The Bellingham City Council voted unanimously to expand and strengthen the city's tax credit program for new businesses, extending eligibility to the downtown core and additional neighborhood commercial centers while also increasing the credit amount to full coverage for qualifying businesses.
The new ordinance amends rules that have been in place since 2015, when Bellingham began offering tax credits to new businesses opening in designated urban village areas. That original program applied to specific commercial corridors, including the Fountain District and Samish Way. The updated ordinance passed Monday, July 27, significantly broadens the program's reach and increases its value to the point where qualifying new businesses pay no local taxes at all during the credit period.
What Changed and What It Means
Under the updated ordinance, the tax credit option now extends to three additional areas: the downtown Bellingham core, the Fairhaven Urban Village, and the Barkley Urban Village. These are all areas the city has identified as either struggling with vacancies or targeted for commercial revitalization based on data gathered over the past several years.
The credit amount has also been increased to 100 percent of qualifying taxes for all eligible new businesses. That means a new business opening in any of these zones pays no local tax burden for the duration of the credit period, which varies by location. New urban village businesses receive the 100 percent credit for three years. New downtown Bellingham businesses get a longer benefit window of seven years, reflecting the deeper and more persistent vacancy challenges documented in the city's commercial real estate study.
That study, conducted in 2025, found that business vacancies in downtown Bellingham had reached unhealthy levels. The findings gave the council specific, current data to justify expanding the tax credit program beyond the original urban village boundaries and extending the downtown credit window to seven years rather than the three years applied to other locations. The seven-year window is a direct policy response to that vacancy data, calibrated to give downtown businesses enough runway to establish themselves before their full local tax obligation begins.
Downtown Bellingham's Vacancy Challenge
Downtown Bellingham has faced persistent commercial vacancy pressures over the past several years. The combination of remote work patterns reducing daily foot traffic in commercial areas, rising commercial rents relative to retail revenue, and post-pandemic shifts in retail and restaurant habits has left a number of storefronts empty along key streets including Holly Street, Railroad Avenue, and Cornwall Avenue. The vacant windows and shuttered storefronts that resulted have created feedback loops that make it harder to attract new businesses: fewer open businesses means less foot traffic, which means less incentive for the next business to take a chance on a downtown location.
The city has been working through multiple tools to address the problem. The tax credit ordinance is a demand-side incentive: rather than the city spending money directly on subsidies or grants, it defers the tax revenue that a new business would otherwise pay during its most financially vulnerable early years. This approach reduces the financial risk for entrepreneurs deciding whether to open in Bellingham versus a suburban location with lower startup costs and more established customer traffic. For the city, the cost is foregone revenue rather than direct expenditure, which makes it more fiscally sustainable than direct subsidy programs.
For someone weighing a new restaurant, retail shop, or service business in downtown Bellingham, a seven-year window of zero local tax liability is a meaningful number. It lowers the monthly fixed cost burden during the period when most small businesses are most financially fragile and most likely to fail. It also reduces the break-even timeline and gives a new business more time to build a loyal customer base before the full tax obligation activates.
Fairhaven, Barkley, and the Broader Picture
The addition of Fairhaven and Barkley to the eligible zone list reflects the city's recognition that commercial health challenges are not limited to the downtown core. Fairhaven, at the city's south end near the Alaska ferry terminal and Bellingham's oldest historic district, is a neighborhood with a strong independent business identity built over decades. Maintaining that commercial character requires keeping the economics of opening a new business in Fairhaven competitive enough that entrepreneurs choose it over lower-cost locations elsewhere in the region. Adding Fairhaven to the tax credit program acknowledges that even beloved neighborhood commercial districts need active policy support to remain vibrant.
Barkley Village, in the northeast part of Bellingham near Barkley Boulevard and Woburn Street, is a mixed-use commercial node that the city has been working to strengthen as a genuine neighborhood center rather than just a collection of strip retail. The tax credit extension to Barkley signals that the city sees value in building out commercial activity in this part of the city, which has seen significant residential development in recent years and has a growing population of potential local customers.
The City of Bellingham's Planning and Community Development Department administers the urban village programs and would handle applications from new businesses seeking to qualify for the expanded tax credit. Business owners interested in the program should contact the city directly to confirm eligibility for their specific location and business type, as the credit applies to new businesses rather than existing ones and has definitions around what qualifies as a new business for purposes of the program.
The unanimous council vote suggests broad agreement across the council's political spectrum that incentivizing commercial activity in these corridors is a meaningful priority. For prospective business owners in Whatcom County considering a Bellingham location, the window is now open: seven years of tax coverage downtown, three years in the urban villages, at 100 percent of qualifying local taxes. The combination of extended duration and full coverage makes this one of the more aggressive commercial incentive programs the city has offered since the original urban village tax credit launched in 2015.
For more context on how Bellingham is working to address its housing and commercial vacancy challenges simultaneously, the council's ongoing discussions about new housing development initiatives reflect the same underlying goal of making Bellingham more economically dynamic and livable across its neighborhoods. Residents and business owners can find more information about the tax credit program and other city economic development tools at the City of Bellingham website.
