Washington has four document recording surcharges that are used to fund homelessness programs. Today the Department of Commerce told the House Appropriations Committee that revenues from these fees are falling short of estimates. (Commerce’s presentation to the committee is available here.)

Indeed, Commerce’s 2023–25 budget request includes a placeholder at maintenance level that would address the revenue shortfall from these fees. According to the request, the shortfall is an estimated 10%–40%, or $32 million–$130 million.

Apparently, Commerce is responsible for forecasting the revenues from these fees, which are paid on mortgage and refinancing document recordings (for example). They are “subject to the cycles of the housing market. The risk of forecast misses have historically been mitigated by maintaining a reserve, and tracking actual revenue and adjusting contract awards to match.” But, with the Federal Reserve’s recent moves to increase interest rates, home sales have declined. Thus, “Revenue through June 2022 is 25% lower than forecasted, and the average shortfall in recent months exceeds 30%. An accurate forecast of revenue through June 30, 2023, is problematic because of the difficulty in predicting future action by the Federal Reserve, and the trajectory of the housing market.”

Commerce has already acted to reduce program spending, specifically by reducing funding of (or not even implementing) the new housing programs created by E2SHB 1277. That bill was enacted in 2021; it also imposed a $100 recorded document surcharge.

Ultimately, the budget request notes that Commerce

will likely need to seek an appropriation (amount TBD) as part of the 2023 supplemental budget to prevent reductions to current contracts, withdrawal of publicly announced awards, and delay implementation of new activities required in the 2021 legislation. This would be a one­time award, allowing the department to honor existing commitments, and give time for revenue to recover to the long term trend.

The 2021–23 operating budget appropriates $326.4 million from the home security fund and $105.3 million from the affordable housing for all account (document recording surcharges are the sole sources of revenue for each). Of those amounts, $221.9 million from the home security fund and $58.4 million from the affordable housing for all account are specifically to implement E2SHB 1277.

(Meanwhile, the Building Industry Association of Washington filed a lawsuit last year arguing that these document recording surcharges “are unconstitutional taxes designed to raise funds to finance broad-based public purposes which are unrelated to the recording of instruments and other services provided by the Auditor or the regulatory burdens produced by the fee payer.” The suit will be heard in Thurston County Superior Court on Oct. 14.)

Finally, as part of its budget request, Commerce wants to combine the four recording surcharges into one, to streamline their distribution and uses. The table below shows the fee amounts and where the revenues go currently.