Seizing the Opportunity

The Chinese evidently understood the meaning of the word
crisis when they used the characters for danger and opportunity to create
the written form of the word. As just one more example of their prescience, it
appears current financial conditions may prompt our legislators to authorize
local government to use increment financing to enhance strategies for economic
development. We can only hope they seize this opportunity. Major infrastructure
projects throughout the state, including a new Alaskan Way Viaduct (in whatever
form it takes), may depend on it.

The state legislature is considering a bill that would
authorize local governments to finance a wide range of public improvements,
from bridges and roads to parks and utilities, using community revitalization
financing (CRF). In order to take advantage of this authority, local government
must find CRF-financed improvements that will encourage private development and
investment in the area, increase employment and generate increases in tax
revenues equal to or greater than the public contribution.

This last criterion is the key to increment financing. When
a public project such as a new road or utility (or removal of an elevated
highway) is undertaken, there is likely to be an increase in the value of the
surrounding real estate, a corresponding increase in real estate taxes and,
depending on the nature of the redevelopment, an increase in use or sales
taxes. CRF would enable local government to use the anticipated gains in tax revenuesthe
incrementto finance public improvements and, thereby, facilitate economic
growth in the area that will benefit from the planned improvements.

Increment financing is not without its detractors. But
perhaps because Washington has waited so long for increment financing to see
the light of day, the proposed legislation attempts to avoid the pitfalls
experienced elsewhere by including a long list of conditions. For example, local government must determine
that CRF funds will only be used in areas where needed economic development
would not otherwise occur; this funding also may not be used to facilitate
relocation of a Washington business from one jurisdiction to another. Private
development that is expected to occur within the increment area must be
consistent with countywide planning policies and local plans adopted pursuant
to the Growth Management Act. And, perhaps most important, other taxing
districts that levy on real property within the increment area may opt out.
This last condition ensures that other revenue-dependent public entities, such
as fire districts and schools, are not left to shoulder the burden of increased
demand without corresponding benefit.

Increment financing has been used with great success across
the country to help communities fund infrastructure projects that facilitate
economic redevelopment, as well as create new jobs. In Oregon, for example,
increment financing helped fund light rail to the airport, the Portland Armory
Performing Arts Center and Mercy Corps world headquarters, and represents most
of the Portland Development Commissions $200-to-$300-million budget.

With the recent agreement between Seattle Mayor Nickels,
King County Executive Sims and Gov. Gregoire (with a significant commitment
from Port of Seattle Chief Executive Tay Yoshitani) on a deep-bore tunnel
viaduct replacement, increment financing has taken center stage. The agreement
contemplates the use of a wide variety of financing mechanisms, not the least
of which is increment financing for some or all of the citys contribution to
the project.

If there is any silver lining to the fiscal mess our cities,
state and country are in, it is the chance to achieve our mutual objectives in
new, creative ways. Washington state should embrace the opportunity brought on
by this crisis to enact increment financing legislation.

This is a legal sponsored report from Lane Powell PC. Glenn J. Amster is a shareholder at Lane Powell PC, where he
focuses his practice on providing advice and assistance to clients in all
aspects of real estate development, including feasibility analysis, development
strategy, property acquisition, environmental review, permitting, and
administrative proceedings and litigation related to these areas. He is a
member of the board of the Washington State Chapter of NAIOP: The Commercial
Real Estate Development Association. He can be reached at
[email protected] or (206) 223-6241.