fences and walls.

 

King County: Affordable Housing Plan

The County estimates that 244,000 additional, affordable homes in King County are needed by 2040 so that no household earning 80 percent of Area Median Income (AMI) and below is cost burdened. This includes 156,000 homes for households currently cost-burdened, and an additional 88,000 homes for growth of low-income households between now and 2040.  
Seattle King County REALTORS® was successful in urging that the response plan include promotion of greater housing growth and diversity to achieve a variety of housing types at a range of a?ordability, and improved jobs/housing connections throughout King County. These measures include:

Update zoning and land use regulations (including in single-family low-rise zones) to increase and diversify housing choices:

  • Provide model ordinances for cities
  • Incentivize cities adopting and implementing strategies that will result in the highest impact towards addressing the affordable housing gap, specifically at the lowest income levels
  • Review and update zoning, and land use code, to increase density
  • Explore opportunities to pilot innovative housing in industrial zones, with a focus on Transit Oriented Development (TOD) and industrial buffer zones
  • Update building codes to promote more housing growth and innovative, low-cost development
  • Incentivize growth and affordability goals by expanding tools for investments in local infrastructure

 

SeaTac: Hundreds of New Units of Affordable Housing Near Sound Transit

The city of SeaTac Council has taken the first steps toward creating hundreds of new units of affordable housing along the Sound Transit Light Rail corridor on a 4.5-acre site in the vicinity of S.154th St. and International Boulevard. The site includes the SeaTac Center.

In a 5-1 vote, the Council authorized the City Manager to sign a sale and purchase agreement with CAP Acquisitions, LLC (aka The Inland Group) for the city of SeaTac property located at 15245 International Blvd S. The City says it purchased the property in 2010 with the intent to sell it for redevelopment.

The proposed project will create 665 units of housing along with 30,000 square feet of new commercial space next to the Light Rail Station on Tukwila International Boulevard (Hwy 99). The buildings would include approximately 385 units of workforce housing which is affordable for individuals and families earning less than 60 percent of Area Median Income (AMI).

 

Condominium Construction Liability Reform

Seattle King County REALTORS® played a pivotal leadership role in the successful multi-year effort to mobilize the real estate industry - including Washington REALTORS® - to pursue Condominium Construction Liability Reform.

In addition to working with Washington REALTORS®, we were able to make the legislation a centerpiece of the 2019 state legislative agendas of both the East King County Chambers of Commerce Legislative Coalition, and the South Sound Chambers of Commerce Legislative Coalition (SSCCLC). SKCR provided the speaker on the issue for the SSCCLC Legislative Preview Breakfast, and also assisted the board of the East King County Coalition. In addition, at the request of city officials, SKCR crafted the first draft of the legislative position on the issue for two of the cities in South King County, who then used that position statement to lobby the legislature.

The multi-year effort to reform the state's condominium laws finally resulted in success earlier this year when the legislature passed Senate Bill 5334 in an effort to restart the condominium construction industry in the wake of years of "greenmail litigation" that had shut down almost all new condominium construction in Washington state.

The new law provides protection for board members of Home Owner Associations who had been threatened with litigation that named the board members themselves as defendants if they failed to sue condominium builders for alleged construction defects.

The law also eliminated the statutory implied warranties that made any violation of the building codes an automatic violation of the condominium law. In order to prevail in litigation, plaintiffs will now be required to prove a material defect that affects habitability, and the new standard of care required of builders is that construction of the condominium must be consistent with prevailing industry construction standards in the area where the condominium project is located.

Previously, because of the certainty of litigation, condominium construction projects were required to pay $30,000 - $70,000 per unit in premiums for construction liability insurance. The changes in Senate Bill 5334 are intended to increase the number of insurance companies writing construction defect insurance policies for builders, thereby reducing the cost of insurance premiums for each unit. This, in turn, should result in more builders being willing to take-on new condominium construction projects, which will improve both housing opportunities and affordability. The new law, sponsored by Sen. Pedersen and signed by the governor on April 30th, took effect July 28, 2019.

 

Advocacy Focused on Rural King County

Enumclaw Single-Family Residential Design Standards

With support from SKCR, city of Enumclaw officials approved a Planning Commission recommendation to amend the City's Single-Family Residential Design Standards to provide more flexibility in connection with the construction of new homes.

The City's prior standards were intended to ensure that new single-family development fits with the character of existing neighborhoods in terms of scale, density and design. Those standards included various provisions for garage door setbacks (which is how length of driveways is regulated), window coverage, etc.

In order to provide variety in home designs, the modifications also include an optional review process for homes that meet the intent of the code but do not comply wholly with the city's standards.

According to the City's Community Development Director, Chris Pasinetti, the changes:

  1. Allow flexibility within the regulations for driveways and front yard setbacks.
  2. Clarify definitions and how the regulations are implemented, and
  3. Provide greater flexibility within the regulations to allow for a more diverse housing stock.

 

Septic System Owner Bill of Rights

Seattle King County REALTORS® played an important and successful role earlier this year - both on offense, and on defense - in connection with proposals regulating On-site Sewage (Septic) Systems.

Rural King County property owners with homes served by On-Site Sewage Systems (septic tanks) have been under attack for the last four years by the King County Department of Health, and by Public Health Seattle-King County. The bureaucrats want more money for their programs and have attempted to impute environmental harm to septic tanks that simply is not factually accurate.

Previously, REALTORS® worked hard to oppose efforts by these agencies to (1) impose a so-called "turd tax" on existing septic systems, (2) seek retribution for opposition to the "turd tax" by mandating the creation of new "as-built" drawings" for existing septic systems and (3) require annual prophylactic third-party inspections of septic-systems of private property owners, even though the County lacks the legal authority to conduct such inspections itself without violating the constitution.

Last year, the Citizens Alliance for Property Rights (CAPR) - with strong support from Seattle King County REALTORS® and Washington REALTORS® - asked legislators to reign-in the agencies' continuing assault on septic system owners.  Legislation to do so was passed by the House of Representatives, but failed in the Senate when the legislature adjourned before the Senate had time to take-up the bill.

This year, our efforts were mostly successful. The legislature passed, and the governor signed, Senate Bill 5503, which:

  1. Allows property owners to repair a septic system, rather than requiring the system be replaced, so long as the repairs will restore the system to good working order
  2. Requires the Department of Health and local health departments to allow least-cost methods of repair, so long as doing so will restore the septic system to good working order
  3. Prohibits the Department of Health or local health departments from imposing standards on private properties that are more onerous than the requirements placed on septic systems that are located on public property, and
  4. Prohibits the Department of Health or local health departments from requiring an easement for inspection to be granted as a condition of approval for a new septic system.  Unfortunately, the governor vetoed this final provision.

For purposes of framing future battles on this issue, we have begun referring to Senate Bill 5503 (and the existing provisions in RCW 75.05.074) as the "Washington Bill of Rights for On-site Septic System Owners."

In addition to these successes, we also were successful in defending the owners of septic systems by helping COOM-WA oppose/defeat efforts to pass legislation to impose new taxes and fees on the owners of On-site Sewer (Septic) Systems.



Requirements For Homes Served by Septic Systems to Connect to Sewer Systems

One of the costly "sanitary facilities" requirements in rural areas, and in unincorporated urban areas, involves the requirement to connect-to a sewer system, either in the event of a septic system failure, or in connection with new construction.

The prior requirement mandated connecting-to an available sewer system in the event of a septic system failure, or in the event of new construction, if the property was located within 200 feet of a sanitary sewer system.

Earlier this year that requirement was modified so that it only applies in situations where the available sewer system is located within 200 feet of the nearest portion of a structure that is, or would be, served by the sewer.  The change is especially important for homeowners on acreage where a portion of the property is within 200 feet of the sewer line, but the home is located much farther away.

 

Advocacy Focused on K-12 Educational Quality

Schools are important, not only because they help to define and build strong communities, but also because strong schools support higher resale home values. Seattle King County REALTORS® has the strongest and most active program of reviewing, and if justified supporting, local school levy and bond measures of any professional, trade or industry association in King County.

The Association has a formal process (including both a detailed questionnaire and in-person presentations) for considering endorsing school funding measures, and provides not only formal endorsements, but also in-kind editorial support and GOTV (Get Out The Vote) activities to encourage REALTORS® to vote.

Historically, SKCR considered both the "Maintenance and Operations" levies placed on the ballot by local school districts, as well as special levies, typically for transportation and technology. In addition, SKCR also considered capital projects levies that typically involved construction or repair of school facilities.

With passage of the "McCleary Fix" (property tax increase) legislation that is intended to transfer responsibility for funding of K-12 basic education from local school districts to the state, the only local school district funding measures now involve "excess" operational levies, and capital construction levies and bonds.

Unlike the ample state funding for K-12 school operations provided for by McCleary, the Legislature and Office of the Superintendent of Public Instruction (OSPI) provide only limited financial support for K-12 capital projects. As a result, even after McCleary, capital project levies and capital construction bonds will remain important for local school districts.

This year SKCR successfully supported the Capital Projects Levy in the Lake Washington School District.  The measure, which appeared on the ballot in April, was approved by 56% of the voters. The measure authorized $120 million in new property taxes (spread over six-years) to address rapid enrollment growth and student safety/security, including:

  • Classroom additions at Lake Washington High School, including auxiliary gems and Commons
  • Classroom additions at Carson elementary, Franklin elementary, Rose Hill elementary and Twain elementary, including expansion of core facilities, and
  • Investments in student safety that included exterior security cameras and entry modifications at Eastlake, Redmond and Lake Washington High Schools.

 

Advocacy Focused on Sign Code Legislation

The United States Supreme Court and the Federal Trade Commission have said that the alternatives to real estate signs are "far from satisfactory." Real estate signs support the 1988 Federal Fair Housing amendments to the Civil Rights Act of 1964 because they make discrimination "substantially impossible" because anyone who sees the sign can know the home is for sale if they can afford it.

 

Newcastle Sign Code

After more than a year of work, Seattle King County REALTORS® secured a sign code update in the city of Newcastle that preserved the allowance of Open House A-Boards.
The city sought to define a sign as temporary or permanent based on the material used to the make the sign. Due to the durable material used in an A-Board sign, A-Boards were considered permanent and would have been prohibited from placement in the right-of way, unless the broker obtained a right-of-way use permit. Even then, only one sign would be allowed.

Seattle King County REALTORS® won an exception in the code that allows A-Boards as "permanent portable" signs. In addition, temporary signs may be placed in the right-of-way without a permit but must be pushed or staked into the ground and made of "non-durable material" - like a political yard sign.

 

Burien Sign Code

At a Burien Planning Commission Public Hearing on April 10th REALTORS® offered the only public testimony concerning proposed amendments to the city sign code, including the provisions regarding real estate signs. In addition, REALTORS® provided the city with written materials that included a White Paper prepared by noted First Amendment attorney Judy Endejan regarding the Reed decision, proprietary research on the effectiveness of real estate Open House signs, and written testimony.

Following extended questions and answers, as a result of SKCR's advocacy efforts the Commission recommended the City Council approve the following sign code modifications for signs related to real estate transactions:

  • Allow 6 Open House signs (instead of just 3)
  • Allow 1 on-site sign per street frontage (instead of just 1 sign on-site)
  • Not require a permit for either Open House signs or on-site signs
  • Allow Open House signs to be 6 square feet per sign face (rather than just 4 square feet)
  • Allow Open House signs in the planter strips at the side of the roadway
  • Allow temporary off-premise signs five days in any one month, for up to six months (180 days), and
  • Allow significant signage for new residential construction (which is tied to each house, rather than to a plat or subdivision, which is a good thing because Burien is built-out and most new construction is likely to be in-fill rather than new subdivisions).

 

Covington Sign Code

REALTORS® were successful in obtaining a number of improvements to the original staff proposal to update the city's sign code in the wake of the United States Supreme Court decision in the case of Reed v. Town of Gilbert AZ:

  • The staff proposal to allow just 2 off-premise Open House signs was increased from 2 to 6
  • Originally, the one sign in the front yard of the property for sale would have counted as one of the six signs that are allowed, but we were able to get that changed: The sign in the yard no longer counts against the six open house signs that are typically placed off-site.   Thus, six off-premise signs are allowed in addition to the sign in the yard.
  • At the request of SKCR the city also adopted provisions that allow new construction subdivisions, on a voluntary basis, to obtain approval of a sign plan for marketing the neighborhood until the short plat/subdivision sells-out to the first-round of owner-occupants.

Other aspects of the city's new sign code were more difficult and problematic. Covington adopted a content-neutral sign code, despite objections from REALTORS® and a decision by the Ninth Circuit Court of Appeals which held the Reed case - upon which the City relied - does not apply to commercial signs. REALTOR® off-site temporary Open House signs are "commercial signs" because they propose or invite a real estate transaction.

Despite the fact that the experience of other cities has demonstrated sign code permits for temporary off-premise signs tend to produce limited benefit and consume significant city resources, the City Council approved a staff recommendation to require permits. The Planning Commission punted on the issue and did not support or oppose the staff's proposed permit requirement.

The permit requirements will not take effect until the city has the permit program in-place, and ready to go.  However, the provisions of the ordinance regulating the number of signs, time of day signs are allowed, size of the signs and prohibited locations for posting took affect almost immediately upon passage by the City Council.

 

Advocacy Focused on Local Licensing Issues & Business (Rental) Inspections

Business Licensing in Tukwila, SeaTac, Des Moines, Kirkland & Black Diamond

In response to a new requirement in state law, cities throughout King County began amending their business licensing ordinances in 2019 to exempt non-resident businesses (businesses without a physical location in the city) from the obligation to obtain a city business license, unless the non-resident business grosses at least $2,000 per year from "engaging in business within the city" (as defined in the state's model ordinance). Cities are empowered to set a threshold higher than $2,000 for triggering the requirement for non-resident businesses to obtain a city business license. All businesses with a physical location inside the City must obtain a business license.

The cities of Tukwila, Black Diamond, Des Moines, Kirkland and SeaTac were early adopters of the changes designed to bring their business licensing ordinances into compliance with the revised state law.

Our interest in this matter was two-fold:

  1. We advocated successfully to ensure that only the firm (and not individual brokers who are independent contractors) would be subject to the license requirements, and
  2. We also advocated successfully, at least thus far, to discourage imposing the requirement on brokerage firms not residing in the city, especially if the city does not have a B&O tax.

Typically, there would also be little, if any, sales tax revenue for the city from the sale of a home, except in connection with resident businesses (such as escrow) located inside the city limits.

Instead, the overwhelming majority of tax revenues received by a city in connection with a real estate transaction is the result of the Real Estate Excise Tax (REET).

Regardless of whether a non-resident business is required to have a business license, a city will receive those REET revenues because the property being sold is located within the city limits.

We argued that:

  • Under RCW 18.85, the firm, not the broker, is the regulated business entity
  • An individual broker's business license is not held by the broker individually; it must be registered with a real estate firm.
  • Even though commission income is eventually shared with licensed brokers (typically pursuant to a contract between the firm and the broker) real estate commission income is payable only to the firm, not directly to individual brokers.
  • Real estate listings are the property of the firm, not property of the listing broker. Similarly, it is the firm, not the selling broker, who represents the buyer (even though a specific broker who has assisted the buyer is typically identified on the purchase and sale agreement).
  • Real estate firms have management and supervisory requirements over brokers and transactions.
  • Additionally, the state and local business and occupation (B&O) tax structure also reflects that the firm, not the individual broker, is the regulated business entity because the B&O tax is paid by the firm - not the individual broker (RCW 82.04.255).
  • In 2017, the Department of Revenue collected B&O tax from about 2,700 real estate firms, not from each of the 40,000+ individual brokers who hold a real estate license issued by the DOL. These same 2,700 real estate firms are the same business entities that would pay B&O tax in those cities that collect the tax. By focusing on the real estate firm as the regulated business entity, the state and cities have far fewer payments to collect, businesses to audit, and a higher assurance of collected taxes.

By 2022, all cities and towns are required to administer their business license program through the state's Business Licensing System (BLS) website.  Cities and towns already participating in the state's BLS program were required to comply with the new law by October 17, 2018.

Pursuant to RCW 35.90.050, "Cities whose general business licenses are issued through the business licensing system retain the authority to set license fees, provide exemptions and thresholds for these licenses, approve or deny license applicants, and take appropriate administrative actions against licensees."

 

Auburn Rental Housing Business License

As part of our efforts to demonstrate empathy regarding the homelessness emergency in King County (without the necessity for the real estate brokerage industry and property owners to continue to be hit by new affordable housing and homeless-related taxes, with very limited return on those investments) we worked successfully with the Code Enforcement Office of the City of Auburn to promote their rental housing business license requirements to our members and the landlords they represent.

Rather than imposing new taxes to pay for city programs, the city's rental housing business license program is simply endeavoring to ensure the available affordable housing stock remains habitable.

The city requested our assistance in connection with these efforts with the objective of attempting to minimize the potential for mass evictions or dislocations that result from property becoming uninhabitable due to deferred maintenance and on-going criminal activity. Additional concerns include unsafe living environments, improperly managed garbage/recycling, managers with criminal convictions or consent decrees which bear a direct relationship to the rental housing business, violations of relevant city regulations and ongoing nuisance activity.

The subject is important to:

  • Individuals and business entities that own (or have an indirect ownership interest in) rental housing units
  • non-owner property managers (whether on-site or off-site)
  • NWMLS brokers and REALTORS® assisting investors who are purchasing residential rental property
  • renters, and
  • the owners and occupants of other nearby properties whose property values and quality of life may be affected.

 

Renton: City Council Approves New Regulations for Short-Term Rentals

SKCR was successful in working to ensure Renton adopted a balanced approach to the city's new regulations regarding short-term rentals.

The Renton City Council passed an ordinance that regulates short-term rentals in the city (which are rented for less than 30-days at a time, including Airbnb units). Owners of short-term rentals are required to obtain a business license, provide additional parking for guests, meet fire safety and signage codes and be an owner-occupant if there are multiple rental units in the building. The current annual cost of a city business license for short-term rentals is $125. Online advertising indicates there are at least 728 short-term rentals in Renton.

Under the city's new ordinance, the requirements apply to property owners who advertise their short-term rentals through any publication or on-line marketplace, who hire a property manager and/or have guests over three or more times annually. Short-term rentals in the city are limited to two persons per bedroom.

SKCR is interested in these proposals, and we worked to ensure a balanced approach, because there are multiple interests affected that can be important to our members:
Conversion of properties to short-term rentals has the potential to decrease the total housing supply (relative to actual demand for long-term occupancy) and thereby increase prices and erode affordability.

Allowing short-term rentals is consistent with protecting private property rights, including providing income for the property owner, which may be important for easing the burdens associated with the owner's mortgage.

 

Advocacy Focused on TAXES

Seattle Income Tax: Winning So Far, But Now "On Appeal" To The State Supreme Court

SKCR is collaborating with the Rental Housing Association of Washington on a Friend of the
Court (amicus) brief in opposition to the Seattle Income Tax passed by the City Council, and is keeping in close communication with former Washington State Attorney General Rob McKenna, who is serving as the plaintiff's lead attorney.  

The Seattle City Council unanimously approved an income tax by applying a 2.25% tax on total income above $250,000 for individuals, and above $500,000 for married couples filing their federal income taxes jointly. The city income tax applies to Seattle residents.

Of special concern to NWMLS members and REALTORS® is the fact that the tax would include "unearned" income, which means adding equity gains from home sales to total income. That is likely to reduce the amount of "move-up equity" available to sellers for down payment and closing costs when they repurchase. In addition, if it compromises their ability to repurchase and they remain in place instead of moving, it can also constrain the supply of less expensive housing.

Consistent with the REALTORS®' amicus (Friend of the Court) brief, King County Superior Court Judge John Ruhl struck down Seattle's income tax ordinance. The legal issues that Judge Ruhl needed to decide started with the statutory challenge - that the ordinance violated RCW 36.65.030, which prohibits a tax on net income.

Judge Ruhl rejected the claim that the tax is really an "excise tax" on the privilege of living in Seattle, a conclusion bolstered by the fact that the ordinance itself says that it's an income tax.  He also affirmed the measure passed by the City Council is indeed a tax on net income.

The Judge also found that - contrary to the position taken by the city - the law prohibiting a tax on net income was properly passed by the Legislature and is thus valid. Finally, Ruhl concluded that the city needed explicit authority to impose a tax, and that none existed.

Having concluded the state law prohibits a tax on net income, that the city's income tax ordinance is indeed a tax on net income, and that no other authority existed for the city to impose such a tax, the judge granted plaintiffs' motion for summary judgment and struck-down the income tax ordinance.

Once he found the Seattle Income Tax is unlawful, Ruhl decided it was not necessary to consider the larger constitutional question of whether income is a form of property. There is binding state Supreme Court precedent holding that income is a form of property, which both Superior Court Judge Ruhl and the Court of Appeals would likely be required to follow if they took up the issue. However, unlike lower courts, the Supreme Court could overrule its own prior decisions.

The city of Seattle appealed Judge Ruhl's decision to the State Supreme Court, but the Supreme Court chose to send the case down to the state Court of Appeals for further review before the Supreme Court decides whether or not to hear the case. The Court of Appeals, which is required to follow existing law and precedent, responded by also concluding Seattle's tax on net income was not allowed.

But, in an unexpected twist, the Court of Appeals left the door open for the state's Supreme Court to reverse the Supreme Court's earlier decisions and hold the Seattle Income Tax should be allowed. This could happen if the city is able to convince the state Supreme Court that its prior rulings (holding that income is property) were wrongly decided and should be overturned, in which case the Supreme Court could rule that Seattle's income tax doesn't run afoul of the state constitution's requirement that property be taxed uniformly.

We await a Supreme Court decision on whether or not our "win" on this issue at the trial court, and again at the Court of Appeals, will be sustained by the state's Supreme Court.

 

Kent Property Tax Increases to Hire More Police Officers

SKCR worked with other members of the business community in Kent and South King County to push back against a proposal from Kent Mayor Dana Ralph, who wanted the City Council to ask voters to increase property taxes in order to hire more police officers.

More police officers are needed, but making property owners pay more taxes in order to fund the city's most important and basic priority - Public Safety - while spending available city revenues on less important things is a bad idea, especially now in the city is awash in cash.

Kent Mayor Dana Ralph pulled back, but only temporarily, on her suggestion that the City Council send a ballot measure to voters asking for another property tax increase to pay for additional police officers.

The issue will likely be reconsidered after the election (when incumbent City Council members are not running for re-election). According to news reports, the city's Chief Administrative Officer, Derek Matheson, wrote in an e-mail in mid-July that, "The mayor remains 100% committed to recommending a police ballot measure in the future and we'll continue to work in that direction."

In a special election in April 2018, 57% of voters rejected a measure to increase the city's utility tax from 6% to 8% to pay for more police. SKCR declined to support the measure. At the time, city officials indicated the city faced a "fiscal cliff" and there was no other way to pay for more officers.

Since then, the city has formally acknowledged there is no "fiscal cliff" - and says the city's financial situation has changed dramatically.

The City Council has already passed numerous new tax increases:

  • The City Council approved a 28.8% permanent increase in the city property tax without a vote of the people
  • The City Council passed two increases in the B&O tax, including a 100% increase in the "square footage" portion of the B&O tax
  • The City Council has passed a 3rd and 4th increase in the B&O tax that have not yet gone into effect
  • The City is continuing to receive funding from the legislature to off-set lost sales tax revenue resulting from the state participating in the Streamlined Sales Tax program, and
  • In concert with the cities of Renton, Auburn (and perhaps Sumner) the city of Kent is preparing to rezone the valley floor (which is currently home to the 4th largest warehousing and distribution center in the nation) to other non-warehousing purposes in order to generate even more B&O tax revenue.

So, the proposal from the Mayor to increase property taxes in an election year was met with enormous skepticism.

Three factors are thought to have contributed to the negative reaction - and which SKCR will continue to press hard with our partners and elected officials once the election is over - include the following:

1. The City of Kent is awash in cash. Lots of cash!

In the wake of robust economic growth, the City's General Fund Tax Revenue Collections were $7.9 million over budget, at $110 million last year.  
Sales tax revenues collected by the City came in $3.5 million over budget.  
Other tax revenues collections (including B&O tax and permit fees) were $3.1 million over budget.

In addition, Kent has a General Fund Reserve Balance of $21.6 million or 19.8% of the general fund budget (even though the City Council's own Reserve Policy only requires 18%, and despite the fact the Government Finance Officers Association says 4 to 8% reserves are Good; 8 to 15% reserves are Strong; and more than 15% in reserves is Very Strong).  Kent's general fund of reserve balance is 32% above the threshold for being "Very Strong."

2. Tax fatigue: Taxpayers are contending with significant property tax increases including:

  • A state property tax increases to fund K-12 Education following the legislature's decision to increase state property taxes in response to the McCleary lawsuit
  • More than $50 billion in new taxes approved for Sound Transit Phase 3
  • Significant increases on B&O taxes passed last session by the legislature
  • New property tax increases just approved by Kent voters for the Puget Sound Regional Fire Authority, and
  • New long-term care taxes on employees…

…all of which are in addition to recent tax increases passed by the Kent City Council, and efforts that are underway in Kent, Renton and Auburn to rezone the valley floor to increase city B&O tax revenues.

3. The city's #1 priority (police/public safety) would be funded with new taxes, while the city's extra cash is used for other things: The money from another increase in property taxes would be used to add more police officers.

Kent's police department is understaffed, property crimes have been de-policed (officers are not dispatched to property crimes) and high-speed pursuits in the city of Kent have increased dramatically - up approximately 37% - in the last year.

Public safety - and especially police - is the number one priority of local government.  Critics (including the REALTORS® and other members of the business community who assisted us in pushing back against the Mayor's proposal) argue that increased funding for police should be paid-for with the first dollars collected by City Hall, instead of funding other less important priorities with available funds and then imposing new taxes to pay for police.

That happened with Medic-One several years ago when King County began funding ambulance services through ballot measures while spending available revenues on other things. Now, Kent's Mayor has expressed a desire to do the same thing for adding officers to Kent's Police Department.

Not using available funding for police - and instead spending available tax dollars on other things - also raised concerns because the city of Kent doesn't have to pay for a fire department. Instead of Kent having its own fire department, the Puget Sound Regional Fire Authority provides all the fire protection services in the city of Kent and collects separate property taxes and fire fees that are not part of the budget at City Hall. So, the city has fewer "public safety" expenses it must pay for out of its budget: police, but not the fire department, and not Medic-One ambulance service.

 

Local REET and Capital Gains

Seattle King County REALTORS® supported the efforts of Washington REALTORS® to defeat efforts this year to adopt a new state Capital Gains Tax, and to lay the groundwork to frame future consideration of capital gains tax in ways that we hope will eliminate real estate as part of the discussion.

In addition, as part of the discussion of exempting real estate brokers from the new 20% increase in B&O taxes, and the pre-adoption restructuring of "tiered" REET tax proposals to utilize a "marginal tax rate" approach, we worked successfully with WR to keep increases in the "local portion" of REET off the table this session in Olympia.

The subsidized housing industry, together with rental protection advocates, had advocated for a doubling of the local portion of REET, which would have added ½ of 1% local REET (known commonly as "REET 3") to pay for affordable housing.

Currently, local government receives ½ of 1% REET. That amount is in addition to the state's portion of the new Tiered REET that varies between 1.28% and 3%.

As a result, the total REET (state and local combined) is currently 1.78% to 3.5% depending upon the sales price of the property. An additional ½ of 1% would have increased the total REET to between 2.28% and 4% of the sales price of the home.

The issues of an increase in the local REET to pay for affordable housing, as well as a proposal for a new Capital Gains Tax (this time proposed by former Speaker of the House Frank Chopp to pay for children's healthcare and affordable housing) will return next session with a vengeance.

When it does, we will work again with Washington REALTORS® and other partners in the business community to protect NWMLS Brokers and our REALTORS® from the destructive effects of such changes upon the businesses of brokers, housing affordability and property rights.