Name: Bellingham City Council - Community and Economic Development Committee meeting, Jul 13, 2026
Start: 2026-07-13
End: 2026-07-13
Location: City of Bellingham

City Council - Community and Economic Development Committee

Mon, July 13, 2026

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City Council Community and Economic Development Committee — July 13, 2026

This was a single-item committee meeting chaired by Council Member Jace Cotton, with committee members Hollie Huthman and Skip Williams. All seven council members were present. The committee reviewed and voted on a proposed ordinance to expand an existing business tax credit program and create a new one targeting downtown Bellingham.

Ordinance to Expand the Urban Village Phased B&O Tax Credit and Establish a Downtown Pedestrian Core Tax Credit

What it is: The proposed ordinance amends Bellingham Municipal Code Chapter 6.04 to do two things: (1) extend the existing phased Business and Occupation (B&O) tax credit to the two urban villages — Fairhaven and Barkley — that were previously excluded from the program, and (2) create a new, deeper B&O tax credit specifically for qualifying businesses locating in vacant spaces within downtown Bellingham's pedestrian core.

Background: Mayor Kim Lund explained that the ordinance stems from her recent executive order on urban vitality and economic opportunity. Staff member Tara Sundine (Community and Economic Development Manager) provided context: the city conducted a six-month downtown vacancy and vibrancy study beginning in September 2024 covering a 61-block, 200-acre main street district. Citywide, the study found a roughly 10% vacancy rate — but within the defined pedestrian core (areas zoned for ground-floor commercial uses), vacancy climbed above 14%, a level staff considers unhealthy. The study involved field observations, parcel-level analysis, stakeholder interviews, and comparisons with similar downtowns.

How the credits work: The existing urban village credit — currently a tiered reduction of 90% in year one, 75% in year two, and 50% in year three — would be extended to Fairhaven and Barkley with no changes to its structure. The new downtown pedestrian core credit is significantly more aggressive: qualifying new businesses in vacant spaces within that core would pay zero B&O tax for a full seven years.

Discussion: Council members engaged in substantive questions throughout.

Council Member Huthman asked about foregone tax revenue. Finance Director Andy Estarstson and Sundine both framed the answer the same way the city approaches the multifamily tax exemption program: the city isn't currently collecting B&O tax on vacant storefronts, so the credit doesn't represent lost revenue so much as an investment in future taxable activity, including retail sales tax generated by new businesses. Huthman expressed support, noting that filling vacancies helps the entire downtown ecosystem through increased foot traffic and improved investor perception.

Council Member Lilliquist made three points. First, he requested that the city track program participation and economic benefit over time — analogous to how the multifamily tax exemption tracks housing units created. Staff indicated this is feasible because businesses report their gross receipts and receive a 100% credit, so the data can be reconstructed. Sundine noted the city's new urban strategist position will be responsible for measuring the impacts of the executive order, including this program. Second, Lilliquist asked about the relationship between this credit and the state-level Main Street B&O tax diversion program (which redirects state B&O taxes to the Downtown Bellingham Partnership); staff confirmed the two programs are entirely separate. Third, he proposed considering whether to simplify the existing urban village tiered credit (90/75/50 over three years) by replacing it with a flat 100% credit, either for three or seven years. Staff said that would be straightforward to implement, but the committee did not pursue an amendment. Lilliquist also raised the idea of extending a similar tax credit to the Birchwood/Northwest intersection area, which he described as a potential future urban village node that has seen significant business turnover. Mayor Lund responded that the Birchwood neighborhood is being supported through the executive order's new permitting priority structure (for buildings with long-term vacancies) rather than through this ordinance, and that a formal urban village designation would need to precede any extension of the urban village tax credit. Lilliquist expressed his hope to see that designation move forward.

Council Member Hammill asked how the program avoids violating Washington State's constitutional prohibition on gifting public funds. City staff and a legal representative confirmed that tax credits of this type are widely used across Washington State and have been upheld by the state Supreme Court as not constituting an unlawful gift of public funds.

Hammill also asked whether businesses that recently opened (within the past year) could retroactively qualify for the pedestrian core credit, noting potential fairness concerns. Finance Director Estarstson offered helpful context: the B&O tax amounts involved for a typical small downtown business are quite modest — roughly $500 to $1,000 per year. That makes it unlikely businesses would relocate simply to capture the credit, and it limits the equity concern about recent entrants missing out. He also noted that participation in the existing urban village credit program has been low — only about five businesses over the past two years — suggesting the new, deeper incentive is needed to drive meaningful uptake.

Cotton closed by noting that the city has few financial tools available to support businesses, and that vibrancy reinforces itself — every tool deployed to activate storefronts compounds over time.

Vote: Council Member Williams moved approval; the motion carried unanimously on a voice vote (all in favor, none opposed). The committee's recommendation will be forwarded to the full council for action later that evening.

Key Takeaways

New seven-year, 100% B&O tax exemption for downtown pedestrian core: Businesses moving into vacant ground-floor commercial spaces in the core of downtown Bellingham would pay no city B&O tax for seven years — a significantly stronger incentive than anything previously on the books, aimed at addressing a 14%+ vacancy rate in that area.

Fairhaven and Barkley added to the existing urban village credit: These two previously excluded neighborhoods will now be eligible for the tiered three-year B&O tax credit (90/75/50%), responding to broader struggles in retail and food-and-beverage sectors citywide.

Program tracking requested: Council members Lilliquist and Hammill both asked staff to track economic outcomes — foregone revenue, jobs created, business revenue — so the council can evaluate the program's effectiveness in coming years. Staff confirmed this is feasible and will be part of the new urban strategist's responsibilities.

Birchwood/Northwest commercial area not included — yet: Lilliquist pushed to extend incentives to that neighborhood; the mayor indicated it is being supported through permitting priority instead, and a formal urban village designation would be required before the B&O credit could apply there.

Committee voted unanimously to recommend approval, with the full council set to consider the ordinance the same evening.

AI-generated summary from voice-to-text transcript. Not the official record. Verify important details with the source documents linked above.

What happened at this meeting

An ordinance to amend Chapter 6.04 of the Bellingham Municipal Code to expand the urban village phased tax credit and establish a new downtown pedestrian core tax credit

# Summary

Staff presented an ordinance to amend Chapter 6.04 of the Bellingham Municipal Code to expand B&O tax credits to additional urban villages (Fair Haven and Barkley) and establish a new downtown pedestrian core tax credit, citing a 14% vacancy rate in the downtown pedestrian core. The proposal offers a seven-year zero B&O tax benefit for the downtown pedestrian commercial area and a tiered three-year credit (90%, 75%, 50%) for other urban villages, designed to incentivize occupancy of vacant spaces and support businesses during their critical early years. Council members raised concerns about program structure consistency, constitutional gifting prohibitions, and tracking mechanisms; legal staff confirmed the tax benefits are constitutional and widely adopted across Washington State, while Finance Director Andy Estartson emphasized the focus on long-term economic growth and increased retail sales tax rather than immediate B&O tax collection. Forest Longman noted that modest B&O tax amounts ($500-$1,000 annually for small businesses) and low historical participation (five businesses) suggest relocation incentives are unlikely. Council members requested that staff track the program's economic impact similar to the multifamily exemption program, and the committee voted in favor of the ordinance.

Agenda items (1)

Procedural (1)

24985ProceduralAn ordinance to amend Chapter 6.04 of the Bellingham Municipal Code to expand the urban village phased tax credit and establish a new downtown pedestrian core tax credit

The city is proposing tax credits to encourage property owners and developers to invest in two areas: expanding an existing tax break program for urban villages and creating a new one specifically for the downtown pedestrian core. This aims to stimulate development and investment in these neighborhoods.

What happened

Additional votes recorded in minutes

Recommend approval of ordinance amending BMC Chapter 6.0004 to expand urban village phase tax credit and establish downtown pedestrian core tax credit

aye 1

voice voteaye

Verbatim transcript available

82 transcript segments indexed

City of Bellingham Community and Economic Development Committee minutes July 13, 2026, 10:35 a.m. Chair: Jace Cotton Phone: 360-778-8200 Members: Hollie Huthman, Edwin H. "Skip" Williams Email: ccmail@cob.org Web: cob.org/council City Council committee meetings Standing committee members receive reports and information, ask questions, and vote on a recommended action for consideration by the full Council at the regular meeting.

Welcome back to the Bellingham City Council committee meetings. The next committee before us is community and economic development and that committee is chaired by Council Member Cotton. So, I'll turn it over to him at this time.

There is no public comment period during committee sessions. Call to order and roll call Council President Stone called the meeting to order at 10:35 a.m. Present: Committee Chair Jace Cotton, At-Large Committee Member Hollie Huthman, Second Ward Committee Member Edwin H.

>> Good morning. Um, as a reminder, I'm joined on this committee by council members Huffman and Williams, although all seven council members are eagerly um in attendance today. Uh, we have one agenda item.

This is an ordinance to amend chapter 6.004, 0004, excuse me, of the Bellingham Municipal Code to expand the urban village phase tax credit and establish a new downtown pedestrian core tax credit. Um the proposed ordinance relates to the um business and occupation BNO tax credit.

"Skip" Williams, Fourth Ward 24985 1. An ordinance to amend Chapter 6.04 of the Bellingham Municipal Code to expand the urban village phased tax credit and establish a new downtown pedestrian core tax credit Summary: Mayor Lund, and Tara Sundin, Community and Economic Development Manager, presented the ordinance, which expands the urban village phased tax credit and establishes a new downtown pedestrian core tax credit.

Council Members discussed the ordinance and asked questions. Action: Edwin H. "Skip" Williams moved to recommend approval of the ordinance. MOTION CARRIED 3-0. Adjournment There being no further business, the meeting adjourned at 11 a.m.

Um uh local um BNO tax credit. Um, the proposed ordinance would expand the existing BNO urban village phase tax credit to all urban villages within the city and establish a new targeted BNO tax credit program for qualifying businesses located within downtown Bellingham's pedestrian corps.

And the purpose of the proposed ordinance is to provide for the consistent application of economic development policies within urban villages and incentivize occupancy of vacant spaces, strengthen downtown activity, and improve overall vibrancy within the city's primary pedestrian oriented district.

Sorry, I probably didn't need to read all that, but it's um yeah, uh I'll first recognize um Mayor Lund. >> Thank you, Council Member Cotton. Good morning, council. Uh we have an ordinance proposal before you today that connects to one of the implementation actions in my recent executive order connected to advancing urban vitality in economic opportunity.

So, um the why behind this is really to fill some of our vacant storefronts um in across our urban villages and in the pedestrian core that was identified as needing some assistance with a higher than desired vacancy rate in the downtown core.

So, it brings a uniform approach to our phased BNO um um strategy that exists in the downtown core to primarily benefit vacant um spaces in Fair Haven and Barkley. And then it really adds on a significant incentive in that pedestrian core, the map of which Tara has shown.

And our intention here is to encourage activation. It's to benefit existing businesses by bringing more pedestrian activity. Um it's to improve the vibrancy of our urban villages and our downtown core and um advance and build on the work that staff and the community have um invested in the downtown forward initiative.

and I have Tara Sundine here today to walk us through the details of the proposed ordinance. >> Good morning. Tara Sundine, community and economic development manager for the city. Um before I walk through the ordinance, I wanted to just give a little context because um Darby Gallagan and I presented to you back in April and then we came back in June.

Um so want to encourage people to go check out those sessions if they want a little bit of a deeper dive on our um broader project. But little background is in September of last year our department initiated the downtown vacancy and vibrancy study as part of the mayor's downtown Ford initiative.

Um it was the purpose was really to get a better understanding of what was happening on the ground if vacancies were um actually problematic for for our community and really get a um kind of the facts on the ground.

Um the six-month [clears throat] study involved field observations, uh parcel level analysis, stakeholder interviews, listing reviews, and some case study research from comparable downtown. So, we did bring in a temporary employee to help us um lift that project.

And the project area included this 61 block main street district. I will note that this is a large down downtown for a community our size. It's physically quite large. Um 200 over 200 acres and nearly 2 million square feet of ground and that's just ground floor space.

Um for comparison's sake, Bellisphere is around uh 750,000 square ft. So this is is a sizable um uh piece of our community, our commercial um properties. Um and and you can see that we concluded that the the full area um we had about a 10% vacancy rate.

But when we looked a little deeper at the pedestrian core and what we call the pedestrian core are areas that are slated for commercial ground floor commercial um land uses and uh our our retail focus area that we did see vacancy rates creep up to a level that we're not satisfied with.

that's over 14% and we would determine that to not be a healthy rate. And so then we kind of looked to case studies, we looked to our own incentives that we had in the books and said, "What else can we do?" Um, also [clears throat] as a reminder, this isn't a reminder for you, but for those watching, there are limited financial tools that the city can um undertake to help businesses.

um it's prohibited. Gifting of public funds is prohibited generally in the state of Washington. Um but we knew that this BNO tax um was a lever that that we that we could um bring into play and we already have a incentive on the books which the mayor referred to.

It's for our urban villages and we have kind of a tiered approach where um currently all of our urban villages with the exception of Fair Haven and Barkley can benefit from that program and it reduces your BNO tax um uh requirement I guess I would say um for up to 90% in year 1, 75% in year two and 50% % in year three.

What we're proposing to do is a deeper uh incentive in this core and go to set zero pay zero um for a seven-year period. Um and then as the mayor mentioned, we're we are also proposing that we add Barkley and Fair Haven into the existing urban village credit.

Um, so that's really what this ordinance is doing is going a a very deep incentive in the pedestrian commercial area and then adding in our other two districts. You've probably heard or seen um that uh retail and food and beverage, those um uh land uses are struggling in our community.

Um it doesn't matter if you're in in downtown or in Barkley. And so we felt it was important to bring those other two villages into the the mix. It's a a tough time right now for some of these businesses.

Um the ordinance is redlined in your packet and um I'm here and and the finance director is here to answer any questions that you might have. >> Thank you so much. I'll first turn to committee for questions.

Uh, council member Huffin, >> do you have a sense um or is there a calculation or thought of any calculation of um the revenue that we wouldn't be generating for BNO tax with this exemption? I mean, I guess there's [clears throat] if you have no no business paying BNO tax, you have no BNO tax coming in.

Um, and so what what kind of considerations did you make in that area? >> I think that we are looking at it and I know that Forest and Andy have looked at it this way as well is it's kind of how we look at the multifamily tax exemption program.

We're looking at it through the lens that you just mentioned, which is we don't have those taxes now. um we will have them. If those businesses succeed in another seven years, then we'll see those taxes come in.

But to my knowledge, um I'd have to have Andy pop down here if he's he's got thought. I I have no idea on what we might be for foregoing, but Andy does. [laughter] No. Andy Estartson, finance director.

I think Tara said it really well on the fact that isn't revenue we're collecting now, but really the um economic increase it can bring to downtown and the retail sales tax and the just the um bringing more of that activity downtown will help the economy overall is what is what we're planning for.

>> Good point. >> And just as a followup, I'm I'm supportive of this. Uh, one I think one question or criticism perhaps that I've heard is is like, well, what about the existing businesses downtown? And I think that um my answer to that is that when you have a business downtown, you're part of an ecosystem and that the more that downtown altogether thrives, the more that your business thrives.

And so, um, I would see this as something that will also benefit downtown businesses that are existing. just additional foot traffic due to um storefronts that are active helps all businesses downtown.

So, um the first couple years of a business are the most difficult. Those are the years that that a business is most likely to fail. And so, uh this is one one way that the city can help those businesses succeed and also incentivize them into these areas.

And and so I'm supportive. Some other benefits I just wanted to mention to the existing businesses. There's definitely the increase in foot traffic which we're after. But um in April we spent some time on this topic.

There's also the perception that vacancies have for folks and they think that downtown isn't vibrant or isn't active or investors think that downtown isn't active or vibrant. So, I would say that those those impacts of filling up these vacancies go beyond just the the foot traffic that goes into the new businesses, but generally I think we'll bring more people to downtown and more investment to downtown.

>> Williams. >> Yeah. Yeah. I just want to say that I'm very supportive of of this of this approach as well, particularly the um the logic that we're not getting the tax income now. But if we do things to encourage the development of businesses and uh and not only in our downtown corridor but uh other areas too, particularly if this works in the downtown area and Fair Haven and Barkley, then perhaps it could be applied in other parts of the of the city as well as needed um as a proven method for for um developing businesses and then looking down the road at the taking the long view and saying, "Okay, we're not getting the tax benefit now, but if the businesses are successful, it's going to come our way." So, I'm very very supportive of this and um I'd like to move approval.

We have a motion from council member Williams um to uh recommend approval. Um further comments or questions I see from other committee members. Um I'll first recognize councilor Loquist and then H and then Anderson.

>> I have a request of clarification and two questions. Uh the request has to go with the foregone revenue question. With the multi family tax exemption, we actually track the amount of of tax the exemption is and we also track the number of houses or housing units created.

We we track the benefit. Um the request is can we do the same with this? How much revenue do people apply for to be forgiven and how many jobs they create or for that matter what is the revenue of those businesses that can go to the spillover effect that we're talking about?

Um it'd be nice to be able to track the benefit. Do you think that's would be doable >> in our uh current method of of BNO reporting? Uh they would report basically no uh revenue to the city in those those quarters.

So they basically just get a full exemption over that period of time. So we wouldn't actually have the data to know what >> Oh. So it isn't like they report a million dollars in revenue and then the credit mix goes to zero.

They just report zero. Yeah, you I I'd have to double check, but I I believe we just have the individuals. Um well, we'd be having 100%. We we could potentially back into that information. Um actually, because you would report the full amount and then we discount it to zero.

So, um we would just have to pull the individual businesses and see the benefit. So, I think we could actually pull that information. >> So, that's my request. in a couple of years maybe [clears throat] remember to look back at the program and see what if we could measure the benefits or estimate the benefits.

>> Uh the clarification has to do with the Main Street program. Right now that is a really powerful program which allows businesses that pay a BNO tax credit to instead of paying the state their BNO tax, they direct it instead to a qualified Main Street program, the Downtown Bellingham Partnership.

Um but that is a diversion I think only of the state's portion of the sales tax which is distinct then from the city's portion of the sales tax. Do these two programs not touch at all like just one is state it goes over here one is local and we can forgive it or not.

>> Yeah we operate those separately. >> Okay so that's my clarification. Uh first question. Uh right now we have this three-year as you say Miss Sunundine stepped approach 90% discount 75 that 50% discount as opposed to kind of the simpler 7-year 100% discount for the downtown pedestrian core.

Why not harmonize those? Why not? If you still want to keep three years for or we the council decides to keep three years for the urban villages, why not make that three years at 100 rather than the more complicated version?

Why not make that seven years at 100? Why not simplify things by creating the same schedule and amount of BNO tax credit because it's the same purpose in both instances. >> I can speak to the pedestrian core.

I mean, this is the area we did want to um prioritize at a higher rate because of the vacancy rate here. That's why we're going seven. And then we just decided not to really, we weren't really after changing the existing.

>> Um, >> if I wanted to suggest three years 100%, would that be difficult to implement? >> No. [laughter] >> Okay. So, that's a question. I'll leave it where it is. And then the final question is I've talked with you earlier and I can't remember if I talked to the mayor about this but I know I talked with you about creating a tax exemption for the Birchwood Northwest intersection because it was an area that seen significant business loss.

It seen you know supposed emergence of a food desert with some turnover in businesses. Um you may also remember during the original urban village planning thing that was a possible node for an urban village uh extending both uh across the bridge further south you know towards that little shopping center there and and north taken together that is a small commercial core and it was considered for an urban village.

I still considered a candidate for a future urban village. Um, and I suggested why don't we throw a tax credit around that area too, the same tax credit. I think you had reasons why you didn't want to do that.

Could you please repeat them because I still think it's a good idea to incentivize that area too. >> Um, and I think the mayor might want to speak to this as well, but we think um that area would be a good urban village location as well.

um in the planning and community development department. We think there's a real opportunity for some focused planning. I mean, it would require a a urban village planning effort. Um and then when that happened, I think this because we have an urban village tax credit program, then they they would I think that would be kind of an automatic extension of this code.

the mayor. >> Mayor, please. >> Not in this ordinance, but in the executive order itself, the way that we're trying to incentivize actions in the Birwood neighborhood in particular, those buildings have vacancies that put them at the top tier for tenant improvements and renovations um based on their length of vacancy.

So they would benefit from the new um permitting priority structure and that was how we were thinking of supporting the Birchwood neighborhood right now um is is through that new permitting tier. I think we just have to recognize that we have the urban village structure defined and until Bertwood is part of that.

Um, [snorts] yeah. >> Sort of makes me sad because I would like to see that area become an urban village and then he would have this sort of extension applied to it. But I know how long these things take and I don't know how long I will be here.

I would I would like to see that happen. I I really would like to see that happen. Um we we will continue to grow. I think the Urban Village strategy has been successful. I think we're not done with it yet.

And that is one of two locations I can think of in the city that are poised to become very appropriate denser commercial centers near existing neighborhoods, which is, you know, the formula that we're looking for.

One thing just to add on to an earlier question um from council member Lilloquist, the new urban strategist position part of their job description will be measuring and um monitoring the impacts of the the executive order.

So they will be tasked with the data collection per your request. >> Great. Um and just to note, we are at time of committee. those you had one question. Those were three really good questions. Um uh that we'll turn now to council member Ham.

>> Uh thank you uh chair. Um my question is how how does this fall outside the gifting of public funds rule? >> Matt Stamps is not here but maybe James Herb or Andy are you comfortable with this? It's a [clears throat] >> Yeah, I mean this is um this is just a tax benefit is to increase the economic activity [clears throat] of the of the area.

So, um I don't really think it falls under the um the benefiting of of uh under the law like there'd be concerns over. I'm not sure if the legal side has any concerns over that. Um for this tax benefit, >> I don't have any additional concerns about a violation of the constitutional prohibition on gifting here.

Yeah, these these types of tax benefits are adopted um widely across the state. Um and the Supreme Court of Washington has looked at these types of things before uh and determined that they do not violate the gifting prohibitions.

>> Thank you. Um, Council Member Liiloquist asked one of my questions which was the request to track the economic aspect, but um, also uh, sales tax because I'm assuming sales tax increases with the businesses.

So, we're not getting that sales tax either. So, hopefully that will rise up a little bit. So, if we can have kind of an estimate of how much additional sales tax, I don't know if that's impossible based on their BNO and knowing.

Um but was there my second question um was there any consideration given to businesses in that uh that core area that started in less than a year being able to apply to this? Um my a little bit of my concern is if I didn't have a huge infrastructure like a restaurant would have.

Um I was a smaller retail and I don't know if there have been any new retail in you know the last year but you know I could move my shelving to another location and get this for seven years versus staying in place.

So I just don't know if there's some shifting hap could happen in order to benefit. Um, but also if I started my business six months ago and I'm not qualifying, I' i'd be a little jaded based on missing this opportunity.

So, just wondering if you looked at were there any businesses that started recently and if so, was there consideration that they could also apply in this particular core? >> We did discuss it, but we didn't look at like actually how many businesses started, but um our The legal advice was that we >> You have an answer for it?

>> Okay. Forest Longman's gonna in I just um I just want to level set a little bit here about how much money we're talking about for these businesses. BO tax, it's on gross receipts, but it's a very very small percentage.

So when you look at a small downtown business, um I looked at sort of a handful of them in the system, $500 to $1,000 a year is what we're talking about and what they're paying in BO tax. So when we discuss like moving the potential to move, probably not going to outweigh the cost of setting up a new lease or the the trouble associated with it.

Currently, this core has uh been eligible for the urban tax credit exemption or the credit already. And so, we have not had a significant amount of participants into the program. I I can only recall um five five over the last couple years um that have joined the program.

So they still have the eligibility of the the 90 75 um 50%. Um so hopefully this will help increase and and bring more people down to the to the urban villages. >> Thank you for the great questions um committee and for the presentation.

Um I'll just reiterate, you know, we don't have very many tools as a city and we're trying to get more and this is one that we do have. Um, and there's a lot of confounding variables. It'll be difficult to measure.

Um, but I think this reflects our commitment to make use of every tool that we have to increase vibrancy and vibrancy begets vibrancy, right? And so, um, every little bit we can we can put into that effort is is worthwhile in my mind.

So, thank you again. We have a motion. Uh, and let's, um, go ahead and vote. If seeing no further discussion, all in favor, please say I. I. >> All opposed. Uh hearing none, I'll bring forward that recommendation this evening.

Um and um I'll just add one question. If um it is easy to pull the historic data on the existing tax credit, I would be interested. But if that's a lot of work, no worries. Okay, great. Uh with that, end of committee.