CONTACT:  Anna Rhoads, Public Information Specialist, anna.rhoads@co.thurston.wa.us or 360-545-5043

OLYMPIA –  As part of a routine audit of county expenditures from January 1, 2021, through December 31, 2022, the State Auditor’s Office (SAO) reviewed the county’s use of Real Estate Excise Tax (commonly referred to as REET) funds for the build out and furnishing of the Atrium Building, a building which currently houses most of the administrative offices of county government. Specifically, the SAO opined that the county did not follow proper procurement procedures for the build out and should not have used REET funds to purchase the furniture and equipment for the building. The SAO recommended the county replace $1,855,201 to the REET fund from another funding source. 

REET funds are collected through a tax on real estate transfers. Use of those funds is restricted by state law for certain expenses, including capital improvements. While the use of REET funds to build out the Atrium Building was allowed, the SAO believed the use of the funds to purchase furniture for the building was not. In addition, the SAO indicated the build-out work should have used a bid process.

County Response 

The county has asserted it acted in good faith and exercised due diligence when reaching the opposite conclusion. The county reviewed state law, the Municipal Research and Services Center County Bidding Book, and lease agreements with similar terms agreed to by the Washington State Department of Enterprise Services (DES). Advice from county legal counsel also supported a determination that bidding was not required for the build-out work, since the county would never own the building.

With respect to the use of REET funds to purchase furniture, the REET statute’s declaration of legislative intent indicates the definition of ‘capital improvements’ specifically includes the ‘acquisition of real and personal property associated with such local capital improvements.’ The county shared its legal analysis with the SAO as part of the process, but the SAO declined to change its conclusions.

“With a topic as technical as this, there are times when attorneys disagree on interpretations of codes and statutes,” said Thurston County Prosecuting Attorney, Jon Tunheim. “In this case, we respectfully disagree with the auditor’s opinions, and stand behind our team’s analysis of the law. However, we also will respect the process and the county will follow the SAO recommendations.”

Leonard Hernandez, County Manager, said, “While the county does not agree with the State Auditor’s Office, we are prepared to repay the REET fund with $1,855,201 from the county general fund.” He added, “processes are already in place to ensure funds do not have negative cash balances. The funds transferred to the REET account will be available for future county capital improvement projects.”

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