Staff with the City of Sequim continue to explore an option to repurpose new property tax funds for sewer and water lift stations on West Sequim Bay Road for proposed developments.

However, Clallam County Fire District 3 (CCFD3) fire commissioners hold concerns that a shift in tax dispersal for new development to support utility infrastructure could negatively impact emergency services to Sequim area residents.

Implemented in Washington in 2021, Tax Increment Financing (TIF) is a tool available to cities, counties and ports to promote economic development, according to city documents. City staff presented their early efforts and timeline in November and asked the city council for approval to notify taxing districts of their intent to explore it as a possible funding option.

City Manager Matt Huish said then and reiterated in January that the council does not need to commit at this point, but staff believe it to be “a viable funding option for the city and they feel comfortable pursuing it.”

He and other staff have repeated at meetings and in documents the TIF is not a new tax.

TIF explained

In their preliminary TIF proposal documents to the state, city staff identified a Tax Increment Area (TIA) of 363 acres along West Sequim Bay Road and Whitefeather Way by John Wayne Marina with an assessed value of about $57 million (at 2023 values).

If a TIF were approved through the state and then implemented by the city council, property taxes for existing developments in the designated acreage would continue to be dispersed for existing developments to taxing districts, such as CCFD3, North Olympic Library System and Olympic Medical Center. The city would then receive the property taxes, excluding state and school levy property taxes, generated from the increased assessed valuation in the TIA from new private development.

Sequim Public Works Director Paul Bucich explained it another way via email.

He said if a landowner in a TIA currently pays $1,000 in taxes a year, and it’s later developed into a house, under the new valuation the land and house are worth more and if in a TIA, the difference in value between the land taxes and the new value goes to the city “to help pay for the infrastructure built to attract the development.”

He said that existing homes will not be taxed at a new rate nor will new taxes be employed from a TIF.

TIA funds must go to pre-approved designated projects, with Sequim looking to help fund $19.7 million for two sewer lift stations on West Sequim Bay Road.

Some restrictions apply, such as a TIA may not total more than $200 million in assessed valuation, debt must be paid off within 20 years, and the city cannot add additional public improvements or change the boundary of the increment area once adopted.

The city must also prove under a “but-for requirement” that proposed private development would not occur but-for the use of TIF.

Sequim must “provide convincing evidence showing that tax dollars from the TIA are necessary to make the development possible,” city documents state.

“If proposed development would occur without TIF, public tax dollars should not be used because it will cost taxpayers more than it should for the resulting development or growth. However, if TIF is used to encourage a development that would not otherwise happen, the tax base can be increased. A larger tax base helps pay for needed services and can control the growth of new taxes.”

Image courtesy City of Sequim A possible 363-acre Tax Increment Area would have to be approved by the state and Sequim City Council before being implemented. If approved, it would help fund two sewer lift stations for $19.7 million through new development’s property taxes in the area. Those new developments’ taxes would be diverted from other local taxing districts, except the state’s and Sequim school district’s property taxes.

Development

Bucich said that “without the infrastructure, the new development would not occur.”

City documents state the lack of sewer lift stations and water main extensions has limited medium to high density development along West Sequim Bay Road and that “the Planned Resort Community of Seabrook cannot be developed as zoned without these critical pieces of public infrastructure.”

The first lift station at West Sequim Bay Road and Forrest Road would serve about 610 acres of land, Bucich said, while the second at Whitefeather Way would serve about 250 acres.

Forrest Road’s lift station is already funded with a low interest loan, Bucich said, and city staff look to pay off about $4.7 million of $10 million with latecomers agreements, the TIF and general facility charges.

He said they cannot fund the second station, but Seabrook’s owners propose to fund construction and the city reimbursing them with the TIF.

Bucich said the TIA is anticipated to bring in about 840 new homes with Seabrook’s Westbay development tentatively up to 600 of those homes.

Asked about the city’s obligation to fund lift stations for developments, Bucich said the city has a number of potential funding strategies.

“In many cases the local jurisdiction will build the needed infrastructure if the overall service area is larger than any one development but the risk is that the utility ratepayers are covering the costs and speculating the development will occur,” he said.

“In the case of the sewer and water infrastructure in the east side of our community, without water and sewer infrastructure in place, development will not occur for many years, if at all.”

PNNL-Sequim is outside city limits and needs water service to expand its laboratory, he said, and they’ve agreed to pay through latecomers agreements for water and sewer.

“Seabrook is willing to ‘front the money’ for the public infrastructure and we are proposing to use the TIF to recover those costs for the developer over 20 years,” Bucich said.

“As with our work, there are no guarantees that all costs will be recovered.”

Taxing districts

Since receiving a notification letter about the city’s intent to explore the TIF in November, CCFD3 fire commissioners have been heated about the possibility and expressed their concerns at recent board meetings. They sent a letter to the city opposed to it, which led city officials to hold meetings with fire district leaders.

Fire commissioner Jeff Nicholas said at the Feb. 4 board meeting he left an initial meeting with the city feeling angered at city staff’s alleged lack of understanding on the potential impact on the fire district’s service delivery. However, in an interview he said a follow-up meeting with Huish made him feel better and with a sense there was time to flesh things out, possibly with mitigation measures.

“It’s nice to see (the area) developed into a nice property, but how do we do it safely and fairly?” he said.

Nicholas said he was concerned that the impact on other taxing districts hasn’t been presented yet either.

“I think we can work with the city and I’m feeling better about an equitable solution about this,” he said. “I’m hopeful.”

Fire commissioners said earlier this month that the fire district saw a record 10,000-plus calls in 2024 and the city’s proposal would divert potential funds from the fire district handling more growth.

In an interview Fire Chief Justin Grider said with so much development proposed there are a lot of intangibles, such as the population moving here, and what they’ll require with the same amount of funding.

“The city has historically been a great partner to the fire district and we don’t want to jeopardize that,” Grider said.

“We also have an obligation to look out for taxpayers and sit with the city and see what the impact is going to look like overall.”

City staff said they’ve only heard so far from CCFD3 about their letter of intent with both NOLS and OMC officials saying they’re still considering the potential impact.

Noah Glaude, executive director of the North Olympic Library System, said staff shared the letter with board members in December but no action was taken.

Glaude said he has some concerns about the possible unintended negative impacts a TIF would have on the library’s revenue and its services for Sequim residents.

“NOLS relies primarily on property taxes to operate (and) it does not collect sales tax or other fees like the city, so I hope the city fully studies the possible impacts of their actions on junior taxing districts like the library, especially as our levy rate continues to compress,” he said.

Heather Nelson, communications specialist for Olympic Medical Center, said they’re aware of the city’s exploration of a TIF and they are working to analyze the impacts but they’re unsure how much it’ll cap levy funds.

Next steps

Bucich said city staff plan to submit their TIF analysis to the State Department of Revenue by February 19, who will review and provide comments within 90 days.

“Once we receive their comments, and assuming there are no fatal flaws in the funding strategy, we will be holding additional discussions with the city council where a final decision to move forward with an ordinance establishing the Tax Increment Area (TIA) will be made,” he said.

It must be in effect by June 1 under state law, Bucich said.

At the Jan. 27 city council meeting, mayor Brandon Janisse said he opposes any action on a TIF at this time.

“I think you’ve lost me on this,” he said.

“Until certain things in the city get more attention and footing, I just can’t. It’s not the idea of the TIF, it’s the timing of it. Until other things are supported, I can’t support it at this time.”

Huish said staff are preparing a fact sheet and presentation about TIF funding for the public.