2023 Legislative Session – Proposed Legislation Important to Commercial Real Estate

BOMA has been actively engaged representing member and industry interest in several proposed bills in Olympia this legislative session.

Here is an update:

March 8^th was the last day to get bills out of their house origin. Several bills BOMA opposed failed to move on and are dead for this session. These included six bills to establish residential rent control that could have later been expanded to commercial real estate.

The three bills that are still alive that BOMA, working with a broad coalition, opposes as bad for commercial real estate and our economic recovery are:

HB 1628 – Real Estate Excise Tax

HB 1589/SB 5562 – Banning Natural Gas through Gas Companies, Capital Gains on Real Estate.

Details on these bill are listed below.

The three bills still alive that BOMA supports are:

HB 1117 – Power Supply Adequacy

HB 1527 – Technical Changes to Tax Increment Financing (TIF)

HB 1391 – Energy in Buildings.

Details on these bill are listed below.

Unfortunately, several bills that would have improved public safety also died at the cutoff. They would have addressed: Habitual Property Offenders, Changing the Definition of Theft, Organized Retail Theft Crime, and Creating an Organized Retail Theft Task Force

HB 1628 - Highest State REET Tax in America on Properties Over $5 Million Original Bill

• The REET Tax would be 4% of the selling price that is greater than $5 million, beginning January 1, 2025.
• The REET Tax shall be split as follows:
  • 30% to the Washington housing trust fund created in RCW 43.185.030;
  • 30% to the apple health and homes account created in RCW 43.330.184;
  • 15% to the developmental disabilities trust account created in the bill.
  • 24% to the affordable housing for all account created in RCW 43.185C.190 for operations, maintenance, and service cost for permanent supportive housing as defined in RCW 17 36.70A.030.

  Amended Bill

• Allows counties and cities that impose the new real estate excise tax for use on capital construction or acquisition of affordable housing costs of new units to also use tax revenue for infrastructure costs associated with such housing and facilities.
• Allows counties that are not required to plan under the Growth Management Act, but that have chosen to do so, and the cities within those counties, to impose the second 0.25 percent local government real estate excise with councilmanic authority, rather than with voter approval beginning on January 1, 2024.
• Allows revenue from the 1^st and 2^nd 0.25 percent local government real estate excise tax to be used for any capital projects, maintenance, operations and service support for existing projects.

Talking Points:

• Would create a new tier in the state graduated REET Tax that would be the highest State REET Tax in America on sales over $5 million.

   

   

HB 1589 - Banning Natural Gas through Gas Companies Original Bill

• Prohibits gas companies serving more than 500,000 retail natural gas customers in Washington from extending gas service after June 30, 2023.
• Requires a large gas company to file a gas decarbonization plan as part of a multiyear rate plan on or after January 1, 2026, and every four years thereafter, with the aim to achieve the company's proportional share of greenhouse gas emission reductions required under state law.
• Requires a combination utility to file an electrification plan as part of a gas decarbonization plan on or after January 1, 2026.
• Directs the Utilities and Transportation Commission to establish cost targets for gas decarbonization and electrification plans, approve plans that are in the public interest, and adopt depreciation schedules, and a single energy rate base in certain instances.
• Encourages electric utilities to work with large gas companies providing gas service within their service areas to identify opportunities for electrification and providing energy peaking service.

Amended Bill

• Modifies the definition of "electrification" to "the installation by a combination utility of electric end-use equipment provided that installation: o Will result in a net reduction in statewide greenhouse gas emissions over the life of the equipment as

  compared to the most efficient commercially available natural gas or alternative energy resource alternative; and

  • Reduces the sales of natural gas by the large gas company. Electrification programs of a combination utility may include, but are not limited to, programs that facilitate deep energy retrofits or the installation of electric air-source heat pumps with gas backups in existing buildings.
  • However, electric air-source heat pumps with gas backups may not be part of any plan filed pursuant to section 4 of this act [electrification plans]."
• Modifies the definition of "emissions reduction period" to mean "one of four periods of five calendar years each, with the four periods beginning on January 1st of calendar years 2030, 2035, 2040, 2045, and 2050, respectively."
• Adds language to provide that the terms of a gas decarbonization plan filed by a large gas company shall be binding on any entity that subsequently acquires an ownership interest in all or part of the large gas company's gas storage, transmission, or distribution network.
• Requires that an electrification plan be filed by a large gas company, rather than a combination utility, as part of a gas decarbonization plan.
• Provides that the Utilities and Transportation Commission (UTC) may, rather than must, require a large gas company to achieve the maximum level of greenhouse gas emissions reductions practicable using alternative energy resources at or below the applicable cost target.

Talking Points:

• Recent action of the State Building Code Council did not include an outright ban on national gas.
• Prohibiting new natural gas for housing will increase the cost of new middle housing between $6,200 to $13,100 more per unit. This doesn't include the annual operating costs of using natural gas which is one third of the cost of electricity.
• This bill negatively impacts independent grocers and convenience stores. These stores often rely on natural gas to run refrigeration systems and to offset expensive electrical costs for stores that must have these systems running at certain temperatures at all times, to comply with the health code. The costs for running new grocery stores may exceed what people are willing to pay in food costs, increasing the possibility of food deserts in Washington State.
• In some areas where there is not adequate electrical infrastructure to serve new construction a requirement exists for natural gas to be provided in the land deeds for the undeveloped lots. If this bill were to pass the families who have purchased these lots will not be able to build a home, and their investment could be lost.
• If new natural gas connections are prohibited, it will result in significant cost impacts for struggling hospitality businesses, as the demand for rent for the spaces with existing natural gas service will skyrocket. Rents may become unaffordable for small, locally owned family businesses.
• Many Washington homeowners in the Puget Sound region need access to natural gas in order to have fireplaces and other supplemental heating devices during power outages. They may not have the ability to have woodstoves or woodburning fireplaces because of air quality ordinances.

Sponsors: Representatives: Doglio, Fitzgibbon, Berry, Alvarado, Bateman, Ramel, Peterson, Lekanoff, Hackney, Macri, Kloba

STATUS HB: Senate Environment Committee (Passed House 52-44)

SB 5335 – Capital Gains

• This bill would not only increase the overall capital gains tax rate from 7% to 8.5%, but it would also now include real estate transactions.

Sponsors: Senators Hasegawa, Hunt, Liias, Nguyen, Stanford

STATUS SB: Senate Health & Long-Term Care Committee – NTIB

Oppose HB 1589: Wrong for Working Families & Small Businesses

Dear Members of the Washington State Legislature:

The signed organizations are opposed to House Bill 1589, which among other things, will ban natural gas in new residential and commercial buildings on June 30^th, 2023 - in just 3 months. While the ban on natural gas is concerning, the bill lacks transparency on the cost for local rate payers of the state’s largest utility.

Cost increases related to prohibition of natural gas are certain – but how much, nobody knows. These unknown costs will have damaging consequences for small businesses and residential customers. We urge the legislature to oppose this proposal for the following reasons:

• Recent action of the State Building Code Council did not include an outright ban on national gas.
• Prohibiting new natural gas for housing will increase the cost of new middle housing between

  $6,200 to $13,100 more per unit. This doesn’t include the annual operating costs of using natural gas which is one third of the cost of electricity.

• This bill negatively impacts independent grocers and convenience stores. These stores often rely on natural gas to run refrigeration systems and to offset expensive electrical costs for stores that must have these systems running at certain temperatures at all times, to comply with the health code. The costs for running new grocery stores may exceed what people are willing to pay in food costs, increasing the possibility of food deserts in Washington State.
• In some areas where there is not adequate electrical infrastructure to serve new construction a requirement exists for natural gas to be provided in the land deeds for the undeveloped lots. If this bill were to pass the families who have purchased these lots will not be able to build a home, and their investment could be lost.
• If new natural gas connections are prohibited, it will result in significant cost impacts for struggling hospitality businesses, as the demand for rent for the spaces with existing natural gas service will skyrocket. Rents may become unaffordable for small, locally owned family businesses.
• Many Washington homeowners in the Puget Sound region need access to natural gas in order to have fireplaces and other supplemental heating devices during power outages. They may not have the ability to have woodstoves or woodburning fireplaces because of air quality ordinances.

We ask for the opportunity to be included at the table as these decisions greatly impact our organizations. We anticipate amendments to exempt some larger users of natural gas from the bill in recognition of these potential costs, which only underscores higher costs anticipated to the commercial and residential users who remain in the bill. Because the exact cost increases are still unknown, we ask that you oppose HB 1589 until there is a full understanding of the impact on small business and to the increased cost on housing.

1. HB 1391 – Energy in Buildings

Original Bill

• Directs Commerce to contract with one or more administrators to establish a Statewide Building Energy Upgrade Navigator Program (Navigator Program) by March 1, 2024.
• Requires the administrator(s) of the Navigator Program to provide outreach and deliver energy services to residences, commercial buildings under 20,000 square feet, and multifamily buildings, and to develop community workforce agreements.
• Requires Commerce, by December 2023, to convene a technical advisory group to provide ongoing guidance to the Navigator Program, and to report to the Legislature.

Amended Bill

• Adds that the Navigator Program must be aligned with programs and funding authorized under the federal Infrastructure Investment and Jobs Act in addition to the federal Inflation Reduction Act.
• Clarifies that the administrator is not required to provide weatherization as part of providing energy efficiency services.
• Clarifies additional language, including that the Navigator Program must provide resources for renters.
• Removes a remaining reference to community workforce agreements.

Second Substitute

• Directs the Department of Commerce to contract with one or more administrators to establish a Statewide Building Energy Upgrade Navigator Program (Navigator Program) by March 1, 2024.
• Requires the administrator(s) to align the Navigator Program with programs and funding under the federal Inflation Reduction Act and the federal Infrastructure Investment and Jobs Act, provide outreach, and deliver energy services to residential building owners and renters, owners of commercial buildings under 20,000 square feet, and owners and occupants of single-family and multifamily buildings.
• Requires Commerce to convene a technical advisory group to provide ongoing guidance to the Navigator Program by December 2023, and to report to the Legislature.

Sponsors: Representatives Ramel, Doglio, Duerr, Berry, Pollet, Reed

STATUS HB: Senate Environment Committee (Passed House 56-41)

2. HB 1527 – Technical Changes to Tax Increment Financing (TIF)

• Provides Technical Corrections for Tax Increment Financing
• Defines the term real property as it relates to local tax increment financing areas.
• Clarifies that an increment area takes effect on June 1st following the adoption of the ordinance designating the increment area.
• Provides local taxing districts the authority to increase their property tax levy capacity for increases in assessed value in certain situations.