City of Seattle Economic and Revenue Forecast Council meeting of 11/2/22

Good morning, everyone.

Thank you so much for joining us today.

This is Wednesday, November 22nd, 2022. You are joining the meeting of the Seattle, City of Seattle Revenue Forecast Meeting.

The forecast meeting will come to order.

I'm here today with my forecast council colleagues, Director of the Seattle City Budget Office, Director Julie Dingley, also from the Mayor's Office, representing Mayor Harrell.

Thank you very much for being here, Director Dingley.

We also have with us Acting Finance Director Jamie Carnell.

Thanks so much for being with us and welcome to this forum.

Congratulations on your interim appointment.

Also excited to have with us Brindell Swift, who is Chief of Staff, who is representing the Council President, Council President Deborah Juarez.

Thank you all for being here with us.

This represents an equal balance of the executive and the legislative branch as we seek to have these forecast council meetings on a quarterly basis to bring to members of the public the latest information regarding the revenue forecast for the City of Seattle.

I want to thank the team who makes these forecasts possible.

We're joined here today by staff from the Office of the Economic and Revenue Forecast Department, including the Director, Director Ben Noble, who will be joining along with members of the Budget Office, the Council Central staff, and other individual offices as well for the presentation today.

The main purpose of today's presentation is for the Revenue Forecast Council to receive the update from the revenue projections as created and analyzed by the Office of Economic Revenue Forecasts.

The Forecast Office provides for us a list of their interpretation and analysis of the revenue streams, and this is an opportunity for the Forecast Council here to review the recommendations from the Forecast Office.

This will be the last update that we receive before the Seattle City Council takes final action on the 2023-2024 budget.

that will conclude in November of this year.

This forecast is intended to give us late breaking information and the latest information available so that we can finalize our budgetary decisions in the month of November as required by statute.

This forecast will identify the financial resources available for the council to appropriate throughout its final budget deliberations this month.

Council will renew those, excuse me, council will renew those Deliberations throughout the course of the upcoming week, and I will have more information for the council and members of the public.

as we consider the information that is being shared with us today.

As a reminder, the information is shared at the same time with members of the public, the executive, and the legislative branch as we seek to use this forecast council as a way to share information in real time.

Copies of the material were posted this morning just after 10 a.m.

as we head into this morning's meeting.

A copy of the agenda has also been circulated to members and is available online along with all the presentation materials on the forecast council's website.

Colleagues, as you look at the agenda here today, please let me know if you see any concerns, because I'm going to go ahead and move adoption of the agenda and move to adopt the agenda.

Is there a 2nd?

2nd, thank you.

It's been moved and 2nd before we confirm today's agenda.

I do want to note just a.

Reordering of today's agenda, I will be seeking to have the topic that is listed as item number 2, which is an analysis of the accuracy of the forecast council.

I'm going to move that to the end of today's agenda before we adjourn and we will keep all of the items on the agenda.

That are there just reordering item number 2. Any discussion about that.

Okay, if there's no objection to today's revised agenda, today's revised agenda will be adopted.

Hearing no objection, today's agenda is adopted and we're going to move right on into accepting the minutes.

A copy of the minutes from our August 8th meeting.

Again, we have quarterly meetings.

Our last meeting was August 8th.

The August 8th meeting minutes were circulated to members of this forecast council, and we are, excuse me, forecast council members have had a chance to review those.

They are also posted online for members of the public.

I move to seek approval of the amendments, so I move to adopt approval of the minutes as posted from the August 8th meeting.

Is there a second?

It's been moved and seconded to approve the minutes from our last meeting.

Is there any additional comments or questions?

Hearing none, if there's no objection, the meeting minutes will be adopted.

Hearing no objection, the meeting minutes are adopted.

Okay, we are going to move right along.

Thank you all again for your conversations today, your questions, your.

Um, presence in this meeting, this is a critical conversation for us to have as we are in the midst of finalizing the 2023 2024 budget.

We're going to move directly to item number 3. we'll come back to item number 2 before we adjourn today.

I'll read item number 3 into the record number.

I didn't remember number 3 is presentation of the November 22nd.

so excuse me presentation of the November 2022 economic revenue forecast and recommendation from the office of economic and revenue forecast regarding the revenue forecast for the remainder of 2022 upcoming calendar year 2023 and the upcoming calendar year after that 2024. On this item, we are pleased to be joined with the office of economic and revenue forecast leadership.

Thanks again to director noble for being here.

He will walk us through the projections and we will include item number 3 and 4 together.

As, you know, we do the presentation of the revenue forecast, and then we have the opportunity to delivery and accept.

or reject the proposal as presented by the Office of Economic Revenue Forecasts.

As this item, item number three on the agenda suggests, it will provide an update on the economic and revenue forecast from the various revenue streams that are under the purview of the Office of Economic Revenue Forecasts.

This is of particular importance as we continue to deliberate the 23-24 biennial budget.

and the revenue forecast is an essential component of those budget processes.

So again, thank you to the team at the Office of Economic Revenue Forecast for their work.

Again, I want to take this as an opportunity to thank the city budget's office, Director Julie Dingley and her entire team who've been working closely with the central staff team and Seattle City Council as we consider the proposed budget that the mayor transmitted at the end of September.

Today's forecast will present a revised forecast for this year, 2022. And again, for the upcoming coming biennium, council still has the opportunity to adopt policy driven changes in city revenues as part of its ongoing budget deliberations.

And these forecasts will set the baseline for revenues under the current.

And available existing city law related to revenue streams that are available for appropriation in 2023 and 2024. so it does not consider any revenue streams that might be possible under existing council suggestions for inclusion in the 2324. I know that's probably clear to folks, but I just want to make sure this is only looking at existing statute and existing revenue streams.

So with that, I'm going to turn it over to the forecast office.

Thank you, Director Noble.

Director Ben Noble will be leading our discussion along with his team to provide a summary of both the economic conditions and the projected city revenues.

And in order to ensure that we have a full picture of all of the relevant city revenue streams, We are going to make sure that you all get the chance to ask your questions throughout the presentation.

Please just go ahead and raise your virtual hand, and I will look for those, but do note your questions may be answered throughout the course of the presentation.

But if you'd like to go ahead and ask a question in the meantime, of course, colleagues, you are welcome to do so.

Turn it over to Director Noble to get us started on agenda item number 3.

Thank you very much, Council Member Mosqueda.

Just by way of introduction, I want to let you know I'm joined by So I'm going to move quickly to put up a PowerPoint and begin the presentation.

Here we go.

So The format today is to start with giving you a flavor for the economic developments that happened since our last meeting, then to shift to talk about the actual forecast, both the national forecasts that are an input to our regional forecast, and then those regional forecasts themselves.

So really focusing in the second part on the economy.

And then in the third part, we will shift to talk about revenue streams.

First, we'll talk about the general fund and its key components and the changes that we're seeing there.

And then we'll shift to some of the other major revenue streams that aren't in the general fund, but that do support general government So starting with the economic update, a lot has happened since we last spoke to you in August, and in particular, economic conditions have continued to deteriorate and expectations about future conditions have also deteriorated.

So the biggest concern is inflation.

The original hope early in the year had been that the spike in prices would be transitory, and prices would fall quickly.

That has not happened.

Price increases started in the areas of food and energy, but they've now become much more broad-based throughout the economy.

So core inflation is an economic concept that is prices essentially separating and eliminating food and energy, and even those continuing to increase.

And now the rate of increase is at a 40-year high.

The Fed response, and you'll hear a lot about that today, because it's becoming a key driver.

We mentioned this at the previous meeting, but it's now become a key driver in the forecast, because the Fed has committed itself, if you will, come hell or high water to bring inflation down.

And it's intending to raise interest rates to make a little bit more about their strategy on that.

So they, well actually as of moments ago, since the time I finalized this at 10.15 and speaking to you now, the Fed has in fact approved an additional .75 increase in the Fed rate.

So it had gone up, they'd increased it by 3% to this point and now an additional .75.

And we're expecting and the forecast anticipates an additional in December at their next meeting.

And the Fed is setting the rate at which it lends money to banks, but it is having the effect of raising interest rates across the economy.

And so, for instance, mortgage rates are now at 10 plus year highs, now moving past 7%.

Other things that have happened since August, the war in Ukraine has escalated further, and that has created considerable political and economic uncertainty across Europe.

I happened to be traveling in England in late August, and there was a palpable concern about the cost of heating homes in the upcoming winter.

That's a major concern, both in terms of the economics and the politics.

So it's a very real thing there.

And we're also seeing tangible effects now in the U.S. economy.

So housing starts, housing purchases are heavily dependent on interest rates.

They dropped significantly in September.

We saw hiring slow some in September, and we've seen some evidence around the local market as well.

And also declining stock values and falling home prices are also having an effect on household balance sheets, and it likely, and anticipating that that will affect their willingness to spend going forward.

So as I indicated, there have been significant shifts in expectations about the Fed's Federal Reserve Bank strategy with respect to interest rates.

And I want to show you that again in one of these charts where you can illustrate the change over time.

So this first line that's going on the graph is the expectations we had back.

It's the forecast for March.

It informed our April forecast.

The national forecast firm, this was at their expectation back in March.

And it was that interest rates would go up slowly back towards the Fed's long-term goal of about 2%.

They had lowered them substantially during the early part of the pandemic as a form of stimulus.

You can see the rates dropped basically to 0% for much of 2020 and 2021. When we last spoke to you, excuse me, when we last spoke to you in July, the expectation had changed significantly rates were already on the rise and the expectation was that they were going to be maintained at relatively high levels.

into 2024 and then come down through 2024 back towards, again, that kind of a target rate of 2%.

The most recent forecast shows us a substantial change from that as well.

So now expectation is that rates will need to go even higher to bring down inflation, so as high as 4.5 plus percent, and that rates will stay at an elevated level through much of 2025, so for an extended period.

And those changes are then going to be reflected in the forecast, and they have pretty significant impacts.

Sorry.

So again, the general expectation is that rates will be maintained through 2024 and only begin to come down in 2025. but perhaps not.

In raising interest rates, what the Fed is hoping to do is to cool interest-sensitive components of the economy.

The most obvious examples are housing purchases, and then as a result, housing construction.

Then also capital investments, so firms investing in factories and the like.

The hope had been that the the big increases we saw earlier in the year, and I've illustrated in the graph here, that those would be enough to bring down inflation and that we can manage what's called a soft landing, so that we'd be able to cool the economy without sending it into a recession and without negatively affecting employment.

But as inflation has increased, that's no longer the expectation, and the Fed has had to raise rates higher than that is going to allow for that kind of a soft landing by all expectations.

We'll talk more about this, but in terms of the length of the downturn that you'll see we are forecasting, it's going to depend critically on inflation, because the downturn is in no small part being driven by increased interest rates, which is being fed by concern about inflation.

So how long we are in this slow period will depend critically on when inflation comes under control.

a minute I'll describe this graph, but the effects are expected to move quickly into the employment sector, into the real parts of the economy.

So the graph on the right is one that we've shown you in the past and we've made a habit of updating so you can see the path of what was originally job recovery.

But just to remind you, the lighter shaded lines that have a longer time path, that's the path of job loss and recovery during the Great Recession.

So it's measuring the beginning of the recession as kind of a zero point.

Jobs were then lost through the first couple, two and a half years of the Great Recession, and then there was a slow return towards the employment levels from the point that that recession began.

But you can see at the national level, which is the blue line, it took more than six years to reach the pre-Great Recession employment levels.

The city, it was about five and a half years.

The darker lines are for the current situation.

You see the dramatic drop at both the national level, again, the blue line, and the local, the red line, as the pandemic hit.

So we're measuring job change relative to the pre-pandemic period.

And then we've been in a period of sustained growth since then, job recovery.

We were trailing the nation as a whole, but actually just in a the nation, we were just slightly behind.

Unfortunately, if the forecasts we're providing you today are correct, that will be the near-term high-water mark, because the expectation now is that employment will fall.

So, and in particular, it'll be broad-based, but expected to affect a variety of sectors, particularly manufacturing, professional business services, and construction particularly hard.

And I think it's important to remember, and the next slide illustrates, that this downturn, excuse me, I have a slight delay on my slides.

Still getting used to it.

That this downturn will hit while some sectors have not yet fully recovered from the pandemic.

So the chart on the right, again, it's one that we've purposely been showing you The red bar shows you the total job losses relative to February 2020, so pre-pandemic.

And we've now essentially come all the way back.

We're at 5,000 jobs that are shown here, and this data's a little bit dated.

So basically, we've had recovery of the jobs, total number of jobs in the region.

But as you can see from the gray bars, which show at a sector level how employment has changed, hospitality manufacturing, and to a lesser extent, government still trail the employment levels from pre-pandemic, while things like information, professional business services are actually well ahead and have been the key drivers for us.

So what would be difficult for both leisure and manufacturing is that again, you're expecting this downturn to get before they have fully recovered.

So that gives you, again, a sense of how things could look locally, One particular area I wanted to highlight.

It looks strange on my screen, so I'm going to reload it.

I don't know why that looks the way it does.

It doesn't look that way on my screen.

Director Noble, it looks clear on my screen over here, and we're looking at the construction sector share in sales and B&O tax revenue.

Perfect, and thank you.

The screen just recorrected here.

I don't know what that was about.

So I wanted to highlight a particular area of risk.

It's one that candidly I've been concerned about over the years in terms of its impact on city revenues.

We in the local region have experienced a bit of a building boom over the last five plus years.

And that's actually been a great benefit to city revenues.

The way construction activity works on the sales tax side is that all the materials that go into a building are treated as if the sale of the purchase of those materials occurs at the job site.

So, and you build an office tower.

There's.

well over a couple hundred million dollars of material that go into, say, an office tower.

And the city gets a share of all of that material.

So that's been a great boon for us.

And it's been a significant component of sales tax and also B&O.

So this chart shows you in percentage terms just over the last couple of years the share of sales tax that's come from construction and again the share of business and occupation tax.

And you can see for sales tax it's hovering around 25 percent.

It's come down a little bit as actually other parts of the economy have picked up as well.

In total there's a hundred million dollars on an annual basis in revenue in these two sources.

And the concern here is that this building boom is not likely to continue at the pace that it had in the past.

We were concerned about that even before the interest rate issues.

We were concerned because the demand for office space due And actually, as of right now, in the downtown core, data we have from a particular source indicates that vacancies are about almost at 20%.

So office demand in downtown is low, as it was, which means it's not likely that someone's gonna build a new office building.

But with interest rates going up, that will further deter construction.

The good news may be on the apartment side, where housing, Overall housing demand is still pretty strong in this area.

Vacancy rates are low.

So even with interest rates going up, don't expect to see as significant a drop on the multifamily development side, and there's a significant amount of that as well.

But did just want to highlight that construction is a particularly important component of sales tax, significant component of B&O, and both because of Falling demand from work from home and other dynamics and now interest rates.

There is reason to be concerned about how the path of this, this particular sector will evolve.

So, those are key things that we wanted to highlight.

In terms of developments that we've seen, and some of the particular risks for the, for the city revenue streams.

We're going to shift now to talk about the forecast and how the forecast looking forward specifically have changed.

And again, we'll look at both the national and the regional forecasts.

I'm going to move through this chart in ahead before kind of illustrating as we go, but just a few comments before I start that.

So the forecast, IHS market, which is the national firm to which we subscribe, a mild recession for 2023. That is a significant shift from August.

I gave us a heads up note in late September that the next forecast would include that and then delivered in early October.

It needs to say it did.

So they had been predicting that GDP would grow modestly by just under 1% next year.

They're now expecting it to actually decline.

So again, meeting the definition of a recession of declining GDP.

The expectation is that that will be a short downturn.

So the recovery will actually begin in the second half of next year.

The unfortunate news on top of the recession is that the recovery after that will be modest.

So we're not expecting to come back to current levels of activity for some time.

And I'm going to use the graph to illustrate this point with respect to employment, and again, show you how forecasts have changed over time.

So this was the original arc of employment.

Again, this is a national level forecast.

The original, to the left, is just the actual data up until mid-2022 are the actual results.

So you see the effects of the pandemic.

Again, we're measuring employment here relative to the pre-pandemic levels.

So you see the significant drop associated with the pandemic, the recovery since we had reached Just we've just crossed back over to pre-pandemic levels and the expectation again, these are expectations from March and our April forecast is that there'll be steady job growth going forward.

Modest, but steady.

The forecast that we used for our August update predicted more modest job growth and a slower period.

But again, the expectation was that we would not see a significant dip in employment, but rather that the job growth would be relatively modest.

So that was consistent with an effort to manage, again, a soft planning.

The Fed could bring inflation under control without a significant impact on employment.

The most recent forecast at the national level is, as you can see, showing you the expected downturn.

And if you measure from the peak, which is essentially now, to the trough in the latter part of 2023, it's about a 2% drop in the total number of jobs in the US economy is the forecast.

period of recovery begins.

In the first part of 2025, we reach again to the pre-pandemic levels, but it's not until 2026 that we'd actually reach the current levels.

Because again, at the national level, we're actually above pre-pandemic at this point.

So again, it's a modest drop, 2% in terms of job count, but then a slow recovery for a period of a year and a half or more in order to return to the current employment levels.

I do want to highlight the last picture here that, let's see, yes, sorry, this is the delay again in my slides.

One moment, it should come back, there we go.

So I've now added the pessimistic, the current pessimistic forecast.

And as you can see, the pessimistic forecast is actually, is a scenario that's not associated with an extended period of high interest rates, but rather is associated with world conditions deteriorating further.

So the war in Europe, Russian aggression in Ukraine, escalating further, potentially ongoing pandemic effects, COVID-19 effects in Asia and elsewhere.

But all together, effects that start reducing demand and productivity across the economy, actually, and employment falls as a result.

So this is not a scenario where the Fed is driving things, but rather that the overall developments in world affairs, if you will, bring on less favorable conditions.

If that scenario plays out, more significant drop in employment a much slower recovery.

So we'll talk more about the choice between the pessimistic and the baseline, but I wanted you to get a sense of what that looked like.

At the local level, we see essentially the same thing.

So again, I'm going to show you the same pattern.

So this was our forecast back in July.

We were expecting modest recovery.

slow but steady job growth for the next couple of years.

That is now switched again.

So our updated forecast, and again, this is the employment numbers that underlie the revenue forecast we will show you shortly.

We see the same pattern as the nation in the sense of job loss.

So if you measure again from the peak here to the trough, it's a drop of about two percentage points.

One of the reasons the near-term numbers are actually higher than they were in our August forecast is there's been a revision in some of the data from the state level.

So the plumbing was actually running probably a little bit higher than we thought when we were developing that forecast.

But again, the projection is for, again, it's the baseline loss of about 2% in job count, and then a recovery after that.

The recovery at the local level is expected to current employment levels in the early part of 2025. So that is a notable benefit of the health of our local economy.

But again, still a near-term downturn.

And you'll see those effects in the revenues as well.

I do want to point out that the pessimistic scenario at the regional level would play out, again, be a significantly larger job loss, as much as 5% or more, and then again, a period of slow recovery into 2026. There's a bit of crap, but you get a sense of that.

So this downturn, this regional downturn does underlie the revenue figures you will see shortly.

Did you want to spend a little bit of time to talk about the IHS national forecast and putting it in some context?

The next slides have to do with choice between the baseline versus the pessimistic or the optimistic forecast.

We thought it would be helpful to put the IHS market forecast in some context.

And conveniently and fortunately, the Wall Street Journal actually does, conducts a regular survey that allows us to do that.

So they regularly survey about 70 academic and business economists regarding their forecasts.

And the little gray dots, and I'll talk about the picture in a moment, the little gray dots in the picture represent the data points from those surveys, from those 70 respondents.

And the blue line on the graph is the average of the, the blue dot, rather, on the graph, is the average of those responses.

And the red is the IHS forecast.

talk through it, but the basic point here is that IHS tends to be a little bit conservative.

Again, it's their baseline forecast, and it's somewhat conservative relative to other forecasters.

For instance, the first element in the chart is for CPI-U, which is the broad measure of And a range of forecasts from about 2% to well above 5% among the respondents average something around three and a quarter.

IHS, slightly higher than that.

So they're predicting a slightly higher inflation forecast translates essentially into conservatism here because, and you'll see that in the next slide, that implies that the Fed is going to keep interest rates somewhat higher than they would otherwise.

So the next point of comparison in the chart is the federal funds rate.

So this is, again, the rate at which the Federal Reserve lends money to others, the rate that they just raised this morning.

And again, the forecast, the average among the forecasters is just above 4% as being what they expect to see at the end of 2023. by the end of 2023, just to be clear.

IHS is expecting that in 2023, it will be closer, above 4.5%.

So again, implying some conservatism, because those higher interest rates will ripple into less overall economic activity.

They're predicting a slightly higher unemployment rate.

You can see that in the next line.

And in the last one, they're predicting a somewhat lower growth in GDP.

In particular, negative for 2023, so this mild recession.

some evidence here that IHS is somewhat conservative.

So even in their baseline, it's not necessarily the midpoint, if you will.

And I think that's informative as we take up the next issue, which is the choice, excuse me, having this problem, the choice between the baseline and the pessimistic forecast.

So as it's been our habit, we're gonna provide you this recommendation or we show you the revenue figures, because that's how we came to the decision.

We did this analysis and made this judgment and then followed through to see what the impacts would be on the revenue side.

So again, just both to summarize and then to lead to this conclusion.

Things have been fury.

So and over the past couple of months, we're no longer expecting the soft landing that had been hoped for.

The consensus among forecasters, and you can see that in the last chart, including our own, is that a modest slowdown, likely technically a recession, is likely.

Most of the forecasters also acknowledge that there's a risk of a deeper downturn.

Again, as I mentioned, if the war escalates and the supply disruptions continue, that's really much more of the pessimistic scenario.

So what we know is that the forecast we're working for from IHS, their October forecast, has again incorporated most of this expectation about bad news, if you will.

So they've incorporated the persistent inflation assumption, the higher interest rates, and the like.

So their forecast does a pretty good job of capturing what we expect now.

It's still possible, again, that world events will turn against us, if you will, but that's speculative.

We've also seen in the previous chart that IHS's baseline is not a particularly optimistic baseline, if you will.

It's a relatively conservative mainstream forecast.

So on that basis, we are recommending that the baseline scenario be the one that's used.

And as we move to the revenue portion of the presentation, most of what we'll show you is based on the baseline scenario.

We will put up a couple slides to give you a sense of what pessimistic scenario.

But with that I'm going to move now to the actual revenue presentation and I'm going to dive right in.

We're going to show you all three years here.

We're going to go year by year so you can have a chance to understand what's going on and we have a chance to provide you a little bit of explanation.

So again, just in terms of the chart, the two columns here, well, the three columns.

The first is the revenue forecast that is contained in the mayor's budget, the mayor's proposed budget.

It differs slightly than the one that we presented to you in August, the budget office The major differences there are around grants and the like.

They're not significant assumptions.

That's not a big difference.

The second column is now our updated forecasts.

And the third column is the comparison between the two.

So I'm going to spend time on the comparison between the two so you can see what has changed.

No change there.

Retail sales, we're actually increasing the forecast for this year.

We're seeing actual revenues a little ahead of the forecast.

In particular, there were some that were called non-current payments.

People are making up for past underpayments.

And then looking forward, the employment is actually a little bit higher than we thought.

So there's reason to think that for the remainder of the year, we can do a little bit better than we had actually predicted.

You know, just down slightly, just a minor correction.

Utility tax, private, this has to do with payment, timing of payments.

One of the major payers on a cable site had a habit of being a month late.

They seemed to resolve that habit, so expect about a million dollars more than we had otherwise.

And otherwise, the other big change, you can see down at the bottom is an additional four million in this kind of licenses, permits, interest, and other.

And the biggest component of that is actually on the interest income side.

So if there's any benefit to the interest rate increases, and this is the only one I can more or less think of, is that our own cash balances will be earning a higher rate.

We essentially invest our cash balances at the Fed rate.

We put them into very short-term safe securities.

Actually, Director Cornell can talk more about that.

But those rates have been going up, and we're expecting to see this in subsequent years.

They're expected to go up and be maintained at a higher level.

So that actually makes a big difference in terms of our interest earnings.

The last positive number is about a million and a half dollars associated payroll tax.

We continued through the second quarter and beyond through August to get late payments for 2021 as folks sorted out what their obligations really were.

There's been about a million and a half of additional late payroll tax payments that we've received.

All the payments associated with 2021 obligations go to the general fund.

We'll talk later about payroll tax for 2022 and beyond.

But these delayed payments go into the general fund.

So on net, we're actually showing an increase, a significant increase in general fund revenue for 2022 of just over nine and a half million dollars.

So that's the good news we have to offer.

Moving on to 2022, this is when you start to see the effects of the new the new economic forecast coming into play.

So again, I'm going to same structures before.

The first of the 2023 columns is the proposed budget.

The second column is the new updated forecast.

And the third column is the difference between the two.

So, again, I will highlight the differences you see here so property tax.

Percentage terms is a very small change, but it's a million point 3Million dollar reduction.

This is entirely associated with new construction.

So, the way state law works are.

property tax revenues are allowed to increase by 1% over the previous year, plus the value of new construction.

So really one of the key components of driving increases in property taxes is new construction.

And again, given the interest rates we're seeing and some of the data we're seeing on the intake of permitting, reason to think that new construction will be lower than we had anticipated back in August.

So that's about a $1.3 million hit.

You see for both retail sales and B&O reductions, again, percentage terms are relatively small because, again, the tax base here in both cases is over $300 million, but reductions of between $4 and almost $5 million respectively for retail sales and B&O.

Again, this is all tied to slowdown in the regional economy that we showed you.

show you how it would manifest in employment, but that will then affect consumption and ultimately taxable activity as well.

There is some good news.

So you'll notice a significant positive increment in parking meter revenue.

So parking demand has increased and is increasing faster than had been projected back in August.

And the way parking meter rates work is that we set rates in response to demand.

So with increased demand and fewer vacant spots on any given block, city policy calls for modest increases in parking rates, in the meter rates, the actual per hour rates.

So increased demand, increasing rates, and you get an upward revision in those revenues.

And you'll notice a substantial revenue stream overall.

And then again, towards the bottom, you see that the interest earnings, again, have a significant positive influence on that last catch-all category.

The biggest change there is, again, in interest earnings from our cash balances.

The net of those things, if you add them all up, is about a reduction, is a reduction of about $4.5 million in the general fund forecast for 2023. So the last one we're going to show you is 2024, so this is the last part of the biennium.

And again, here you see the compounding effects, and I'll explain some more of this, in the compounding effects of the downturn.

So again, top to bottom, lower forecast for new construction.

Here, you get a compounding effect in that the new construction reduction in 2023 is So you can grow your tax base by 1%, but we're expecting it to be smaller in 2023. And then we're also expecting to somewhat less construction activity in 2024 itself.

So reduction of just over $2 million to forecast there.

For sales and B&O, you get to see the base in 2023, we're expecting less revenue.

So the base that we carry into 2024 is smaller, and then we're expecting less growth in 2024 than we had predicted back in August as well.

So those effects grow in time.

So again, here you're seeing for sales, it's almost six and a half million dollar reduction relative to the August forecast, and B&O almost 10 million.

There's an additional sense in which the balancing process that you're now engaged in is really balancing the expenditures and revenues across all three years.

So the additional revenues in 2022 can be fund balanced at the end of the year that can help fund activities in 23 and 24. And obviously, the revenues in 23 and 24 are key drivers.

So the three-year total is relevant to the balancing process.

Moving down that column, you again see the effect of increased parking meter revenues, and then also, again, those interest earnings making a positive difference.

The net here is more substantial, a reduction of about $14.5 million.

And I think it's worth noting that that's really the ongoing impact, right?

So the forecast for 2024 is almost $15 million less than it was before.

And as you start 2025, we will have that much less as well.

That's really the ongoing impact that we're seeing in this forecast.

And then the three-year total across them is just under $9.4 million, again, of general fund revenue.

So on the general fund side, that is the update.

So again, in relative terms, a small increment in 2022, reduction in 2023, a more significant reduction in 2024. the net is about a $10 million reduction.

I would note that if you add up the three years, if you add up the revenue, there's essentially $5 billion worth of general fund revenue over those three years.

So this change, while significant in terms of the overall impact is, excuse me, overall revenues is still relatively small.

And again, the downturn that's forecast is not a dramatic one.

It is certainly a change in the growth that we've been seeing.

Before I move on, I'm going to talk a little bit about comparison to pessimistic.

Are there any questions in the book we're going to raise here?

I just want to make that affirmative inquiry.

Thank you, Director Noble.

I think it would be great for us to again underscore what you just said, that if this was just the $9.4 million for the general fund reduction, it's not that significant, we could probably adjust for it in the immediate.

But given the other information that you'll share, you'll continue to elaborate with us on the real size excise tax and other revenue streams.

It does make for the entire picture to be really pretty grave.

Director Dingley, please go ahead.

Thank you.

And thanks, Director Noble, for this presentation.

I am wondering if you, and this might be something you're planning to get into.

So I'm going to get into that as also a totally appropriate response.

I'm wondering how, if you can speak to the corrective actions from the feds that might result in having tipped us into a recession, how quickly or what indicators do we know that they would be looking at in order to revise those interest rates in the other direction to then sort of bring us back out or try to stabilize or find sort of a new normal.

Do you have any insight into what that might look like?

I had some really good insight on Wall Street, making better money, as they say.

Sorry about that.

What we know is that the Fed has been really remarkably transparent about about what's motivating its actions.

They particularly focus on core inflation.

So it's actually that's time that the fact that inflation, persistent high inflation has crept into things beyond just food and energy is a particular concern for the Fed.

And they're also going to be particularly concerned about wage increases.

feed itself, that once prices are higher, then workers, understandably, ask for higher wages in order to compensate for higher prices.

That then increases the wage bill for companies, and they then increase prices in order to pay their wage bill, and you end up in an unvirtuous cycle of price escalation.

They recognize that food and energy prices fluctuate, but they're going to be particularly interested in core inflation and how the labor market is responding and how wage rates are responding.

So we and they are going to continue to monitor those things very closely.

And one thing to consider is that inflation is really the rate of change of prices.

Once, if energy prices settle in at relatively higher levels and stay there, and there's a level at which they're going to percolate through the whole economy.

So I sort of think about this, all the goods and products you buy are delivered somehow in most cases, right?

And energy prices affect transportation, they affect production and the like.

So those things can, as energy prices increase, and that's been a major driver again, given events in Europe, But it's the rate of increase.

So if energy prices settle in at somewhat higher levels than they have been in the past, that unto itself won't be a problem.

The economy will adjust.

We'll probably have less total productivity than we would have otherwise.

But the bottom line is that's what they're going to be looking at, core inflation and wage increases.

And we'll track those ourselves.

Okay, with that, I'm going to move on, spend a moment.

This next slide has some narrative about some of the things we already said.

It's really not necessary to cover here.

I am going to just give you a little bit about what's in the pessimistic scenario.

Again, it's not the one we're recommending, but I want to give you some flavor for it.

cells and BNO, those are really the ones that are most affected by the different scenarios.

There'd be some other impacts for certain, but these are really the key drivers.

Depends what color you get.

Pink, orangey is the baseline forecast.

The numbers here match the previous slide.

The pessimistic is in gray.

And the absolute differences look perhaps relatively small.

You'll note that they, as before, they increase over time.

So you get that same kind of compounding effect as we saw in the previous slide.

It's amplified here because the downturn is continuing.

and accelerating through 23 into 2024 in this scenario.

And then if you add it up, the three-year difference on the retail sales tax side is about $40 million.

Again, the vast majority of that in the second and third year here.

And the B&O is actually more, it's $50 million.

So this would be, again, on the general fund alone, if the pessimistic scenario is the one that plays out, it'd be a much more difficult scenario a $90 million loss relative to what we've shown you over the three years in terms of general fund revenues.

Again, I don't want to discount this as a possibility, but this scenario, again, is associated with world events developing otherwise than most folks are expecting at this point.

But it is worth keeping in mind.

So now we're going to shift.

Forecast Council Chair Mosqueda pointed out impacts of some of the other non-general fund, but nonetheless, general government revenue streams are significant and challenging.

So again, the structure here is the same.

I'm going to go year by year just to remind you of the format of this table and these revenues.

The first part, first section is general government revenues.

These don't technically go to the general fund, but these are all supporting a variety of general fund activities.

So the payroll and related.

So, as you know, the payroll tax has a set of designated uses.

Admissions tax is dedicated to culture, sweetened beverage tax, a variety of dedicated purposes, short term rental.

And then REIT is the real estate excise tax, largely reserved for capital, currently also eligible for affordable housing.

There's another set of revenues that are transportation specific, but given the overall investment in SDOT, these really do affect overall balancing.

So let me also mention, things that are highlighted in blue are ones that The forecast office directly forecasts, the other's budget office has a lead and we collaborate on.

So on the transportation side, the sales and use tax, there's a share of the sales tax goes to transportation so that it's approved for the Transportation Benefit District.

Vehicle license fees, the commercial parking tax dedicated to transportation, and then the school zone cameras That's the last of those.

So in terms of changes for 2022, all relatively small, except notably in real estate excise tax.

So payroll tax.

We're going to talk a lot more about payroll tax, but we're not changing the forecast for this year.

Admissions tax, also not changing.

Sweetened beverage tax, the forecast is down.

This has more to do with a timing issue and understanding that some of the payments that were received in 2022 were obligations from the previous year, essentially the driver there.

So we think the base is somewhat smaller than we had anticipated.

Short-term mental, just a little bit more activity than we had forecast.

Real estate excise taxed down significantly.

I would note that $95 million is still among the more robust years, historically, of REIT revenues.

But we'll get into this.

I have a whole slide to talk about the REIT forecast.

But essentially what's going on here is that changes in interest rates and changes in demand for housing are going to reduce both the volume and the value of real estate transactions.

tax on real estate transactions.

We've already seen some of that slow down in the data.

So this is reflecting what we're seeing in 2022, that the actual payments to date are lower than we would have expected if we were going to hit the original $106 million forecast.

And as you'll see in a moment, much more significant effects projected for subsequent years.

Let me put up 2022 now.

Again, we'll return to talk about payroll, um, admissions tax, no change, sweetened beverage.

And the way that I mentioned those, that same effect is. years here as well.

And then REIT, much more substantial reduction.

So we had already anticipated somewhat of a slowdown or reduction rather in REIT revenues, but much more significant reduction now associated with the change in the forecast.

And again, I have a slide that follows to talk about that one, so I'm not going to get into more detail right now, but it is the news, if you will, on this page.

Modest reductions in the sales tax for transportation benefit.

That is just, again, because this overall sales tax comes down.

And modest reduction in the commercial parking tax, again, less overall demand and activity, means less folks paying to park online.

2024, it's the same categories that are moving.

the compounding effects here in the second year.

So the base is smaller because we're expecting less than 2023. And again, we're projecting overall less activity in 2024. So the reduction in sweetened beverages mirrored again, substantial reduction in real estate tax come back.

And then you can see on the transportation side, sales tax and commercial parking tax as well.

Again, on a three year total, obvious number that jumps off the page is the impact to real estate excise tax of over 64 million.

Again, across the page, the original forecast had been for almost 300 million.

So this is a 20 some percent reduction there.

So it's still, this is still a notable decrease over that period.

Let's talk a little bit more about what's going on.

This is just some of the narrative that I already provided to you.

I'm going to talk about REIT now.

And I'm going to show these charts in just a moment.

So again, IHS, their forecast for the housing market has changed dramatically.

And I'm going to illustrate that.

And they're changing dramatically because they're seeing interest rates rise faster, both faster and higher than they had expected.

So again, we can page through here and look how expectations have changed.

So again, back in March, meeting our April forecast.

Expectation was on the left is a home price index taking 2021 as the base.

So the expectation is that home prices are having a remarkably big jump over the 2021 year.

So you can see the increase.

starting at the beginning of 2022, reflecting what happened over 21, was more than 10%.

Expectation was, again, a steady increase in prices over time.

There was, and again, these are national figures, so local market obviously different, but not unaffected.

On a national scale, they're expecting sales of existing homes to reduce somewhat, but clearly the price effects were gonna swamp the volume effects, if you will.

And again, the real estate essentially price times quantity.

So both of these are the key inputs.

When we last visited you in August, and this was a little bit strange, and we were a little worried about it then, they are actually showing an increase in price showed further increases in prices.

Some of that was that the actual data had outpaced their forecasts, but it was struck as if time is somewhat unusual, and an unusual bit of volatility.

It was a notable increase in a relatively short period.

They were showing a somewhat more modest forecast of volume of sales, so they brought that down slightly.

of homes being sold.

And so we actually were getting, you'll see in a moment, we ended up with a whipsaw effect.

We actually increased the forecast for REIT in August based on these numbers in no small part.

We expected things somewhat different at the local level, but not entirely different.

Their most recent forecast is a big change.

So they are now anticipating a fall in prices.

So having projected that prices would be increasing over 23 and 24, they are now projecting their prices will fall.

Notably, you'll see that they're actually still projecting their prices will be somewhat, well, let me just leave it at that.

Fall of 23 and 24, and then a modest recovery after that.

More dramatic, and in this case now having a bigger effect on our revenue forecast, is the So this is significantly driven, both of these are driven by interest rates, the volume in particular.

So with high interest rates and the expectation that interest rates will come down, folks who are in the house market have incentive to hold out for a little bit here, waiting for interest rates to come back down some.

And so the forecast is for a dramatic decline in the number of homes sold and a modest decline in prices.

Those recover relatively quickly as, again, their recovery in terms of sale volume and price is tied to the expectation that the Fed will start to bring down rates again in the period of late 24 and 2025. But this whipsaw where the price of the forecast went up and improved in August and then now has deteriorated in October, again, feeding our current forecast has led to that again, to that whipsaw where we raised our forecast initially in August and now have brought it back down.

So, and again, the focus here is on the residential side, but the same effects are playing out or are potentially gonna play on the commercial side.

So the cost of capital, so the cost of borrowing money to make a major capital purchase like real estate are going up with interest rates.

I think it was the Wall Street Journal just this week, speculating, forecasting, that could see significant correction in the price of office buildings, both, again, because of lower demand and because of these interest rate effects.

So those purchases tend to be highly leveraged and depend on a lot of borrowed money, so particularly sensitive to interest rates.

So that's what's driving that change in forecast.

And candidly, there are folks who are even more pessimistic than this.

But we're going to obviously continue to monitor REIT very closely.

I would say, and you'll see this in the next presentation, we've had a pattern of under-forecasting REIT.

It's one of the revenue sources that is most volatile and difficult to predict.

On the modeling side, it's something we're continuing to work on, but just to be candid about that.

Sorry, director, can you repeat that?

You've had a pattern of under forecasting rate.

Yes, so we typically have, you know, by as much as 10 or 15%.

So, you know, we would predict it would be 99 and it turns out to be 100Million.

I'll get to some of this in the next presentation.

Part of that is that the.

A disproportionate share of the real estate excise tax revenues are earned late in the year.

And so as we sit here and talk to you, we don't have a good idea of what the final numbers will be for this year.

And they tend to be disproportionately earned in that fourth quarter.

But there are a variety of effects going on there.

So yeah, so our pattern of unforecasting perhaps offers some hope.

But again, in this case, we purposely tried not to be pessimistic, even for both 2023 and 2024. So this is a significant reduction.

With that, I'm going to spend some time to talk about the jumpstart payroll tax.

So I'll get to the bottom line and then walk through.

We're not changing that forecast now for either 22, 23, or 24. We have significant concerns that the forecast will need to be brought down.

But what we don't have for you now is enough quantitative information to make any kind of firm forecast about that.

And let me take some time to explain why, also to provide you some background.

So recall that as of right now, payments for 2021 total $292 million.

It's actually up a little bit since August, because we got some more late payments.

Currently, we only have in hand payments Payments for the third quarter are effectively in the mail.

Seems silly to say, but it's literally the case.

So they're due at the end of October, and envelopes are arriving this week and potentially even next.

And there are checks that people actually still mail them.

So we do not have third quarter results.

Even if we did, the quarterly payments that we've been receiving are estimated payments.

If you've ever been self-employed, in terms of your income taxes, you make comparable estimated payments each quarter to the IRS.

So these payments are not firm estimates of everyone's obligations.

In fact, firms don't know what their full obligations are going to be until the end of the year.

because the tax is on annual compensation, on annual payroll.

So we'll have an idea of what those third quarter payments are in seven to 10 days.

They'll probably mainly be in, and we'll be able to total them.

And we can share that information.

But it's not going to be determinative of where things are going.

It's really going to be those fourth quarter payments, the annual totals with their true up.

Those we receive at the end of January or into mid-February.

So at this point, we don't have the basis.

We only have the information we've had so far in terms of actual empirical numbers, 116 collected.

We're soon to see the third quarter, but we don't have enough confidence that that's going to tell us enough that is worth waiting for, if you will.

So at this stage, we have lots of reasons to think that the forecast is high relative to what the actuals will be.

In particular, we're seeing earnings reports come in for particularly tech sector that are falling short of expectations.

That's having an effect on stock values.

Stock values affect compensation.

So those are all, that's a ripple effect one can see very directly.

We're also seeing evidence that there have been some layoffs in the tech sector.

Certainly hiring is slowing.

So we had expected some further increase actually in overall employment in that sector.

So those are all factors that are likely to bring down the actual revenues, but we don't have any quantitative information more than we had really in August.

So we're not revising the forecast.

We are suggesting to you that you should recognize that there's a high risk that we'll miss those projections and we'll bring you revised figures in April and we'll keep you posted as we go, but we don't really think we'll have a meaningful sense of any of this until mid-February.

At a high level, this highlights the challenge with we provided you before, and you'll see from actually the next presentation, we have lots and lots of history, decades, and we understand and we can see how changes in employment and changes in inflation, all those things affect these various revenue streams.

We have simply no history with the payroll tax.

We have years worth of data and now a couple quarters of payments, but we don't really know it well.

There is reason to think that it's gonna be, and we would expect it to be more volatile, than the other revenue streams, which even as the economy moves, we don't get huge swings.

But the payroll expense tax is paid.

A large significant share comes from one or two sectors.

Disproportionate share comes from some of the region's larger employers.

So it's not nearly as diversified a revenue source as either sales tax or B&O.

But actually, but in dollar terms, it's not that far off.

So the actuals for 2021 are almost $300 million.

Sales in B&O are closer to 350 million, but that's not that much of a difference.

So that's comparable revenue stream, but every expectation that this one is going to be more volatile going forward.

So that's why we don't have another revised update for you on the payroll expense tax, but you'll also need to hear our concern.

And again, on the staff level, we'll keep folks, and I can email you all, keep you updated on what we see.

in the third quarter, but I don't think we're going to have something just definitive to deliver to you until the April update.

And certainly not until we see the final numbers for 2022, which will be probably about the second or third week of February.

And I see there's a hand up.

It was me, thanks, Director Noble.

You actually just answered it.

So it was the question about timing of revised, of enough data to provide revised figures, but you just answered it.

Thank you.

Yeah, we'll know that, we'll know absolutely about 2020, excuse me, 2022, I get distracted sometimes, by mid-February.

And then by the end of February, we'll get the full results for all 2022 revenues.

So we'll have a sense of how both payroll expense tax, and then other revenues have come in to the extent that there's any hope of mitigating shortfalls in one with excess in others, if that's the way things play out.

That firm 2022 number will then give us a much more firm basis for looking at 23 and 24. And we'll have developed our first year of quarterly data.

So over time, what we're hoping is to understand what the pattern of payments is like quarter to quarter so that we have a way in the third or in the fourth.

Currently, we don't have that track record.

So we don't know that.

So that's the story on Jumpstart and why we don't see an update in that revenue stream.

And then that's the conclusion of our presentation.

Welcome any questions and I can back up and revisit any slides in particular.

Thank you very much, Director Noble.

Thanks to your team as well.

It's never fun being the bearer of bad news, and this is definitely bad news as we seek to wrap up our budget deliberations in the next 3 weeks.

Colleagues, I'm going to turn it to you, to our forecast council colleagues to see if there's additional questions that you'd like to ask.

I'd like to follow up on Director Dingley's initial question as well.

I recognize that if you don't mind going back to the REIT forecast narrative.

That 1 yes, thank you so much.

I recognize that the federal government is trying to do as much as they can to prevent against the pending or possibility of a coming recession by increasing inflation.

But as you're noting here, that increase in inflation.

or rates, interest rates is causing the market to slow dramatically and a decrease of $64 million to the REIT revenue funds for Seattle directly has an impact on our ability to invest in capital projects, specifically in transportation and infrastructure projects where we've historically used REIT funding.

I guess similar to Director Dingley's question, any additional thoughts about ways that we can act locally to help increase the ability to give Confidence to the housing market to continue to invest in building here locally or within our region and to to spur economic activity and in reaction to, or to ward off these projections.

Yeah, I think the biggest thing to recognize that in the end, you know, housing demand is all it's all about employment and job opportunities.

So to the extent that our regional economy does better and in relative terms to the nation on employment growth, that'll be the key because that's what's driving, it's those job opportunities that motivate folks to move to the area, to buy homes.

So it's really all about the growth of the economy overall within the region.

I do, you know, In terms of construction activity rather than sales, in our area, it's particularly multifamily is where the action is on housing in terms of volume of units that are going up.

And again, the demand here remains strong.

So not only are we've been creating jobs that pay relatively well, it's created its own problems.

the affordability of housing.

So I think it is really about overall economic growth.

But let me just say one more thing that I think is worth highlighting, and you alluded to.

The Federal Reserve strategy is understood, and they would frame it as short-term pain for the longer-term benefit of bringing down inflation.

But that pain is very real, and it's going to affect different folks in different ways.

Folks who are carrying debt, particularly credit card debt, for instance, variable rate, they're gonna see substantially higher costs, fixed costs, really.

Those who are sitting on assets do better in that kind of an environment.

So there are winners and losers in those scenarios, and I don't know that nothing's been said or acknowledged about that as well.

I was a young person, but lived through the recession of the early 80s, which was triggered in exactly this way.

The Federal Reserve decided to bring, I mean, inflation escalated considerably and interest rates got above 10% and the like, home mortgage rates got above 10%, but there was a profound recession and job loss associated with the interest rate spike to bring it down.

There was real economic pain.

Thank you, Director Nambola.

I'm struck by the sort of balance that we're also trying to accomplish with some of the jumpstart progressive revenue resources that are at our fingertips, vast majority going to building housing and the vast majority of those dollars going towards multifamily structures, larger.

apartment and rental units that will help families be able to continue to live in the city, but we're also trying to balance the investment with making sure that there's enough supportive services that the personnel is also being invested in.

It sounds like one possible, not full antidote, but one way to continue to try to push us in the right direction is by investing in the capital infrastructure where possible to ensure that those construction projects move forward.

and that we continue to build where we have additional other resources like through Jumpstart with the capital investments.

Is that a takeaway?

Is it fair?

Absolutely.

I think one of the classic things that happens in a recession of any kind in the context of housing is a particularly good example.

The city's housing levy is generating significant revenues.

extremely steady.

So if you look back at our forecast, the property tax forecast doesn't change.

So the resources being brought in by the housing levy will be strong and steady.

And while others may be backing off because interest rates are too high, we will have the resources to continue to build through the recession.

So as others are backing off, we can continue to build.

Again, the hit to REIT revenue will challenge us on that front, but that is, I think, a very real possibility.

And the same is true, I mean, just in broader terms, it's the transportation levy and the like.

Again, the city will be bringing in significant resources that won't be affected by this near-term downturn.

and we can help become the driver if you will.

Thank you so much.

I'm not, excuse me, there we go.

Director Dingley, please go ahead.

Thank you.

I'm also just incredibly struck by how disproportionate the impact is of these Fed actions on interest rates and what that does to, so if you have cash, Um, you're relatively unaffected if you have that wealth already and access to it, it, it makes it a little bit more inconvenient.

Um, if you don't have it, it takes you out of the ballgame entirely.

And I'm wondering, um, director Noble, if you, and I, I think you alluded to this.

I think I heard you say, has the fed acknowledged that disparate impact that this action is causing?

And do they have, do we, have we heard of any plans that would come from the federal government?

To provide support for those that are more disproportionately impacted than others.

It's a really good question.

I actually don't feel like qualified.

I don't want to throw the fed under the bus.

I haven't I haven't seen anything.

That doesn't mean that they hadn't thought this way.

So, you know, some of the other measures that are being taken.

that are fixed or flexible rates.

So that's an example of what could be done.

I'm not sure that's been motivated per se by the Fed response, but we can do some more research to get into a better sense of that.

But it's obviously a good question.

Thank you.

One additional question that I have is, This is a relatively new office and we appreciate all the work that you've done in this calendar year specifically, but we know that there's similarly situated offices in at least Washington State with our partners in King County and also at the LEAP Department in the State Ledge.

Are there other jurisdictions that have a similarly situated Office of Economic and Remedy forecast that you've been able to reach out to and take the temperature to see if they're similarly experiencing this type of decrease in the revenue available to their cities.

We clearly have the most regressive tax system in the entire country in Washington State, and we're trying to work towards more progressive revenue, in large part, thanks to the Jumpstart Progressive Payroll Tax, but we'll be considering other additional progressive revenue streams through the Progressive Revenue Task Force that's being convened jointly between the executive and the legislative branch that just started meeting last month.

So there is conversations that are happening to try to right size or turn our upside down revenue streams right side up.

But have you had a conversation with other jurisdictions that are experiencing the similar level of pain that you're talking about?

Or are we sort of uniquely positioned given our regressive structure in Washington State?

I'll answer your question, but also give me a chance to plug the fact that we have over the past year actually connected with the folks at King County, some of whom actually are city who do regional economic forecasting for Whatcom County and areas to the north, as well as actually the Puget Sound area as well.

So trying to develop some of those relationships, we actually all run comparable models.

So King County is probably our closest analog, although again, a lot of their revenues are from the unincorporated areas of the county.

So we have been in touch with them overall.

I haven't, the re-forecast we've just been putting together in the last couple weeks and we haven't had a chance to check in on those.

We do regularly monitor the State Forecast Council.

So they just updated their economic forecast largely.

Largely consistent with what we're seeing.

Yeah.

They haven't done a revenue update recently, and the county's last revenue update actually is before this most recent downturn in the forecast.

So we expect to see from them stuff in the future that's closer to this.

Yeah, hard to know.

They're potentially hit harder actually on the real estate excise side because they're more dependent on residential because they're collecting revenues from unincorporated areas, which tend to be residential.

But those are relationships we've established and are maintaining on an ongoing basis for the reasons that you described.

There's potentially insights to be gathered from them as well.

Other questions?

Okay, and I know that the state revenue forecast team is on a different timeline.

They'll obviously get their updates, I believe, maybe November or December, but that will help inform the governor's proposed budget going into the next legislative session.

Do you have any indication from the state partners as well if they're seeing this type of decline in their available revenue for next year or their biennial budgeting process?

What we've seen is that our economic forecasts, which again are deteriorating, if you will, haven't seen them ripple substantially into the revenue side.

But again, we haven't made any corrections until this forecast ourselves.

So it's really, again, what had been largely expected, for the last couple of months, essentially, was slow with modest growth from where we stood.

So it's easy to see, needless to say, how everyone digests the growing consensus around a slowdown, whether it's technically a recession, but an interest rate-driven slowdown.

The state has a broader base overall, so the percentage effects may be smaller, but again, we will be tracking closely to see where they end up.

Thank you so much.

I'll be specifically interested in the impact of the rate reductions from the state forecast as well when you get those updates from the state partners.

Please go ahead, Director Cornell.

Yeah, thank you.

Um, so I appreciate all of this and I appreciate everyone's understanding and attributions of the humanist side of all of this.

It is having worked for the city for 28 years.

I started during the early 90s recession and was very happy that the city gave me an opportunity to have a job and I hope that we as a city As we're recognizing what is happening around our city, we can also not only do things around affordable housing and capital improvement, but also employment for others who may be losing jobs as well.

So thank you for just recognizing that.

I do want to ask, Ben, do we have any idea how much more we expect to decline?

I mean, it's such a significant revenue source for us, recognizing we do have a very regressive tax system.

But any idea of how much further this could possibly go beyond even what pessimistic outlook looks like?

Oh, you want to move on the pessimistic all the way through?

Yeah.

I mean, so we're predicting about $68 million.

I mean, it could easily drop by another $10 or $15 million beyond that.

I mean, the dependents may be able to help here, too.

financial market crisis, so it in fact made it really hard to borrow money, period.

But REIT drops, say, 60, 70 percent.

It was a huge decline for a couple years.

So, again, that's a very different scenario where we have your increasing interest rates rather than you cannot borrow no matter what interest rate, which is kind of where things were before, again, during the during the financial crisis.

But one of the things, and this is going to challenge this to a degree, in terms of structuring the budget, there are a set of financial policies around the use of REIT, in particular, how much REIT revenue can be dedicated to debt service payments.

This is an internal accounting.

When we issue debt, we actually pledge all of the city's revenues.

But in turn, we assign a certain share of debt service to be repaid from real estate excise tax.

And the thing about debt service is that it's like your mortgage.

You've got to make that payment no matter what.

So as revenues decline, the discretionary amount of reit that you have to capital projects, because the debt service is paying off those capital projects, so they were good investments, but you're not done paying for them.

So that's one of the particular challenges that we're going to squeeze ourselves in terms of discretionary spending.

an anecdote.

I was dropping off my child at Karate Park for a day of all-day kindergarten outside.

And there was a sign up about playground renovation and comfort station renovation.

The latter of which was the sign said is to be funded for REIT.

So perhaps not the most visible thing inside of a comfort station.

Improvements as well, so those very simple kind of not visible things are also really important when they're important.

Those are the kind of things that we are likely to have to postpone or cancel at least for the near term.

So, again, real effects on the ground.

Thank you.

Thank you all.

I'll just use this as an opportunity to mention how it's going to affect our budget deliberations.

you mentioned the word postpone.

Given today's news, we are going to be postponing the release of the city council's balancing package for its initial round of consideration by council members and members of the community by one week.

So all of the dates that we had initially proposed will be pushed out by one week to try to accommodate for this news that we're receiving today, especially the impact of REIT on our balancing package.

As Director Noble just mentioned, We use REIT traditionally for capital investments and things like transportation and infrastructure.

We also use REIT for critical investments that meet human needs like a comfort station.

So the use of REIT is throughout our budget and we will need to take some time to accommodate for this most recent forecast and want to be intentional about those discussions and greatly appreciate the collaboration and the future conversations we will have with the city budgets office and the departments as well as we think about what possible scenarios we could put forward for council member considerations.

Director Noble, thanks for sharing this information.

This is why we want to have these discussions in real time and have real conversations with members of the public as well so that this information is shared jointly out to members of the community, the media, and with our colleagues at the same time so we can together address these pressing needs.

Instead of releasing the proposed initial balancing package on the 7th, we will do that the following week on the 14th.

We will then have the following week on the 21st a chance for council colleagues to have their amendments considered on the 21st.

And then, because it's Thanksgiving, folks will go away for the week, and we'll come back on the 28th, Monday, the 28th, and have the final committee vote.

And then the 29th, which is a Tuesday, our normal full council meeting.

At 2 PM will be the last step when I think the council president as well who we've been in communication with regarding this news and have worked to send a revised calendar to the floor during this discussion here today as well.

It's not good news in any regard and we also know that it's the best.

the best analysis that you all are able to offer us and it may change in the future.

So we will need to also accommodate for that in the budget as well.

But this is not a Seattle City Council meeting.

It is a Revenue Forecast Council meeting.

So we are back to our normal deliberations.

That was just a public service announcement.

And again, a huge appreciation for the Council President, CBO, central staff, and thanks again to the Revenue Forecast for this updated information so that we can be deliberate about those discussions over the course of the next week.

All of the public comment for the Seattle City Council budget deliberations will remain as posted.

And so there's no change to that.

Okay.

We are back to our revenue forecast council deliberations and colleagues.

As you heard from Director Noble, it is up to the purview of this council, the forecast council, to decide if we accept the revenue forecast as presented by the Office of Economic and Revenue Forecast.

If the council decides to reject the forecast, we could choose to go with a more pessimistic or a more optimistic forecast.

And this is item number for on our agenda, which relates to the forecast council discussion and possible vote regarding adoption of the November forecast.

As a reminder, in terms of approving the recommended forecast that we just heard, if we concur with the recommendations and the forecast that has been presented by Director Noble, there is no need for a formal vote by the body.

However, if there is any concern or there's a discussion here amongst the forecast council members that we believe it's appropriate to take a different approach and or perhaps adopt a different forecast scenario, we have that authority.

The forecast council office was purposefully established as an independent function, independent from the legislative and executive branch.

so that it's protected from any political influence or pressure to amend or present the forecast in any certain way.

And as representatives of the forecast council, both from the executive and legislative branch who are present here today in the forecast council meeting, we have direct responsibility as stewards of the city finances to ensure that we hear the recommendations and move forward as we would like.

According to the ordinance that was established to create this body, to create the revenue forecast office, and to ensure that we had quarterly updates, it is up to us to decide if we want to adopt this forecast as presented or choose a different forecast.

Choosing a different forecast would require a vote, and that would require at least three members of our four-member council to approve a different scenario.

I'll pause here to see if there's any questions for the forecast council for other colleagues or for the purposes of our deliberation.

Okay, I'm seeing shaking heads.

Oh, great.

Director Dingley, please go ahead.

Thank you.

I'm going to be supportive of the council or the office's recommendation of the baseline forecast.

I did want to just note that it Because we are going to be living forecast to forecast and because of the significant uncertainty we really have to and this is you know budget chair this is something you know very well.

We have to be very mindful of that fact as we are coming to how what our ultimate spending levels are going to be for 2023 and beyond.

So this is an incredibly dynamic time to be in this business and I don't envy Director Noble or Dave Hennis from my team and their team's work to try to nail this down.

but I am really appreciative of the information that they've been able to share and appreciate your partnership, Budget Chair, and being able to react to these dynamic circumstances.

So thank you.

Thank you very much, Director Dingley.

I'm not seeing any additional comments.

I too will be Supportive of accepting the recommendations as presented by the forecast council office.

I'm not hearing objections to that.

And so accordingly.

I'm going to just request that the meeting minutes reflect our concurrence regarding the recommend forecast.

This is just a formal step just to make sure that it's codified in our meeting notes.

But as I noted under our bylaws, we have the ability to approve the forecast without a vote by name.

Okay, I'm seeing nods.

Director Noble, I think that that concludes our comments here on item number four.

And before we return to item number two, which is regarding the accuracy of previous forecasts, would you like to add anything else to the discussion regarding the presentation of the forecast for the remainder of 2022 and the upcoming biennium regarding calendar years 2023 and 2024?

only to acknowledge your collective appreciation and to say more, which is it is no fun to be the bearer of some bad news, candidly envy some of your positions less than ours because the balancing is actually the trick.

But we do do our best and we will continue to do that and bring you what we know as we

Thank you very much.

All right, well, we will make sure to send to the forecast council members as well.

The revised calendar for the Seattle City Council's budget deliberations.

There is a new.

Updated calendar, thanks to the communications office within our legislative branch.

So, thanks to the communications team for their quick work to update the calendar for those suggested dates and we'll send that around.

And if anybody's listening as members of the public and would like to provide additional comments on either the revenue forecast, or the budget, the next public comment period that you can provide that is at 930 next Tuesday.

That's November 8th.

We will have another opportunity at 5 PM the following week, November 15th.

Okay.

I think that brings us to the review of the forecast office.

Empirical assessment of forecast accuracy.

And this is a important item.

Thank you for allowing us to rearrange the agenda, though, so that we could get right into the heart of what the forecast was projecting.

But this is really important opportunity for the office of economic and revenue forecast to provide a quick summary on the historical.

accuracy of the city's revenue forecast.

And this was launched on their own volition given the role that they are in to make sure that the revenue forecasts are as accurate as possible and to ensure that they are providing up to the date accurate information for the city's budgeting process.

Really appreciate that they've taken on this analysis and look forward to future conversations, colleagues on the Council, about how we may support the Office of Economic and Revenue Forecasts to ensure that they continue to provide an accurate reflection of the upcoming forecast.

And it's really important, I think, from an accountability perspective, to continue to look at the accuracy of past forecasts as well.

As Director Noble will describe, the Forecast Office has dug into 10-plus years of forecast history to answer The basic question of whether or not they are providing a good value to understand the track record and provide accurate forecast in the past and the presentation here includes a number of those recommendations regarding future work for the forecast office.

There is no decision as I've just noted about whether or not to take up those recommendations.

And I think we will have time after the conclusion of this calendar year as we head into first quarter of next year to revisit these recommendations and ensure that we are providing the necessary support to the forecast Council office.

Director noble thanks again for suggesting to include this on the agenda.

We are for the purposes of the record.

At agenda item number 2, which is now the last item on our agenda review of the forecast offices, empirical assessment.

Forecast accuracy, I'll turn it back over to you.

Thank you very much and I'm going to put a PowerPoint and dive in just credit to.

drafts of it along the way.

The basic premise here, or purpose, was to give you a sense of how good we're doing at this.

We bring you these numbers now in this new format on a quarterly basis, and the large of an accepting of our recommendations, but I'm not sure you know exactly what you're accepting and what it's looked like.

So we've spent some time looking back at the history this year to get a sense of that.

We'll see that, you know, we still see the bad news from the rate forecast.

I see that not to hang on 1 sec.

Let me go back there.

The wrong ones.

Well, while you are searching for that, let me just take a quick 2nd to.

Think as well, Seattle channel, we had really wanted to make sure that this information was broadcast out to the community members of the.

Media as well as council members in real time.

So Seattle channels, making that possible.

And colleagues it's been this is now our fourth and final meeting of the year so happy to as well take feedback from all of you as chair of the forecast council to ensure that these meetings are working well for you as we head into next year.

This was the inaugural year for the forecast council members and for the office of economic and revenue forecast.

So please do let us know after the conclusion of.

This meeting and anytime before our next meeting in quarter 1, if you have any feedback, thanks again to Seattle channel for continuing to broadcast this out.

So that everybody gets the information in real time.

Go ahead director normal.

Great.

So you all can see that now.

Perfect.

So, um, yeah, just real quick, just grab the scope of what we did.

Quick summary, the findings and some recommendations.

So, um.

Why did we do this?

What motivated this analysis?

One thing was the volatility, and I'll describe this chart, we'll run it right in just a second, but during 2020, excuse me, during 2020 and 2021, we had unusual volatility in the forecast and significant revisions.

So again, I'll explain that chart in a second.

So that was one thing, it's like with things bouncing around and can't believe us being as wrong as we were, wanted to understand what was the drivers there.

The other thing, and this is a key piece, really, as a second, is that at a staff level, and we've been reporting it out, but we'd observed a pattern of under-forecasting.

So we'd get to the end of the year, and we'd look at the fund balances and total revenues that were earned over the course of the year.

We don't get those totals usually in March for the previous year.

And we'd see that we'd taken in a little bit more revenue than we thought.

And that was a regular pattern, and you'll see this in the analysis.

So I wanted to get a better understanding of why is that happening.

And another issue, and it's not one we don't yet have the history to really be able to dive in on this one, but there is increasing use of dedicated funding sources, things like the payroll tax, admissions tax, sweetened beverage, Jumpstart payroll.

When you have a single source that's supporting a set of activities, understanding the accuracy of that forecast is particularly important.

is if those revenues fall short, then there isn't anywhere else to make it up.

Those activities that are funded by that revenue stream are going to be directly affected.

Probably the best thing you can do is build up a reserve to cushion those changes.

But if you don't have a sense of the accuracy, you don't know how big a reserve, or the volatility anyway, you don't have a sense of those reserves.

So this overall field of interest was motivated that way.

This chart on the right is a format I'm going to use in the presentation, so I just want to take a second to explain it to you.

What we're doing is measuring how far off we were from the final numbers at any given stage.

So looking first at the blue line, the first data point is the forecast we made for general fund revenues, a set of revenues that represent about 85%.

I'll talk about that in a minute.

And so we made that, so in April of 2019, that's a year ahead when we do that first forecast, we picked a number, we projected a number for general fund that turned out to be about 13% higher than it actually was.

That forecast was off by 13%.

I'm perfectly proud of that.

At some level, I wasn't directly, partially, but not fully responsible because we couldn't predict a pandemic a year in advance, so no surprise.

And we couldn't predict it in August and we couldn't predict it in November either.

So the next two data points, Those are standard kind of minor forecast revisions.

They turned out to be substantially wrong.

Come April of 2020, then we knew there was a pandemic.

And that forecast, again, measured relative to the final revenues, turned out to be off itself.

Instead of being over, it was under.

So we under-forecast the revenues.

And that's a general point here.

The way I'm doing this analysis, when we guess too low, that's a number below the line, if you will.

It's a negative number.

So we were overly pessimistic about what the pandemic was going to do.

Not wildly so, two and a half percent.

But that was in April of 2020. So that was things had just hit, but we hadn't really seen things ripple through the economy.

In August that same year, we actually brought the forecast down a little bit, and then promptly brought it back up again in November, just kind of whipsaw.

if we're not refining things in a continuous way.

There's some explanations around that, in particular, the path of the pandemic and the fact that the recovery wasn't really seen in the data until the third quarter of 2020. The red line is the forecast for 2021. And again, the first forecast there is actually April of 2020. So that's the first forecast after the pandemic.

Again, we were predicting 2021 revenue, so predicting 20 months out at that point.

And we were off by more than 10%, we were under forecast by more than 10%.

Because like everybody else, we expected that the pandemic would have lasting effects that would persist well into 2021. We didn't know about the federal government's stimulus interventions and the like.

But what you see there, as we got more information and understood the pandemic better, and the Fed took its action to refine those forecasts over time into 2021, it ultimately got pretty close.

So with that picture that shows you The divergence and how it changes over time is one you'll see again as we move through the slides here.

Just a little bit of background, and again I'm conscious of time, we'll get through this.

Some things to know.

We talk about this a lot, but it's important to recognize So we get the national inputs, so those figures from IHS market, we showed you a bunch of their figures in the last presentation.

We use those to develop a regional model of the same kinds of things, employment, inflation, and the like.

And then we have a set of models that use the national forecast and the regional forecast of the economics and use those to predict actual revenues.

regional employment is going to be this much, that probably implies that the sales tax will be this much.

It's not just regional employment, it's regional employment, it's income, it's the difference between our income growth and the national, a variety of factors.

But the key inputs are these national forecasts and also data from various government entities, the state and the federal government, providing us information about employment and aggregate income.

Again, I alluded to it in that chart.

Sorry, you saw it in the chart before.

There are six moments in the process where we do the forecast.

We start 20 months ahead with the initial April forecast.

So we showed you forecasts for 2023 and 2024 in April of this year, particularly 2023, the ones we focused on.

That's 20 months before the end of 2023. We then update those in August and November.

So all those are the year ahead forecasts.

We then, though, as the year arrives, so 2023 will start up here in January shortly, and we continue to refine even those 2023 estimates.

For instance, we just gave you new estimates for 2022, actually up a little bit, up about 10 million.

So there are also that set of within-the-year estimates.

Other important point is this last one is that you might ask, well, if you're doing these estimates, like if you're standing here in November and you're projecting how much money we're going to have for 2022, you've only got two months left.

I don't get that right really, really well.

Why don't you 100% on that one?

And the answer is actually in this chart, which is that although we're sitting here in November, we only have somewhere around 60% of the city's Revenues are collected with a delay, essentially a one to two month delay.

So we really don't know well into February, really the end of February, what our full revenue take is.

So it's just important to understand that those within year estimates are being made as we have really truly partial information.

So that's background.

In terms of scope and approach, we reviewed forecasts from 2010 to 2021. Prior to that, it's sort of diminishing value because the models have been changing over time, although we've gotten interested in the pre-2010 period because it coincides with the last really big recession, so we'll kind of understand recessionary periods a little bit better.

We focused on the things that were most economically dependent, because those are really where we're spending our time forecasting.

Everything included is about 85% of the general fund.

We didn't bother with some things.

Grants being a great example, because there isn't much value in trying to track the accuracy of grant forecasts.

Because in April, 20 months ahead, we don't know what grants the city is going to get, but it's not really material to understanding the budgeting process, because those grants get awarded for specific purposes over time.

Similarly, department-specific fees, they generate a certain amount of revenue, but there are a variety of reasons why those forecasts change over time.

And in particular, there are policy changes.

And to do the history, to look back, we'd have to have done all the research to see when each of those rates was changing over time and when those who were forecasting knew when those rates were going to change.

It was just too much.

But then separately beyond general fund, we did look at REIT.

As I mentioned, we looked at the three year ahead and the three within year forecast.

And again, as I also mentioned, if we under forecast, we expressed that as a negative number.

So that means we ended up with more money than we thought.

If we over forecast, that's a positive number.

And that's just so you can understand the charts as they go.

So what did we find?

So the biggest finding And this chart is set up the same as before.

So this is showing you the six forecasts, starting at the left is 20 months out, and then moving through the process.

Biggest thing, and I'm going to go year by year, you'll see is that we're quite accurate, and the accuracy improves over time.

So from 2019, our initial forecast is pretty good.

20 months out, we ended up being 3%.

Below what the actuals were by the end, we were about 1 and a half percent.

So we were still off even again, even in November of the then current year.

So, in November of 2019, our forecast.

Ended up being off by a little bit more than 1%.

2018, similar.

We got close.

We've been hit twice.

2017, also similar.

Minor corrections over time.

I'm just going to keep going here because the pattern becomes pretty clear.

What you see is that we start out relatively conservative and become less so over time.

And again, it's not so much to know which years are which.

There are a couple years.

That one is 2011. The next one was 2010, where we initially were above the actuals and then brought down and got closer.

2010, we actually ended up being over at the end.

So actual revenues ended up being less than we forecast.

This next line, that's the average.

And I'm going to move on, take away all the others, and just focus for a second on the average.

This is why the key message is that, on average, we do quite well.

We get, on average, we get the error down to less than 1% by the time we're done.

Starts out at no more than 2%.

But we are consistently under forecast.

So in that sense, conservative.

From a budgetary perspective, that feels like a better place to be than being over.

Because if you're under forecast, in the end, the money will come to the city.

And you'll get to spend it.

You won't get to spend it as quickly as you otherwise would have.

Alternatively, though, if you over-forecast, then you end up in a situation where you've over-committed yourself, and you either have to call on reserves, or you have to cancel some of the appropriations you've made.

But this is the pattern, and I can make that justification for why under is better than over, but we really still wanted to understand why.

So we dug in further, looking at why.

This chart is designed to show you the relative.

We looked at all those revenue streams and said, OK, so which one of these is the problem, if you will, or which set of these are creating the error?

So this chart measures the relative contribution to the error.

So again, the average error is about 1.5%.

So who's at fault, if you will?

Which sources are driving it?

So I'm going to quickly clip through.

That's at the preliminary sub.

So these are the very first forecasts.

These are the proposed.

These are the August.

And then these are the adopted.

They end up all being the same.

So it's just easier to put them up on the page.

And which hopefully jumps out to you right away is that the biggest contributors are the retail sales and B&O.

Again, on average, we were off by about 1 and 1.5% and declined over time to about 1%.

And where we're making our mistakes are in retail sales and B&O.

Another place, if you look at the other side, is those spikes up to the right are telephone.

So we were over forecasting telephone tax revenues for a while.

We've made some, and I can directly respond to this one, we've made some specific efforts in the past year to bring some reality to that.

What was happening there is that as people switch to cell phone.

But in any case, big message is really about sales and B&O.

This is the same chart for the within year, so the ones that happen, again, within the year.

And it's the same message.

The big drivers are still retail sales and B&O.

And again, generally closing over time, but that's where the errors are.

A couple of the other ones, but much less so.

So then we dug in.

So what's going on with sales and B&O?

Well, those ones that are the most economically dependent, they entirely rely on, they're heavily dependent on the national and the regional forecast.

And the regional forecast is really dependent on the national forecast and then on these federal agencies.

And so we went and looked at the input data to try to see what was going on there and found some interesting things.

One is that IHS market, and we showed you in the last presentation that they were, for this current set of forecasts, they were somewhat conservative compared to others.

It turns out they're also somewhat conservative compared to actuals.

So we went back and looked, and over time, they have a tendency to underpredict both income and employment.

And we feed those numbers into our model, so that explains, actually, this and the next issue explain half of our error.

I'll talk a little bit, there might be something we can do on this one.

The next one, which is errors in the input data that we get from the state and the feds.

there's less that we can do about those.

And what's happening there is that they are trying to measure those things in real time, or anyway, there's about a one-quarter lag.

And their measurements are imprecise.

They're doing sort of surveys and not collecting census-level information, if you will.

They're doing samples rather than a full set.

Over time, they get better information, and then they revise those numbers.

Actually, this current forecast we just had a deal with a significant revision.

So bottom line, the input data are a big part of why we've been under-forecasting.

Some of that we might be able to fix, but the data from the Fed and the state, excuse me, there's just not that much we can do.

Just a couple of seconds.

What happened in 20 and 2021?

These charts here on the right are similar.

I've added the total bar there so you can see.

So in 2020, and these are the year ahead.

These were ones that we were making in April.

Again, I think I told you that slide back, we were almost 15% off.

And the story turns out to be the same, largely.

It was mainly sales and B&O that were the problem.

Turns out, in that case, parking meters also ended up being a big issue.

Parking meters were a $30 million source that, thanks to the pandemic, largely went to zero.

We couldn't have in the context of the pandemic.

For 2021, so these are when we were under forecasting because we didn't understand that the recovery would set in.

Again, it was really all about sales and B&O.

So that just reinforces that those are the areas that are the biggest challenge and the most important.

So findings and recommendations.

So biggest significant findings is that for 2010 to 2019, things are quite accurate.

And I hope that makes you feel better.

It did me.

I didn't, you know, I hadn't actually run the numbers to see that.

And then the forecast errors narrow through the budget process.

You saw those lines converging towards the actual And although we've been accurate, we showed you there is this historic under forecasting.

And that's largely because of retail and B&O.

And that in turn is largely because of the input data.

Because the time and the like didn't put up the re-forecast, we've been under forecasting by 10 to 15%.

Again, as I described in the previous, largely because, well, significantly because things change late in the year where it's hard to know.

Also because it's been somewhat volatile.

In terms of recommendations, if we run out of time, one thing is, Although we've been under forecasting and pretty systematically so, we don't have confidence that that's going to continue as we enter this new volatile environment.

So the models that we've been refining over time, the last 10 years have actually been pretty steady, predictable growth, which is great for developing a model.

You don't have big swings and you can really, you can fine tune it.

Our fine tune models are now being challenged by these very big swings in the input data.

So again, I wouldn't assume that we're going to under forecast going forward.

One thing what we can do, and we've actually now done this, is we could take a look at whether some other national forecaster might provide some additional useful information.

So actually just use some of our resources to buy a subscription to another national forecaster.

We're going to do some comparisons and potentially use that information as we go forward.

Because again, that seemed to be a significant source of error.

We also looked into ourselves, we're going to work on models, particularly we're going to work on, we've been spending some time on the REIT model.

Sean's been working through some of the data so that we can do that analysis, sorting out which real estate transactions are residential and which are commercial and some other pieces.

So that's a piece that we are spending time on.

And then some of the other ones that I mentioned, again, the utility tax, admin tax, there's some others that we also want to spend time on.

For instance, the admissions tax we think is changing a bunch because Climate Pledge has now introduced a whole new, essentially, revenue stream there.

And the city is sharing that one, but we need to understand it better.

So high level, we care about the accuracy.

We see that it's pretty good.

We want to make it better and these are some of the ways that we are approaching that.

And that's really what we had again, really informational purposes and happy to answer questions now and also to revisit at our next meeting.

Excellent.

Thank you.

Director Dingley, please go ahead.

Thank you, Director Noble for this presentation and for the work that your team has done to review that accuracy.

I, for one, am quite encouraged at the accuracy that we have found over these last several years.

So kudos to the revenue forecasters in that space.

A forecast error of 1% is pretty remarkable, all things considered, and there is always room for improvement.

So we really appreciate your recommendations as well.

Thank you.

Thank you director Dingley agreed and also want to be available to help out on some of the recommendations that you've outlined as well.

But I think we will.

We will all be in a better headspace to take on some of those recommendations come quarter one next year.

But thank you for the early preview of some of those recommendations.

And again, to echo Director Dingley's comments, within the range that you've noted, we're all pretty pleased with that.

And we know you want to continue to improve on the forecast accuracy, but thanks for flagging ways to continue to do that.

Colleagues, are there any additional comments or questions on this item?

I'm not seeing any okay director noble or team.

Is there any additional comments that you have on that topic?

Nope, we're good.

Okay, great.

Well, we are at 2 o'clock.

That is the hour that we assume that we would adjourn.

So, um.

With all of the news we've received today, I know we will all be very busy over the next few weeks.

Our next meeting again will be in the 1st quarter of 2023. I don't believe we have yet a calendar for upcoming calendar year, but we'll make sure to get that sent around and work with your calendars to ensure that it works for everyone.

We will meet quarterly again to receive these financial updates and revised revenue forecast.

We will also be able to continue to Work in real time to ensure that the projections are aligning with our assumptions in the budget once that is finalized.

So this will be very important times for us, not only to ensure that we have a balanced budget, but that we are.

Accurately, and proactively responding to the upcoming needs for our community, both working family needs, individual needs, small business needs, and our infrastructure and transportation needs.

So lots to consider as we weigh the impact of these national and global dynamics that are affecting.

We're going to continue to work with the executive branch and members of the community to develop our revenue stability in Seattle and look forward again, colleagues, to working with the executive branch and members of the community as we think about deploying long-term solutions.

Short-term solutions are going to be what we're going to be focused on over the next few weeks here to create a balanced budget, but we need the long-term stable financial revenue so that our Looking forward to continuing this discussion with you all and of course, director noble, if anything comes up between now and our next meeting, let us know.

But we have taken away from this.

A sobering reminder of the national and regional economies, what they're facing in this period of really considerable uncertainty and turbulence and again.

all of that uncertainty, stress, and worry is only exacerbated at the individual level for families.

So we have our work cut out for us to make sure that we continue to take this information in in real time, deploy it to our budget deliberations, and work with you all as a city family to ensure that we create a balanced budget that meets folks' needs.

We will do that on the other side with the Seattle City Council in partnership with the executive team and community members over the course of the next, now, four weeks.

If there's no further questions again, thanks to everybody who made this forecast possible and to everyone who's making it possible to project it out to members of the community in real time.

We will be adjourned with a future meeting in.

Quarter 1, take care of everyone.

Thank you.

Thank you.