Economic and Revenue Forecast Council meeting of 4/8/22

And welcome.

This is the April 8th meeting of the City of Seattle's Economic and Revenue Forecast Council.

And I'm going to turn this over to the Chair of the Council, Council Member Theresa Mosqueda.

Thank you very much, Director Noble.

Good afternoon, everyone.

Today is Friday, April 8, 2022. The meeting of the Forecast Council will come to order.

I'm joined today with our Forecast Council colleagues.

Council President Juarez's office is represented by Dean Alsop, our Vice Chair and Senior Deputy Mayor is Senior Deputy Mayor Monisha Harreld, and we also have with us the City Finance Director, Director Glenn Lee.

Good afternoon, everyone.

Today we're going to be joined from staff from the Office of Economic and Revenue Forecast.

You've already heard from Director Ben Noble.

And we will have other representatives with us from the Budget Office, the Seattle City Council's central staff, and from each of the individual offices as well.

The main purpose of today's meeting is for the Revenue Forecast to receive the updated revenue projections from the Forecast Office.

And for us as a city and as a council, to review the recommended forecasts.

These forecasts are key elements of the city's budget process, and those forecasts will define the financial resources that we have available to allocate throughout our budgeting process that is beginning already and will be public and available for folks to deliberate on later this fall.

Let's begin by formally adopting the agenda for today's meeting.

A copy of the agenda has been circulated to members and is available online from the forecast council's website.

I'll move to adopt the agenda.

Is there a second?

Second.

Thank you very much.

Senior Deputy Mayor, it's been moved and seconded.

Are there any additional questions on the proposed agenda for today?

Does any member wish to remove any agenda item from the consent agenda?

Hearing none, all those in favor of adopting today's consent agenda, please say aye.

Aye.

Aye.

Any opposed?

Any abstentions?

Hearing none, the agenda is adopted.

Thank you very much.

And thank you to Director Noble and your team as well for compiling the materials.

This includes our second agenda item.

This is approval of the minutes from the March 14th meeting.

A copy of the minutes from our March 4th meeting have been circulated to members and it is posted online.

Again, please do check out the new Economic Revenue Forecast Council's website, which has all of our materials posted in a timely manner.

These materials have been posted and circulated to members of the council.

I move to seek, excuse me, I move approval of the minutes.

Is there a second?

Second.

Second.

Thank you very much.

Wonderful.

Thank you very much.

It's been moved and seconded.

Are there any comments, questions, or edits that folks would like to make?

Hearing none.

Let's just go to, if there's no objections, that'll make it easier.

If there's no objections, the minutes will be approved.

the minutes are approved.

Thank you very much again, colleagues, and thanks to the team, including Jan and Director Noble for all of your work to compile these minutes for us.

As we noted in our first committee meeting on March 4th, this body is interested in trying to seek public comment, and we are continuing to work on that.

In lieu of public comment today, again, as a reminder, every time we have a Revenue Forecast Council meeting, there will be a summary conversation that will take place on the Finance and Housing Committee meeting.

of course, we welcome any public comment at those meetings as well.

And just a reminder for when that will be, it's April 20th at 9.30 a.m.

in the Finance and Housing Committee meeting.

Moving on to the next item on our agenda is, big drumroll please, the presentation of the April 2022 Economic Revenue Forecast.

This includes recommendation from the Office of Economic and Revenue Forecast Council for the revenue forecast for 2022, 2023, and 2024. I think this is a really exciting opportunity.

I'm going to take a quick moment to pause here and reflect on what got us to this moment.

This is really the first chance that we are having in a public forum to hear for the first time the revenue forecast as presented by the independent body, the Economic and Revenue Forecast Office.

and then we have a chance for us to move forward with utilizing this information as we consider any supplemental budget items for As I mentioned already, these forecasts are essential for the overall city's budgeting process.

We must operate with a balanced budget and we will balance the budget to the resources defined today and also presented by Director in the upcoming April 20th meeting, which will round out the full revenue forecast projections.

Today, the Office of Revenue Forecasts will present the revised forecast for this year, 2021, excuse me, 2022, and it will also include the initial forecast for 2023 and 2024. The revised estimates for 2022 will help confirm whether the budgets we've approved from last fall remain in balance for this year.

and the new forecast for 2023 and 2024 will provide our first look at the resources available to us as we begin to plan for the City's biennial 2023 and 2024 budget, which the City Council will adopt in the fall.

Consistent with the work plan we approved last month, this will be the first forecast presentation for this year, but the forecast office will return again in August and then again in November to further refine these forecasts as additional economic and revenue information becomes available at the local and national level.

Today, the Office of Revenue Forecasts will present three different economic and revenue scenarios, the baseline, the pessimistic, and the optimistic forecast.

The office will then provide a recommendation about which of these scenarios should become the formal forecast.

We will then have the opportunity to discuss this recommendation as a council here today and to decide whether to affirm the recommendation or consider a different path, a different forecast scenario.

With that, let me welcome, again, Director Ben Noble, who has been working with the team, including John, and the team at the Revenue Forecast Office to provide an overview of our first publicly available revenue forecast available and presenting to our council here today.

Thank you very much, Director Noble.

And thank you, Forecast Council Chair Mosqueda.

You've done a fine job on each introduction, so I'm actually just going to put up the PowerPoint and dive in, because you said some of what I was going to say.

So I think we are good to go.

So I'm going to share screen this PowerPoint and go to this mode.

Yes, there we go.

Is that working for everybody?

Perfect, all right.

So without further ado, let me just give you a brief outline of the presentation to follow.

Essentially two parts.

We're going to start with the economic update, so we'll take a look at recent developments nationally and regionally, and we'll shift focus a little bit to talk about the projections, again, at both the national and the regional level.

And at this stage, We will then before we move on to the revenues actually make our recommendation or present our recommendation regarding which of the scenarios to use because it's really.

It's a judgment about the economy that leads to the different revenue forecasts.

And from our perspective, in terms of doing our work, it makes more sense to make that judgment without, in some sense, knowing what the implications are for revenues, so that we're really just thinking about this objectively.

I think, you know, as you make your final approvals, you will see the whole picture.

But that's why that recommendation is placed there in the forecast.

And then we'll move on to talk about the actual revenues.

I'll take a moment to remind you which of the specific revenue streams are the purview of the forecast office.

We are responsible for the major revenue streams in the general fund, but there are some smaller ones and some of the non-general fund revenue streams that remain the responsibility of the budget office.

But in particular, we'll provide you a summary and comparisons for the big revenue streams, sales, B&O, the payroll tax, and the real estate excise tax.

We'll present information on the private utility taxes and admissions tax.

And then also on some of the key inputs that will go into the property tax calculation.

And I'll say a little bit more about property taxes.

And then at the end, we will have a table that provides a full summary, presents a comparison to 2021, as well as to the November forecast for 2022. So you can see what has changed.

And then also what we're showing for 23 and 24, and essentially how those relate to the 21 and 22. That's what you can look forward to.

And diving in, starting again with the economic update, I think one of the things to recognize overall is that world events that are in some sense beyond economics are really driving a great deal of uncertainty in the economy, both nationally, well, worldwide, nationally, and then locally as well.

In a lot of ways, locally, it would appear that the COVID impact, maybe at a national scale, is ending, at least in terms of its broader economic impacts.

But I think it is also worth recognizing that that's not true elsewhere across the globe.

I was just on a call with somebody in Shanghai for some town work-related issues, and they were going into four or five days of lockdown, just as an example.

A really significant development that has escalated significantly since we last met even a month ago is Russia's war against Ukraine.

We're going to talk about it today in terms of its economic impacts.

I do want to recognize that it is not really – it's a human tragedy.

It has economic implications.

I think it's also worth recognizing that it's not the only war ongoing as we speak.

We're going to talk about it today because it's the one that has the biggest economic impacts again, so I just – I want to make those points before we get sort of too crass and just talk about it in terms of economic implications.

But it has had those for sure.

So supply chain disruptions are constraining manufacturing.

Examples from the automobile industry come to mind.

Food production, both Ukraine and Russia are actually major producers of food commodities, grains and feed supplies.

So the disruptions there have led to escalating commodity prices.

And then energy prices, anyone who's driving a car has experienced the escalating prices for gas, but that's true for other forms of energy and really across the economy.

So one of the things that has come about as a result of this, and was true with COVID as well, is that inflation is accelerating.

Initially last fall, the consensus was that there was going to be a spike of inflation, in part pushed by the stimulus from the federal government, which is providing a lot of income into the economy.

But then also supply chain disruptions meant that there was less stuff available.

So that combination was driving prices.

But that said, and the risk of inflation will be a theme today.

But that all said, and those risks acknowledged, what we have seen over the past a year or more is that both the national and regional economy have been quite resilient.

In particular, if we focus on employment and jobs, I can believe this is a graph we've shown you before, but it is worth emphasizing that the national recovery has been particularly strong.

We've trailed it somewhat locally in terms of employment over the past year but have actually been catching up in the second half of 2021 and now into 2022. So overall, in terms of overall employment, the U.S. is still down about 1.5 percent in terms of number of jobs.

Our local area down about 1.8, again, all this relative to pre-pandemic.

But on the other hand, again, this resiliency There are, the economy is continuing to generate job opportunities.

So there are a good deal number of openings, again, particularly relative to the number of folks who are unemployed.

One of the impacts of the pandemic is that the workforce has shrunk.

That is to say, it's people who have stepped away from looking for work and therefore aren't counted as unemployed.

So those are interesting and potentially longer term employment dynamics.

But at the moment, there are jobs available.

And the imbalance in some ways between the jobs available and the folks looking has led to increases in wages as well.

So hourly wages were up by about more than 12% on average.

And actually, we'll focus more on leisure and hospitality, up even more there as efforts are made to recruit folks back to those jobs.

And just another caveat is that those are notable wage gains.

They are somewhat diminished in terms of their effectiveness or their purchasing power by the inflation that we're seeing accelerate and extend.

So I wanted to talk a little bit more about jobs in the local area, again, just to give you a better sense of what the impacts have been, because they vary significantly across the cities and the region's different employment sectors.

So the graphic on the right highlights job changes, a number of jobs changed since the pre-pandemic period.

And what you can see, the red is the total.

So for the first bullet, the region as a whole is still down about 30,000 jobs.

But what's interesting is that it's certainly not across the board.

Some sectors continue to have significant levels of job loss, while others have significant gains.

And again, this graphic illustrates this quite well.

So leisure and hospitality and manufacturing sectors are still down in terms of jobs relative to pre-pandemic.

For instance, leisure and hospitality we've only brought back about two thirds or 66% of the jobs that were lost as the pandemic hit.

Manufacturing as well, going a piece of that, but certainly not all of that.

But what you also see at the bottom here is that, in terms of the graphic, is that professional services and the information technology sector have added a significant number of jobs over the period of the pandemic.

So in some ways, there's been a bit of a transformation in the employment patterns of the area.

where, again, less focus on leisure and hospitality and manufacturing and more on professional services and information.

And without that significant growth in those two sectors, the employment picture here would be notably worse.

So as much as this is a little distressing in terms of leisure and hospitality and manufacturing, in terms of the overall revenue forecast, it's actually a spot where we see potential for upside.

So focusing for a minute here, again, On on the local region and on.

Restaurants, leisure and hospitality sector is the graphic.

And I think we've shown you in the past, but I do want to highlight that.

This both explains the difference that we have seen and the pain we have seen in this sector, but also the prospects for recovery.

So in this graphic, the blue line is the U.S., the red line is Seattle.

And what this is, it's an index that's tracking the number of seated diners at restaurants.

The data comes from OpenTable.

And so we started off 100%.

That's where we were before the pandemic.

You see the precipitous drop as the initial closures hit.

in some sense, the waves of the pandemic are visible in the chart.

I think the thing probably most to notice is that we were having a period of recovery in the second half of last year, excuse me, in the first half of last year.

And then in the second half of last year, that plateaued as the Delta variant hit.

There was a spike downward as Omicron hit, but things have been in recovery since then.

And that's been true, again, I was tracing the local line, but it's true at the national level as well.

And that disparity between the national level and the locals is actually one of the reasons we think there's some upside here.

So we have, as a local community, been more conservative in our response to COVID in terms of emphasizing social distancing and other regulations.

And that led us to have a more dramatic impact of reduction in demand for these sorts of services.

But every reason to think that that will turn as Omicron fades.

So expectation that activity in this sector will increase in the next few months through the remainder of this year, and that will help drive revenues.

This sector isn't a huge contributor to the city's revenues, but not insignificant either.

So that's, again, potential upside.

Shifting to hotels.

Very similar story in terms of pattern.

Again, the blue line is the U.S.

The red line is the Seattle area.

Obvious drop associated as COVID hit.

And then slow recovery since then.

This graphic includes projections as well.

One of the things, recognizing that we needed to understand better where this sector might be headed, one of the things Jan and I did was to purchase access to some data that is tracking hotel room occupancy.

And actually, the same firms that are doing that have developed projections of where they anticipate demands to be headed.

And that's, again, illustrated here.

And we've incorporated that information in the forecast.

The bottom line on the hotels is that the expectation is that the recovery will be somewhat slower.

Restaurants are obviously local demand is a big driver.

Hotels requires a recovery in the tourism, excuse me, and or really and the business travel sector.

And expectations that will take longer and maybe till mid-24 for us to achieve the same levels that we had seen again pre-pandemic.

But again, reason to see upside here as the pandemic wanes and every expectation that travel and leisure pick up.

So that's a, to give you an update again on kind of what we've seen recently and what we're expecting in that particular sector.

I'm going to shift now, and I'm going to turn this over to Jan to take a step back.

We're taking a forward look at that one particular sector.

It is also important to take a forward look at the economy as a whole, both at the national level and then you'll see at the regional level as well.

And that's where Jan has been focused his attention.

So I'm going to turn this to him to continue.

Thank you very much.

So moving to the outlook first for the national economy and then for the region.

For the national economy, before Russia's invasion of Ukraine, the biggest concerns were the disruptions in the supply chain and the resulting higher inflation.

Those issues have been further exacerbated by the war in Ukraine, and this chart clearly illustrates that now the risks on the downsides have become much larger than they were in the fall.

So, whereas the baseline, as you can see, more or less the same as it was when we were working on the November revenue forecast, the downside scenario.

Now, for the national economy, that doesn't show a recession yet.

The, I just does not see a recession as a.

like the pessimistic outcome, it's more of a slowdown of real economic growth.

And so the real GDP in the left part of that figure is rather flat throughout 2022. For employment, the implications are a little bit worse and you can see a kind of retreat in the national employment throughout 2022 and into 2023. So in a pessimistic scenario, there will be a slowdown, not necessarily a recession yet.

That said, this is just an initial assessment by the IHS of the implications of war in Russia and we'll discuss that a little bit further later on.

In addition to changing how severe the pessimistic scenario might be, the IGES also recognizing the increased uncertainty, the IGES has also increased the likelihood of a pessimistic scenario from 30% in October to now 35% as of March national forecast.

Could we go to the next slide, please?

One sec here, sorry.

All right.

Now, one of the biggest immediate implications of the war in Russia is the impact on the commodity prices and the impact on inflation overall.

That has implication for the direction that the monetary policy will try to take before the war.

perceived inflation to be very temporary, expected it to drop quite fast.

As you can see in the chart on the left, the CPIU inflation has been revised up.

And the inflation is now perceived to be more persistent, pessimistic scenario even more so.

And instead of a decline in 2022, the high inflation is expected to persist into 2023. There is very little that Fed can do right away.

The impact of interest rate increases are going to take a longer time.

take impact, but the Fed is now expected to take a more aggressive stance, a more aggressive monetary tightening is expected, and that will have negative implications for the economy as a whole.

Again, further increasing the downside risk, and some economists are kind of worried to how likely the Fed is going to be able to manage a so-called soft landing without triggering a recession because of the necessary increase in the interest rate which is needed to bring down the inflation.

And that inflation is really very broad based and very clearly visible at gas stations, very clearly visible for people who are trying to buy homes because price of housing has increased, price of homes have been going up already before the war and now Um, there is some, even some concerns that there might be some kind of initial signs of a housing bubble.

Forming potentially forming, which further adds to the uncertainty and potential downsize downside risks.

Moving on to the next slide, please.

Thank you so much.

I just wanted to interject and let the council members know.

If you have any questions at all or any clarification, please do feel free to ask those during the presentation.

I'm happy to pause if there are any.

Okay, great.

Thank you, Jan.

Okay, now moving on to the regional outlook.

In terms of the overall trends, the regional economy is expected to be following a similar or sort of a base in employment recovery.

Again, the left part of a chart shows possible outcomes for employment and the dark brown line illustrates that downwards risk, the pessimistic scenario where the employment would retreat and instead of recovering, in the second half of the year would take additional couple of years to reach pre-pandemic level.

In a baseline scenario, however, the strong growth and the kind of solid recovery and the resilient that the labor market is showing results in employment reaching pre-pandemic level in the second half of 2022 and continuing with its growth, maybe at a slower rate than what we have seen in last year, but certainly growing at a healthy rate.

The second half of a chart shows per capita personal income.

There has been a significant revision in historical data for personal income that we use as one of the inputs in the forecasting model.

we were forced, we had to revise and update our forecasting model to incorporate this new information or revise corrected information on historical levels of income and which further complicates our revenue forecast.

Moving on to the next slide, please.

I have one question.

The impacts of, so the difference between the baseline, the optimistic, and the pessimistic on the employment index, are those impacts of international, what we see could potentially happen internationally, or is there something else that's going on in that?

It's the largest gap, and so I'm just wondering What is probably the factor that you would attribute that large gap to?

What takes it from baseline to pessimistic versus baseline and optimistic?

Is that the potential for a world war?

What is that gap attributed to?

The uncertainty is mainly coming from the war in Ukraine, its impact on the prices, and in extension, how much that would have to increase the interest rates.

And in general, higher interest rates are associated with slower economic activity and lower employment growth.

different segments of the economy would be affected to a different degree.

And so that employment slowdown would be concentrated in just some parts of the economy, in professional and business services, in construction sector.

those are the sectors that the IHS sees as where the employment will be affected most by the increasing interest rate, higher commodity prices, lower consumer sentiment, lower investment by businesses because of overall more pessimistic outlook in case of a prolonged conflict and in case of sanctions on Russia, which are, even if the conflict would Would would be resolved quickly.

Those sanctions would be there are expected to be there and their, their income, their effect on incomes on employment are.

To a large degree, uncertain again, this is some kind of initial assessment and the, I just will.

Provide some kind of additional updates to what they believe, like, the facts are.

Yeah, but.

Their pessimistic forecast is notably more pessimistic, worse than it was a month ago, two months ago.

And it's, as Jan has described, and as you had suggested, Deputy Mayor, it's a combination of the inflation risk and the war risk, which aren't, the inflation risk had become a concern before the war, and it is both inflation and, as described, the Fed's response to raising interest rates.

So that was already an increasing concern.

the war adds an element, a significant element on top of that.

So that it is not hard to imagine a pessimistic scenario that is notably worse than what had been anticipated before.

And again, the big differences are that inflation is stronger and seemingly lasting longer.

And the other big difference is the war.

And again, they're also compounding one as well.

The war is compounding the inflation side as well.

So it's very hard to discern the separate effects, but that's the key issue there.

I appreciate that.

Thank you.

Yeah, thank you.

That was a great question.

I do have one more question on that previous slide if we can for a second.

So when we look at slide 11 here and we're projecting employment rates, hopefully continuing to return to pre-pandemic and surpass pre-pandemic levels, I'm wondering if there's any indicators that we can look at for changes in specific sectors to know whether or not if as a sector rebounds, whether or not they're bringing back employees at the same rate.

On slide 8, you showed the recovery trajectory for the hospitality industry.

However, we know that even though that's slower than we would like it to be.

even within the recovery that we're seeing there, many of the reports that we've been getting from folks who work within the hospitality sector, specifically in hotels, is that they're not bringing back the same number of employees as previous.

They're having higher workloads in that many of the rooms aren't getting cleaned as frequently, and so there's a higher workload and impact on the workers.

Is there any way to see within certain sectors that are recovering whether or not they're bringing back that same level of employees in the future?

And does that have any, Do we have any ability to bear that out whether we're looking at the pessimistic or baseline forecast here?

Yes, we certainly do.

A couple of slides ago, we were showing the current situation, how different industries.

We can go back to that.

Yeah, thank you.

Where different industries stand right now compared to pre-pandemic peak, the forecast that we are producing for employment is broken down by industry.

So we do have a detailed industry by industry forecast, how fast we expect different parts of the economy to be recovering.

how much faster we expect for example information and professional business services to grow compared to leisure and hospitality based on all the inputs that we have in particular for example of the industry insight into how fast the hotels are expected to come back to their occupancy That is so pre pandemic or how fast revenue per available hotel room is expected to recover.

So we are using those sort of inputs to.

Reduce forecast for employment by industry.

Okay, thanks.

Yeah, I think that the, the other layer there is really questioning whether or not hotel occupancy.

Or number of, you know, or the revenue generated by a hotel is giving the full picture of employment, right?

Is a is occupancy and revenue for a sector pre pandemic.

Similarly, employing the same number of people, for example, in a specific sector.

like hospitality.

So it sounds like you have additional data to look at the number of people pulled in, but I'm wondering if we're seeing trends that show that in this post-COVID world, fewer people are getting hired for the same number of rooms and the same amount of revenue, if we're able to forecast that out.

And it sounds like the answer was, sorry, Director Noble, please go ahead if you want to cut you off.

No, you finish.

I was anticipating a little bit where you were headed.

So it sounds like we have those data indicators, but are we getting that fuller picture of whether or not we can do an apples to apple comparison in terms of number of employees hired in certain industries once they have different standards met, occupancy, revenue, et cetera?

I think we could try to essentially correlate that.

levels of employment with occupancy or revenues.

The bottom line is I think our measures would be relatively crude because we have a measure of total revenue and we may have some of the data services we purchased may have some sense of the number of rooms or the level of occupancy and then we separately have measures of employment.

I think the matching those at the level to draw conclusions about kind of workforce patterns, which is what you're describing, I'm doubting that we'll be able to do that in a meaningful way.

But we can dig into the data and get a better sense of what we can see, if you will, and another version going with that analogy with the resolution is, you know, how well we can track the relationship between those two things.

Yeah, that that'd be great.

And, and, and I'm, I'm wondering as well, how many other sectors this affects, right?

If it's affecting grocery stores or other types of services.

So, I just appreciate flagging that for us because.

the employment data may not equal, I mean, the revenue generation and occupancy and things like that might not yield the same number of projected employees if we're starting to see trends in a post-COVID world.

But I look forward to having that conversation with you as we continue to gather data over the next year or so.

Sounds good.

Okay, so now continuing on with the inflation forecast for Seattle metro area.

It's very consistent with the national forecast.

There has been upwards revision for regional inflation for CPI inflation instead of 4.3%.

In November, we are now expecting a 7% inflation in 2022 for the baseline scenario.

We're expecting a slower return instead of a sharper drop, faster drop back to pre-pandemic levels of inflation.

We are expecting a prolonged slower return now with a lot of downside risk in a sense of higher inflation being possible in case of prolonged prolonged disruptions caused by the war conflict and less or more stubborn inflation and inflation expectations which are kind of becoming embedded.

Longer term inflation expectations being kind of shifted higher In addition to the overall CPI inflation for house price index, again, we are expecting a return to a slower price growth, a gradual one, similar to the nation Last year, the house price index has grown in excess of 20%, and it's certainly 1 of the reasons some economies are worried about potential implications.

Potential housing bubble might be forming.

Let's go to the next slide.

Before we leave, there's a couple of other thoughts on inflation.

One that was in a bullet previously, but I don't know that we mentioned, is that inflation will have the effect in general of increasing the nominal value of the revenue forecasts.

you know, we have a, we collect money from a sales taxes, for instance, and as the prices of things go up, the nominal value of our revenue will go up.

Same of B&O tax, it's a tax on gross revenues.

If people are charging more for their services because of inflation, we'll see the city's revenues grow.

But it's important to recognize that we are also a customer.

We are purchasing services.

We hire people.

And so the same inflation that is helping boost the nominal value of our revenues has every expectation to increase the cost of the services that the city purchases, either through the individuals that it employs or through the contracts that it strikes for construction services or for human services or the like.

So inflation in that sense is a double-edged sword for us.

Another point is that inflation itself, and this is one of the reasons the Fed is raising interest rates and putting the economy at some risk in order to bring inflation down, is that the historic sense is that a long-term pattern of higher inflation will itself reduce economic growth.

So inflation could have an impact on the level of activity as well, the real activity as opposed to just nominal prices.

a couple of reasons why inflation is a concern.

Shifting now, before we move on to talk about revenues, you've seen the varying impacts in terms of the economic level of the different scenarios.

Before we move on to revenues, I did want to present our recommendation.

And then as we move forward, when we show you the revenues, we will show you the revenues under the different scenarios.

But I did want to explain and let you know that of what our recommendation is in terms of the economic scenario that we think should underlie the forecast.

And in particular, we're recommending that the baseline, that would be a continuation.

So we had been using the baseline forecast through 21, and now we'd be into 22 as well.

Major reasons for that.

One is that We just presented to you that the national forecast has certainly increased the probability of a pessimistic scenario and also its potential severity.

But there's nothing in that that is specific to the Seattle area.

So the risks to the nation are general, and we are part of that.

When COVID first hit a couple years ago, we felt differently about that.

We actually felt that Seattle was more at risk.

The outbreak had happened here first, our economy was potentially more dependent on some of the sectors that were going to be impacted by COVID.

But at the moment, again, the risks to the region are the same as the risks to the nation.

one reason we're comfortable with the baseline scenario.

Another that we've talked about is that to the extent that relative to the nation, there are some places where we're trailing in terms of recovery from COVID, particularly in hospitality.

And those are sectors where we see upside now as COVID wanes.

So again, a reason to think that the, not an endorsement of the necessarily the optimistic forecast, but a reason to think that the baseline is reasonable.

So, That is our recommendation.

But we do – and it is the nature of being an economist and a, quote, dismal scientist, that we are always worried.

And obviously, the events in Ukraine and actions on the Fed side, we are increasingly expecting that the thing – that the forecast may turn down.

But at the moment, the baseline seems to make the most sense.

You'll all have a chance to talk about that as we wrap up the presentation.

But I wanted to make that clear as we moved into the actual revenue presentation.

And we will do just that then.

So talking about revenues specifically.

Just to remind you, these are the revenue streams which we're responsible for and which we'll present to you.

On the general fund side, the very significant retail sales and business and occupation tax, together more than $600 million.

Business licenses, that's the fee that's charged for businesses to, it's an annual fee for your business license.

It's a graduated fee, depends on how large your business is, but it's a relatively minor source, but in terms of the work we're doing, it makes sense for us to take that on, because it's linked heavily to overall business activity.

We're also forecasting the taxes on several private utilities.

gas in the downtown area, steam as an energy source, also cable and telephone.

Non-general fund sources, but also significant ones, payroll expense tax.

So revenues in 2021 of almost $250 million, so a very significant revenue source, and you'll see our projection shortly.

The real estate excise tax, a tax on real estate transactions.

It's been as much as $100 million source in some years.

The admissions tax, this is a tax that is specifically dedicated to supporting the arts with the reopening or the opening of climate pledge arena.

Significant bump in revenues there.

Started to see that last year.

And then we're also responsible for some of the key inputs to the property tax forecast.

The budget office will present the forecast, but we're providing the inputs that are essential to that work.

So that's our lineup, if you will.

And again, as I indicated, we'll show the baseline pessimistic and optimistic for each of these as we go forward here.

Is there a question there, Deputy Mayor?

All good.

Just didn't want to miss you.

So just a few comments on forecasting approach before we get into numbers.

Just a couple things to highlight here.

So basically the approach on the sales, B&O, read, admissions tax, those are largely the same as we've done before, although you'll see some refinements.

But essentially the outputs from the regional economic model, so the projections of employment and income which we just showed you, they become inputs to models that have correlated those measures to what our revenues have been and what we expect them to be.

There was, and Jan mentioned this, there was a revision actually back several years for income data.

So we had been estimating these models saying, correlating revenues to income.

And then folks came back and said, well, actually, those measures of income you were using for the past few years, they weren't exactly right.

So that led us to re-estimate those models, to re-establish and re-estimate the relationship.

So that's some work that we have done.

And then I also mentioned a couple of times that we've started to expand the data that we're using, taking advantage of some new data sources.

One of our challenges is always to get information in as real time as we can.

Open table data, for instance, is available within the week.

And we're also looking at data that being used on a virtually real-time basis to track employees' return to office.

So how many folks are coming into downtown, for instance.

That's the kind of data you see reported by the Downtown Seattle Association, but we're also going to be employing that as well.

In terms of property tax, I've been doing some work in this area.

Recently was consulting with the King County Forecast Office, and I see some opportunities for collaboration there.

So linking those forecasts to our own forecasts of taxable sales activity and construction.

And also we're reaching out to some firms that have some data there.

So I just want to give you a sense that we're moving forward to try to refine our approach to these forecasts as we go.

I did want to spend some time to talk about payroll tax, because it continues to be a real challenge from a forecasting perspective.

So just to remind you, last year was the first year we collected the tax.

All the money was paid up in January and February.

So until then, we didn't know for sure how much we would take in.

We did quite well.

Final payments exceeded our forecast by 25% almost.

So we had been projecting about $200 million.

The final payments were $248 million.

Not ideal to have been off that far, better to have been under forecasting.

Shift in 22 though, so this year payments will start coming in quarterly.

We haven't yet received those, though.

They'll be due at the end of this month, at the end of April.

The first quarter payments are due.

And so then, like, by the middle of May, those things are processed.

We'll have some sense of that.

And so when we do a middle-to-office forecast, we'll have at least the first quarter data.

We may have some of the second quarter data, also some information from employment security.

But that's still not a whole lot of information.

We do not, you know, for sales and B&O, we have 50 years of track record.

Here we, despite the nature of the new tax, we don't.

Another thing that makes it challenging, and again, this is just to give you a sense of, not trying to make excuses, but giving you a sense of understanding what we're working through.

One of the things that we shared with you last month is that the The payroll expense tax is coming from a relatively narrow base.

It is relatively few firms in relatively few sectors.

And in some ways, actually predicting the overall economy can be easier than projecting behavior in any given sector.

So that's another challenge here.

But probably the biggest thing that's going to be a conundrum from us is the whole work-from-home dynamic.

Again, the sectors where this money is being generated are information technology, business and professional services, sectors where there's, we think, a very high percentage of work-from-home behavior, if you will.

So what we know is that the money we took in in 2021 is not likely to be representative of kind of the pattern that we'll have going forward.

Folks who used to commute out of the city who were at home were subject to the tax in 21, And the opposite is not true in some sense of people who used to commute into the city who were working from home would have been subject to tax if they'd been in our offices.

But in 2021, they were not and were not subject to the tax.

So what happened in 21 is not what we expect in the future.

And then some pain again from the forecast side, I don't think 2022 will be exactly the steady state either.

What we expect to see is a transition here back towards work and office.

Although to date, we have seen relatively little of that transition.

So, but again, as we come to the August forecast, we'll have perhaps a better sense of how that's evolved.

So, just want to give you again a sense that this is not a.

We haven't we don't have a whole lot of experience here and the data are limited.

So that said, we obviously needed to adjust the 22 forecast and the forecast going forward for the reality about how much we took in in 2021. So our projections reflect exactly that.

So you'll see there's a notable upward shift in the forecast because we do think we understand the tax base a little bit better.

But this is one that we are likely to continue to refine as we actually collect ever more information over the course of this year and into next as well.

Thanks, Director Noble.

Before we move off of the Jumpstart payroll tax expense report, I just want to take a quick second to thank Director Glenn Lee as well for their department's administration and implementation of Jumpstart payroll tax.

I also appreciate all of the companies and payors who provided feedback during rulemaking.

I think that that helped to ensure that there was an effective way to incorporate their feedback prior to any application of the assessment.

And so I think that led to some minor but important changes in terms of how reporting could be possible for 2021. And just wanted to pause real quickly to thank them and also, you know, invite FAS to opine as well if they wanted to.

But before that, Senior Deputy Mayor, I see your hand, please go ahead.

Yeah, I just wanted to, I'm glad you jumped in, but I wanted to jump in here too.

And I just wanted to actually thank you Council Member Mosqueda for your leadership on the Jump Start Tax.

It is certainly showing the dividends of the hard work that you have put in and really meaningful to the city, really meaningful to how the city props up its budget and how it does the good work it wants to do.

So I just wanted to thank you for the work.

This is really good news.

I know it's still uncertain from a forecasting perspective, but this is critical revenue that a growing city like Seattle needs, and so I just wanted to acknowledge your leadership here.

That is very much appreciated.

Thank you very much, Senior Deputy Mayor.

Any additional comments?

Glenn, feel free.

Thank you.

I guess I'm...

We're still anxious to get a couple more quarters under our belt to see how firms fully incorporate this tax into their business models.

We're comfortable with the several firms that we've spoken to in detail about what they did, that there's a real effort to comply.

But until we have a couple more quarters, will we feel comfortable that we're in a stable situation with the tax base?

You know it takes time for people to sort stuff out frankly.

And as well as the uncertainty of the return to work impact.

So I think we could have some volatility here for a while.

And before I leave the slide since we're expressing thanks I'd like to extend my thanks to Director Lee as well.

It's required some real collaboration between our our offices and our staff.

to track these revenues as they were coming in.

We are doing that on a weekly and sometimes daily basis.

And as we've been setting up the new office, establishing those working relationships has been very important.

So I appreciate that collaboration.

Sorry, my mouse is in the right place.

So I'm not going to turn this back to Jan.

So again, as promised, we wanted to show you From a revenue perspective, what would it mean to adopt – well, what it means to adopt the baseline scenario and what it would potentially mean to adopt one of the other two.

Actually, we have a couple of slides here, one showing just 2023 and the next showing the pattern over time.

But let me turn this back to Jan.

Thanks.

All right, so this slide focuses on 2023 and compares the revenue forecast for the three biggest sources for B&O tax, retail sales tax and payroll expense tax, three biggest sources that we are responsible for forecasting.

As you can see, the differences are, between those scenarios are quite large and particularly the difference between the baseline and a pessimistic scenario, so the downside risk is quite considerable.

For 2023, the combined revenue difference between those two scenarios is 54 million, which is about 5.7%.

For 2022, the difference is slightly smaller, it's 30 million, but still it's 3.4% of the overall combined revenue The uncertainty here is consistent with that underlying economic forecast.

The uncertainty here is coming from the outlook for employment overall, and more specifically, the outlook for leisure and hospitality sector, how fast it will be recovering in the region and in the city.

In addition to that, we don't have slides today on the construction sector outlook, but we have presented it last time.

The fall in permits issued by SDCI, the overall lower value of permit issued by SDCI foreshadow a slowdown in construction sector related tax revenue, whether it's in the sales tax or whether it's from B&O tax.

And that's a part of the difference between the baseline and a pessimistic scenario here.

For payroll tax forecast has been discussed that we have very little information regarding the tax base.

And so that's a source of the differences between those scenarios.

We're trying to come up with some educated guess how different the outcome might be in these different scenarios.

like I mentioned before, the pessimistic scenario, the IHS foresees the biggest impact of a pessimistic scenario on information services and professional and business services.

And those are the ones that are responsible, again, as was discussed for the majority of the revenue, payroll expense, tax revenue.

All right.

Moving on to the next slide, please.

Even just to stay on the surface, even that.

Jumpstart payroll expense tax projections for the pessimistic scenario makes me optimistic.

So I appreciate I appreciate that.

We are still collecting additional information, but thanks again, senior deputy mayor for sort of acknowledging the important role this is having and keeping us in the black and the critical services for the city and our employees.

I appreciate that, but.

I know more information will come in, but again, even looking at that pessimistic approach, if that were to be considered, makes me very optimistic about having additional funds come in.

So thanks again.

Jan, before you continue, can I ask a quick question?

You mentioned that SDCI permits are slowing.

I'm curious if that is being seen across residential and commercial, or if one is more than the other.

And the biggest impact was on the commercial permits residential or showing some resilience.

There is still quite big demand for the development of multifamily residential.

Buildings, but the commercial permits are the 1 that have fallen off the cliff.

All right, so let's move to the next slide.

This is now going beyond 23 or showing longer term impact or differences between these scenarios.

Again, focusing on those three largest sources of revenue, B&O tax, retail sales tax, payroll expense tax.

Again, consistent with the underlying economic forecast, large downside risk and the gap between the baseline and the optimistic scenario is relatively small because I just see relatively little upside risk that feeds into the regional forecast and that feeds into the revenue forecast.

The downside risk is much much larger coming from national factors, coming from the additional sources of uncertainty regarding construction sector outlook, regarding leisure and and regarding information services and professional business services, how they might be impacted in a pessimistic scenario.

And we want to give you more than just a one-year snapshot to kind of give you the sense of what those different scenarios might play out like.

Again, we – yeah, probably enough said.

I'm going to move on to our questions and shift for a moment to talk about some relatively more minor revenue streams, but again, for transparency, wanted to share with you the full set of forecasts here.

So cable and telephone, so the city taxes cable and telephone services 6% for telephone, 10% for cable, but they're each about, at this point, less than $15 million each.

They have both been in a pattern of relatively long-term decline.

That is cord cutting in the context of cable and folks moving away from talking on their phones to just texting or sharing data in other forms.

The tax that we collect is only on the voice component of telephone.

So.

So the forecast here are essentially continuing the projected decline that we are seeing continue at a slightly lower rate going forward.

At some point we expect these things to level off.

There has been no sign of that yet.

So on top here you see telephone and you see the three scenarios.

There isn't a lot of difference between the scenarios because the decline here isn't related to broader economic trends.

It's really just changes in behavior.

So wouldn't expect a big difference depending on the kind of overall economic patterns.

One thing I would note on the cable, you can see in the data that it appears that there was a big recovery in 21. That is actually just a figment of or a result of the timing of payments.

There were some large payments in 2021 that were actually for activities in 2020. And if you smooth that out, if you sort of draw the line through that jaggedness, you get that long-term trend that is essentially captured in the forecast.

So we really have been declining.

We'll continue to monitor that to see whether that continues.

But again, they're not major revenue sources, so it's obviously not great news, but not the biggest impact on the overall picture either.

Next up, just a few comments about some of the other revenue streams and then some graphics to follow up, turn this back to Jan.

All right, so looking at a couple of revenue sources, non-GM revenue sources for the admissions tax, we I have not seen any information that would warrant a big revision of revenue forecast.

So we are going to keep an eye on how the information regarding leisure and hospitality sector and tourism, how the attendance at the arena events is evolving and we might come with a more significant or material revision to the admission forecast in August, but right now there are no, um, there is nothing that will justify major revision for admissions tax.

Natural gas and.

Just real quick on admissions taxes to play some context.

When we did the November forecast, the budget office did the November forecast.

We were anticipating.

that COVID would wane and there would be some pickup.

So, I mean, obviously, that's something that has happened in the past few months, but that was an expectation of the forecast.

So, again, one of the reasons we're not changing is that what we've seen is, in some sense, what we had expected.

Actually, Omicron was a bit of an unexpected piece there, but it's, you know, its effect seemingly waning.

So, just to give you that context, we were already anticipating some level of recovery here.

And the effects of Omicron have faded quite fast.

So the consumer spending has bounced back quite quickly.

For natural gas and steam, the revenues affected mostly tracking the development in the rising energy prices, which have been rising.

These revenues have been revised up.

And the further escalation in the energy prices result in the further upward revision for these revenue streams.

And finally for REIT, the real estate excise tax revenue has been revised up most significantly for 2022 and 2023. A bit of a worry here is coming from the potential impact of of a tightening monetary policy that will lead to higher mortgage rates, fewer houses being sold and there is already a very slim inventory and housing prices have been rising quite fast and there are some reasons to believe that the combination of rising mortgage rate, high housing prices and slim inventories are going to lead to a decline in rate revenue.

That's what we are That's what this forecast is expecting.

We can go to the next slide.

Jan, can I ask one question around the natural gas and steam?

Sure.

Aren't we pulling away from natural gas as a resource and it seems like steam may potentially be threatened as an energy source in our in our core area.

with some new development.

Are there any kind of feelings that those two energy sources might begin to get outdated a little sooner than kind of the next couple of years projections?

We might be looking for new energy sources that would phase some of those out.

function of both price and the quantity.

So declining in the quantity means overall revenue would be declining.

And so here, there has been an upwards revision compared to the previous forecast, but that does not mean that we are foreseeing significantly rising revenue from this sort of revenue streams.

And I think that the issues you identified, Deputy Mayor, are probably longer term.

You know, I mean, our forecast is most immediately 22, 23, 24. It is a six-year forecast with our addition beyond that.

But, you know, the infrastructure shift needed to move away, for instance, from natural gas as a heating source would be significant.

The steam service in the city has, there's been significant capital investment in that service that they've actually converted there.

their energy source or their process of converting it to electricity.

And that's the other issue I would say is that the demand for energy in the abstract I don't think will decline.

So it could be a shift away from natural gas and towards electricity, for instance, folks who move off.

natural gas or oil heating to a heat pump, as an example, would have a shift to electricity.

We do, just to be the revenue guy, we do tax city light services as well.

So my guess is revenues from that use of energy are not likely to decline.

Solar, if you're collecting it yourself, that could be a risk to us.

I think that answers my questions.

Need for energy, people will still want it, will still tax it.

I appreciate that.

Thank you.

And this, this next slide gives you illustrates those three sources actually gives you their sense of their relative size as well, because the scales here are all the same.

I don't know if you might want to add anything.

No, not really.

I think we can move on unless there are questions here.

So the next slide is really, oh, sorry, one more.

Sorry, I jumped the gun here.

So a little bit about assessed value and new construction.

So one thing to remember about property tax is that but for new construction, changes in assessed value actually don't change our revenue, which is unusual.

In most other states, as property values change, tax revenues change because municipalities set a tax rate and you know say you know ten dollars for a thousand and if the value of your house goes up then you pay more tax.

In Washington state in some ways it works the opposite but we the city tell the assessor how much revenue we want to collect.

He or she figures out what the property is collective property all across the city is worth and does the division to figure out what the tax rate should be and then We are allowed to change the amount of money we collect from property tax, but it's very limited.

We get 1% more than the previous year.

Again, that doesn't matter how much assessed value.

It works the other way, too.

So if assessed value were to drop, we could still increase our tax revenues by 1% from the previous year.

Tax rates go up marginally to make that happen.

Where we do get benefit is from new construction.

So new construction adds to the tax base and thus adds to our property tax revenues.

And we've been in a significant building boom for the past really decade.

So on average, we've been adding more than 1.5%, almost 1.8% to our assessed value each year, so that our revenues have been growing by 2.5% or more.

Again, so the new construction has been very significant.

So, it's an important component going forward.

Forecast here, I mean, what we saw in terms of the value of new construction is there was a downturn.

This actually Important note here, I put this graph up as the year that taxes collected.

The taxes collected the year after or sometimes a little bit longer after new construction.

So there's a little bit of a lag.

So we actually saw a downturn.

The fact that the 2020 number is down is actually a reflection that new construction activities slowed in 2019. So before the pandemic, we were already seeing some evidence of slowing in new construction.

The forecast, again, feeding from forecasts of construction activity, which in turn feed from the information about building permits, are that essentially we're going to be treading water in some sense, so a sort of steady state for the next few years, potentially an upturn longer term as interest rates and demand pick up.

But we're still, even at that slower rate, still significant additions to our tax base.

So the forecast is about 1.4% for the next six years on average.

There is some risk here on the concrete strike, so I made a minor adjustment recognizing that that might affect.

amount of construction activity and projects that are actually completed.

The key to adding to the assessed value is the construction activity needs to be completed, and then the assessor is able to come through.

So – but – and then you can see here the variation across the different scenarios.

These are linked entirely to our forecast of construction activity under the different scenarios.

So that's That's the last piece of kind of explaining the components.

This final table in all of its painful glory is the summary of the forecast.

And I do want to take the time to walk you through this and highlight the change relative to November in particular, and give you a sense of 22 and 23. So just working from the top, first tax source, business and occupation tax revenues, We had projected in November we were projecting that this year we would be taking 317 plus million.

Updated forecast pushes that above 330 million.

So, again, about 14 million, which.

non-trivial increase overall, so about 3% more than we'd otherwise expected.

And you see continued projected growth for both 2023 and 2024. These are in millions of dollars, just to be clear.

Business license fees, we brought the forecast down slightly for 2020. The 2021, we had overestimated.

Again, we've lost a few businesses, and as businesses shrink, they potentially pay a little bit less because of the business fees related to their size of their revenue.

Not a material change in the bigger picture.

Retail sales forecast up slightly again.

One thing to remember about retail sales, too, that you might think that is the, pandemic ends, we'd see more rapid growth here.

One thing to remember is that consumer activity has actually been quite strong through the pandemic.

The stimulus worked, but the stimulus is fading.

And that's actually the soft landing challenge that faces the Fed, particularly now with inflation picking up.

So you might have guessed that we were going to grow faster, but I think you have to remember that we were propped up pretty well by the pandemic stimulus Retail sales criminal justice lists this one separately because this is a sales tax that we receive a share of, but it's collected on a countywide basis.

So it has to be forecasted differently because the county's sales tax basis is broader than ours.

But again, good news there as well and minor upgrade in the forecast for 2022 and continued growth expected in 23 and 24. So those are some of the larger general fund sources.

There are these other more minor general fund sources.

Cable television, they indicated it's a declining revenue stream.

You might ask then, well, Ben, why did you raise the forecast?

The answer is that there were some payments that came in in 2022 that were actually, really should have been for 21. So there's been a bump up there in terms of the payments.

The underlying, activity is continuing to decline.

And that explains the, excuse me, the figures for 23 and 24, which continue that modest decline.

Telephone, similar story.

In this case, our actuals came in slightly below the forecast, so we brought down the figures for 2022 just a little bit.

But again, minor in the overall picture.

couple of other minor utilities that we talked about.

So the bottom line of this is for 2022, for this year, there's a net addition in the forecast on the general fund side of $32.5 million.

So that is additional revenue that we now anticipate that we did not anticipate in November.

I do want to highlight that this isn't the complete general fund picture, even on the revenue side.

The budget office is responsible for some of the other revenue streams.

For instance, the city utilities, The, they're very close relationships with those brings with the city utilities makes them natural for that role.

But when director Dingley brings you the full picture at the finance committee in a couple of weeks, you'll see that.

So.

No, this is this is a full full snapshot of our picture, but that's not the entire story.

And again, you see.

Overall, relative to November, increased revenue forecast by more than five and a half percent in no small part.

Our actual revenues for 2021 came in above, but that influenced that.

And then also the projections are up slightly at national and regional economic level.

And again, you see the forecasted growth overall in 23 and 24 as well.

Let's talk about some of the non-general fund sources, the first two being really the most significant, the payroll expense tax.

So the actual revenue, again, we had projected revenues of about 200 million in 2021. They came in at 248. Projections in November were for just over 200, well, just under 234 million.

That forecast, again, given what we saw in 21, upgraded significantly.

to 277 and a half, so an increment of more than 43.5 million in that particular revenue stream for 2022. That's in addition to the additional revenues that were collected in 2021. And then we're expecting continued growth, significant growth in that revenue stream in 23 and in 24, again, anticipation that the information and professional services sectors will continue to do well.

What's driving the revenues are both employment and the wages, so it's a combination of the number of jobs and the wages that are being paid.

Real estate excise tax, again, a significant upgrade in the forecast for 2022 based in part on the results from 2021, which outpaced our forecast by about that same market, by about $10 million.

As we explained, the models indicate that interest rate increases have the potential to slow the price and quantities of real estate transactions.

So we're projecting somewhat lower levels for 2023 and 2024. I would note, and this may perhaps look confusing, those will still be above the forecast we had in November.

So we were projecting a similar pattern in November, that is, higher revenues in 21 and 2022, and then a slow drop off as the real estate market cools somewhat, if you will.

So same pattern, but at a slightly higher level.

And then the admissions tax.

Again, as I was explaining, our actuals for 2021 were under $10 million.

Our November forecast, anticipating the end or the easing of COVID, had already anticipated a significant uptick.

We don't have enough evidence yet to think that it's better than that, if you will, nor evidence that it's worse, right?

I mean, Omicron hit.

That might have given us some concern about that.

But so far, as Jan described, the sector seems to be bouncing back well.

Long-run forecasts are tricky here.

It's hard to project what will happen to COVID but anticipation of growth as well.

And then another sales tax.

So this is a sales tax associated with the transportation benefit district.

So it has the same base as the general sales tax up here.

So the increase here is essentially proportional.

So the The tax base is a little bit bigger than we had originally projected, so there's a proportional increase in that particular revenue stream.

And another thing to note, it's significantly larger than in 21 because the sales tax took effect partway through last year, and this year we'll get a full year of those collections.

So that's some of the pattern there is not economic recovery relative, 22 relative to 21, but rather the tax being imposed for the full year.

So the net increase for those sources for this year is $57 million, but obviously it comes in two big pieces.

One is the payroll expense tax, and then the other is real estate excise tax.

And real estate excise tax, worthy of notice, constrained legally.

It can be used for capital purposes and some other ones, housing at the moment, but not a fully flexible source.

So at a high level, that is our April forecast and the economic update.

I am going to get out of PowerPoint.

Actually, before I do, I see there's a...

You might want to leave it up there for a second, Director Noble.

Thanks so much.

Okay, this is relatively good news.

I know that we are all not jumping up and down yet because we still have a lot to do in terms of number crunching for the remainder of 2022 and also planning for 2023. But thank you for sharing good news for us today.

And Julie Dingley, Director of the City Budget's Office.

Welcome, Director Dingley.

Please go ahead.

Thank you, Chair Mosqueda.

I am curious, Director Noble, if there's any, and this might be an unfair question, so we can talk about this later as well, but I'm curious if you have a way of estimating the direct impact of inflation on these numbers.

So if inflation had been lower, how much lower would this forecast have been, for example?

I'll take a shot at it for Jan.

It's a little bit tricky because some of what's driving some moderation in the forecast is the expectation of the Fed raising interest rates, which is stirring in response to inflation.

So it's endogenous in that sense, to use a fancy word.

I don't know if, Jan, you have other thoughts.

Nothing, I guess, particularly insightful and we can convert it into real terms, but figuring out what would have been it's a harder question.

I think I think the concern that I'm I'm sitting with when I see the gap between the baseline and optimistic compared with the gap between.

baseline and pessimistic, it's such a much bigger jump down.

And so I'm trying to wrap my head around, the baseline is not, for example, splitting the difference between those two scenarios.

Well, that's exactly going back to the fact that IHS is foreseeing a bigger downside risk.

So probability distribution is skewed towards more negative outcomes.

They are seeing very little upside potential.

considerable, very severe, and quite likely downside risk because of all the implications of Russia's invasion of Ukraine.

In layperson's terms, it's hard to imagine us doing a whole lot better.

It's not hard to imagine considerably worse scenarios.

That's a better explanation.

I mean, the truth is,

Overall, again, and you pointed out the resiliency, the economy has done remarkably well given the shocks that we have seen over the past couple of years.

The stimulus was very effective, but there are now these, existential is the wrong word, but there, I mean, global scale disruption that is affecting broad-based economies and doesn't seem to have an easy resolution.

Yeah no that's a good point.

Excuse me Director Dingley please go ahead.

I thought it was a great question.

Oh no I was just saying thank you.

Please continue.

Okay excellent.

I see Central Staff Tom Mikesell on the line here.

Tom do you have any additional questions or clarification you'd like to seek.

Thank you Chair Mosqueda.

Yes and thank you for the opportunity to ask the question.

Just looking at these numbers and understanding all of the complexity that goes into them.

I'm going to ask just a very basic question and that is how accurate is the April crystal ball that you use when projecting numbers.

So when you when you look back after collecting the data a year and a half from now how how close would these numbers be to those actual those actual results on average.

That's a great question, Tom, and it's one that, as you know, we're setting out to answer.

I've started to collect the data that I needed to do exactly that, which is lots of the old forecast and to compare them and then to be able to compare them to the actuals.

So we know, and I think I know, but I haven't crunched the numbers, that we tend to be conservative.

So it tends to be the case that the revenue forecast increase over the course of the year, if you will, and then actual relative to that.

Obviously, we do the best we can.

that that is a bias at some level, knowing from a budgetary perspective the implications of being on one side of that versus the other, that, you know, it's to be crass, easier to spend money that you didn't expect than it is to try to make, you know, to deal with the reality of not bringing in what you anticipated.

But I think it's a really good question.

And in terms of sitting in this role, I need to understand it better.

And so it started down that path actually after our last meeting.

decided to spend more time on this forecast than on that question.

But it is now part of the work program for this year, if you will.

And actually, as we move the next week or so, move away from this, we have some work to do on hiring to bring in our additional analysts.

That will give us some additional capacity.

And it's definitely a question we want to understand better.

Appreciate that.

It's an answer we want to understand better.

It's a good question.

How many additional follow-up questions for me?

If I have the opportunity and I actually would go back in time and I regret not having asked this this question earlier but on slide 18 if we could.

Yeah.

The understanding that the the data availability for payroll expense tax is limited.

I'm trying to understand what is the key variable that is being toggled between the three different scenarios.

If it's just a if it's the underlying employment forecast if it's some alternative assumption about return to work or what is kind of the nature of like what's driving the difference between those those three different scenarios.

The main difference between those main driving factors here is different projections for employment, specifically for information and employment in information and professional and business services, in addition to the forecast for wages and salaries for the economy as a whole.

Okay, thank you.

We don't have a simple quantitative way to develop different return-to-work scenarios, so that's less the thing.

But what we do know is what the projections are for these key sectors that are really responsible for paying the tax.

That's why I assumed, but I didn't want to rely only on my assumption.

No, that's why we're here, so it's all good.

It's a good question.

Again, I'm happy to highlight how hard it is to work with that revenue stream right now in terms of forecasting.

I should also add, we're in, if you will, bureaucratic dialogue with the Employment Securities Department for this particular office to get access to ever more of their data.

There's a whole protocol about that, and we are working through it as we speak.

I actually just had Seattle IT respond to them.

Data security is particularly important in that space because the information is firm specific and proprietary.

So they need to know that we can handle that if you will.

So working on that on that front as well.

We wish you all of the luck with that direct credit dialogue.

I'm sure people are jumping to be part of that, but do let us know if we can help out in any way.

We want to make sure that you have access to all the important information you might need.

And I think Tom's question is a good 1 and I think it kind of folds in as well with the earlier question I was raising, which is like, how do different sectors not just have, you know.

projections based on assumptions about how many people are going to be reemployed or the assumptions about those wages that they might be reemployed at if some of the data that we're getting in real time is showing a different indication that may help us with being able to provide a more accurate forecast in the future if there's changes in certain industries or sectors.

Can we pop in that last slide again, slide number 24?

Colleagues, I do want to say that we are starting to slide into agenda item number three, which is really getting to the discussion and deliberation portion.

of the agenda for today.

Again, the forecast council discussion and possible vote regarding the adoption of the April forecast is the last item on our agenda, so we have smoothly transitioned into that, but I just wanted to continue to welcome additional comments or questions on this.

The one additional comment I would put out there for the members of the viewing public, if you look at the takeaway for these slides that cursor, you know, if it could be pointed to the $32.5 million and showing the difference between the April projected forecast and the November forecast at the time, that's an indication that for the general fund, we are anticipating about, oops, your email's popping up there.

Sorry, I apologize for that.

That's okay.

I didn't do anything.

Back to our forecast again.

There we go.

So $32.5 million over the projected amount in the November forecast, good news for general fund.

And then just below that, $57.3 million over the projected forecast from the November forecast is the takeaway from this April forecast for the non-general fund.

And I think it's important to cite these two numbers because I believe that is the takeaway from the baseline projected forecast that's being suggested here.

I also want to note the non-general fund revenues are for specific programming.

So those are accounted for dollars.

And so I just don't want anybody to take away that it's a combination of these two numbers for general fund in general.

It is good news overall, but there are specific revenue streams for specific programs and operations identified in that last bucket.

Is that fair to say?

That's exactly right, and that's why I purposely segregated the table so you can see what was the general fund.

Again, as you described, that $32.5 is a flexible resource that can be used for any city purpose.

The revenue is in the lower half of the table.

So here, the payroll expense tax is constrained by city ordinance in terms of its uses.

Real estate excise tax is constrained by state law.

Um, emissions tax constrained by city city code parks and culture.

And then the transportation benefit district sales tax, that's a voter approved increment to the sales tax that is dedicated to transportation purposes.

So, those are those lower lower half of the table.

Those are additional resources, but they can only be used for those constraints purposes.

And again, the impact of those revenue streams are also going to the health, well-being, and economic resilience of Seattle as well.

But in terms of our revenue for general fund, just wanted to make sure to call that out because I think that we'll continue to lift up these numbers as good news, and then we'll also continue in future conversations as a city family to talk about how we address the ongoing needs presented to our residents in the wake of COVID.

and the economic hardship that it worsened.

One additional thing I'll just plug in there related to the business licensing fees.

I know that when we had a conversation in the land use committee, for example, wearing my other hat, we were asking the question about how we could work as a city family again to expedite business applications, especially for new businesses that are trying to open or expand in the wake of COVID.

And that might be an area for us to continue to think about how maybe policy changes could help expedite additional opening up new businesses as well as if we're seeing a slight decrease there.

As you mentioned, Director Noble, minimal impact on the overall picture, but I think it's an important policy question for us to ask later.

Director Lee, I see you off mute.

Please go ahead.

Yes, the Tax Administration Group does administer the business.

business licenses, and so we would be happy to have a conversation with you and hearing about our processes and what we're seeing in terms of volumes.

Seeing some nods, we may be interested in taking you up on that conversation.

Okay.

Any additional takeaways here?

Senior Deputy Mayor, anything else that you're seeing?

Okay.

It's all good.

Well the baseline is good news.

So I'm going to I'm going to I'm going to end with optimism today.

I'm going to be optimistic about the baseline forecast as well.

And I think with that, I'm not seeing any additional hands.

Colleagues, just as a reminder, in terms of approving the recommended forecast, as long as we concur with the recommendation from the Office of Economic and Revenue Forecasts, there is no need for a formal vote of the body of the Revenue Forecast Council.

The legislation that created the forecast council and the forecast office purposely gave significant deference to the recommendations of the forecast office.

The goal was to provide a professional and objective over, excuse me, professional and objective forecast that was free from any political influence.

And while we do have the collective authority to overrule and recommend use of a different assumption, if we think it's appropriate, those votes do require three member vote for approving an alternative scenario.

Today we are being presented with the baseline forecast scenario, and as Senior Deputy Mayor just noted and I concur with, I'm optimistic about this baseline forecast.

I'm not hearing any objections so far to the recommendations before us.

And accordingly, I would again ask folks, if you do have any objections, to please go ahead and I'm going to request that the meeting minutes reflect that the council here, the revenue council is going to concur with the recommended baseline forecast for this This is the formal step that has been called for under our bylaws and we will make sure that it is recorded in the notes as appropriate.

Director Noble, thank you.

Thank you very much, John, for all of your work on this and your presentation and for the collaboration between the departments.

I know that there was much.

of that, and we will, again, get the chance to hear from Director Noble and Yan and others from the economic revenue forecast at our April 20th Seattle City Council Finance and Housing Committee meeting, where we will also welcome Director Julie Dingley from the city's budget office to round out the fuller picture of the full revenue forecast.

And Ali Panucci and Tom Meisel, again, will be present with us at that committee meeting as well to help us thread together all of the information.

But for today, We very much appreciate this presentation, this independent office and your presentation today, the baseline forecast, and I think as you've heard, it's been widely accepted.

Thank you.

Any additional comments, Director Noble, about next steps?

Nothing specific, as you identified.

I'll make sure the meetings reflect the concurrence of the Council.

We'll see you again in August, and in between working on a number of things, including an assessment of forecast reliability, if you will.

So we'll bring you back some information on that.

So look forward to that as well.

Excellent.

So again, just as a reminder to folks, August 8th at 10.30 a.m., we will have again a revised economic and revenue forecast presentation.

This will be a chance for us to validate or adjust the revenue forecast presented today.

This will be the basis for Mayor Harold's proposed 2023-2024 budget.

We know you are all busy working on that right now, so thank you very much for all the work that's going into this early.

And then again in November, on November 2nd at 1230, when the council will be in the midst of its deliberations on the proposed budget, we will hear an updated economic and revenue forecast analysis that will inform the final decisions for Seattle City Council.

and thus our final budget for the city family once we get the information there.

The briefings that we will receive over the next few, excuse me, over the next few months will also include an opportunity for us every time we hear from the Economic Revenue Forecast Council meeting in August and again in November We will then have a subsequent meeting from the Finance and Housing Committee meeting that will provide an overview of the non-economic and revenue forecast revenues that Director Dingley will report out on, and any other revenues tied to the city lines of business that Seattle Central Staff will help us illuminate as well.

At this point, I think we've reached the end of our agenda and want to make sure I didn't leave anything off.

I see Interim Director Ali Panucci there as well.

Anything else for the good of the order?

Okay, then want to thank everybody again for the presentation today and all of the work that you are doing.

We will see you on April 20th for a follow-up from this discussion and then just a quick preview on May 4th.

Central staff will also be going over the fiscal health of the city and helping us look at a six-year projection as well.

If there's no other questions, thank you all for all you do.

Stay safe and healthy and we will see you again the next time around.

Thanks for all your great work on this.

meeting is adjourned.