Select Budget Committee 10/20/25

Good afternoon.

The October 20th, 2025 Select Budget Committee meeting will come to order.

It is 2.01 p.m.

I'm Dan Strauss, Chair of the Committee.

Council President Nelson is excused.

Clerk, will you please call the roll?

Council Member Saka.

Thank you, we are gathered here today on October 20th, the furthest and biggest day in Mariners franchise history and here is hoping that tomorrow is as well.

Either way about it, no matter the outcome of tonight, and we have Council Member Hollingsworth with us now.

No matter the outcome of tonight, we've only had Coach Dan Wilson with us for the last season and a half.

No matter what the outcome is today, I can tell you today is just a moment on that upward trajectory of our Mariners baseball franchise.

Let's go.

Mariners, seize the moment.

Today is the day.

With that, we have one item on today's agenda, a presentation on the economic and revenue forecast.

The forecast council met this morning and received the updated economic and revenue forecast.

The forecast council is made up of a joint governing body of the legislative and executive departments.

The city council is represented by myself and council president Nelson.

The executive is represented by finance director, Jamie Carnell.

and the Chief of Staff for the Mayor's Office, Andrew Meierenberg.

If there is no objection, before we begin, if there is no objection, the agenda with this one item will be adopted.

Hearing no objection, the agenda is adopted.

We will now move on to our first and only item.

Clerk, will you please read the short title into the record?

Agenda item one, economic and revenue forecast for briefing and discussion.

Thank you.

The last time we had the economic and revenue forecast presented here, we had brought all of the staff responsible for this, and we found it to maybe be a better way to present with just having Richard Dodzi from CBO and Director Jan Duras of the Office of Forecast with us to share out the information.

We also have Tom Mikesell from our City Council Central Staff, as well as Director Ben Noble of our City Council Central Staff.

Colleagues, I will turn it over to you to run this presentation.

Colleagues, I will ask that we hold our questions to the end and also understanding that Director Duras offering you, and I hope that this is all right, is available to answer your questions, not necessarily only in this committee.

This is just an opportunity for us all to come together to ask the forecast office director questions about the forecast and to receive it as a group.

In the past, the forecast before there was an independent forecast council, this was done just internally within the CBO.

There was not a lot of public or council member insight into it.

Even more recently as we've developed this forecast council, it still was meeting on its own.

As I became council chair or budget chair, that's when I requested the forecast office come to our committee so that all council members have equal access.

That is why we are here today, but also understanding We have a council member proposal deadline in 22 hours minus five minutes.

And so colleagues, if you want to ask questions of Director Duris to the side to reduce the amount of time we are here today on the dais, that is always an option.

It's our Let's Go Mariners theme song, Seize the Day, Seattle Mariners.

With that, I will turn it over to Director Duress and the table.

If you all want to introduce yourselves individually, I know I did from here, but I'll turn it over to you, Director Duress.

Thank you, Chair Strauss.

Good afternoon, Council members.

My name is Ian Duress.

I'm the Interim Director and the Chief Economist at the Office of Economic and Revenue Forecast.

Ben Noble, Central Staff Director.

Richard Dadsey with the Economics and Revenue Team and CBO.

Tom Axel, Central Staff.

I'll turn this over to Jan to dive in, and actually to Jan and Richard.

Just take a moment to explain why both Jan and Richard are here.

So Jan is director of the Forecast Office.

He's a member on his team.

And the Forecast Office, as you will see, is responsible for the bulk of the revenue forecast, particularly the forecast for the revenues that are most affected by the local economy.

The Forecast Office develops a forecast of the economic conditions, and then from that, a forecast of revenue.

There are, however, still some revenue streams, a few narrow revenue streams, that remain in the purview of the Budget Office because they're not particularly dependent on the economy and it's really the relationships to the departments themselves that provide the best information to doing that forecast.

So there's still somewhat of a combination here.

But as you'll see, the bulk of the work is on the Economic and Revenue Forecast Team side.

and I think as you'll see it gives you a strong foundation and they'll be able to answer your questions as we go.

So this presentation here that I'll go over today is the shortened version of the one that was presented to the Forecast Council this morning.

It consists of two parts.

Broadly, the first one is an update on the economic developments and summary of the economic forecast, first for the U.S., and then for the Seattle metro area.

The reason why these are important is that the revenue forecast itself depends on those economic forecasts, the way how we develop the forecast for sales tax, business and occupation tax, and other revenues that are driven by the economies.

We first look at the national forecast, use it as a starting point to develop the regional forecast for the economy.

Seattle metro area economy and then develop that revenue forecast itself.

With that, looking at the changes in the US economic forecast since July, the two charts on the right side here summarize more or less what happened since we were here presenting the August forecast.

The panel on the left side shows the real GDP forecast.

The red line is the July baseline scenario.

The brown one is the pessimistic scenario from July.

Back then, the pessimistic scenario assumed that there is going to be a recession or had some assumption that would lead to a recession.

The baseline scenario since August has improved.

The outlook has, in general, improved slightly.

The current baseline scenario assumes real GDP growth somewhere around 2 percent.

That's pretty solid economic growth.

The pessimistic scenario continues to assume or continues to feature a recession.

The recession was, however, postponed a little bit.

So, again, overall improvement in a sense that the economic outlook has improved.

There has been slowdown in employment growth and growth, and the Fed has acknowledged that the employment has been growing at the slower rate as a result of trade and immigration policies, as a result of the AI-related investment and their implications for productivity.

And so the chart on the right shows that even though GDP is expected to grow at around 2%, the employment growth would be much weaker than that.

Turning to the regional economy, highlighting the main points.

For regional economy, the most up-to-date data is for the employment, monthly employment data that comes from Washington State Employment Security Department.

Recently, ESD has revised down their employment estimates going back to the fourth quarter of 2024. And with that revision, the current estimates basically say that there has been There has been a decline in the number of jobs in the Seattle metro area, that's King and Snohomish counties, a 0.7% decline in the first eight months of 2025 relative to the same period in 2024. So that's about 13,000 jobs.

The chart on the right side shows how different industries contributed to that.

total change.

So the top bar is that 0.7% decline in total employment, and those smaller bars below that for individual industries, if you were to stack them up, they would add up to the total non-farm growth.

So as you can see, those declines were broad-based.

There were only three sectors, education and health services, leisure and hospitality, and government where jobs were added.

In the remaining industries, there were job losses.

and in particular and particularly worrying is the decline in professional and business services.

Those are usually the jobs where the associated revenue that's generated is a quite large share of cities total revenues.

That change, that revision in the employment was also incorporated in our original forecast.

The red line in this chart shows what the baseline scenario forecast looked like back when we were developing the August revenue forecast.

The darker red line shows the current forecast with that revision.

And again, to the left of the line that denotes the forecast, we see the impact of the revision, the decline in employment for the first three quarters of this year.

And going forward, we expect the growth to resume in 2026, but be very modest, below 1% on average, That's a baseline scenario.

In case of a recession, in that pessimistic scenario, the recession would lead to job losses.

About 2.5 percent jobs would be lost between the first quarter of 25 and the third quarter of 27 before recovery would start and the full recovery would take until 2029 Q3.

that would make this recession comparable to the 2001 recession rather than a more deeper 2008 or 2020 recessions.

Moving to the revenue forecast itself, in the forecast council meeting this morning, the forecast office has recommended the baseline scenario to be used as the official October forecast.

That said, there is a large amount of uncertainty regarding the revenue forecast and I'll speak about that in the next couple of slides.

There is a large amount of uncertainty and we expect that the variance, the actual revenues for 2026 might differ more significantly from our current forecast than what we have seen in the past.

The context is essentially a quick summary of that economic forecast that I went over a couple more points to highlight here the likelihood of a recession in the next 12 months is about the same as what the economies perceived it to be back in Summer around 33% so that's quite elevated nevertheless lower than the 45% Estimate back from April after the tariffs have been announced the initial round of tariff announcement was made.

One final point here, and that relates to that overall uncertainty and why we are less confident about our forecast for 2026. There are number of policy changes that affect sales and B&O tax collection.

The Senate Bill 5814 in total is expected in total to have a positive impact on city's revenues, but it's hard to estimate precisely how big the impact will be because the data to provide that estimate, to create that estimate is limited.

So we'll just have to wait and with additional data coming in, improve our forecast, improve our understanding of what exactly the impact of these policy changes on cities' revenues.

So turning to the general fund revenue forecast for the baseline scenario.

Again, that's a scenario that has been recommended and has been adopted by the Forecast Council this morning.

At the very bottom line for a total general fund without grants and transfers, you can see that there is a positive revision, positive change for both 2025 and 2026, the total of 12.1 million.

That's less than half a percent of the overall general fund forecast, so minor revision, but a positive revision.

In general, the forecast reflects that slightly improved outlook, increases revenues, not dramatically, but there is an increase in most economically driven revenues.

The individual revenues, those that are highlighted blue in the table above are the ones that the Forecast Office is responsible for.

Sales tax revenues here, the 2026 total includes the impact of the 5814 and includes the new 0.1% public safety tax.

So that's why there is a big jump between 2025 and 2026. The overall increase for sales tax revenues is again a result of a slightly improved outlook.

For business and occupation tax, in addition to the improvement in the overall economic outlook, the year-to-date collection for 2025 was slightly ahead of where we were expecting it to be at this point, and that's another contributing factor.

So that's also the reason why the upward revision for business and occupation tax is slightly higher.

Private utility taxes, the main factors here are telephone and cable tax revenues which in recent years have trended down but the rate of a decline slowed down a little bit and so the actual collection was slightly ahead where we were expecting it to be.

resulted in 2.3 million added to the forecast with this update.

For the remaining of revenues, I'll turn it over to Richard, who's going to provide context for those.

Yeah, thanks, Director Duras.

So first is property taxes.

So we have an upward revision there of about 4.1 million for 26. A lot of this upward revision has to do with the fact that we're receiving more information from the King County Assessor's Office for property tax collections in 2026. The two key factors that drive that typically are new construction, which is the amount that we get to add to our levy beyond the 1% growth factor.

And new construction values for 26 are coming in a little bit higher than they did in August.

The second item will be a refund relevy, which is the amount of refunds paid the previous year that the city is allowed to relevy next year.

And that amount is also coming in a little bit higher than previously estimated.

As far as other city taxes go, much of this is related to things like the transportation network company tax, and the actuals are coming in a little bit higher than when we had our previous look.

And so that upward revision there is reflecting that.

We also have parking meters and court fines.

So with regards to parking meters, we have a small downward revision, which is mainly due to preliminary sort of parking rates that are expected to be changed next month, which would have a downward effect on the revenues.

And then as far as court fines go, we don't really see much of a change here over the two years.

So it's about 300,000 sort of downward revision.

So underlying this is, you know, a small increase in sort of parking tickets, but this is all mostly offset by downward revision to the revenues from red light camera citations, which is down mostly for a simple technical reason, that is that, you know, council changed the allocation of red light camera revenue going to the general fund from 80% to 70%.

Then, with regards to license permits and interest income, a big component of that has to do with interest that's accruing to cash balances that are being held in the general fund.

And so, as you all are aware, we are in historic high interest rate environment.

the Fed cut rates for the first time in September.

The expectation is that they will probably cut rates again in October.

And they don't have a November meeting, but the anticipation is that another rate cut might happen in December.

And so the downward revisions that you see, therefore, are largely driven by sort of the anticipation of a change in the interest rate environment.

and then also revenues from other public entities.

A lot of these are the state shared revenues that we get from Washington State and really the downward sort of revision there of about 700,000 over the two years is really a reflection of the actuals that have been coming in a little bit less rosier than we expected.

For service charges, Yeah, for service charges, you see an extra 2.2 million there.

That is reflecting, again, the actuals that we've collected thus far.

Much of this has to do with, like, law enforcement fees.

And these include fees for police presence at things like sporting events, which, you know, have obviously been a positive impact in the city thus far.

With respect to grants, we actually noticed a bit of an error in our presentation here.

So there should be no changes, if you will, between 25 and 26 compared to the August forecast, implying that the total general fund number line should be the same as total general fund without grants and transfers.

So that's a correction that we will be working with Director Duras to reflect.

So just to say that very clearly, that's 12-point-the net increase in the general fund is 12.1 million?

Correct.

Thanks.

One final point I want to make here.

The two lines below, right below the table, they show the annual growth in revenues without grants and transfers and compare it to the Seattle metro area inflation rate.

For 2025, there is about 0.4% additional growth above inflation.

So revenues are expected to grow this year slightly faster, but really just slightly faster than the inflation.

For 2026 the difference is much larger, 1.3 percentage point difference.

That again is partially due to the additional sales tax that's already included in the sales and use tax line.

One potential additional change to the revenues that has not been included in the table on the previous slide is the impact of a business and occupation tax restructure.

That has yet to be approved by the voters and in line with past practices was because of this fact not included in the presented general fund forecast.

Nevertheless, the proposed budget assumes 81 million generated in additional revenues if this proposal passes, and the updated amount is 85.6 million.

Turning over to the non-general fund revenues, the line at the top shows the largest of these revenue streams, payroll expense tax.

As you can see, it has been revised up in essentially in line with the improved economic outlook, in line with the fact that the stock prices are growing the stock market as overall is growing and those gains are heavily concentrated in tech sector.

There is an additional 7.2 million over the two years.

That partially also reflects the information that we received from the Office of City Finance regarding late payments for past tax years.

The line below, payroll expense tax fund, interest income, Richard will provide information.

Yeah, so with respect to interest income for the payroll expense tax fund, this is something that was not previously prepared.

However, upon sort of many conversations with central staff, as well as also reflecting the fact that in 2024, the actuals that were received for that fund in terms of interest was 11.2 million, which is a very substantial amount.

We took on the task of preparing a forecast, if you will, for this particular item.

The estimate for 2025 is 10.1.

and that is downwardly revised to about 9.7 and 26. Please note that much of this is really a reflection of the historic high interest rate environment that we find ourselves in, which is really contributing to why we're seeing huge interest income for this fund.

and so the anticipation obviously is that as the interest rate environment starts to soften through Fed policy and other sort of monetary easing policies that we can see those, we can expect those numbers to go down in the future.

However, they are quite substantial up to date and so it was appropriate for us to call that out and you know, CBO obviously would like to thank Tom and others for helping us understand and think through this a little bit better.

I'll move on, Jan, if you don't mind, to sweetened beverage tax.

Last when we were here speaking, we really sort of factored in, if you will, the potential impacts of the World Cup and other activities in the Seattle area, driving, if you will, the demand for sweetened beverages.

And up to date, the collections that we are getting are actually a little bit rosier than we had expected, a little bit higher than we expected.

Also, you know, for next year for the World Cup, we maintain, if you will, our forecast that we would have, in so many ways, historic collections for this particular tax.

And so, that's reflected in the $20.3 million for 25 and the $22.3 million for 26. Short-term rental tax.

This is a tax that's mostly affected by domestic and international tourism.

In 2026, the outlook has become a little bit more pessimistic, largely owing to the steep drop in visitors from Canada.

That's not expected to improve.

And then 2025 is simply reflecting slightly higher actuals than we had anticipated for the short-term rental tax.

and then also with regards to commercial parking tax, we have an upward revision in 26 and this is a result of really the relatively improved employment outlook, which is hopefully indicative of increased economic activity across the city, meaning more people going out to shops and restaurants and parking at the commercial garages that are around the city.

And then finally, I want to speak to the automated traffic safety cameras.

Before, this was labeled as a school zone, I think, traffic cameras, but we've had a change in the name of that.

And so, we have a relatively large increase from 2025 to 2026, largely due to the expansion of school zone cameras, with new cameras being expected to be activated later this year.

and in early next year.

The expected installation schedule for the new cameras has not changed since August, since the August forecast.

However, we're hopeful that many of those will come online later this year and in the early part of next year.

And then we have a small downward revision to these revenues based on citation trends with the start of like new school year and so forth.

This is offset by the increased revenues in red light camera citations going into the fund, which increased from 20% to 30%, which is going to increase from 20% to 30% starting in 26. So I will pass it back on to Director Duras.

Thanks, Richard.

Okay, so going back to the rate revenues, the third line in the table, an upward revision of 1.4 million for 2025 is primarily due to a couple of larger properties that were sold and that resulted in actual collection above our forecast.

The downward revision of 1.1 million for 2026 is the result of a a weaker housing market forecast from S&P Global and Moody's analytics that underlie the regional economic forecast and by extension the revenue forecast.

So interest rates are long-term, interest rates are stubbornly high.

The S&P Global and Moody's have revised down their estimate for a number of homes sold next year.

In addition to that the declining home prices, slightly declining home prices mean that the overall forecast for rate is slightly lower for 2026. The combined change for the two years is 0.3 million to the plus side.

And then, skipping to the final line, highlighted blue, that our forecast office is responsible for, the transportation business district sales tax has been revised up slightly, again, mirroring the changes for the general fund sales tax due to improved economic outlook, slightly higher revenues forecasted for 2026, but it's only 0.5% increase.

very modest increase in general.

So with that, I'm happy to address any questions.

Thank you, Director Duras, Richard, for all of your work here.

Colleagues, I'm going to manage committees slightly differently than usual.

I'm going to provide some remarks from the Forecast Council this morning, and then I'll turn it over to you for questions.

And Director Duras, if we could start on slide nine.

I'm just gonna kind of summarize the conversation that we had this morning.

On the admission tax front, your team is continuing to monitor FIFA World Cup.

That no change is not a bad thing, and that you are already monitoring FIFA World Cup.

Colleagues, this is where if tomorrow is also the greatest day in Mariners franchise history, we will see an uptick in the admissions tax for this year, but not for next year.

As a technical point, we don't collect emissions tax at Safeco.

Never mind.

We will see a bump in other activity potentially, but not that particular road industry.

Too bad.

Next time.

With that, moving on to the conversation around parking fines and traffic cameras, wanting to give the forecast offices grace because just to state throughout the pandemic our forecast office had more accurate predictions than the state's forecast office and these two areas of parking fines and traffic cameras we as the City Council everyone here is aware of the parking fine changes that occurred last year the changes that we're making towards traffic cameras and so there's literally nothing more that our forecast office could do to better predict this because we are continuing to change the environment in real time Director Duras, if you want to go back one slide to the B&O, just to say this is the same conversation we've had with the jumpstart payroll expense tax over the last number of years.

It really does require three to five years of a tax being in place to understand what the forecast, to accurately predict forecasts.

and that's because we need three year smoothing or five year smoothing to understand trends throughout many different economic situations.

And so no matter what, we are going to need a few more years to really have a baseline on the forecasts moving forward.

If we could return to slide four and then to slide five.

I want to bring us back to where we were one year ago today.

Oops, sorry.

I guess my slides are a little bit different to the volatility side.

Maybe it wasn't on here.

Yeah, so.

Yeah, this one has been, yeah.

The slide deck for this presentation is abbreviated, so some of the slides from the morning were moved to the appendix, and it's slide 12 for the S&P Global Index.

Thank you, Director Duress.

Colleagues, the slide on the screen right now demonstrates the stock market growth.

A year ago today, or at the beginning of 2025 was at about the peak before that first drop.

This is where we were a year ago today was just a little bit to the left of that peak where we believed that January would bring a slow growth and in a positive direction.

The reality of what we experienced this year was that steep drop off and then return to slow growth.

So where we are today is probably a similar place that we would have a year ago predicted we would be today, but it has been through a process of deep decline with a rebound back to a period of slow growth.

This is why I say that there's cautious optimism in the future and even though this has been a positive revenue forecast, we cannot predict what we will need to attend to in the next six months, in the next year.

The federal government is clawing back, restricting funding to so many different things in our region that no matter what the positive number is on our revenue forecast today, the likelihood that we will need to step in for that federal withdrawal is higher than what we've gained today.

And so while this is a positive, I share with you that it's a muted positive.

Director Duras, if you could show the volatility slide and then

I'm afraid that one did not make it in.

That one didn't make it in.

All this to say that at the beginning of this year, we experienced the highest volatility in our market since the pandemic.

And so that is what created this downturn and then returned to slow growth.

So if we had been a year ago predicting to where we are today, we're probably somewhere pretty similar.

What was unpredicted was the path in which we got here today.

This year has been full of twists and turns, and while today's news is positive, I share caution because we don't know what we will need to attend to in the next six months, in the next 12 months.

Director Duras, I'll give you the floor to correct anything that I said incorrect.

and then I'll open it up.

No corrections needed.

I learned from the best, Director.

With that, colleagues, if there are questions, happy to take your questions.

Council Member Juarez.

I just want to apologize for that singing on my phone.

It was the Let's Go Mariner song, right?

Okay, so I know the chair is saying it's on a positive.

So I'm looking at slide three and I'm looking at slide five.

So we're assuming a recession in first quarter 2027, nationally and Seattle, King County, Snohomish County's recession on both those slides.

So the question I have is, if we're gonna assume a recession pretty much in, like I said, quarter one, 2027 and on page three, you list some of the reasons why the pessimistic scenario, trading partners.

Can you explain or maybe share if it's just more political and legal?

You have stricter immigration policy.

How does that, is it because we're a quote unquote a blue state or what is the reason for that?

Besides the obvious.

So the pessimistic scenario, those are the two brown lines.

They assume a combination of factors that would push the economy into recession.

One of them is a stricter immigration policy that would affect not just regional economy, but national economy as a whole.

So that's one factor there.

together with stricter or stronger response from trading partners retaliating for tariffs and then deteriorating financial conditions.

The chart that was shown before with the stock price is growing.

If there happens to be a correction, if it turns out the AI investments are a bubble, that would be a contributing factor to something that can push the economy into the recession.

So that's a pessimistic scenario, but that's not the scenario that the Forecast Council has adopted.

It's just an alternative scenario.

And going back to that 2027 recession and the impact on the regional economy.

So again, the way how the forecast is developed, we take the national forecast, the trends in the national employment data, trends in personal income in the nation, and then combine that with the information that we have on the regional employment, on the regional labor market.

And because there is that little bit of a disconnect on this slide here, showing that the changes in overall employment are different in the national economy and different in the regional economy, the path is not the same in the regional and the national economies when it comes to overall employment growth.

And so both of these pessimistic scenarios for the national economy and the regional economy, in the pessimistic scenario there is a recession, hitting the national economy, affecting the regional economy as well.

the extent to which those effects differ and depend on where we are right now and the different composition of labor market.

Okay.

May I have a follow-up?

Please.

On page five.

So this is interesting for some of us who have been around.

Why are you saying the downturn would be thus more closely comparable to the 2001 recession rather than the 2008 or the 2020?

Why is that?

Yeah, so that's essentially just summarizing the extent to or the magnitude of those job losses.

We can look at the previous recession and compare their impact on employment, how severe the impact on job numbers was in each of those individual recessions, how far down the employment went before it started to recover, and how long it took to recover.

Okay, so 2001 was when the bubble popped, right?

That was when we had the big...

Yeah, I was working at an investment house then, so I remember how it tanked when the bubble popped.

I bought Enron stock, long story.

So tell me, what do you anticipate that's like 2001?

So, let me put a little context here.

Yeah.

The Forecast Office, as part of its charge, prepares actually three forecasts.

Okay.

A baseline forecast, an optimistic forecast, and a pessimistic forecast.

And I'm just looking at the pessimists?

You're just, yeah, typical of you, you're just, no, sorry.

It's usually a job for the economists.

We are usually the darker ones.

But you were around in 2001, so you know how bad that was.

Yes, lived and experienced.

So they then make a recommendation about which of those three forecasts should be the adopted forecast.

And that recommendation this time around is to the baseline, and that recommendation was accepted by the Forecast Committee at this very table this morning.

So the pessimistic highlights risk, but it is not the forecast to which you are going to be asked to balance the budget, nor what we're exactly expecting to happen.

But it gives you a sense, if things went badly, I'm going to turn this over to Jan now because that's not my forecast, they could go very badly.

Okay.

If you don't have anything to add, that's fine.

Yeah, that's a good point.

So the red and the brown line, they just show these two different alternative scenarios.

What we expect to be the more likely outcome is the red one, so not a recession occurring, it's just an alternative path.

Given some things that might potentially happen, there is a risk of recession, but we believe that the baseline scenario and the red line were the employment growth resumes is the most likely outcome here.

Okay.

Thank you.

Thank you, Chair.

Thank you, Council Member Juarez.

And to build off of that, the pessimistic scenario before us would show us negative $70 million.

The optimistic scenario would show us positive $90 million.

The baseline that we've adopted is about there in the middle, but that's the uncertainty that while we don't have the volatility that we had earlier this year, the uncertainty is shown by the difference between our optimistic and pessimistic scenarios.

With that, Council Member Rivera, I see you've got your hand.

Thank you, Chair.

Thank you for being here today, Jan and Richard, and of course, Director Noble and Tom.

I have a question about the federal unemployment numbers.

We don't have those, obviously.

There's a shutdown.

So what would be, How are we calculating, I mean like this seems to me that's a big unknown that would really have, well, my assessment, but you can correct me if I'm wrong.

It would have a not unsubstantial impact on the forecast.

So can you explain a little how you went at determining the forecast without that big chunk of information this time.

Sure.

So that data that you're referring to is the employment report that's released every month.

So it was not released because of a government shutdown.

It has not been released in October.

That means that we do not have employment data estimates for the previous months for September.

That means that in general we are working with slightly outdated data, with one month's lag behind what would be typically available.

It's not a major issue because, in general, when we start to develop these forecasts, we have to rely on the national forecast that's already released by the point that employment report is available.

This particular forecast has been developed based on the U.S. forecast that was released by SNP Global and Moody's Analytics at the beginning of October, the first week of October.

And so, again, for them to finalize everything, they already have to have things wrapped up by the time that employment report would be available.

that much of a deal.

It would be a bigger deal if this continues on, if we are continuing to miss a couple of reports for that, which is not very likely, but would be a big problem.

Thank you, Director.

And just as a follow-up, you did say that There's been a decline in jobs in Seattle from 2024 to 2025. And it seems, and to the Chair's point that he made earlier, it seems like things have been not predictable this year.

So given that, I understand you're saying normally because you are looking at past employment, unemployment data, you're able to, by this point, have a good prediction on the forecast.

But given the volatility this year and given that jobs are down in the region, with that, do you still feel comfortable with the forecast you're given without those unemployment numbers from September, for instance?

Yeah, it would be, of course, better to have that extra months of data available.

It would not likely change overall picture much.

Occasionally there are larger revisions to the employment data, and the chart shown here has changed quite considerably compared to what we were showing, let's say, in April, because ESD goes back and revises employment estimates going back a couple of quarters.

But yes, you are right, overall uncertainty has been much higher this year for a variety of reasons compared to the previous year.

and that was one of the points when the baseline scenario was recommended.

We also said that we have less confidence in the 2026 forecast and we expect a larger variance of actual revenues from the 2026 forecast that we just developed because of all those things that contribute to the uncertainty.

Thank you, Director.

And can you tell me what the modeling, what is the modeling that goes into creating the baseline?

What is it comprised of?

I'm just trying to understand.

Yeah, so the basic idea for how we develop these forecasts is every month, S&P Global and Moody's analytics provide us with a forecast for the U.S. economy.

The forecast has a large number of indicators and includes the forecast for employment, personal income, interest rates, and inflation, a couple of additional things.

These are the ones that are quite, quite important for the regional forecast.

We then, when we are developing the forecast, we then take the U.S. forecast and we have an in-house statistical model which essentially uses the U.S. forecast together with regional data on employment, regional data on income, vacancies for the office, vacancies for multifamily housing, regional home prices, things like that.

So there is a statistical model that basically takes the trends in the national economy, adds the factors that matter for the regional economy, and produces the best for the regional indicators like employment, inflation, personal income.

home prices, things like that.

And then the next step is taking these regional economic forecasts for employment, personal income, things like that, and again using some statistical models which link those to the revenues that we collect.

the patterns that we have seen in the past, how much employment growth contributes to, let's say, sales tax revenue growth, how much personal income matters for sales tax or for business and occupation tax.

These sort of statistical relationships and historical patterns can help us to develop the forecast for this year and the coming year.

Thank you, Director.

That's actually helpful to me because I know and this past year there's been a lot of talk about losing tech jobs and things like that and then I see how you all look at the regional activity as you're putting together the baseline and then it makes sense given loss of jobs locally that it's why we've had some volatility this year.

So thank you for explaining that because it it paints a picture at least for me.

So thank you for doing that.

And then Chair, I have one last question if I may.

You didn't, well, let's see.

Sorry, I have your slide deck from this morning and I'm toggling back and forth.

On your baseline scenario, I guess it's page seven from today's.

So I see here, I just wanna make sure that I have this correct.

It says that for the, this is your baseline, which is the, what you're recommending.

It says the two year total difference is $12 million.

And so basically that's really what we, what's being projected in terms of growth in our budget for the next, for 25 and 26.

A key point I would make is that it's really the 26 number in some sense that represents the ongoing portion of this revenue.

So there is 12.1 in total, but in 2026 it's 7.6.

So that's really the increase in the base and in that sense represents a better estimate of the ongoing revenues that are embedded in the forecast update.

Thank you, Director.

I was going there next.

Sorry to have jumped you.

No, no, this is good because we need to be really clear on what we're talking about for 2026 as we're doing our budgeting.

This means there really isn't a lot that we can rely on outside of the current budget that we're looking at that the executive sent down.

That is really important and is important for the public to understand because, of course, we are threading the needle always between the needs of our constituents, the asks of our constituents and then the reality of what we have in terms of money.

And so knowing that really, you know, we're talking about a seven almost just $8 million for 2026 is what this forecast is predicting in terms of anything additional maybe that we don't currently have.

And so that's what I wanted to make sure I have that I'm understanding that clearly.

So thank you for that director.

and then, sorry Chair, I have one last question if that's okay.

My last question is about trends over the last 10 years.

I can't remember and I've been here for the last eight but in the October forecast, which is an important forecast, the fall forecast because it helps paint the picture for the budgeting process and if you don't have the answer that's fine, happy to follow up.

but just wondering if in the last 10 years do you normally recommend the baseline?

Are there years you've recommended the optimistic or others that you've recommend the pessimistic?

I can't remember from year to year those last eight years.

And then the second part to that question is how have the numbers changed from what you've predicted?

which I know is a lot.

I don't expect you to know this off the top of your head but I did want to ask the question for the record because I think it is an important one in terms of seeing trends

Right, so the first part of a question regarding the scenario recommendation.

In general, baseline scenario is recommended.

Given the way how these forecasts are constructed, the national forecast always puts the largest probability on the baseline.

Those alternative forecast scenarios come with a lower likelihood attached to them.

There were a couple of cases where the pessimistic scenario has been recommended.

I don't believe there was any recommendation made for an optimistic scenario, certainly not in the last couple of years.

The cases where the pessimistic scenario was recommended were the ones where we had a strong belief that the baseline scenario is outdated.

Some events have occurred which essentially pushed the economy to the downside.

Most recently, other than this year.

Going back to 2020, when the pandemic hit, when we were developing the April forecast, we already knew that COVID is going to have a major impact on the economy overall, even more so on Seattle, which depends quite a bit on leisure and hospitality and tourism and so in April 2020 pessimistic scenario was recommended because again there was a belief that certain events that have transpired since the national forecast was prepared to make the national forecast outdated and the pessimistic scenario represents the likely outcome.

Same sort of thing occurred this year.

In April, the pessimistic scenario was recommended, not because we believe that the economy is going to necessarily end up in a recession, and the April pessimistic scenario was not a recessionary scenario.

It was a slower growth, but not a recession.

So there is this fundamental difference between what the pessimistic scenario now basically entails, which is a recession, and what the pessimistic scenario looked like in April, which was just slower growth.

Again, that was because The April forecast was prepared after the tariffs announcements, and those tariffs announcements were not incorporated in any of those forecasts, baseline or the pessimistic one.

So that's when it comes to the forecast.

And the second part of the question was the change in the revenues relative to...

The baseline forecast, the actuals.

That's the piece maybe you don't have off the top.

I don't expect you to have.

Essentially the accuracy of the forecast.

Accuracy of the forecast, yeah.

The fall one, that's usually what I heard you say, Director, is you usually recommend baseline forecasts in the fall and then what the actuals have been relative to that.

Yeah, so last year the difference was small.

For sales and B&O taxes in particular, it was around 0.5% difference.

That's October 2024 relative to actual 2024 revenues.

that was there was similarly small difference for the general fund as a whole but when it comes to payroll expense tax for example there was a quite significant difference between the 24 actuals and the 2024 forecast from October that was the one of the main reasons for a really significant downward revision in April So it depends on the revenues, payroll expense tax.

As Chair Straub mentioned, we only have a few years of data, so it's more volatile and we have less experience, which results in larger variants.

But for general fund revenues that are well-established sales tax and business and occupation tax, typically the variance is smaller.

Again, 26 might be different.

At a very high level, one of the things Jan and I worked on when I was still at the Forecast Office was taking a look at this accuracy question from a historic perspective.

And what we generally found was that the error narrowed.

So there's an April forecast, there's an August forecast, there's an October.

And sure enough, in general, the October one is closer to reality than the other two.

and that the difference is small, one or two percent, again, on average.

And there is effectively a bias towards under-forecasting.

What we ended up realizing is that that actually comes from the national forecast.

They have a bias towards under-forecasting economic performance.

We haven't made any sort of as a group, collective, like haven't moved to correct that because in some sense under forecasting feels like a reasonable approach, but that is a judgment because it's better to be on that side than the other is the theory, but it's quite accurate.

But then, and just to reiterate what Jan has said, PET is a whole new revenue stream and like these other ones, one of the reasons we're so accurate is we've got 30, 40 years of history and understand the relationship between economic forecasts and revenues.

Not so much.

And then to highlight this, and Jan has mentioned this already, but the state just past session changed what exactly is subject to B&O tax and what is subject to sales tax.

In some sense, they changed the tax base.

And that'll really mess with your forecast too.

if you've gotten really good at understanding that change is itself going to take a little while to work through and we'll get a better understanding over time of that as well.

So generally very good, PG, complete challenge, and then some recent changes that are going to make both P&O and sales probably a little noisier, if you will, than in the past.

Thank you.

That's the Senate bill that was mentioned, 5814, and lower confidence because of that.

I appreciate that.

I appreciate knowing, though, that the change has been so small that the fall forecast is fairly accurate for intents and purposes of our budgeting and that's really important because we can't expect some kind of windfall that's not traditionally and even with the volatility of the jumpstart tax we're seeing some dips which aren't advantageous so this is really helpful to know in terms of hey what we have now seems fairly, with fair certainty what we're gonna have.

So thank you, thank you Chair.

Thank you, Vice Chair Rivera.

Excellent questions.

Really, excellent point, well thought questions.

Colleagues, other questions right now?

I know that a lot of this is in the report, which is, and Director Duras does a good job of creating that narrative within the report.

You don't need to ask questions, but this is the opportunity.

I am seeing no further questions and my best guess is that because folks wanna ask each other for co-sponsorships ahead of tomorrow's noon deadline.

And so with that, Director Duras and Richard, if you've got anything else that you'd like to share with the committee, now's the time.

if anything.

Seeing none, I'm just gonna pull back up my script to get us back on track.

So thank you all for your presentation today.

This does conclude the Monday, October 20th, 2025 Select Budget Committee.

Select Budget Committee will meet next Tuesday, October 28th at 9.30 a.m.

to discuss council member budget proposals.

Verbal and written public comment will be accepted on Tuesday, October 28th.

As a reminder, initial council member proposals are due to central staff by tomorrow at noon.

a web form.

It's a strict deadline.

Do talk to me if you are having trouble finding co-sponsors.

Again, if you either get signed up for something that you didn't agree to or you wanna back down, we have until Thursday to work everything out.

So tomorrow is the first deadline.

Thursday is the hard deadline.

So better to submit something that you don't have fully worked out rather than not submit anything at all.

and thank you again for attending on a historic day for the Mariners franchise and again, tomorrow I hope is even more historic than today.

If nothing else, I'm excited to see what Dan Wilson does with our team.

Seeing no further comments, we are now adjourned and I hope you all have a wonderful day.

Thank you.