Budget Committee Meeting Session I 09-29-26

Good morning.

The September 29th, 2026 Select Budget Committee meeting will come to order.

It is 9.30 a.m.

I'm Dan Strauss, Chair of the Committee.

Council Member Kettle is excused until he arrives.

Clerk, will you please call the roll?

Councilmember Rink?

Present.

Councilmember Rivera?

Councilmember Sacca?

Councilmember Foster?

Here.

Council President Hollingsworth?

Present.

Councilmember Juarez?

Present.

Councilmember Lin?

Here.

And Chair Strauss?

Here.

Sixth present.

Thank you.

Anyone not present is excused until they arrive.

We are hopefully gonna take about a one hour break today, much like we did yesterday.

We will see how quickly we can get through presentations.

These are the last three department presentations that we are having in committee.

This is also the last day that Director Ali Panucci will be at the committee table.

So if you have burning questions to get on the record, today's the day.

It's also a great day because it is the opening of the Pinehurst light rail station that Council President Emeritus fought very hard to get built as we're still fighting for Graham Street and for Boeing Access Field.

It's a demonstration that when you build it now, it's cheaper than some day in the future.

It's also my dad's 80th birthday tomorrow.

Happy birthday, dad.

With that, we've got three items on the agenda today.

Office of Housing, Seattle Department of Construction and Inspection, and Office of Planning and Community Development.

Before we begin, if there's no objection, the agenda will be adopted.

Hearing no objection, the agenda is adopted.

I'm already running a minute late.

With that, clerk, will you read the title of the first item into the record?

Agenda item one, Office of Housing for briefing and discussion.

Thank you.

We have direct, and we've got Vice Chair Rivera with us as well.

We've got Director Kelly Larson, Becky Guerra of Office of Housing, Director Ali Panucci as usual, Director Lish Whitson back with us at the committee table today.

I'm gonna turn it over to you and RUN THROUGH YOUR SLIDES THERE ARE NATURAL STOPPING POINTS WE'LL STOP TO TAKE QUESTIONS OTHERWISE WE'LL JUST ROLL RIGHT ON THROUGH IT AND THEN COUNCILMEMBER FOSTER WILL OPEN US UP AND CLOSE US OUT WITH THAT OVER TO YOU DIRECTOR AND WE'RE SO EXCITED TO HAVE YOU AFTER YOUR CONFIRMATION WHAT WAS THAT JUST A WEEK AGO SO GREEN LIGHT MEANS GO

Thank you so much for having us.

Thank you, Chair Strauss and council members.

I'm Kelly Larson, Director of the Office of Housing.

I'll ask Becky to introduce herself.

I'm Becky Guerra, Director of Finance for the Office of Housing.

Before going into the presentation on our 2027-2028 proposed budget, I'd like to begin with some context for the discussion.

It is the vision of the Office of Housing for everyone to have a healthy and affordable home.

The Office of Housing strives to achieve this vision by investing in community partners to create affordable housing, paying special attention to equity and displacement pressures with a focus on increasing housing opportunities for people with low incomes.

As you all know, we are living through multiple years of very challenging conditions for the affordable housing sector in Seattle and across the country.

The current market is volatile and affordable housing providers are operating under high stress and uncertainty.

County, state and federal funds are oversubscribed and decreasing in availability.

We experienced withdrawn federal funding from our region through the loss of emergency housing vouchers valued at $25 million at the end of last year and a lack of new continuum of care or COC operating support for new supportive housing projects.

we continue to face ongoing federal threats, especially with the COC, which has created additional uncertainty in the sector for supportive housing in particular.

Operating costs such as insurance and personnel are increasing and overall costs related to construction materials labor and financing continue to rise.

We are facing heavy cost pressures as investor requirements are increasing and other funds for affordable housing development and operating are decreasing.

In our region, inequality has continued to grow.

Increasing homeowner household incomes in the uppermost quartile have continued to push Seattle's area median income upward.

From 2000 to 2020, Seattle's AMI increased on average 3% every year.

In the last five years, Seattle's AMI has increased on average 8% every year.

This increasing citywide area median income raises income-restricted rent limits beyond what many low-income families can afford.

And it's really changed the way we define what is truly affordable housing.

At the same time, a large percentage of the OH funded portfolio is over 50 years old.

The wear and tear of decades is becoming more difficult to put off to a future year.

Taken altogether, the cost of developing and operating affordable housing is growing and local funding sources are strained as we try to address multiple challenges.

Through all this, the good news, OH will continue developing and operating affordable housing, preserving, acquiring, and constructing rental and for sale homes for people and families with low incomes.

Our agency staff and partners are moving forward with affordable housing projects at Mount Baker Station, Lake City Community Center, and Montlake.

These projects met key milestones to move forward this year.

We had really great presentations in multiple council committees, especially in housing committee with Chair Foster.

These community investments will meet the needs of our growing population in vibrant communities that feature access to transit, neighborhoods, small businesses, and services.

The impact and progress of our capital funding is now visible on our public facing housing dollars in action dashboard.

It was launched this year and provides quarterly updates on affordable homes underway and funded by the Office of Housing.

As of the second quarter of 2026, OH has over $871 million in action to build and preserve over 7,000 affordable homes with over 623 million under contract projects throughout the city.

Overall, the Office of Housing priorities have remained relatively consistent for several years as we work to build new and support existing housing, serving as a steady and reliable funder of affordable homes.

In our work, we aim to be a thoughtful investment partner through dynamic market conditions and ready to provide critical support to the affordable housing sector.

Up top here, protecting and preserving the OH funded portfolio of 21,000 homes remains one of our highest priorities.

By ensuring the long-term physical and financial sustainability of our portfolio, we are working to stabilize Seattle's affordable housing ecosystem.

Our top priority is to protect and preserve supportive housing, a proven solution to address homelessness.

Approximately 30% of the OH portfolio is supportive housing or permanent housing with services intended to serve people exiting homelessness, living with complex health conditions, and extremely low incomes.

In partnership with county, state and federal funders, Seattle's supply of supportive housing and permanent housing with services has increased steadily since 2020. Between 2020 and 2025, over 1,500 units of supportive housing were placed in service, over 900 units of permanent housing with services were placed in service in the same time period.

It's a total of 2,400 new apartments for people exiting homelessness.

Although the cost of building low-income affordable housing and supportive housing are similar, supportive housing requires that long-term operating subsidy, which historically has been funded by a combination of local and federal funds, including the COC.

Largely due to these current federal funding risks, we have a stalled supportive housing pipeline in the city for the first time in a long time.

Without federal COC funds and available vouchers, local funders would need to identify sources to fund ongoing service and operating costs to bring new supportive housing online.

The Office of Housing did just that in the last year, providing nearly all the service and operating support for three new supportive housing projects.

OH has continued working closely with colleagues across the city and county to plan for and mitigate the impacts of potential federal funding reductions.

It is possible that mitigation funds will be needed in 2027 to respond to federal cuts and protect the city's supportive housing infrastructure, ensuring that our most vulnerable neighbors do not lose their homes.

Seattle is prepared.

Next slide, meeting our Seattle Housing Levy production, preservation, and operational goals is a top priority.

The 2023 Seattle Housing Levy spans a seven-year period from 2024 to 2030, and we have nearly completed the third year of the levy.

OH and our partners are on track to achieve our 2023 Seattle Housing Levy goals.

Over the first two years of the levy from 2024 to 2025, we've invested to build or preserve over 1600 affordable rental homes, which is 47% of our goal.

We've provided operating maintenance and services support for 712 units, which is 62% of our goal.

And we have also assisted or invested in new permanently affordable for sale homes for 126 households, which is 34% of our goal.

We also have levy goals for weatherization and for homelessness prevention and housing stability services.

You heard more about that yesterday from our colleagues in HSD.

Now just to share a few highlights from last year.

In 2025, three million was awarded through our home ownership program for Habitat's Riverbend Comunidad in South Park, which will provide 22 homes with two bedrooms or more.

I had a chance to visit the construction site a couple weeks ago with Habitat's leadership and it was inspiring to see these new homes under construction and tour the neighborhood to see multiple other homeownership investments in the community.

Next, there were three levy OMS subsidy awards made in 2025, including an award to the first 2023 housing levy supportive housing project, DESC's Birch Grove that opened earlier this year in Lake City.

In addition, OH also provided preliminary commitments of levy OMS subsidy to several new affordable housing projects with portions of their project reserved for people earning the lowest incomes below 30% of AMI.

including the exciting Mount Baker redevelopment project.

In 2025, Levy Capital funds were invested in four projects, including two new exciting developments, the Lake City Community Center and Bellwether's Sunbreak Tower, University of Washington.

We funded one preservation project, DESC's Morrison Hotel just down the hill, and one debt restructuring acquisition, GMD's Willow Crossing in Hawley Park.

This debt restructuring was a new investment category in the 25 NOFA and it helps buildings avoid foreclosure, aiming to restore long-term positive property cash flow.

OH pays down the debt on these buildings, allowing the rents to be adjusted to more affordable levels to serve lower income households while also addressing operating costs.

OH also provides investment to support a stable, affordable housing sector and workforce.

For many decades, the Office of Housing provided a minimal but consistent operating subsidy from the Seattle Housing Levy.

In recent years, and with the 2023 Housing Levy, OH significantly increased investments in operations, including OMS for supportive housing, workforce stabilization to increase staff wages and worker retention in supportive housing, and resident services for affordable housing tenants in need of support.

OH also responded to sector challenges by providing urgent operating supports in the form of flexible grants to our housing partners to fill the most critical operating gaps.

Finally, as OH has done for many years, we will continue to prioritize community driven projects and identify pathways for new organizations to secure partnerships where needed and move projects forward from the idea to reality.

Our team has provided deep investment, consultation, and technical assistance to numerous community-based organizations to support innovative housing and community projects such as El Centro's Roberto Maestas Plaza and Chief Seattle Club's All All.

This commitment to equity in OH investments and policy will remain consistent.

It's critical that investments are targeted toward the most ready and feasible projects, especially given challenging leverage and investor dynamics.

And OH will hold equity at the center of our decision-making process.

I want to Becky.

Thank you.

The Office of Housing maintains strong housing investments in the 27-28 biennium.

However, changes in the 2026 year-end supplemental will impact the budget as we will discuss on subsequent slides.

As shown in the chart, OH does not receive any general fund.

The two largest fund sources for the Office of Housing are the Housing Levy and the Jumpstart Payroll Expense Tax.

The housing levy is voter approved and remains a consistent, reliable foundation for affordable housing in Seattle, providing over $138 million in each year of the biennium.

Given current revenue forecasts, Mayor Wilson is proposing $140 million for 2027 and $139 million for 2028 of JumpStart PET revenue to support Office of Housing programs.

This sustains steady affordable housing investments for the biennium.

This commitment to affordable housing represents over 30% of total annual JumpStart PET revenue.

Whereas housing levy funding is guided by the housing levy goals, Jumpstart PET funding is flexible and has been used to respond quickly to emergent issues in the affordable housing sector.

For example, it was used to launch the PSH workforce stabilization effort and to provide urgent operating support to providers when needed.

It has also been used to supplement levy funding to support affordable housing production and preservation to ensure projects are completed amidst increases in construction materials, interests and insurance premiums.

Jumpstart PET funding has also been used to secure long-term service and operating contracts and to create a mitigation fund for potential continuum of care cuts.

The MHA portion represents fees that OH receives from projects that select payment instead of performance to comply with MHA.

For MHA, OH and CBO have made the decision to hold these revenue expectations steady while knowing there are significant variables currently at work.

With MHA, the amount awarded each year is based on actual funds received, not the amount budgeted.

So if this actuals number is higher or lower than what is budgeted in 2027, our 27 NOFA will reflect that actual amount.

Other funds here represents federal, state, and local grants, as well as program income, interest income, and miscellaneous revenues.

Also as shown, there are no position changes in the proposed budget.

We remain steady at 69 FTE.

The next slide here shows how the 2027 to 28 proposed budget will be spent by the primary programs of the Office of Housing across all funding sources.

Multifamily capital proposed spending in 2027 is 235 million.

This is for the development and preservation of multifamily rental housing and the long-term stewardship and monitoring of housing in OH's portfolio.

This includes new capital production, rehabilitation, debt restructuring, and acquisition.

Debt restructuring was a new category in the 2025 annual NOFA, specifically for properties experiencing significant performance challenges.

This funding helped nine buildings avoid foreclosure and restored long-term positive property cash flow.

OH paid down the debt on those buildings, which allowed the rents to be adjusted down to more affordable levels that would serve lower income households.

OH also underwrote to right-size operating costs to reflect the current cost environment and replenish building reserves.

The agency supports proposed spending is $61.4 million.

This represents services and operating support for OH funded affordable housing properties and for the agencies that own and operate the buildings.

This includes operating and maintenance subsidies, resident services and workforce stabilization.

Homeownership capital proposed spending is $13.6 million.

This represents development subsidies and loans to create permanently affordable homes for low-income homeowners.

Weatherization and home repair capital proposed spending is $8.8 million.

The weatherization program focuses on energy conservation, indoor air quality, and reducing utility costs for renters and homeowners with low incomes.

The Home Repair Program assists homeowners at or below 80% AMI with critical health and safety repairs to preserve their homes.

These programs operate through state grants, federal grants, Seattle City Light Support, and the Jumpstart Payroll Expense Tax.

The proposed budget for administration is 19.4 million.

This includes all costs related to programmatic staffing, leadership, planning and policy, contracting, program development, financial management, communications, information technology, city central costs, administrative support, and operating expenses.

The last line here is rental assistance through HSD.

OH gives funding to our partners at HSD to administer rental assistance for people experiencing or at risk of experiencing homelessness.

The 2027 proposed budget for this is $9.4 million.

This is funded by the 2023 housing levy and by interest earnings on OH's fund balance.

There were no significant policy changes reflected in the OH proposed budget from 2026 to 2027-28.

Technical adjustments include the removal of one time 2026 items, updating interest earnings projections that fund HSD's rental assistance work, and alignment with various grants and central cost adjustments.

The next slide.

The 2026 year-end supplemental budget ordinance makes a one-time reduction of $65 million of OH fund balance in the Jumpstart Payroll Expense Tax Fund.

This preserves the amount of Jumpstart funds in OH's 27 and 28 proposed budget and future budgets.

To support this reallocation, OH will pursue multiple strategies for managing OH multifamily rental funds dedicated to new capital projects, including forward commitments of future year Jumpstart payroll expense tax.

OH is identifying all possible actions to manage the $65 million reduction.

Our office in partnership with the mayor is prioritizing steady and ongoing investments in annual housing operations, permanent supportive housing, home ownership, weatherization, home repair, and staffing.

Our housing levy award commitments remain unchanged and no current projects are being affected.

The city will continue to fulfill its commitments to awarded projects using a different source or year of funding where necessary.

Operating contracts and capital projects underway will also not be negatively impacted by these changes.

We remain committed to ensuring existing projects are preserved.

Our primary goal is to be a steady and reliable anchor in the affordable housing ecosystem to meet existing obligations and to fund new projects to meet Seattle's housing needs.

Thank you.

That concludes our presentation.

Thank you, Director.

Thank you very much.

Director Panucci, anything to add?

Director Whitson?

No.

Wonderful.

Councilmember Foster is chair of the committee overseeing the department.

You are recognized.

Thank you so much, Chair Strauss.

Good morning and thank you so much to Director Panucci.

Good to see you again.

Director Larson, so happy to have you here.

I will just start off.

I don't want to do a ton of remarks, but I will just say very briefly my appreciation for the leadership coming from your office in terms of the way that you have been responding to the ongoing needs, particularly when it comes to increased costs for operating and the thoughtfulness and the dedication that I think OH has had to be responsive to what's happening in the sector.

So I first just want to start off with a note of appreciation for that work.

I think you went over the technical details of it, but I do think it just deserves uplifting as one of my colleagues would say.

And what I want to ask you to do for my first question here is to just speak a little bit more broadly.

This is something we've discussed in committee.

in terms of what's happening in the sector, not just here in Seattle, but across the country when it comes to some of the challenges that providers are facing around operating costs.

To put a slightly finer point on it, I know one of the things we've talked about is how we're not unique in these challenges, but maybe we are unique in our response to them in terms of actually being able to have a little bit more success than some other regions.

Thank you, Chair Foster.

We were just on a call yesterday with our colleagues from the Enterprise High Cost Housing Forum, which brings together housing leaders from many cities that are facing some of these same challenges that we are facing.

And one of the major concerns that was brought to our attention a couple years ago was the collapse of the Skid Row Housing Trust in Los Angeles.

That was a major turning point in the affordable housing sector that changed the way many of us were thinking about our portfolios, our investments, the way we were managing our assets and monitoring our housing.

We've made a number of changes since then and we've made investments to bring into our portfolio to respond to some of the unique circumstances that are particular market is facing due to the unique supply that has come online, this convergence of affordability and market average rents at that 60% AMI level, particularly for smaller units.

as well as increasing operating costs that everyone is facing, increasing insurance, increasing personnel.

Healthcare benefits is a big cost driver that a lot of our organizations are facing.

It's really, really significant.

So we're just seeing a lot of these costs increase and because of the unique situation that we are facing here where we've really focused on unit production, which is a very lofty goal and it's a strong area focus.

It makes a lot of sense.

We have a significant gap in what we need for affordable housing in our city and we've really focused on building more apartments.

Over time, the area median income rent limits that we were establishing for many of those apartments grew out of step and that required us to reconsider our investments and how we could come in and support organizations that were facing a situation where either they are bearing a burden in order to support tenants below that cannot meet the rents that they're expecting to charge or the renters are bearing the burden.

because they cannot bear those rents that we are charging in some of our affordable housing projects.

Probably a combination of both of those things is happening in most places.

In order to bring support, we have tried several investment tools.

One was a major investment of urgent operating support, so about $40 million of urgent operating stabilization was added to our portfolio over the last two years.

This included a portion set aside for portfolio preservation planning, and that effort is really now just kicking off.

We've selected some providers to engage in that effort.

We've selected consultants to pair them with.

They will begin a year-long process of really diving deep into their portfolios, their specific needs, and looking at how they can recommend and inform some of our strategies going forward.

We have also tested this new capital strategy debt restructuring that has really come in to support some of these projects that I mentioned earlier that we've funded more recently often have a higher proportion of 60% AMI studios and have this differential and this problem with the rent expectations and the tenants who are living there.

so the debt restructuring allows us to buy down those rents and pay off private debt to provide some more cushion for those operators and it helps in a broader portfolio for a provider particularly we invested in some bellwether projects for example they're one of our largest providers in the city and when Bellwether has several buildings that are negative cash flow, that drags down their entire organization.

So when we could bring in these debt restructuring supports for some of Bellwether's capital projects that were really struggling, it lifts up the rest of their portfolio so they can focus on other things.

They still have some struggling properties, but these investments have been really, really helpful for the key properties that we've been able to invest in.

And there were others that were made.

Thank you so much.

That was really helpful.

I actually want to stay here for just a second because I know this is something we've talked about a good amount in committee and I think sometimes when we, I'll say when the public hears the words debt restructuring, you might get sort of a glassy-eyed look, or maybe somebody really taps in, you know, I don't know.

But I think what's really important here is the distinction that you just made, especially given how you started off your presentation, which I always appreciate you grounding us in like, what is affordability when we talk about AMI?

So we've seen this significant increase in AMI in our region as we've welcomed new neighbors or we've had people with higher incomes come in.

We see this AMI go up, up, up.

And at the same time, we've got projects that are in development.

So maybe something comes online and we're assuming there's going to be one-bedroom units that are at 60% AMI.

And I think what I want to highlight is there's two things that are sort of happening here.

one where in some cases that 60% AMI unit is comparable to a market rate rent.

So my first question, and this is gonna be a little bit of a longer statement, so my first question is if you can just sort of tease that out for us a little bit because it's also my understanding that's not across the board, that happens in studios and one bedrooms in some areas of the city.

So I'll ask you to spell that out a little bit more.

and then the second part in terms of the debt restructuring and again the work that I think you all have done that's really important is that in some cases you've actually been able to buy down those rents to go from 60% to 30%, which sort of shifts the calculation.

So if you can just speak to those in a little bit more detail.

Again, I know we've talked about this in committee, but for my colleagues who aren't on the housing committee, I want to just make sure that we bring debt restructuring to life a little bit more because I think you all have taken really significant steps in this area.

Thank you.

So that is right.

As area median income has increased in the city, we have seen more and more overlap between very small apartments that are in the market, not regulated, and our 60% regulated studios in particular in many neighborhoods throughout the city, not all neighborhoods.

We particularly see this in the south end where a 60% studio rent is actually above market.

It's not even at market, it is above market.

We have a couple of neighborhoods like this throughout the city where our 60% studio rent is above market for studios.

This has been a real big change for everybody working in the housing market over the last five years in Seattle.

You often would always say 80% of AMI is affordable housing.

That's really changed significantly.

In order to achieve below market rents in Seattle, we are starting to look now more at between 30 and 50 is really the sweet spot for affordable housing.

And then of course our supportive housing and housing for folks exiting homelessness is always below 30% AMI.

But frequently those folks are really living at around 10% of AMI.

Their income is about 10% of AMI.

So that requires significant subsidy to make those buildings operate.

I'm really looking forward to our conversation coming up soon as we explore all the applications that have come in for the rental housing NOFA this fall.

Our team is working really hard to get all the data prepared.

I was just peeking in the spreadsheet this morning, and it'll be really good for us to be looking at.

We have the geographic areas that we established.

We're looking at all the COSTAR data that's coming in from the market to understand rents and vacancy by unit types, by neighborhood, so that when we are making investment decisions this year, we are gonna feel assured that we are investing in truly affordable housing.

So that's very, very important to us.

Now onto debt restructuring.

So last year we invested in nine projects with this debt restructuring typology.

I believe it was $55 million overall.

Compare that to the 40 million that we released in urgent operating support, which was more of an organization-wide grant.

Often came in to support maintenance, insurance costs, some of these broader organizational costs that they have to pay to continue to maintain their housing.

Debt restructuring goes into support at a very specific project level.

It's much more like many of our other capital investments that we make at the Office of Housing as we underwrite the project and change the debt structure so that we can change the rent levels permanently.

And then the goal is really to pull those out of negative cash flow stance, improve their operating long term so that they can support residents for generations ahead.

Thank you so much.

Thank you so much for that.

I think that's really helpful.

And I think it speaks to the role that OH is playing and the increasing need to make sure that we're preserving our affordable housing stock here in Seattle.

And I appreciate the pivots that you all have made in order to do so.

One more thing on this that I want to just have you speak to a little bit, and then I'll move to another area, is how you've, and I think you've started to touch this already, how you've already adjusted what's coming out in the NOFAs to take this into account.

Earlier this year, I think there was some requirements around a certain number of the units needed to have two bedrooms, so that we're sort of trying to pivot and move our investments to reflect where that greatest need is.

Yes, so last year we did establish new threshold criteria they have held in place for this year that requires all projects to submit at least 20% of units for new production, must be two bedrooms or more.

20% of all units must be at 30% AMI or below.

So we're really driving toward this lower income units and the larger family size homes that we desperately need in the city.

We've seen a lot of data that shows how we are falling short on both of those fronts.

We are holding very strong to that this year as well and may go further as we are going through application review and investment decisions over the course of the next couple of months.

It's a high priority for me as we've been responding to a number of the statements of legislative intent that have come through.

We updated the Seattle Housing Investment Plan, which is something that Councilmember Kettle is very interested in.

And it's really interesting to see the data in that Seattle Housing Investment Plan shows our housing needs, by income level and what we projected we could achieve with different types of housing investments in the city.

And we really are expecting to exceed our goal for the 50 to 80% of AMI housing typology with a lot of other traditional investments like MFTE, Seattle Housing Authority, social housing developer is bringing on some of those units as well.

The great need exists below 50% of area median income.

This chart and this gap that we're facing in our city will be front and center for our team and our evaluators as we are considering how to invest the $110 million that we have this year for our rental housing NOFA.

Thank you so much for that.

Okay, so I want to shift us just a little bit to talk more about our pipeline.

And you spoke to this in your opening remarks, and I think there's a lot of ways to think about $110 million NOFA or $347 million for the OH total budget.

But one thing that I want to really pull out from your presentation and from what I've heard you say and many of our providers say is the challenges in our pipeline because because what's happening with other fund sources.

So can you do two things?

Can you just sort of speak to the interplay of OH dollars with other fund sources in terms of helping providers achieve their capital stacks.

I want to just make sure we're highlighting that because while we have, you know, while we're making significant investments, we certainly aren't the only investor that providers rely on, and there's a really close relationship there that I'd love to ask you to highlight a little bit more, and in particular how we're seeing the impact of other fund sources on our capital pipeline.

Great.

Thank you.

Yes, over the last couple of months as I've been going around and meeting with all of the leaders, many of the leaders in our community of our housing organizations, I'm hearing a lot about their pipelines.

Many of them do have projects that they have purchased sites.

They are very interested in getting started to develop.

We have permanent supportive housing operators that have sites and they're interested in starting to get ready to go.

There's a lot of projects underway as well, but in order for Seattle to move projects forward, we rely on others.

All of our capital stacks for new development are very complicated.

The most significant leverage partner comes from the low-income housing tax credits and equity investors.

Over the last several years, we've seen tax credit pricing drop.

It's continuing to decrease, and with this, investor requirements are increasing, and conditions are changing quite a lot month by month.

I'm hearing new anecdotes and stories from our teams every day about what they're facing on deals, and we're really watching this closely and staying very engaged in conversations on our projects.

But as this tax credit pricing drops, that generally means less of that resource going into the capital stack and a need for someone else to come in.

So we are still receiving supplemental requests for projects that we have already invested in that is happening, not to the same extent that it did about two years ago when interest rates really spiked.

but there still are needs coming in on our current pipeline of projects and so far we have been able to negotiate those additional commitments down as far as possible, bring in other funders wherever possible, but also we've been able to respond because we have fund sources available to do that and it helps us to make sure that those projects complete and open and bring residents inside, which is the most important thing.

We're also hearing and seeing in the projections that the King County capital leverage will be decreasing in future years, so that fund source will be going down.

Hasn't been a huge percentage of our capital stack, but it contributes a significant enough steady small commitment that we are expecting to rely on less in future years.

And then the state is also facing budget difficulties.

So all of those taken together, it's just a very dynamic environment right now with all the different leverage points and investor demands sort of changing.

But Seattle has remained a steady partner for our pipeline and for all these projects moving forward.

And we will continue to do that to the extent we're able.

Thank you for that.

I really appreciate that.

And I think it underscores the importance of why looking at the budget as proposed is so critical for us to be able to maintain our our consistent investment, the $140 million in Jumpstart, because we have to have that consistency for these projects because they're facing such incredible headwinds from every fund source that's available to them.

One more question on cost here.

So, you know, you spoke to the housing levy and the progress that we've made, and I just think it's incredible progress towards our housing levy goals.

One thing that we also have talked about in committee is the relationship that's going to be necessary between the housing levy and Jumpstart.

Can you speak to that just a little bit?

Yes.

When we initially modeled the 2023 Seattle Housing Levy, we were striving to have levy investments separate and apart from Jumpstart PET investments on the capital side.

We've shifted a lot of Jumpstart and payroll expense tax investments to our operating, and so those supports are incredibly necessary for our support of housing infrastructure, which the housing levy builds.

but we initially had intended for levy and jumpstart PET to remain separate.

As the cost environment has changed, it has been necessary to assume some amount of jumpstart payroll expense tax to bring our housing levy projects forward and to achieve our housing levy goals.

As part of the Seattle Housing Investment Plan update, our team refreshed the Seattle Housing Levy underlying model with updated cost assumptions.

The primary being interest rates, LIHTC pricing, tax credit pricing, cost inflation factors for construction.

Those are the biggest factors at play that really change the dynamics of what we expect to produce with the resources we have.

and with that it became clear that given our current model, which again, a spreadsheet is one model, it's one scenario, it's not predictive of the future perfectly, it is one way for us to look at how our resources will be spent.

by building, by unit type, by income.

And we believe in this methodology.

It's strong.

It's not a perfect predictor.

But when we updated that with these current cost conditions, which we think are holding relatively stable as of this year too, it did require other city resources to come in to support those production goals.

So we are holding steady at our assumption right now that we need about $46 million of Jumpstart PET to support the housing levy capital goals.

That may shift certainly when you shift investments toward more preservation, for example.

So we invested in DESC's Morrison Hotel down the road.

That's an $18 million preservation award and that supports a very large project.

So the per unit contribution actually is quite low on a preservation project typically.

So if you invest in more preservation projects, your per unit cost is going to be lower.

and we are seeing the need for more preservation investments as we're moving forward.

So this could shift and change as we go and I think our team would be interested in revisiting the methodology, the model next year if conditions change significantly so that we can understand again how these fund sources are interacting and necessary for each other.

Thank you so much for that.

And I'll just say on this, I think it's, I'm happy to hear about the modeling.

We've talked about that before.

The reason I wanted to uplift, I keep saying uplift today, it's just where we are.

The reason I wanted to bring this up today is, you know, because I think that there was incredible work done obviously on the housing levy and strong work done there and strong work in terms of progressing towards those goals.

But I really wanted to highlight for members of the committee today, just the tremendous cost pressure and the way that that has impacted some of our assumptions.

And I think that it's smart that OH has done such a good job of modeling and getting ahead to understand the role that Jumpstart will need to play.

But I want to make sure that we have that clarity because that's key for us to just hit those housing levy production goals, which are goals that we will hit, I know.

So I really appreciate that clarity this morning.

That concludes my questions.

I'll just close with this and say, I think that the work that you and your team have been doing is tremendous in the affordable housing space.

And again, just express my appreciation and my gratitude to you for your leadership as a longtime staffer and now new director.

So thank you so much and thank you so much, Chair.

Thank you, Council Member Foster.

Colleagues, questions, comments?

I have Council Member Rivera.

And one thing I will request is if you do want to speak, just get your hand up there, then we all know how many people are in the queue.

It really helps.

Over to you, Vice Chair.

Thank you, Chair, and thank you for being here, and congratulations, Kelly.

I don't think I've seen you since your confirmation.

I just want to, Kelly, I want to talk about...

Sorry, I need to Mick Jagger.

Okay, Chair.

You could tell I was never in a band.

Can you tell us a little bit?

We've had this conversation before in terms of the units that we already have created and the maintenance of it.

We've heard from housing providers in years past, starting in 2024, about the difficulties of maintaining the units that they currently have for a myriad of reasons.

And so then we did the stabilization funds and then like the debt restructuring was a way to address that and I appreciate that you submitted your SLI requests.

It didn't have very much information contained in it in terms of being able to assess how well those stabilization funds are going and also can you tell us a little bit about the debt restructuring?

I know that just was as of I think last year.

So just curious, do we have information to see how well the debt restructuring is going for those providers that have utilized that tool?

to be able to address what they're seeing in their buildings.

And then of course, separate from the stabilization funds, because what I had heard from providers that you did mention in your memo was just having to repair the units that are existing.

They're just getting damaged.

by residents I believe so can you talk a little bit about that and then I couldn't find I'm looking at the budget book there was a one-time reduction I don't know what that was to and so I want to confirm that the stabilization funds will continue as part of that I think I understand it's part of the agency supports but I just want to confirm because we're calling it different things, or maybe the agency supports has a number of things, including stabilization fund.

Can you just confirm that piece and then address information about the debt restructuring, how that's going, and then the stabilization funds?

And what has that gone?

What have you seen in terms of ability to maintain those units?

Where are we?

Great.

Yeah, so to start, did you want to answer that?

the last question.

I can start with the last question.

There is no reduction to the agency supports efforts.

The UOS, the Urgent Operating Support Program, is not in 2027. It was just with 2025 and 2026. So you will see that as a baseline change.

But the core standard of the agency supports had no reduction.

In fact, had an inflationary increase.

Sorry, so we're not continuing the stabilization supports we put in in 25 and 26.

Those were sort of, the first release we call the one-time release, and then the second we now call it a periodic.

We don't currently have a plan for a third release.

It may be necessary.

We're certainly receiving advocacy from providers about ongoing needs.

In my mind, The number one outcome that shows that those investments have been successful is that we have not seen a collapse of a major organization in our city.

That's what you hope to avoid.

In speaking with our colleagues in Los Angeles, the process of moving through receivership with a major housing portfolio is even more costly than maintaining it.

It is incredibly stressful and difficult for the tenants, for the staff.

we really want to avoid that.

So we have avoided that.

That's the number one story.

But the other...

investments that have gone out.

So debt restructuring, those projects are just finishing up now with their underwriting efforts.

So we made those awards at the end of last year and we've been working to get them in place, working out key deal points because it's a new typology.

There's been some back and forth with our providers about how to write those deals.

We are, I think, getting close to being completely done with all of those loan documents and the really great thing about those types of investments is that the funds flow out very quickly from the city to the providers as they're used to immediately write down private debt.

So those funds flow very fast.

It's working out all the deals, the deal terms in terms of what income levels are changing in the building and why for what apartments and then other details around cash flow.

We expect to learn more about how those projects are operating next year.

You'd really want to see a change in cash flow.

That's the goal.

So these are all negative cash flow buildings.

As of when they applied to us, we'd like to see that negative cash flow decreasing and potentially moving over into positive cash flow.

That is the goal.

So we can come back to you next year when we have a little bit more time to assess how those investments have landed.

With stabilization funds, so we've released the first 40 million projects are still spending.

They have until December 31st, 2027 to fully spend down those resources.

Many folks, many providers used those resources to cover insurance premiums, which have just continued to be incredibly difficult for organizations to manage.

as their premiums are going up.

Many are avoiding tapping in because deductibles are so high, so they're covering a lot of maintenance costs without tapping into insurance, trying to avoid increasing premiums even further.

So there's this decision that many of them are facing on a daily basis.

Do I try and get insurance to cover this, or am I managing it on my own?

how do I kind of maintain this delicate balance on our insurance costs?

Many of those stabilization funds have gone to support those expenses.

Maintenance and repairs of apartments, that is critical.

Some staffing, we learned from, and rent assistance, we did bring through after the first round of stabilization investments, we had a provider round table and we invited a few of the providers to offer some of their lessons learned and best practices from the investments that they made.

One organization shared quite a lot about how they were able to pair these operating stabilization investments with private fundraising to improve the safety and security of their buildings with new security investments, both hardware as well as staffing to serve as more of a leadership.

They had additional security staffing, including one central responsible person who was coordinating across their portfolio to respond to urgent situations and be that point person for staff.

And then another organization came and presented about their innovative work to bring rental assistance into their organization while also strongly encouraging and incentivizing tenants to catch up on rent that they were behind.

It's very difficult when you become so far behind in rent to start working on that.

When you have a very, very low income, you don't have a lot of resources to bring to bear, it can feel super defeating.

There was one organization that brought these resources in to test some new models.

Some of that meant very assertive outreach and proactive work with individual tenants who were in deep arrears to test whether motivational interviewing and strong support of those folks could help to encourage different behavior.

And it did work in a number of circumstances.

It didn't work for everyone, but they saw some success, enough that it was worth them replicating and continuing to test.

So these were some of the models and concepts that were brought forward in order to encourage other providers to try some of these innovative approaches if they could.

Sometimes other organizations won't have as much access to private fundraising as others.

There are differentials across the community and how successful different organizations are on that front.

but it was still inspiring.

Many organizations were really engaged in the question and answer and interested in finding ways that they could bring these lessons back to their organizations to try and test and improve their operations.

Thank you, Director Larson.

Do you have something to add, Director Panucci?

Please, please, please.

Sorry, I'm too in conversation.

I feel like I've been here in so many days in a row.

You know my signals when I want to say something.

I just want to sort of pull back at a higher level, because you were asking about, is this a reduction in operational support and those sorts of things?

Overall, what we're talking about here is not any changes in OH's budget going up or down, but Director Larson and her team having to sometimes make choices about whether or not we're allocating more funding to new units versus supporting existing units, and this is a dynamic situation that is going to continue to have to be monitored, and I know that they're taking a very thoughtful approach of how we are looking at both future and forward commitments for capital projects as well as helping support those agencies, and then we to look forward to hearing more about how this influx in operational agency supports that happened this year are working to stabilize those units.

May I chair?

Yes, please.

Thank you.

Thank you, Director Panucci.

This council, many of us were here a couple years ago when we were supporting the stabilization funds and actually we were advocating and I know I was advocating for allowing the providers to be able to use some of the money for security because we knew that was an issue in their buildings and we wanted to make sure residents and the staff that were working in the building are safe.

That is really important.

So I guess my concern is not the continuation of those stabilization funds in a way that you know to the point Director Purnucci you just said about we need to maintain the units we already have so we don't lose those and Director Larson you explained very well in terms of we don't want to lose those because then where will we be if we just focus on creating new units but we start to lose the ones we've already it's going to cost more that we've already created excuse me it will cost more in the long run and so this is why I'm really focused on this piece on the stabilization funding so that the current providers are continuing to make sure that those units that we already have stay usable and that we're not in this space where we're losing units.

But I am, and I appreciate you went into the weeds.

You know me, Director Larson, and we can take it offline, but I really want to hear, I appreciate you doing the round table and I want to hear more about the creative ways that they're addressing and trying to also address the behavior changes within the residents in those units because this has also led to some issues with those units and we wanna make sure that we're addressing that as well.

So I would actually love to hear more about that offline.

And that was really all the questions I had just to reiterate on the stabilization funding, how important that is.

And I wanna know what the, you have the core, You say we have the core services are still there, but will that meet the need?

That is the question that I have.

So you can...

Yes, we have that question too.

And as we continue to work with our providers, review the data and evidence that we have, we will inform our investment decisions into the next year around how we balance stabilization, investing in our portfolio, preservation, debt restructuring, and then investing in new production.

So we have some months to get there, but we definitely are hearing and seeing the need.

Thank you.

And the last thing I'll say is I want to hear about your vacancies.

and how many units are offline because they need to be repaired and things of that nature because those data points help to inform also policy around this.

So really appreciate that.

Thank you, Chair.

Thank you, Councilmember Rivera, Councilmember Lin followed by Rink, Saka, and Kettle.

Thank you chair, thank you to your presenters, thank you colleagues.

Gonna just start off with some comments and then a couple questions.

One, just thank you for all the hard work that went into this budget and all the hard work that OH has been doing.

You know, I think we have been leading the nation in affordable housing production for quite some time, which is amazing.

And that's through our commitment and our investment.

It doesn't happen without dollars to invest.

And so we've made enormous gains in that regard, and you've been describing some of the headwinds that we're facing, and certainly don't want to slow down, but I think we have to, and we have been on the new production.

because of those headwinds and because of the need to focus on that preservation and I think that's well warranted as you mentioned due to things that not just locally but across the country that affordable housing providers have been facing and certainly agree that having a major provider go through receivership would end up costing more in the long run.

So I also just think that it's important for us to, everybody loves a ribbon cutting, but preservation is critical.

And I think quality for me is perhaps more important than quantity.

I think we have to focus on the people.

At the end of the day, you know, we talk so much about units.

It's about people.

It is about the people that live there, the families.

It is about the workers that support those families.

It is about our organizations.

And we've talked about this a lot, but the focus on units can be sort of lead to weird consequences or unintended consequences.

And I think, again, we need to focus on the people.

Okay, a couple questions.

The year-end supplemental ordinance talks about a one-time reduction of $65 million in forward commitments.

And I think forward commitments is probably going to be confusing for a lot of folks who maybe don't do affordable housing finance every day.

In terms of financing, you know, I know that we make awards.

It can take many, many years.

I know there's oftentimes a large cash balance because of that, but it's important for us to, when we make an award, to stand behind it and to be able to do that.

And so I know there's always sort of and some cash sort of management that happens with OH.

I do just want to highlight the importance of this sort of change just for our community to be aware that there is a change here forward commitment and what that means.

And, you know, just a little bit of a concern, which I'll talk to in a moment, but could you just talk a little bit about what it means to be doing this forward commitment sort of logistically?

I guess I sort of see this as a little bit of borrowing from future years of payroll expense tax, and I'm not opposed to that, but I just want to, you know, kind of full transparency of what's happening here.

So as OH is managing the $65 million reallocation, we will be pursuing multiple strategies.

Forward commitments will be one of those strategies, but there may be other strategies that we pursue as well.

We are also very cautious and needing to be really responsible in these times that we're in, as you heard me describe, all the conditions that are changing around us.

We know for sure as part of this reallocation that the NOFA that we are imminently releasing for debt restructuring and capital improvements will be funded with 2027 Jumpstart payroll expense tax.

It was initially planned for 2026. That one will be moving.

So it's a form of forward commit, but it's also awards will sort of be in action next year.

And we anticipate that is a relatively low risk use of that investment in that time period.

Those dollars again do move very quickly because of the typology of that investment.

We feel confident that that makes a lot of sense for 2027. For the remaining amount, we have some work to do.

We are talking internally about different options and strategies.

We will really get to work once budget passes council, and we know for sure what we have before us.

But the senior team is really well aware and working hard.

Again, this is very isolated to rental housing capital.

All of our other investment types and our staff are protected in this budget.

So we will be working really closely with our team, our city budget office colleagues, and the mayor's office to make those decisions in the right time that they should be made.

Because again, so much is changing right now with leverage, tax credit pricing, investor demands, needs in the affordable housing sector, area median income shifting.

that there's just a lot that we are wrestling with all at once, and it's important that we are making decisions about the way that our dollars go out the door informed with the most current conditions.

So we will be coming back to that broader discussion decision about future work in several months.

I think I want to just add here, sort of broader, because I'm anticipating more questions on this area.

I think this is a strategy that the Mayor's Office and the Budget Office kind of put forward in working in partnership with the Office of Housing, and they're being very thoughtful in thinking through how to actually implement this change.

What we see this as is an opportunity to both maintain the ongoing investments in affordable housing and, frankly, preserve many other investments across the budget in key areas.

So we appreciate how the Office of Housing is taking on this approach this year, just in their jumpstart.

funds with a really thoughtful and cautious manner, and we'll be good partners together in sort of thinking through how to fully implement this.

I also want to be really clear that projects that have already received awards will be paid first.

We, in the Budget Office and in partnership with the Office of Housing, have looked at sort of the actual spend rate of existing projects and think we have taken a relatively conservative approach.

but as Director Larson mentioned, we will be carefully sort of monitoring this and thinking carefully about how we are thinking about forward commitments, how much needs to be considered for agency supports and that type of thing.

So this will be a real time monitoring with, so we'll be meeting regularly and we meet quarterly on budgeting to actuals and that sort of thing.

So it'll be a cautious approach.

Thank you, just a couple more questions.

And gonna be a little bit of a Debbie Downer, hopefully, and not sort of jinxing anything here, but certainly concerned about, we're seeing some warning signs in our economy, right?

And Jumpstart is still a relatively new income stream or revenue stream for us, and we have not, again, I don't want to jinx us here, but we've not sort of seen a major downturn like we did previously.

And there's a lot of talk about employment leaving the city, and in some ways that's harder than something like a stock market downturn.

And so much of that payroll expense tax is not just sort of number of employees, but based on those stock market, which is part of that.

income that is based upon.

So just curious, I mean, I'm just concerned, wanna make sure that we are being, that we have some sort of contingency plan, especially as if we start to do things like forward commitments around the payroll tax and, you know, just, yeah, if there are any sort of backup plans, I just think about, you know, 10 years ago we did some bonding for affordable housing.

I just want to make sure that we are ready and we are thinking about worst case scenarios.

Yeah, these are the things that keep me up at night.

I think one of the challenges that we're all confronted with right now is many of our revenue sources that are seeing any growth are some of our most volatile, while our most stable source of revenue that supports general government investments, property tax, for example, is capped at the state level and doesn't sort of grow with our costs.

So that is, I would say, a risk across the budget.

I think we are doing a couple of things.

One, I would say, again, Office of Housing is taking a very cautious and risk-adverse approach to how we manage this, so I think that is one that we'll be very careful of how we are deploying the various strategies to manage this.

Second, we are working really hard to fund the Jumpstart Reserve that will, by the end of the biennium, have over $30 million, and I think by 2030 will be fully funded at 10% of annual revenues, assuming no change in revenue.

In addition, the budget includes the annual required contributions to our emergency funds and our revenue stabilization funds for the general fund and doesn't draw on any of these reserves in this biennium or in the projected future years that are part of the financial plan.

So there is always risk because any budget is based on a forecast.

and so there are some risks there, but I think we are being reasonably cautious and again, we'll continue to monitor and not sort of spend all the money in January before we see what is happening in the market.

Thank you so much.

Final question.

It's just rental assistance.

I'm not sure if just in general, you know, where rental assistance falls within our sort of larger strategies.

And I know that we're not the only player.

Obviously there's, you know, Section 8, other sort of forms of rental assistance out there.

But again, also just wondering, you know, we've seen a lot of job losses and I'm just wondering about whether there might be a need for greater rental assistance in the coming years and just we can huddle offline and you know obviously if there is some sort of larger downturn there will be a lot of revisiting of our assumptions and a lot of work to be done and pivoting but just want to put that out there that I could see a greater need for rental assistance and especially with how long it takes to deploy some of our capital housing online that we could potentially have better results with a slightly larger investment in rental assistance.

Thank you.

I think rental assistance is interesting as well as an ongoing operating subsidy, shallow, deep.

We are moving more rental assistance dollars out the door this year.

HSD is our administrator also of our levy rental assistance funds.

There is a lot of need out there.

We're hearing from providers that they're really looking to these funds that will be released very soon.

So that would be a good conversation to come back to.

Thank you.

Thank you, Chair.

Council Member Lynn, anything further?

Nope.

All right.

We've got Council Member Rink, Saka, and Kettle.

And for the record, Council Member Saka has been here since the start, just remote.

And then in person, Council President has been here since the beginning of this presentation.

Council Member Kettle has been here for at least a half of an hour.

So with that, Council Member Rink, floor is yours.

Thank you, Chair Strauss, and thank you so much to the whole team at the Office of Housing.

Director Larson, thank you for your work, and I want to take this opportunity to thank you for your partnership around the continuum of care funding fiasco, never-ending journey that we've all been on as these crucial federal funds have been held in limbo for some time.

I want to thank the Office of Housing for your partnership and participation at those kind of strategic planning tables to figure out how we chart a path here to stabilize that housing for 4,500 households in our region.

So huge gratitude to you.

And thank you also for your work alongside my office in supporting and exploring ways we can support more community-led affordable housing efforts.

I have just a couple of questions for today, really just two, focusing in on the Community Self-Determination Fund.

Last year, OH stated that you all were dedicating 24 million towards the Community Self-Determination Fund.

My question is, was all of that money used for that purpose?

Are you asking about 2026 or 2025?

2025. 2025.

2025, yes.

All community self-determination funds were distributed to projects that are community-based organizations developed and are operating.

I'd have to go and look at the award list because I cannot recall.

But in 2026, it will be a little different.

We are maintaining this priority for community-based projects.

It is a priority longstanding for the Office of Housing to invest in community and allow and enable and facilitate partnerships for new organizations and new entrants into the sector to build affordable housing projects in the way that they see fit for their communities.

In this current time that we're in, it's very difficult for even mainstream providers to secure investment because of how challenging the market is right now and how difficult it is to operate housing in our city and many others across the country.

So we will be maintaining a priority for community-based organizations in these projects as we are considering our investments.

However, we will not be establishing a floor of investment.

We're hoping to maintain flexibility as we bring our resources into projects such that we can place dollars into the most ready and feasible projects in the time that we have right now.

as well as responding to some of these emergent needs that are in the operating side of the sector and just maintaining flexibility there, but steadfastly holding to the commitment to equity as much as possible.

Thank you for that answer, Director Larson.

You kind of got into answering the next part of my question, which was understanding that for this proposed budget, there's no line item set for the community self-determination fund.

And so you spoke to a little bit about how the intent and the work behind usually the community self-determination fund will continue forward.

But it's not a specific set line item.

I'm wondering if you can just expand or fill in any additional detail as to the rationale more so behind that decision.

The primary goal of the community self-determination fund was to support new entrants into the sector to develop projects on their own without a partner.

all by themselves.

It's a very important ownership position to be in, to hold that responsibility and to carry that project alone.

It's both a heavy responsibility and a privilege.

Unfortunately, in the times that we are in, because of increasingly strict investor requirements and screening, it would be highly unlikely for a project with a new community-based organization to achieve the entire capital stack necessary to move a project forward.

If a new project was coming forward that proposed a different type of capital stack that did not rely on private debt equity tax credits, that would be a different type of concept.

But under our current typical capital stack of investments, it would be very, very difficult for a new organization without a partner to bring forward a project in this time.

We are always talking with new entrants about finding ways to secure a partner.

That's not always the most desirable outcome for every community-based organization and development project.

And unfortunately, that is sort of the time that we're in right now.

not to say that we are closing down the Community Self-Determination Fund.

That program will be held whole in our housing funding policies.

We will hopefully come back to that in a time of greater resources, perhaps when some of these federal funding threats have peeled away and we can relax on at least one front of the many that we've discussed today.

but in this time that we're in, we feel it's really important, again, just really focusing on responsible investment practices and making sure that we are supporting organizations to be successful and projects to be successful long-term.

Thank you for unpacking that, Director Larson, and I appreciate just the acknowledgement of the circumstances we find ourselves in.

I'm hearing that there's been a change in the lender market and approaches.

I think we as council have shared a priority of we want to be supporting community and being able to determine and support more wealth building opportunity and being able to develop those assets.

And so while it's disappointing in many ways to find the circumstances that we are in and the changes particularly again in the lending market, I'll just stay at a priority in the future, being able to find more ways to better resource and support these opportunities for community-led development.

But Chair, that concludes my questions for today.

I wanna thank again the Office of Housing for your continued work in developing affordable housing in our community.

Thank you.

Thank you, Council Member Rank.

Anything else from the committee table right now?

Nope, seeing none.

Council Member Saka followed by Council Member Kettle.

Thank you, Chair, and thank you, Director Larson, your team, for being here today.

Appreciate this presentation.

And congratulations again on your recent confirmation.

Excited to partner with you and have you at the table as the head of the table, so to speak, on this side.

And again, appreciate all the work that went into this.

One question, maybe two, we'll see.

I want to talk a little bit about weatherization and homeownership programs within the department, which leads me to one of my highest priorities for a department is to unlocking new homeownership opportunities for everyone.

prioritizing folks who have historically been left out of the process.

Talking about black and brown homeowners, you know, other people from socioeconomic disadvantaged communities who want to have their slice of the American dream, the white picket fence, if you will.

Doesn't need to be a white picket fence.

But my point is unlocking new home ownership opportunities for all and having vibrant and robust programming to do exactly that.

And again, that's one of my highest priorities for your department.

Not everyone wants to participate in home ownership, which is totally fine.

But for those that do, we need to have great programming options.

Because again, that's the American dream at the end of the day.

Weathership and home ownership programs show measurable decreases from 2026 funding levels.

And specifically, if you look at page 240 of the budget docs, that's one illustrative example.

There are others in the budget materials, but that's one sort of good graphical depiction of that proposition.

How will these reductions affect low income homeowners and renters in the near term, particularly those relying on critical repairs, energy efficiency upgrades, or first time home buyer assistance?

And then how is OH prioritizing which residents serving initiatives remain fully funded versus scaled back?

Committee table.

I can start with the technical side of that.

For the home ownership decrease that you see, what you see is that in 2026, there was a one-time council add, excuse me, of $3.4 million, and that was done in order to cover a proposed cut for both 25 and 26, 1.7 million in each year.

So that council add in the 26 budget was a one-time restoration.

So what you see is the difference between when we remove that out of the baseline, going back to the baseline levels that existed before that council add.

and weatherization is a little bit of a different story.

Weatherization is fully funded by, it has a small amount, 1.7 million of Jumpstart payroll tax.

Other than that, it is fully funded by either Seattle City Light or by federal, state, local grants.

Those grants are all on timelines that don't correspond with our fiscal year.

We've got some October to September, we've got some July to June.

What you see in the budget, though there may be a difference from year to year, from calendar year to calendar year, we're not anticipating any reduction in delivery of services for weatherization work, and we're not anticipating any meaningful change in the grants received for weatherization.

and that's on the weatherization side.

And how about the home ownership program side?

Yes, the home ownership was the first piece of the council restoration of the three-point

So I hear you saying, it's not technically a cut because it was a one-time ad.

Okay, yeah.

You can also share and add a little bit more here, Councilmember Saka.

Homeownership is a very high value in our department, our community, and with many of our council colleagues I know.

We are really excited this year.

We moved forward the Harvey Project, so that's in the Central District, a site that was in our portfolio.

That will be moving forward as a home ownership investment over the next several years.

We brought forward the Montlake project also this year.

That was an incredible partnership with our state colleagues and the City Council and the Office of Housing Mayor's Office to move forward a purchase and sale where the state appropriated capital funds to move through the Department of Commerce in order for OH to purchase the site from the Washington Department of Transportation.

We have done everything we can to leverage state dollars in homeownership projects.

I've seen three grant agreements come across my desk in the last two weeks for CHIP funds from the state.

Those are infrastructure funds that help to leverage.

We leverage those to bring our homeownership projects forward.

So we are tilting At least last year, more of our CHIP investments that we can apply for from the city side are going into home ownership projects than into rental projects, so that we can really bring those projects forward.

In partnership with the Office of Intergovernmental Relations, we are advocating this year and last year for capital earmarks for home ownership projects specifically.

This year we'll be focusing on Mott Lake.

Last year we focused on Cloverdale.

So projects are continuing to move forward and supported with other resources wherever possible.

When I was, I mentioned I was down visiting River Bend Communidad a couple of weeks ago with Habitat's leadership team and they told me that they have the largest pipeline ever currently underway, largely due to the investments that they receive from the Seattle Office of Housing.

We are confident in the pipeline that we have right now.

Providers are very busy and we are soon to announce our fall home ownership awards.

They will be coming forward shortly.

We have a lot of units underway and there's a lot of good projects coming online in the near future.

And just to add to that, the CHIP that you will be seeing in a grant acceptance ordinance, I believe before the end of this year, is $4.5 million for homeownership.

And Director Panucci, do you have something to add?

Nothing.

Back to you, Council Member Sacco.

Thank you, Chair.

Thank you for the initial clarity there.

My second question...

Good.

Council Member Sacco is only asking two questions.

Great.

My second question pertains to the Federal Opportunity Zone 2.0 program, and I don't know if this question is best for you or OPCD, and I see OPCD Director Keener Nongo in the back, so maybe this is fair warning for a similar line of questioning might come up.

but so the Federal Opportunity Zone 2.0 program is the latest federal iteration of a complex incentive program to incentivize development growth in key areas that the federal government deems appropriate.

Well, federal and state government because the My understanding is the governor's office in July or something submitted, because everyone wants, many jurisdictions want their specific census tracts to be listed, a federal opportunity zone, so there's an intense amount of lobbying going on, and then all culminated in a because the governors of each state are empowered to actually select the specific opportunity zones within their jurisdictions and separately I will love a list of those in Seattle, but irrespective of the specific zone selected in the city of Seattle, how do you anticipate those designated opportunity zones to impact the overall housing landscape in the city of Seattle going forward.

That was an excellent summary of Opportunity Zones that I would not have been able to provide myself three years ago.

So well done on the complexity of the process that our teams just went through to submit proposed new Opportunity Zones to the Governor's Office.

Our Office of Housing folks, OPCD, OED, worked really closely with other colleagues in the city to go through a really intentional process, examining a lot of data, talking to providers and developers in these areas, you had to look at your existing Opportunity Zone and make an argument for why these new Opportunity Zones would be established.

Director Kieran Dagu could speak more to this as well.

But we did go forward with, I believe, a zone in First Hill, a zone near Chinatown International, and then we were supporting a Northgate zone as well.

Seattle Housing Authority ended up carrying that one forward and I believe those all moved forward.

I could be missing one or two on the list, but we went through a really intentional interdepartmental process to put those forward and we were happy to send you a list.

These zones make a big difference in terms of the financing that you can secure to move projects forward.

It makes a big difference for the capital stack.

So it's really important for key projects that we knew were in the pipeline to achieve those designations, and we're excited about the progress so far.

Thank you, appreciate that.

And yeah, I was tracking that closely over the last year and kind of fell off a little bit and was looking at some opportunities in my own district and including in South Park.

But there's a lot of stakeholder in that needs to be involved.

So I didn't end up advocating on behalf of that.

It sounds like that wasn't even one of the ones that were selected.

But in any event, we can get a list offline off the final and the final ones.

But I appreciate the initial clarity.

Thank you.

Thank you, Chair.

Thank you, Councilmember Socker.

Councilmember Kettle.

Thank you, Chair.

I apologize for being late and missing the briefing.

Mayor's Chief of Police Selection Committee.

He's keeping me busy.

So I missed, and some of these may have been brought up during the course of the briefing, but so welcome, Director Larson, by the way, Ms. Guerrero, obviously Director Pannucci and our own Mr. Whitson.

I see in here, by the way, the accounting, the budget piece, the fund swaps, and everything else continue.

On the preservation piece, I look at this in two ways.

One is the maintenance, one is the stabilization.

The maintenance piece I bring up because it has huge impacts on the communities.

I have been doing public safety walks and walking by a housing provider, I won't name, and all along the backside of it in the alley, massive rat's nests.

And then looking down the side, it continues.

And one wonders if it's like this on the outside, what is it like on the inside?

and this is one of the challenges, one reason why we have people on the streets is the conditions of the housing stock and it is a major factor and it goes to like, in terms of the people on the streets, how many actually have housing but are choosing for different reasons not to be there or to be on the streets longer than they would otherwise.

So I bring that up.

Can you speak to that?

Again, I might have missed it in the briefing, but in terms of the strategy and the linkages to the public safety side, is this something that comes up on the executive side in terms of the links between the maintenance pieces and the public safety aspects?

It's certainly important to avoid blight in neighborhoods that includes vacant lots that contribute to challenges in different neighborhoods.

It's a lot that operators are facing out there right now, and the costs can be incredibly high for what they have coming in on the revenue side.

This is part of what we've tried to address with a number of the investments that we have brought into the sector and it's not solving every single problem.

I know from my time as an operator of supportive housing that one day you could walk by a building and it would look not great and investment can go in, change the face of the project and things look really different a couple months later.

We know that there are needs and we've taken seriously using our investments and the policy tools that we have to try to improve conditions in the affordable homes in our portfolio.

More work to do, for sure.

Thank you.

On the stabilization front, I think a lot of people tend to forget affordable housing, you know, they're landlords.

And, you know, some of the landlord-tenant issues, as I've said before, like two years, groups coming in saying, hey, we need to change it because we're hurting.

We're landlords.

We're suffering from regular small-scale landlords or even the corporate types.

And, you know, we need relief.

We need changes in the laws and so forth in terms of landlord-tenant.

That didn't really happen for different reasons.

and we're here today.

With that said, first I want to thank you for the Seattle Housing Investment Plan report, the SHIP plan.

Colleagues, that point that I just made kind of goes to what we're looking for with that.

The Seattle Housing Investment Plan, the first year did a great job of looking at affordable housing.

and central staff, Ms. Labreck loved it, my team loved it.

And then last year this time, we put a slide in to say, hey, okay, affordable housing, but permanent supporting housing on one side and also social housing on the other and how that plays in together, how it impacts the strategy that you have.

Can you speak to that, if it does impact, how it impacts and so forth in terms of looking at the system more in its entirety?

Sure.

Yes, you were absent from my earlier reference to the Seattle Housing Investment Plan, Councilmember Kettle.

That's a very important, sly response that we've contributed to the last couple of years, and it was a good exercise.

The response that we submitted this year, you can see the Seattle Social Housing PDA investments in pink to sort of reflect some of their branding that they've been bringing forward to Council as well.

They are planning currently with what their charter provides for them to do.

Their income levels are 10% at 30% AMI, 30% at 60, 30% at 80, 30% at 120. So they're doing a bit of a spread that goes further up the income chart than the Office of Housing currently invests in.

And you can see what they projected over the next several years reflected in that response to the SLI, happy to send it over too.

But this chart's been very relevant for us as we are examining what our investments and policies will look like in the year ahead to see what progress we might be making.

You also asked for Seattle Housing Authority, so we've also put that what Seattle Housing Authority projected to bring online in the next several years.

And largely, we just still have such an enormous gap below 50% of area median income in Seattle.

And so that is where the Office of Housing will be focusing our investments.

It's really helped us to narrow that focus.

Well, thank you for the report.

And actually, I'm looking at the graph right now.

It should have been in the It should have been in the briefing, because I think it would help.

I'm not sure if my colleagues have seen it.

This memo came out on June 30th.

It was directed to Housing Chair Foster.

But it goes to this.

And I just think it's really important, for example, in terms of strategies.

And this goes to budget.

The Seattle taxpayers, you know, we talk about affordability, all the different taxes and so forth.

Well, the latest one is the social housing developer, which I have been supportive.

We need it to succeed.

But, you know, their revenue in 2025 was $115 million.

I don't expect anything, I've seen nothing to suggest it's going to drop off precipitously or, so that's strong that the Seattle taxpayers are doing to the housing space.

and in a lot of ways I think that should be, you did the SHIP report in terms of, but it also should be CBO also looking at, so Director Panucci, does the CBO, does the budget office look at the money that's the social housing, Seattle social housing developer, let me say that again, the Seattle social housing developer that is getting money from Seattle taxpayers, Is that included in the calculations in terms of what we're doing budget-wise, given that the people of Seattle are raising that for the housing piece?

It is not included in the city budget, so it's not funding we have any control over, although it is certainly a part of the conversation about the overall investments from Seattle taxpayers in affordable housing, and we certainly appreciate those investments, but because there isn't any, it is not reflected in the budget because it is not money that comes to us.

I will say there is a minor acknowledgement of that funding, the Office of Economic and Revenue Forecast does do the forecasting of that revenue source on behalf of the social housing developer, and they do compensate us for that work, and so that is reflected in the budget.

So that money that we do receive through the social housing fund, it could be part of the calculations.

In terms of hard choices, if it's $115 million, that could give flexibility in terms of what we're doing with some of the other funds that may have to go to other priorities and the like.

And that's kind of the direction of the question to you as budget director in a sense of, is that part of the calculation?

like we can accept a piece here and use this money elsewhere because we do have 115 million coming into housing overall.

I think overall there are significant investments in housing that are necessary to address the housing needs of the community.

So that is more of a policy consideration than a, in terms of, I guess I'm not entirely clear on how to answer that question.

The money that the social housing developer receives is not reflected in the city budget, nor do we have authority to sort of direct how they are using those funds as the city budget office.

But in tight times, if Seattle taxpayers are giving $115 million in this housing area, it could provide some flexibility in the budgeting process because, hey, you know, they're also got their shoulder in and they're working hard to contribute to the overall process.

I think that's certainly something that you can consider as a policymaker as you make choices about the budget.

Well, I just say that because as you said yesterday, or actually in the number of days, hard choices.

Hard choices, which I would argue wrong choices at times.

And those wrong choices could be ameliorated with potentially some of these different considerations.

On that point, and this goes back to stabilization, could there be a role for the Seattle social housing developer if there's an affordable housing entity that was in trouble for them to maybe look to build their portfolio with a former affordable housing property that then may become a social housing property?

Is that something that OH has considered?

We have met, multiple of our staff have met with social housing developer staff numerous times over the last year to have a number of different types of conversations.

We've focused on data, we've talked about housing market data, we're sharing as much information as we can.

with them and hearing more about their priorities.

We did talk about this concept.

At this point in time, it's not a high interest for them as they are really striving to identify acquisitions that are in areas of opportunity and that are buildings of very high quality.

Typically, the distressed properties that we're seeing in our affordable housing sector require significant investment.

often are in different types of neighborhoods than what I understand the social housing developer to be interested in pursuing.

In addition, they have a very specific ownership structure requirement in their charter.

So far, that's not an option that we are pursuing, and we are looking inward to the Office of Housing budget to bring all of our resources to bear into the preservation needs of our portfolio.

Thank you.

I do believe that they're looking to go citywide across the board and I recognize there's different types of distressed properties.

There's those that are physically in distress and then there's those that are financially in distress and so there may be opportunities.

This whole line of questioning and the ship and report and these other things is I just want to kind of push for us to think bigger, and then particularly because it is the Seattle taxpayers that fund that as well, and then the shared space that everybody's working in, that in terms of collaboration, it's like bringing the joint force to the military.

I think we have to have a joint housing force effort here where the OH and social housing, including Seattle Housing Authority, which is different, I recognize for different reasons, but to ensure that the end product is getting where we need to be, as opposed to disparate actions.

And I just raise these questions to include the budget directions to kind of press Director Panucci, because, you know, to engage on that discourse, but I just think it's really important, Chair, and for the Housing Committee Chair, and for all of us to think about this, and that's the rationale behind my question, so thank you very much.

Thank you.

May just one more response.

Council Member Kettle?

Does the committee table have anything to share?

One more response to that, Chair Strauss.

We've also spoken quite a bit with the Seattle Housing Authority in the last year, and it's really important to us that we view all of these efforts to be complementary.

We are striving to achieve a percentage of market share of our housing market that is income and rent restricted, and all of us are working toward that goal.

and that is the most important piece that helps to end homelessness and provide stability for our lowest income renters in the city.

So social housing is serving sort of a different income strata than what the Office of Housing is focusing on, which is going forward really below 50% of area median income is our area of emphasis.

Okay, thank you.

Thank you.

Council Member Kettle, anything else?

Thank you.

We're gonna continue moving on.

Anyone who has not spoken yet, would you like to speak?

I'll just run through Council Member Rivera Did you go before as well?

All right, I'm gonna do my piece and then I'll call on you for brief remarks.

Looking at our seven year look back, it doesn't even tell the whole story.

Seven years ago, Office of Housing was 408% smaller than it is today.

If you go back to 2017, I believe, it was only $7.6 million that we invested in the Office of Housing in total.

So here we are in 2026 looking at the 2027 budget of 347 million, sorry.

There's three zeros that you don't print there.

I mean, it's really important.

The city of Seattle is twice as big as when I was growing up.

Through the 2010s, we went through a growth spurt.

And we were only relying on a housing levy that was built before the growth spurt.

from 2017 to 2023. So in 2017, $7.6 million.

Then we added mandatory housing affordability that was bringing in about $67 million on average annually for 2019 through 2023. In 2022, we added, and if you wanna go back to slide three, it shows all of what I'm talking about here in today's numbers.

In 2022, we started collecting the jumpstart fees that we passed during 2020. And then in 2023, we passed a new housing levy adding $139 million annually However, in 2024, MHA had dropped to $24 million annually.

And in 2026, we are still, we're just, oh, we still had another $124 million through Seattle social housing developer.

So I think the point that council member Kettle may have been making was we are only $5 million fewer.

If we had $5 million more in the Office of Housing budget today, we would again be investing a historical amount of money into the Office of Housing.

We don't have that $5 million.

I still think it's a really great investment.

And on top of that, elasticity of our tax environment was subsumed by the social housing investor, which is okay, right?

Seattle voters said, we want these funds to be dedicated towards housing through the Seattle social housing investor.

And what that also meant is that the city's ability to change those jumpstart rates changed drastically in a changed tax environment.

That's a professional take here as a budget chair, not one that I'm trying to get response from the committee table here.

I'm just talking about the whole environment.

I share this because we have multiple braided funding streams for the Office of Housing.

I share this because it took us six years, seven years to get MHA on the books.

So by the time we started collecting it, it was at the end of a building cycle.

and we knew that that was not enough, which is why we passed the jumpstart tax, which is why we increased the most recent housing levy.

And so that is how we got to a 408% increase from even just 2019. The story of your department for me tells that story of a startup a scrappy startup in 2017 with $7 million to being a really big company at $350 million a year.

And some of that was initial startup mentality is to be risk averse, keep all of that capital in the bank for the day that it needs to exit quickly.

And what I've been impressed by is to see how the department has become has grown.

I would say that your staffing has not grown at the level that it might, you might need to.

So here's me suggesting, sorry, budget director, but they might need more staff to talk through, to create these ship shape plans and to have that conversation because one thing that I think it was from the budget last year that I'm not seeing this year is how you actually stacked out your units year by year because from my experience it takes four minimum years to six years on average to go from a NOFA to the doors being open.

and so because it takes so much time it's really critical that communication and so I saw that slide last year I don't know if it's just in a different presentation if you have that updated today I'd love to see another copy because that's the type of the work that I see the staff your department needing to grow in and how to create that better access not only for understanding that Seattleites who might be struggling with rent today have a future in the near future here.

But then also getting to the point that Council Member Foster was bringing up that you were discussing as well, that studios and one bedrooms are nearly in places the same cost as market rate.

What we're seeing and council member Lynn brought up is a cash flow tool.

It demonstrates that throughout the entire city budget, we are not at the end of the road.

We do have other tools that exist like this and it is incredibly important that we take these tools one at a time, which is why I've talked about a multi-year strategy to walk down the hill of structural budget deficit rather than stepping off a cliff.

This comes back to my mentality that if we make smart choices carefully and slowly over a number of years, we don't unintentionally cut programs that we may actually really need, or we don't shrink programs beyond what they need.

And so I...

I do appreciate that we are using this tool this year.

It is a tool that we have held off on using.

And I just wanna thank you for being able to create that stability that we need when we're using this tool.

If you were a new department director that had not been here and that we didn't come to already, I would have a lot more fear and risk that this step would be done incorrectly.

So...

I guess we don't have any questions today.

I would say in your upcoming NOFAs and in your upcoming funding, are you still funding one bedroom and studio or have you changed entirely to family sized units at this time?

We've been talking quite a lot about this this year already.

The team will be looking really closely at applications that are submitted.

We don't want to necessarily set up rules and incentives that make projects impractical or infeasible, and we want these projects to be deeply affordable, below market, and competitive in their neighborhoods.

So as we are examining pro formas and projects that are submitted this year, we will be very closely scrutinizing any studios or small apartments and the levels of the rents that they are bringing forward.

It's not to say that we don't need any studio apartments, it's that they have to be priced right in this current market, particularly by sub-market.

and we really need family-sized homes.

So there's always a trade-off focusing on the number of people that we serve rather than the number of units that we serve.

We are able to stretch our investments further and we are trying to push more toward those family-sized homes.

So I'm really excited to see how our investment decisions are made this year.

We'll be watching that really closely and making sure that it's informed by the data that we have right now.

Thank you.

This all stems off of the policy questions that were asked earlier.

I won't re-ask them, just to double down on.

We need to really look at our operating costs at the same time that we're looking at what are we funding to build?

What are the saturation levels throughout the market where we're already seeing an oversupply of certain units and those and rents coming down.

This is all really critical information because over the course of these last 10 years, you've gone from a startup to a Fortune 500 company, which we are all glad for, and that we are at a point where the investments that we have made are starting to catch up.

We're not quite there, but it is a time for refinement for pivoting just to ensure that we are not still trying to serve the same client that we were trying to serve six years ago where the environment was very different.

And colleagues, I will just say if we did not use this budget tool, this cash management, this cash flow management tool, we would have to choose, there would be more employees that would be laid off this year.

There would be more programs that would be cut.

There would be more one-time funding items that were not refunded.

There would be the things that were one-time and that are now ongoing that would not be funded.

It really comes, as I'm looking through this entire budget, it comes down to ensuring that we keep our employees so that they can keep paying their rent and their mortgage and the other costs in their lives.

because our other choice is to leave the cash in this cash fund or we can make sure our employees are still able to pay their mortgage and rent.

And for me, that's a good use of the housing dollars.

Thank you.

With that, Council Member Rivera, short, and then over to Council Member Foster to close this out.

Thank you, Chair.

I just really wanted to, I appreciate Council Member Kettle, you bringing up the point about we shouldn't be operating in silos is basically the bottom line.

And as the Office of Housing is moving forward with their investments, ensuring that they're, you know, looking at the entire ecosystem, what's SHA doing, what's the social housing PDA doing and making sure we're not duplicating efforts because Councilmember Kettle, I understood your point to be if SHA is doing something or social housing PDA, let's not us do the same.

We can tweak our offerings to make sure that we're able to provide something they can't.

So to me, it's a coordination piece.

We know we don't have authority over either the social housing PDA or SHA, but we can partner with them and make sure that what we're collectively doing is what the city needs.

And I think that that's really important.

And it goes to, we often are operating in silos.

Let's not do that.

And let's make sure we're partnering.

And for that matter, we also are looking toward public private partnerships because those actually also help us leverage our money.

And so we should be looking at all of it.

So thank you, Council Member Kettle for bringing it up.

I thought this was a really important point and I'm not sure how we are.

We'd love to hear more information about how the Office of Housing is speaking to these other entities and even in the private sector to make sure that we are operating within this ecosystem in a robust way and not siloed.

And you may be doing that, we just don't know about it.

Thank you.

Thank you, Chair.

Anything, any last comments from the committee table?

Then I'm gonna turn it over to Councilmember Foster for last word.

Anything you'd like to share?

This is your last chance to make a pitch.

Yes, ma'am.

All right.

Councilmember Foster, take us home.

Alrighty, thank you so much.

We're still going to be riding on the train for a little while before we get home because colleagues, you brought up some great points that I want to just touch on.

So thank you so much, Chair.

What a great discussion today.

So thank you so much to all my colleagues here and again to the table for such a robust discussion.

Something that another council member said just reminded me of something I wanted to talk about in terms of homeownership.

which you all know because I talk about this all the time in committee, I care deeply about.

I own my home because of city investments in home ownership.

And so I'm just living proof of how important that is.

And I think in the course of that conversation, we started to talk about some of the one-time ads.

And so there's sort of, there's two things I want to bring up here.

One is just a question that had been floating around in my head for the last couple of days as we've had some council discussion.

and this is probably appropriate for Director Panucci.

Do we know if those one-time ads had been incorporated into the baseline budget, do we know what we would be looking at cutting?

Because obviously we have this $175 million deficit, we're dealing with that through a lot of really difficult decisions, as you've said, Director Panucci, a few times.

But if those one-time ads had been ongoing, do we know what we'd be talking about cutting from the budget?

Yeah, thanks for the question, Councilmember Foster.

In the general fund, there were about $53 million of one-time ads included in the 2026 budget.

So that was $53 million that was not calculated when we were talking about $150 to $175 million projected deficit.

Somewhere between 10 and $15 million of those one-time ads are made ongoing in the 2027 proposed budget.

And then in the Jumpstart Fund, and I'm just gonna raise this as well because of the sort of intermingling of these fund sources, there was another about $25 million of one-time add, so collectively around $78 million of one-time expenditures included in the 2026 budget that when looking at projected ongoing deficits were not calculated.

Got it.

Did I hear 75 million?

Is that what I got?

Yeah, it's 53 plus 25, so about 78 to be a little more precise.

I'll take it, Director Panucci.

Thank you for that.

I appreciate that clarification.

It's just been something I was thinking about through some of our previous conversations.

And then looking at the slide that we have on the screen, I want to perhaps state the obvious, which is the zero in general fund that the Office of Housing receives.

And there's a couple of points I think I want to make here just because we were talking about the impacts of affordability, the impacts to to Seattle residents and taxpayers.

How many departments receive zero dollars from the general fund?

There are two, the Office of Arts and Cultures and the Office of Housing.

And just for anyone who really loves to read the budget book, there are some departments that don't receive direct general fund appropriation, so it will appear, like the Office of Labor Standards, because they have their own fund.

Their money flows through finance general and then to the...

So I just want to flag if anyone was looking at their budget, it would look like they don't get general fund, but they are primarily supported by the general fund.

So just two, Office of Arts and Culture and the Office of Housing.

I have to say I feel disproportionately represented there because both of those are in my committee.

But I won't take that personally.

But I think it's a helpful clarification.

And I appreciate my colleagues bringing up the impact to Seattle residents and homeowners.

But I know obviously we have a historic housing levy that's really important.

But there was just some points around taxpayers that I wanted to to ask you to clarify when it comes to Jumpstart and when it comes to the Seattle social housing developer in terms of who it is that is paying into those.

So can I ask, and maybe this is again for Director Panucci, how those are structured.

I just wanna keep this forefront.

I know we know this here at the dais, but for anybody who's in the viewing public that's watching to make that distinction.

I actually can't off the top of my head speak directly to the distinctions.

There are different thresholds for who pays into the jumpstart tax, and for the social housing developer it is the higher threshold, so companies who earn more money, but I don't have that threshold off the top of my head.

That's okay.

I know we're here to talk about Office of Housing and that obviously the social housing developer tax does not come into the Office of Housing, but I think it's 5% on income or wages above a million dollars, if I remember correctly.

And I know there's gradation with Jumpstart, but I just wanted to bring that distinction as we're talking about sort of the taxpayer impacts.

Were you saying something directly?

No, okay.

I just wanted to bring that distinction, so thank you for that.

And again, it's not that there's not somebody paying at the end of the day, but I wanted to clarify, you know, what's general fund, what is through our property tax levy, and then what is through our payroll expense tax.

I think a few other things that I wanted to touch on before we wrap up, just the things I wanted to highlight, going back to the home ownership, and thank you so much, Council Member Saka, for bringing this up.

and I wanted to share, you know, you talked about this, Director Larson.

This is not a question for you, Director Larson, but we talked about the Harvey and I just want to say this is something I think is underrated in terms of work that the Office of Housing has done this year and that acquisition and the fact that not only will it be homeownership, but it'll be homeownership with community preference applied in the Central District, which really just gives us a really fantastic opportunity to do homeownership right along with equity is just something I don't think we could applaud enough and so I appreciate you bringing that up in terms of work in the pipeline but I wanted to just bring that finer point to that.

I think that brings me to the things I wanted to touch on and thank you again for my colleagues for the discussion that helped me round out things I wanted to highlight today.

So I'll close chair by saying I think our investments that we're making in housing are historic as you mentioned and also as we heard today, given the ongoing operations challenges, given the challenges in the pipeline, it's another area where it's hard to imagine ever doing enough because the need is so high, particularly in that zero to 30% space as you all have already highlighted.

So I'll just close with saying again my gratitude to the office for your work and I think the pivots that are being made that we talked about this year are really, I'm hopeful that they're gonna allow us to continue these really strong investments and I know we just have to keep this investment stable and do everything that we can to maintain those investments, particularly with those Jumpstart revenues.

So thank you so much, Director Larson, and thank you so much, Chair.

Thank you, Councilmember Foster, for leading us through housing and arts.

With that, we are gonna transition to our next agenda item.

We are not gonna take an ease or a recess.

If you do need to get some snacks or get some water, just please do so now and watch your five.

This is where everyone transfers quickly.

Thank you.

We are going, yeah, so please take this moment.

If the clerk could read the second item into the record.

Agenda Item 2, Seattle Department of Construction and Inspections for briefing and discussion.

Thank you.

And we have Seattle Department of Construction and Inspections next.

We have Director Sam Steele, Shane Murkow, we still have Director Panucci, and we have a couple other folks.

You all, as you're transferring, you all made a surprise guest appearance last year, I believe in the final stages of our budget, which was out of standard practice.

So I appreciate you being here during this part of last year's budget, as well as the late last minute, and maybe you didn't know you were coming to the committee table call that we made last November.

So good to see you all back.

Still have quorum.

If you wanna just introduce yourselves, we're gonna go through the same program, run through your presentation.

We'll turn it over to Council Member Lynn, and then we'll come back.

So over to you, Director Steele.

Thank you, Committee Chair Strauss.

I'm Sam Steele, Interim Director of the Seattle Department of Construction and Inspections.

And I will just say, gentlemen, you're gonna have to Mick Jagger.

Pretend you're in the Rolling Stones.

Pull that microphone close.

Thank you.

Shane.

Shane, your turn.

Shane Mukave, Finance Director at SDCI.

Thank you.

Still have Director Panucci, still have Director Whitson.

Just take it away, gentlemen.

Thank you.

So thank you, Committee Chair Strauss.

And I want to just say that to all the council members, thank you for this opportunity to present our approach on providing a solid financial stewardship with careful, thoughtful thoroughness and that's being asked for by the public right now.

I also want to thank your staff members who have supported us, Council Central staff, and as well as Director Pernucci for all your wisdom and guidance throughout all of this.

So, leading into our presentation.

Our vision, purpose, and values have remained the same from our last reporting period.

We administer ordinances regulating building construction, use of land and housing.

We support key priorities including delivering essential services and building safer and more just communities.

Next slide.

All right, so about 91% of our SDCI's funding comes from permit fees with remaining 9% from the general fund and other sources.

State law requires permit fees to reflect the cost of providing those services and those revenues can only support fee related work.

Our focus is on advancing the city's housing and permitting priorities, improving speed and predictability, and sustaining core services as development activity and available resources change.

All right, so this is our updated master use permit.

Sorry, this is our updated master use permit applications charts that shows between 2007 to the 2026 projected year end at the far right, I guess, if you're looking at it.

And the left is the intake volume by master use permit type.

And sorry, on the left and then on the right is the fees invoiced.

And you can see the rise and fall of both.

So for 2026, our master use permit application volumes are projected to be about 60% below the 2019 levels, while construction permit applications are projected to be about 15% below 2019 volumes.

And, you know, please note that the precipitous drop in master use permits intake and fees.

In 2026, both the fees invoiced and the intake volumes are below the levels in the recession period of 2009 and 2010. On to construction permit applications.

Again, this shows on the left, the construction permit application volume, and on the right, the construction permit valuations in billions of dollars.

Construction permit application volumes have improved since 2024, but the shift towards smaller, lower value projects has limited the recovery of permit fee revenue.

We told the same story last year as well.

All right, and then this is your slide.

So this is where we go into our department right-sizing.

This proposal reduces 34 fee-funded positions, most of which are currently vacant, so that our staffing levels are better aligned with the workload we're seeing.

Based on our current projections, we don't anticipate impacts to core permitting, inspections, issuance, or overall timelines.

We are still relying on fund balance in the near term future, but these reductions help slow that draw down and preserve some flexibility to restore staffing if workload begins to increase again.

For the field positions, the reductions are concentrated in areas where workload has declined, particularly cashiering and payment processing and design review related work.

We also have somewhat less capacity for internal special projects.

Next slide.

This is our implementation of new regulations.

The Rental Regulation Enforcement Program has just been recently added.

This proposal adds staff to implement and enforce the new rental regulations adopted under Ordinance 127-497.

In addition to the staff, the proposal adds $200,000 for contracting with community-based organizations for outreach and education.

The additional staffing would support the higher volume of cases we expect, including investigations, outreach, building-wide enforcement, and assistance to landlords.

The program is designed to be self-supporting through a new fee with some one-time implementation support included in 2027. The staffing level is intended to support timely and consistent implementation of the ordinance.

With less capacity, we would expect slower case resolution, growing backlogs and less consistent enforcement.

The next slide is the housing ombuds support.

This proposal established a housing ombuds to help low income and community-driven projects navigate the city's permitting process and improve coordination across departments.

The goal is to reduce delays, improve outcomes for community developers, affordable housing sponsors, and the residents that these projects are intended to serve.

The position is funded through the Jumpstart Payroll Expense Tax Fund and was initiated through Mayor Wilson's executive order to accelerate housing production.

The added capacity is intended to provide more consistent navigation and coordination for these projects.

All right, so at SDCI every year we review our fees to determine whether adjustments are needed to maintain cost recovery.

And that means looking at updated workload, revenues, expenditures, staffing levels, and fund balance and determining whether fees need to increase or decrease.

Last year, we indicated that we could be looking at a increase in the 17 to 18% range for 2027. Based on our updated review, we are proposing a lower increase for building and land use, 10.7% in total, which includes the 3.7% inflationary adjustment.

The overall fee legislation is projected to generate about 6.3 million annually.

These additional revenues help improve cost recovery, reduce the need for further staff reductions, and slow the use of fund balance while we continue to adjust to changing development activity.

For refrigeration and furnace fees, we made significant reductions between 2020 and 2022 in response to changes in the heating and cooling market and installation patterns.

Those conditions have since changed and the proposed increase is intended to bring revenues back into better alignment with the cost of providing the service.

Even with the 2027 fee increase for these, uh, for refrigeration and furnace, these fees will remain well below their 2020 levels.

For boiler and conveyance fees, we are in the third year of a four-year effort to bring fees to a sustainable level.

These programs had received little beyond inflationary adjustments since 2017, but over time their actual operating costs, became clear as management, administration and business processes were better strengthened or were strengthened.

The phased increases are intended to bring fee revenue into better alignment with the current cost of operating those programs.

The legislation also establishes the new rental agreement regulation fee, $11 per rental unit every two years or the equivalent of $5.50 per year to support implementation and enforcement of the new rental regulations.

Fund balance impact slide.

This chart shows the change in our overall fund balance over time.

We were generally between 80 million to 100 million through 2023, but since then we've drawn down those balances significantly as permanent revenues have declined.

By the end of 2026, we're projecting an overall fund balance of roughly $30 million.

The fee increases proposed for 2027 along with the expenditure reductions we discussed earlier are expected to stabilize the fund balance and slow further erosion.

One important distinction is that the total fund balance includes different funding components.

Within that total, our building and land use core staffing reserves are projected to be nearly exhausted by the end of 2026. And then we had a similar slide last year, but this shows the fee impact of the construction permits for different sized and different types of projects for our 500 square foot DADU.

It shows that the fee increase of the construction permits will be 7% above our assumed inflationary 3.7 increase, 3.7% increase.

So on the 500 square foot DADU, the change for one unit is $369 more.

For a 4,500 square foot four unit townhouse, $372 per unit.

For 150,000 square foot, 230 unit apartment with parking, approximately $147 per unit.

per year, $147 per unit.

And these are just for illustrative purposes only.

The next slide is our position changes.

To summarize our position changes, 34 positions in our building and land use fee supported operations to better align staffing with current workload and available revenues.

As of September 1st, of the 34 positions that are vacant, seven are filled, so we are anticipating seven layoffs.

These reductions generate ongoing savings while preserving our core permitting, inspection, and regulatory services.

Based on current and projected workload, we do not anticipate a material impact to primary permit review issuance or inspection timelines.

for the field positions, the reductions reflect work that is either materially declined or is shifting as department priorities and service delivery change.

Questions?

That's it.

Thank you, Director.

Director Panucci, anything to add?

Council Member Lin, sorry to give you a pay raise there.

Council Member Lin as chair of the committee.

You are recognized.

Thank you, Chair.

Thank you, dear presenters.

Just start off with a few questions.

Well, first, thanks for all you do.

And obviously, there's always a lot of focus on how we can do better with our permit.

reviews and so on and it's hard.

We impose a lot of requirements and ask a lot of you from our permit reviewers and also a lot of permit reviewers are not under your direct control.

A lot of folks are under other departments, SDOT, SPU, Seattle City Light, FIRE and so on.

and so when we look at the staffing numbers in some ways it doesn't show the full picture of that permit review staff and I guess I'm not sure how those other departments because it didn't come up in those discussions and the utilities aren't coming before us.

But I don't know how the downturn in permit activity affects sort of those other departments.

So not a direct question to you, but just sort of a general pondering.

But if we look at slide four and then five, just in terms of the MUPS, and we think about construction activity and obviously housing just having, hearing from the Office of Housing, you know, the great need for additional supply, market rate, the great need for more affordable housing.

You know, all the corollary impacts that go along with construction, whether it's permit fees, yesterday we heard from SDOT there's less street use fees because there's less construction activity happening to pay for those street use fees.

sales taxes, employment, so on.

But, you know, I think you have, SDCI has this unique sort of insight into our economy because you see early on before, you know, somebody breaks ground, there's years often of, you know, permit reviews that happen.

So just could you describe in general kind of what's happening in the permit?

Is there a change in types of things that people are, I mean obviously we're not doing office, haven't been doing that for a while, but could you just generally describe what's happening with the permit activity?

Thank you Councilmember Lynn.

That is very concerning to us in the department when we see the scope and the valuation of the projects do not meet what they were in the boom years and the types of projects are smaller less complex and they have less value added to our permit fee collection aspect.

We're struggling right now with that as we're underneath the recession levels for the permit fee income.

So that is very concerning with the staffing levels that we're currently manning or staffing up with.

we would anticipate some sort of slow increase in recovery which I can have my chief economist come up here and give you more of a detailed briefing on but at this point in time this is something that we're trying to trying to work around and anticipate when.

But at this point, we're trying to do what's best for the taxpayers and preserve the balance of the fund balance that we have left.

Thank you.

And certainly, yeah, it's pretty alarming and concerning on many different levels.

The real estate, there's always cycles in the real estate world.

Can you talk about how you're planning to manage this current downturn, how you've managed staffing in prior downturns?

I heard you say that you know there's some reserves so if the permitting starts to tick up and certainly you know there's talk about things like the MHA accelerator and hoping to get some permits pulled and people building again but could you just talk about sort of how you're anticipating to manage both the down cycle but also if we're able to get some construction going again.

Thank you.

That question is something that we are working on.

We're constantly looking at the permit volumes and how we can increase our capacity with less staff members.

We're going through a lot of process changes that were we're including all of our directors in process change management.

There's things along the line that maybe are being vetted out by the state and some of the regulations and some of the design review aspects are being deregulated almost in this aspect for housing.

The one thing that we're trying to create with the executive order on housing is to increase capacity and getting the projects that we can kind of skim off the top and the simplest of the projects and get them out the door responsibly faster.

So we're working on a lot of those areas.

Thank you for that and certainly super excited about the housing ombuds, certainly excited about any additional streamlining we can do.

I know it can just be a little bit of a bitter pill for some of our housing developers to swallow just to have to go through lengthy permitting and then also to pay those fees.

So anything we can do, I know we've taken efforts, for example, with the ADUs to have pre-approved and as you mentioned, you know, we have to have more objective standards for design review coming from the new state law.

We've done things like raising SEPA threshold exemptions to minimize the impacts of that environmental review that just weren't providing sort of real benefit to us because we have, you know, strong standards in our codes and it was redundant.

So anything we can do to reduce those redundancies to allow for a faster and less costly permitting process, certainly am very supportive of.

And I see somebody wanting to chat.

I just wanted to add on this theme, the mayor's office is leading an interdepartmental team to really focus on some of these things.

They have all the big departments involved, SDCI, of course, Department of Transportation, City Light, public utilities, the fire department, and one of the goals of this is sort of, one, to create end-to-end visibility.

This was a, like I worked, I started as a land use planner, so this is sort of where I started my career in the public sector, and now here I am the budget director, but this was surprising to me to learn that currently applicants need 30 plus permits from eight different departments to build housing in the city.

So that is one of the areas that are really being looked at, including really focusing on streamlining the speed of right-of-way and utility permitting, as those are kind of the longest duration.

So there is some work underway that the SDCI is a key partner in, but as you mentioned, some of this is outside of their control.

Thank you.

And thank you, Chair.

That's all I have for now.

Thank you, Councilmember Lin.

I don't see any other hands up, so if you do want to speak now at any point during this committee, now is the time to get in line.

Councilmember Foster followed by Councilmember Kettle.

Thank you so much, Chair.

I appreciate that.

I wanted to just take a second to first express my appreciation to the Mayor's Office for the Housing Ombudsman position.

I know Councilmember Lin just spoke to it, but I do think I'm really looking forward to seeing the impact that that position is going to have for our non-profit housing providers as they seek to navigate the 30 plus permits in the system and other work that I know you are working on changing and making easier to navigate, but I am really looking forward to that.

I think it's gonna be very meaningful for folks.

I wanted to ask, just turning to some of the implementation in terms of the positions and the funding for the implementation of the rental.

I'm just going to call it junk fees as we've been calling it.

Can you speak a little bit to how you work to determine the appropriate size of staffing to successfully implement that ordinance?

This is something that I think Jeff over here could answer.

Jeff, if you'd like to join.

I'm happy to do it.

If we don't have the right...

Oh, go ahead, Chair, I apologize.

Usually we only have two.

We had a special exception this year with HSD to have Chris Clayson join us.

Jeff, if you would like to join us at the table, you are more than welcome.

I could give it a shot.

Chair, I'm happy to take it in the OneNote if that's easier.

Whatever is...

If, Jeff, you're here, if you want to speak, come up now.

Otherwise, we're moving on.

Now is decision time.

What are we doing?

Moving.

Thank you.

And Council Member Foster, take it away.

Jeff Talent, SDCI, Code Compliance Director.

I mean, to be honest, we don't know exactly.

We both basically looked at past experience with implementation of other new regulations, like when economic displacement relocation assistance came in and said, how was that impact on our staffing and our workload?

And took our best projection at what we thought this would look like.

That's really about all that comes to.

Thank you, and I'm happy to do, I think we'll take this one over to the OneNote for follow-up.

I just obviously am really excited to make sure that we implement this and we implement it well and want to make sure we have the appropriate staffing levels and take into consideration anything that we need to be looking at there.

The other question that I had, I think I heard a comment earlier.

Thank you, Jeff.

Sorry to have you come up for one brief question.

But the other comment that I think I heard from you, Director, was about getting the permit costs closer to where they were in 2020, or you sort of spoke to these pre-pandemic levels.

Can you add just any clarity or color there in terms of sort of our overall costs there?

I believe you may have, or let's see, where were we?

I may have been referring to the mechanical and refrigeration fee only.

Oh, okay.

Because we had cut that significantly, about 50%, because Technology had changed and installation patterns had changed and we were just starting to collect heavily on that, almost over collecting and so we cut back on those fees significantly and now currently we are seeing those cost centers decline so in order to maintain the cost of you know, recovering the cost of performing those inspections and those reviews, we just need to increase it some more to keep up with it.

But we were afraid of over collecting, so we had to reduce the fees at that time.

And that was just for those two cost centers.

Thank you so much.

Thank you, Chair.

Thank you, Council Member Foster, Council Member Kettle.

If others want to speak, please raise your hand now.

Thank you, Chair.

Just really quick, thank you, Mr. Steele and Mr. for joining the table, and Mr. Talent as well, late-breaking addition.

Looking at the briefing and, you know, obviously a lot of this is there's a bit of a it is what it is situation in terms of like the staffing and you know how many and the permits the money coming in and so forth it's just the system so I appreciate the right sizing points that you're talking about given the conditions so thank you for the work that's been done on that part the ombuds support piece is super important I would say it's needed for everybody not just affordable housing anything that can help.

And this kind of goes to the bigger picture piece in terms of the messages that we're sending.

Having a strong ombuds, some type of assist program to navigate, I think sets the tone.

And I think the tone is really important in the city and it's not necessarily been where it needs to be.

but I think we could do better.

And by the way, this ombuds piece could be for any new regulation in terms of the difficulties that it may or may not present.

So this kind of approach, but I bring the tone piece up because I've had more than one conversation with a developer who was looking to add to slides four and five in terms of applications and so forth that they wanted to go ahead, but funders weren't going to invest in Seattle.

Because, you know, the tone was bad.

The messaging was bad.

And I think we should own it.

I think we should own it as a council.

I think we should own it as City Hall overall.

Because I've had too many conversations where You know, I'm District 7. We have the 21 Boston Safeway project.

325 apartments that are there now.

We could have easily had a startup in Magnolia and one in Capitol Hill.

Very similar projects.

But they're dead.

Why are they dead?

Because the tone and what we've done as a city government.

And what we really need is stability.

What we needed is really predictability.

Safety is really important.

And positivity and leadership.

I'm just saying this out loud.

Obviously, I'm not even going to ask for an answer because Director Panucci is representing the budget aspects of this, you know, the ones and zeros, the nuts and bolts.

You're on the back end, but we as leaders of the city across the executive and the legislative branches need to do better because at the end of the day, you know what that translates to?

Let's just say they're having 325 apartments each, just like the 21 Boston Queen Anne project.

That's 650 units gone.

Gone.

And they could have easily been there, but they're not.

Thank you.

Thank you, Chair.

Thank you, Councilmember Kittle.

So for the last two groups that are presenting today, I'm going to facilitate.

I will always call on the committee table.

You don't need to interrupt.

Committee table, do you have anything to add?

Oh, okay.

Sure.

I just wanted to say that This ombud position is exciting to me too.

I think I've seen a lot of success from the small business permitting and cultural space permitting navigator that we have.

I live downtown and I've ever since we really implemented that position, I've seen downtown change a lot with a lot of active use of vacant storefronts and everything.

And I think it's worked really well.

So I think this housing on but has a lot of potential.

Thank you.

Councilmember Kittle, any last words?

We're going to move on to Councilmember Rank.

Thank you.

Thank you, Chair Strauss.

And I want to thank you actually for bringing up that permitting position for small businesses.

I actually had a sit down with a number of our local restaurants earlier this year, and I asked them, what is one thing that the city is doing well?

And people actually lifted up this particular permitting program as one thing that has really delivered meaningful results and they would love to see replicated and expanded upon.

So I'm glad that came up organically to be able to give that opportunity to highlight.

And I want to thank this opportunity to thank SDCI for working with my office to explore tenant relocation assistance options and how we can ensure that we're meeting the needs of our renter community who make up the majority of those living in Seattle.

And an additional thank you for being so responsive when My office receives direct constituent permitting and construction questions or feedback.

Special shout out to SDCI's liaison, Christina, for being incredibly responsive and helpful, especially as we're diving into these complex issues.

I may not always love the answer I get, but I appreciate getting an answer.

and thank you and your team for all of that work.

A couple of questions for today, and I think a couple of the questions that have already been asked have touched on these points, but I wanna focus in on these points again just for the purposes of clarity moving forward, particularly given the challenging economic circumstances we find ourselves in.

I know I've spoken at length about my concern about the drop-off in permits across the city.

And so my question is, considering the current economic environment creating a great barrier for development, how confident is SDCI that additional staffing cuts and fee increases won't be necessary again in the coming years?

Thank you for that question, Councilmember Rink.

I believe that we're cautiously optimistic that we've reached a point where we don't have to shed any more positions.

We are holding on to the fund balance and with its current request for the 7% fee increase, it will allow the staffing to be maintained through the next two years at that level.

All bets are off if there's not some spurring of the economic engine that drives the construction industry.

But we're fairly confident we're in a good position the way we structured it.

Thank you for speaking to that point and understanding we are looking at staffing reductions.

I guess I'm wondering if you can speak to how it's possible that staffing reductions at SDCI won't impact permitting timelines for current projects across the city.

Our current staffing is in line with the demand and the processes that we're decreasing for some capacities we're able to increase in other capacities so we're literally doing more overall of getting correction cycles reduced.

So that was one of the components of the executive order from the last administration with the pact.

We've taken a number of those instances and they became our business model and we're generating projects with fewer hands on the project.

So they will be able to increase our capacity.

I just wanted to add that we currently have 11 unfunded vacant positions from 2025 and 2026 that we can utilize along with our contingent budget authority to staff up very quickly.

And that's very important for Sound Transit 3 and Harborview.

I think on this question, it's also important to note that most of the positions that are being eliminated are vacant and have been vacant for some time because SDCI has been very carefully monitoring their spend down of their fund balance.

So I think that's another indicator and not, you know, some of these positions are land use planner positions that's, you know, related to design review and that sort of thing or administrative positions.

So I think it's just flagging that most of this is actually their current staffing levels.

Thank you.

That's helpful to just illustrate.

Again, I have an outstanding concern if we were looking at just staffing reductions and any loss in expertise, just the fluctuations and uncertainty, of course, facing development in the city make for a challenge, of course, for planning for the department.

recognizing those points.

I appreciate that response.

And I suppose I'll close with this question.

I think it's been spoken to already, but I'll just ask it again, just so I'm crystal clear.

Can you speak to your core staffing reserves and what risk we're in with the fund sent to be depleted?

Council Member Rink, may I ask this question in a bunch of different ways in just a second?

I'm happy with that.

Fantastic.

Sorry, Council Member Rink just stole my only question.

I was gonna keep it- Save some for the chair.

Thank you, Chair.

That concludes my questions, actually.

Thank you so much again to SDCI for the work you do.

Looking forward to continued partnership.

Thank you, Chair.

Thank you for your partnership, Councilmember Rink.

If we can turn to page 694 in the budget book, So this is coming to kind of what Council Member Foster was talking about, general fund, et cetera.

We are looking at the construction and inspections fund.

So colleagues, this is what Council Member Rink was just, the core staffing is one line within this entire fund.

If we could walk through this and you could help me understand, a lot of it is correlated to your PowerPoint just now of, Boilers, building development, electrical, grant revenues, interest.

If you could give me just a 10-second, we're going to walk through each of these, starting with contingent budget authority offset.

Can you help us understand the purpose and what this does?

Sure.

So the top is the sources of funds includes the contingent budget authority offset, which is basically just an offset for the budgeted contingent budget authority that's under the expenditures.

So it's not really a revenue line, but it's a budget line.

And if we didn't have that offset, we would need to increase our fees dramatically because we'd have $8 million more in expenditure that we likely won't spend.

Contingent budget authority, we only access once every, I don't know, between five and 10 years.

It doesn't happen a lot, but we need it for when we do access it.

Can we pause right there?

Director Panucci, can you help us a little bit?

Yeah, I'll just maybe translate that a little bit and maybe maybe plainer language, but I'm not sure.

Essentially what that contingent budget authority does is if permit volumes increase or permit values increase, we assume an increase in revenue and that would allow us to quickly fill vacant positions for them to staff back up.

So you see a contingent revenue assumption and a contingent expenditure that balance each other out.

Is that helpful?

So this is the emergency release valve that if permits come in, you take that fee, you don't have to come back to budget in a year from now, you can start hiring up immediately.

Is that correct?

That is correct.

That's the emergency release valve that we all hope to be able to pull sometime in the near future.

and then just generally the next set, the boiler building, electrical elevator, land use, noise, refrigeration and furnace, these are all based on those types of permits explicitly, is that correct?

It is, yeah.

We call them cost centers because we can't use electrical fees to pay for the work that the building permit staff do.

They have to be used for electrical inspectors.

So we keep track of that.

Building development is our largest cost center.

It funds about 55 to 60 percent of our department.

Land use is a very, it's not as large, but it's very volatile.

And so we really monitor those two the closest because they are economically volatile based on what's happening in the development cycle, more so than electrical boiler, elevator.

Building a building is a bigger thing than upgrading to solar, getting a battery pack or adding a new panel because your dryer is now more powerful than 1950s.

Is that generally what we're talking about?

Yeah.

And then, thank you for going through this with me.

And so each of these lines listed are essentially the revenue, the cost center, as you call them.

We get the money in for the permit.

Based on this money, we can hire and pay our permit reviewers.

and then a new item, a new couple line items here are fee changes based on all of these with the last one being the rental regulatory fee.

Am I correct in your PowerPoint, this is when you were talking about the junk fees ordinance and enforcement there, is that correct?

Yeah.

Fantastic.

So now we come to expenditures where you can see how we are spending our money.

And then down at the bottom is where we have core staffing and a planning reserve.

And this is where I'd like to get in with you because I've seen in past years We have also had in 2026, just last year, we had a process improvements in technology.

We had tenant improvements and an operating reserve as well.

How have those three reserves changed?

Yeah, so this financial plan, it shows that we have been drawing down our reserves over the last several years as permit revenues have declined.

Those reserves were established to help us maintain staffing and service levels through downturns and the development cycle.

and we had set those according to what we went through in 2009 and 10. At that level, that could get us through another great recession type of downturn, but the downturn we're in now is kind of strange.

It's lasting a lot longer.

It's not really sharp.

So the plan, it really reflects the continued drawdown as well as the actions we're taking.

through the 2027 budget and fee legislation to hopefully stabilize the fund going forward.

And this kind of gets to what Council Member Kettle was just talking about a second ago, as well as what we initially thought the pandemic was gonna take two weeks and we'd be right back.

And then it was two years and then six years later, it feels like we're finally out of it, but the economic, the downstream economic impacts are still lasting with us as seen in this budget about how we're using the Jumpstart funds across many more different disciplines in our government.

because it's better than cutting the programs.

We have the cash today.

We're still making nearly, counting social housing, we are making a historic investment in housing this year.

But I want to get into this core staffing fund because before we have to use your contingent budget authority, meaning we don't have staff and so we hire quickly, your core staffing fund allows us to

to create a reserve.

Is that essentially it?

To retain staff through a downturn.

So core staffing may be said in another way, is you have permit fees that are coming in at a lower rate than your entire employee headcount.

And so our fees are not covering all of our salaries.

And so we have this core staffing fund to buoy us through that storm.

Is that generally it?

In your projections, and Director Panucci, am I correct that the Forecast Office forecasts these numbers, or how are these numbers forecasted?

Sorry, that's a new question.

And you can get back to me if you need to.

I usually share my questions, but I didn't share that one.

Sorry, Director.

I do know that our economist works with the OERF together in order to come up with their projections, to make sure that the projections that we see and OERF sees, they work together.

OERF works on a lot of different things, but we work to help inform General Fund as well.

Yeah, I will not fully answer your question.

I believe the department forecasts their permit fee revenues, but it is an input into the overall, like the general fund forecast that our Office of Economic and Revenue forecast and other indicators.

As you noted, permit activity is a key indicator in sort of economic activity occurring.

in the department, but for really department-specific funds, it's why they also have an economist on staff as they do the forecasting for their permit activity.

Thank you, because I've only...

I've only pulled a couple of years back data from our budget books because it tells the story of how we've been forecasting, where we thought the pandemic would be two weeks, two months, two years.

And so just looking at 2027, Actually in 2022, we had $34,000 in the core staffing fund.

Were we drawing down the core staffing fund in 2022?

So it was steady.

That was what we had.

Yeah.

During 2020, we were surprised.

I believe we had a rush at that time, which really we increased our fund balance in 2020 overall.

And then it kind of stabilized and dropped after that.

And by 2024, we had $22,000 in the core staffing fund projected for 25, 26 and 27. It's dropping fast.

Right, 34 to 2022. But then in the 2025 proposed budget, we had 22 still in 25, but it had already dropped to 18,000 in 2026 with projecting 15,000 in the remaining 2027, 28, 29. But by the time we got to 2026, the budget before us, we've got 12,000 this year, followed by seven, seven, and both 27 and 28. And then in 2029, we see an uptick, another 12,000 going up from seven.

But then we come to this year's, sorry, for the 2027 budget, and we still see that 12 is an accurate number for the 26 adopted.

we see we have 8,000 in our core staffing for 2027, which is up 1,000, but then it drops from 7,000 to 1,000 and then we're zeroed out in 28 and 29. Is this all generally your under, I'm just trying to show the boom rate that we went from $34 million, 34, sorry, am I missing the zeros or is this thousands?

It's millions.

Okay.

I'm sorry.

We got 34 million sitting in here in 2022. And by the time we're at 2028, we're at zero.

and that's because of the permit decline, the fee-based generation, all of that.

Is that correct?

Yeah.

Core Staffing Reserve, we have, the majority of it is building, permit fee, building and land use.

But there is electrical and site review in there as well.

So we haven't accessed that yet.

It's mostly building and land use that are just dropping.

And in the chart that's up there, that's just showing only the building and the land use core staff, the red and the blue.

Gotcha.

Director Panucci?

Yeah, and I think this might be kind of what you are honing in on here, but this is a reflection of, like, even with the changes in this proposed budget, we are still relying on fund balance to maintain even the reduced levels of staffing, and it's why I've said, like, we spend a lot of time talking about the general fund.

There are, like, 62 funds.

There's more work to do.

This is one of them that is, like, we have more work to do even going into next year.

year together, and hopefully some of the work that I know you all are leading on in the mayor's office and others will help bend the curve in the opposite direction, I think is the goal.

But even with these changes, there's some reliance, which is why we are trying to be cautious to not really gut the core staffing, but also need to be careful in sort of how to proceed given these projections.

The reason I bring this up now is because last year we got to the end of the budget cycle and there were a lot more questions about this very topic, which is why I'm going really in-depth here.

Council Member Rink, thank you for letting me ask my one question, which has 25 different prongs to it.

I bring this up because it's really important for me that folks see the one million and the two zeros in this line as the biggest red flashing beacon in the budget right now.

This was even just, when I started as a budget chair, we had over, we had $22 million in this fund.

And to be exhausted of this fund, it's just very scary.

And this is after we've already done the thing that is hardest for me as a public servant, which is lay off my city family.

This is, after we have increased permit fees last year, I'm seeing more.

And then this year we are both laying people off and increasing permit fees.

And so the only other option here from here is to either continue laying people off adding general fund or increasing these fees again, which to Council Member Kettle's point, maybe it was a side point, which is that if our fees are too high, people aren't gonna wanna build.

This is back to the conversation of MHA was grossing us $67 million a year to 24 million and the projections that I'm seeing in the most recent were $22 million a year at best and those are flat.

This is a really big deal because all of the construction sales tax comes back to us, all of the 1% on new construction comes back to us, all of the property transfers, that funding comes back to us.

This is page 694, the third to last line is one of the most important lines of the budget and I'm just trying to bring our attention here because this is very bad.

It's very scary and I guess I don't have any other questions only to say it is the hardest thing for me to do.

People choose to work for the government because it's got good benefits and it's got good stability.

We don't pay the best.

If you need to be paid more money, you can go work for the private sector and make a whole lot more money.

I think everyone sitting in this room knows that.

And for those of us who are public servants, we choose the third bottom line of civic service because of service to others, service to cities, service to nation, but also because the private sector goes through rounds of layoffs that the public sector doesn't.

This will only be the second time that we've laid folks off since 2008. I feel like we are still experiencing the downturn from 2008 from what I'm seeing with the culture in your permitting department.

Everyone is correct that there are many other departments.

There's even Seattle King County Public Health when it comes to certificate of occupancy and plumbing.

but your department has a lot of room to grow as far as addressing the permit audit.

And one of the things that I've noticed from my opinion is that some of the challenges that we have that that permit audit identified are downstream impacts of laying half a year department off in 2008 without having the contingent budget authority without having this core staffing fund.

And so I'm relieved that we learned lessons from there.

I still feel like we're experiencing the impacts and I'm gonna do everything that I can to make this reduction as small as possible, but these numbers are pointing us in a very...

I mean, just to even go from 22 to 15 to seven to $1 million in the course of four years is...

the numbers speak for itself.

And so I'm not gonna spend the budget committee following up on the permit audit, but I can say that the last time that I've checked in with the auditors, we were not at a place where I felt good.

I know, Sam, you're the second department director to ever take it seriously, followed by Director Barb.

so I appreciate you taking additional efforts, but I can get a sense of where it comes from and it's from a similar situation as what we're experiencing now.

My only other question for Director Panucci, we have, as we were discussing yesterday in the SDOT budget, we have 21 employees reviewing permits.

Are those permit reviewers Is that fee-based coming back to the...

Are there aspects of those fees that are coming into this core staffing fund?

Are those fee-based positions, are they the same or different than the positions in SDCI?

And this is why I asked for Director Brady to join us, but I understand she has a conflict.

I want to make sure I'm understanding your question.

Are you asking me, like, SDCI has a team of full-time staff that is dedicated to sound transit permit coordination, and that's funded by sound transit, and that's not impacted by these changes.

And then about a year ago, I believe, but this, I wasn't here, but I did revisit the ordinance, the council, you, I think, I'm not sure, passed, I mean, There was an ordinance that added about 50 positions across the city to support ST3 work.

Only one of those was in the Department of Construction and Inspections.

That position is not impacted by these changes, nor are the positions in the other.

or other departments impacted in this budget.

So that continues.

Right now we are anticipating the need to fill potentially two to five plan review positions in the future if the ST3 work picks up and those revenues come in alongside it.

But right now the core team in SDCI remains.

Thank you, very helpful.

I'll follow up a little bit more, colleagues.

The reason I ask that question is because in downturn, it is most important that we get civic union built projects rolling.

In the pandemic, we had the West Seattle Bridge construction, we had the convention center construction, we had the waterfront construction.

Just ahead of that and ending during the pandemic, we had Key Arena, Climate Pledge Arena construction.

We have light rail coming, but we don't have any major city funded projects going on right now, which is only creating a bigger negative impact on our sales tax, on our property tax, et cetera.

And so that is the power of government money, is that it can stimulate our economy while hiring good, well-paid union jobs.

Sorry, I didn't have any other questions.

Anything that you'd like to respond to me on?

One thing, Council Member Strauss, I was part of that 2009 reduction in project hire.

I went to Seattle Center for four years as a crew chief, and when the opportunity, when the economy picked up again, was able to come back to DPD at the time and so now for me to be in this position is extremely emotional.

It's a human component to this that it leads me to use the best judgment and act with character.

I just want to throw that out to the council here that these are real considerations with real people and we're very much aware of the impacts.

Very well said, Director.

While I know it's seven people in your department, those are seven families, seven rent payments, seven mortgages, seven taking the kids to whatever practice they're going to, and it's the most difficult decision we can make.

Council Member Lin, take us home.

All right, thank you, Chair.

And I appreciate your highlighting the importance of these positions, the impact to our city staff, potential loss of institutional knowledge, absolutely concerned about what happened in 2008 and don't wanna see So I appreciate sort of the thoughtfulness of trying to minimize the impact to staff.

And again, hopefully we can get this ship turned around a bit.

I do think, you know, when economic times are better, I think some of our businesses, developers can handle the impacts from delays and other substantive requirements that we impose upon them, but when the headwinds are as strong as they are right now, really highlights how we need to take a sharper closer look at and just be that much more responsive in our permitting and taking a look and so obviously we're going to be doing that with the MHA discussion with the Mayor's Housing Task Force look forward to seeing other recommendations that come from them and you know So hopefully that work will not just help in this short term, but then even help as maybe those headwinds get a little bit less that the hard work will pay off.

I also just think that, as you mentioned, Chair Strauss, the impacts from development downturns are much...

We talk a lot about the need for housing supply, but there are so many multipliers, whether it's the jobs, whether it's the construction tax, the sidewalks, whether it's the permit fees, and on and on and on.

And really appreciate the discussion about the small business support.

Delays in permitting for a small business can be devastating.

I know you know this and your staff do a great job but just want to really reinforce the need for that customer service sort of focus and it makes all the difference and you know SDCI plays an outsized sort of role in terms of that customer service so many people do interface with SDCI whether it's on the permit side or on the enforcement side and so just really want to thank you and your staff for what you do and just want to reinforce sort of the at least you know call from me but I'm sure a lot of my colleagues would agree you know really leaning into that sort of can do problem solving customer service approach so thank you.

With that, I am receiving the nonverbal cues from my colleagues that it is lunchtime.

And with City Grind only open another 27 minutes, we will take lunch for about an hour.

OPCD has been waiting here patiently.

Thank you for being early, which is on time in the words of Council Member Kettle.

And we will be back here.

I'm gonna give us the full hour, so 1.35, which means we start OPCD at 1.36, which means we should all be here at 1.35.

With that, if there's no objection, the Select Budget Committee will be in recess until 1.35 p.m.

Hearing no objection, the Select Budget Committee is in recess for one hour.

Thank you.