Good morning, everyone, and thank you for joining us.
I want to tell you that this is May 13th.
It's a special budget committee, and it is now 1057. Thank you all for being here.
I want to recognize Councilmember Pacheco, Gonzalez, O'Brien, and Juarez for being here on time.
So, this is going to be our first committee meeting of 2019, and I believe it's probably the only one that we're going to have until we get into full-on budget.
Coming way to go, here's Council President Harrell, and Council, yes, we're all, we are on the way.
Yes, Council Member Harrell, Council Member.
Let's see, we've got Council Member Sawant, Council Member Herbold here.
Thank you.
So we're going to first receive the revenue forecast and an economic update for the year.
It will be presented by Ben Noble and our others in our city budget office.
And then second, our second item of business is going, I'm sorry.
Oh, we have an agenda to approve.
All right, we'll get to that.
Second, we're going to hear from the office of our city auditor about the most recent finance and the condition report, and I believe it's from the data from 2017, but we will hear about 2018 as well.
So, apparently, we have called this meeting to order, and I have to approve the agenda.
Okay.
Any objection to approving the agenda?
All right, we will continue.
So I've identified what the items of business are going to be.
And before we hear the presentation from the budget office, I believe Eric Sund is going to give us an overview here.
And I would also like to mention, Eric and Ben, as you talk about this, you might describe the fact that this is the second year of our two-year biennial budget and what that actually means for the council.
And I know that, Ben, from the forecast, that you were darn accurate for what you expected revenues to be this year and just for those who may be new on the council to recognize that that means that we don't have a ton of money that we're going to be able to spend over and above what we had planned in the second year.
So please, Eric.
Thank you, Chair Bagshaw, members of the Budget Committee.
I am Eric Sund of your Council Central staff.
September is a ways off, but departments are already hard at work throughout the city putting together the first building blocks of the city.
Well, actually, I'll back that up a little bit.
On your note about the biennial budget, the last fall, along with the 2019 budget, the council endorsed a 2020 budget, which provides, I guess, the first of several building blocks for the 2020 budget, which the council will adopt this fall.
But departments are hard at work on the development of the mayor's proposed 2020 budget or at least elements of it.
It is typical in the off year as we might call it where the council will only be adopting a budget for next year and using the 2020 endorsed budget resolution from last fall as a basis of comparison.
And not looking to a second year endorsed budget, but it is typical to have some revisions that are made mid biennium.
And there's also a requirement formally to adopt a one year budget for 2020 as well this fall.
As part of the process for putting together the mayor's proposed 2020 budget, departments again are working on some of their proposals for revisions.
We're also going to get three revenue forecast updates this year, as is typical.
This, the first for 2019, will provide the revenue base for developing that proposed budget.
And so, you know, this is not the sole forecast, but rather the first of several stages of building towards the one that will ultimately back the adopted budget.
It also provides you, the Budget Committee, kind of a sneak preview of not the content of the mayor's proposed budget, but of sort of the sense of expansion or contraction in terms of resources that will be available for that budget.
This forecast will be followed in late summer by a second revenue forecast that is used by the city budget office and the mayor's office to put together the last steps of building the mayor's proposed budget for 2020 and ensuring that it is balanced and consistent with state law.
And that update will be made available to the council along with the mayor's proposed budget in late September.
It's worth remembering always I think that any additional resources that are identified either in this forecast or in the late summer forecast are not necessarily directly available for programming by the council because they will form a part of the revenue base that is used to balance the mayor's proposed budget.
And so that proposal, of course, is subject to inflationary and other pressures that are external to the mayor's office, as well as being available potentially for programming to mayoral priorities.
The council can, of course, reprogram funds as it sees fit during the adoption process, but it's in those years where we see a little bit of extra resources available at this point, it's a little early to start programming, that is all I like to remind people.
Would you like to say that a second time?
Sure, I guess the really short way to say is that the mayor will effectively have the first bite at this at any apples that are that are put forth here in the revenue forecast and they will be available to be programmed in the proposed budget and while the council may and typically does make revisions that these are not funds that are going to be directly necessarily left on the table for the council to program in the fall.
Now, of course, that kind of works both ways as well.
If there is a revenue forecast, either if there were today, which is not the case, or if there were later in the summer, a forecast that showed a reduction in expected revenues or even growth in revenues that is less than what is necessary to sustain expenditures that have already basically been programmed, then the mayor is also the first to have to kind of deal with the fallout from that reality.
A third revenue forecast is prepared in October and typically transmitted to the council in late October, early November.
This is typically a smaller scale update of the revenue forecast, but it plays a very similar role to the second forecast for the mayor in that it provides the council the opportunity to make sure that the budget that they're adopting in November is in fact balanced.
So something that we have today that we did not have last spring when we had the revenue forecast is a presentation from Cindy Drake and Jane Dunkel of the Office of the City Auditor who are going to provide us with kind of a different look at city finances via the financial conditions report presentation.
The requirement for this report is relatively new.
It was established by the council in late 2016 and it provides kind big picture, long range look at the city's financial health rather than like a component of building next year's budget specifically.
And it will look at comparisons of city financial assets to its liabilities, debt levels, and demographic factors like population growth, property values.
That's sort of a thing.
And so again, that is part of providing just a larger picture for financial decision making to support all the different kinds of decisions that the city makes about resources in the long term rather than a part of the 2020 budget specifically.
So having said that.
Great.
Before you turn it over, Eric, do you have anything based upon your analysis to date that you want us to know specifically?
I would say that thus far, while the particular details kind of vary from revenue source to revenue source, the picture appears not entirely unlike last fall in that there appears to be a broadly consistent, sufficient level of resources to continue along the course that was laid out in the endorsed budget resolution last fall.
It is very possible that there will be some additional resources available to program to higher priority items.
It doesn't broadly look like a really substantial increase in the amount of funds that are available at this point.
There may be some exceptions in particular areas.
And so, with that, a lot will depend on what happens over the course of the summer and the second forecast as well as what the mayor puts forward as a proposed starting point for the council's deliberations.
Great.
Thank you, Eric.
Thank you very much.
So, shall I turn it over to your colleagues?
Ben, do you want to begin and introduce your colleagues?
Obviously, we know them, but for the record.
Yeah, we'll do introductions and then I'll say a couple things.
So, Ben Noble, the city's budget director.
I'm Dave Hennis, city budget officer.
George Emerson, City Budget Office.
As a standard, before we give you an actual forecast of general fund revenues and actually a couple other key revenue sources, we'll start by giving you a sense of overall economic conditions at a high level, both state, excuse me, both national and state conditions, but then also their impact.
They imply about the local market and then its impacts on revenues, as highlighted already by your staff.
Overall picture is that general fund forecast is more or less spot on to what we had seen in the fall.
But we'll note that there are a couple of revenue sources, some of which flow into general fund technically, some of which don't, that are actually slightly off from forecast, below forecast, that will create some challenges as well.
Rather than preview any further, why don't we get in, give you a chance to ask questions in the specific context of the numbers.
Great.
Thank you.
Terrific.
So we'll go through this.
Essentially what we have are some U.S. slides and then some regional local slides that illustrate why basically what we've been talking about is the case, that we don't have a lot of new money to add to the budget.
So the first slide is about, at the U.S. level, is about annual U.S. employment change.
And as you can see on the left-hand side, the green columns are actual on the book's numbers.
And moving to the right, the red columns are about our forecast from our national forecaster, which is IHS Market.
And if you look at about 2014-15, you see the peak at about 3 million, millions of jobs added annually.
And then you see, as it goes to the right, you see a decline down to a trough.
And then you see a little blip up there in about 2018-2019 before it moves into the red columns, then show a continued decline.
We believe that that blip up there in 2018-19 is due to the federal stimulus, which was both a tax cut and an increase on spending caps.
And that was significant enough to drive up employment.
But if you sort of remove that, what you would see is a general decline from your left to your right.
And we believe that, and actually our national forecaster believes that it will just continue to decline as we move into the future.
With that decline, generally what we have is slowing GDP growth.
What they're projecting is that we had in 2018, we had 3% GDP growth.
2019, 2.4% is what they're projecting.
In 2020, 2%.
So with declining GDP, you get declining employment and a sequence of other events that go on.
Now this forecast that they're showing here is their baseline forecast, which they attach a probability of about 60% chance of occurring.
They also do a pessimistic forecast, which they have put out at about 30% chance of happening.
That's up from 20% about a year ago.
So the recession talk is increasing, more and more economists.
And this next slide shows that a Wall Street Journal survey of more than 60 business, financial, and academic economists 49% of those surveyed indicated they thought this recession was going to begin in 2020. Another 40% indicated that they thought it would begin in 2021. And so upwards of 90% believe we're going to have a recession and it's going to start in 2020 or 2020, 2021. Now economists are notorious about predicting recessions, and they're probably not all that great at it in some respects.
So you have to take this with a grain of salt.
But the talk is increasing.
The data is beginning to show that it's slowing down.
And so I'd like- We know- Dave, help me with this.
We know that it comes in cycles, and oftentimes 10-year cycles more or less, and we're well past that now.
Could you just describe within that box the IHS colon probability recession is 30%?
Talk a little bit about that.
I think what they do is they look at the data and they try and figure out the likelihood of these events occurring, leading to a certain string of events, such as a decrease in employment, loss of income for families, consumer expenditures would go down, what's going to happen to the stock market, what's going to happen in the housing market, if people perceive a loss of value in their homes and in their their asset portfolios, they may begin to contract spending.
And so to the best of their ability, they attach a probability to that sequence of events occurring.
And right now what they're saying is that they believe it's a 30% chance that by as early as the first quarter of 2020, we could begin to see a recession which would be a negative growth in GDP.
Not just a slowdown, but it would be a slowdown, but it would go negative.
And so they're saying there's about a 30% chance of that.
And I think that those two indicators are both really interesting survey facts, or survey opinions, I guess.
But there's a little dissonance there when you first look at it, because the one question is asking, basically, do you think this is going to happen within time certain?
And that's where you get your 30%.
And the other is saying, assuming that it's going to happen, when will it?
So you don't choose, like, never.
So that's how you get 100% versus 30%.
We're 100% right in predicting that there will be a recession.
It's the timing and the severity that we, that's all up in the air.
Next slide, we thought it'd be helpful to put ourselves in the context of where we are in terms of our recovery in the region, and which is generally typically, you know, the Puget Sound region, King, Pierce, Snohomish counties.
A lot of our data is from King and Snohomish counties only.
But essentially what we've been through is that we saw the recession occur, and then what we saw is some employment growth coming out of it, largely led by Boeing and Amazon in the early stages coming out of 2009, 2010, and so forth.
The strong employment growth leads to population increase.
People move in to take those jobs.
That employment growth tends to simulate demand for housing, and we've all seen that.
And we've got slides that I'll show you that will show all of this.
But demand for housing for office space, you've seen the boom obviously down in in Suffolk Union and so forth.
But what that does is puts a lot of pressure on the existing stock, on the prices of those, both rents and the price for purchase, lowers the vacancy rates, which then spurs construction.
And we have seen a large construction boom as all the cranes have indicated and so forth.
And currently where we believe we're sitting is that we've had, we're We are near the peak and moving into a period of slower growth.
And part of that is driven by the fact that we have been building new housing units, for example, and that we have seen a leveling off of rents and home prices and in fact a decline.
is in combination with the employment growth starting to slow down.
Boeing has pulled back on hiring there a little while.
Amazon has pulled back on hiring.
We'll show a little bit of that.
But that generally leads to the sense that the growth of the economy is slowing, and it will continue to slow.
And so as a result, our revenue growth will slow, not meaning we're still at a pretty high level, but we believe the growth rate will slow.
So moving into pictures, we've got the annual employment change in the Seattle metro area on the next slide.
You can see coming out of the recession at the far left in 2010, you see the growth in employment in the Seattle metropolitan area, which is King and Snohomish counties.
And again, the slide is designed with actual numbers in the dark green on the left, and then the lighter shaded forecast on the right.
And we show the slowing there.
You see it peaked in 2016, 2015, 2016. We then saw, in part due to some Boeing layoffs and so forth, a drop in 2017. What is somewhat interesting here is 2018 and 2019. The curiosity is how much of that sort of stability there in a relatively high level is due to the federal stimulus.
We don't know.
But otherwise, you can see, again, the trend growth is to a slowing level.
And construction is a big part of that.
This is a view of one particular sector of employment.
It's retail trade employment.
This includes Amazon and online sales.
You can just see the epic ramp up there from about 135,000 jobs in the Seattle metropolitan retail trade sector up to over 190,000 beginning in 2017. But then it levels out, as you can see.
And we have state-level data that substantiates this.
But we believe about two-thirds of that growth of that long ramp up is due to Amazon.
But the leveling is what's of interest in the sense of where we're going.
In terms of forecast, the message here is really on the right side of this graph where you can see we're seeing a relatively stable now level of employment, particularly in this sector.
And overall, we're seeing a slowing in the rate of job creation within the region.
And as we said, the increase in employment leads to an increase in population as people move into the area, and we've got a couple slides to show that.
This is from the Washington State Office of Financial Management, and they put out an estimate of population in cities and counties with an April 1st date.
We expect to get the 2019 estimate by July, and we'll see what it shows, but we believe it will show a decrease in population growth.
But you can see that 2017 was the peak year of growth into Seattle of over 25,000 people.
And all told, between 2010 and 2018, we added about 122,000 people to the city of Seattle, which That's that pressure on housing and so forth that we're talking about.
Sure, please.
Thank you.
Back on the slide six related to retail trade employment, can you provide a little bit more detail on what proportion of jobs are represented by this particular sector?
Just to kind of get a handle on, okay, it's two-thirds of growth in this sector.
How does that play out overall?
I think it's on the order of a fifth, a sixth.
There are 450,000 to 550,000 jobs in the city, if I'm not mistaken.
All right, just looking for the back of the envelope.
Thank you.
I wish Tom Kern were here.
He would know that off the top of his head.
I'll get that for you.
Yeah, send it to all of us.
It's a substantial sector, obviously, but, you know, exact number we can get you.
So I want to just follow up on this population.
You said you expect population to go down.
You're talking about population growth that's just slowing, not the population itself.
Correct.
Yes, the slowing of people moving into the area.
I want to emphasize that is, in all of our language here, that's the point.
We're projecting continued growth of the local economy, but at a slowing rate of growth.
So, and again, and that similarly with population and the like.
So, we're not forecasting a recession, so an absolute decline, but all indications are that we are at a slowing, the rate of growth has slowed.
So we're not adding two.
We're maintaining a level, but we're not adding two as fast as we were before.
Another view.
of population growth and that we thought this was a little interesting.
These are Washington driver's license.
This data comes from the Department of Licensing moving into the state.
So these are people moving just, this isn't Seattle area, this is moving into the state of Washington from other states or elsewhere.
You can see the data goes back all the way to January of 2000. And we've been adding Fair number, and if you look to the right, you begin to see January 2014, January 2015, you see that rapid ramp up that corresponds to that population growth in Seattle that I just showed you of new licenses.
And of interest is the more rapid rate of decline there at the far right edge of this chart.
You see it, we came down from 2016, 2017 in terms of new licenses issued.
but the decline is starting to increase there at the far right side of the graph.
I see this as a all but real-time measure of the number of folks that are moving into the state likely looking for work or having secured a job so these again folks who are who are out of state who are now in state and the data are available in relatively timely way so it gives you a pretty good indication of where the trends are in that space.
Thank you.
I'm a little confused about what utility we are ascribing to slide 8.
I think it's just another indication of the pattern that we're seeing is being shown by various different data streams.
Patterns of population growth?
Of growth, of decline, the rate at which it's declining.
I would discourage us from using this as one of the data points.
I mean, I think as we continue to, first of all, not everybody gets a driver's license, so if this data point is going to be fully inclusive of An analysis of population growth, it would include identifications that are not utilized strictly for the purposes of driving a vehicle.
And on top of that, there are many people who are moving to Seattle in particular who are beginning to rely more and more on our transit system.
You know, I think that in my office alone, out of my four legislative aides, three of them do not own cars.
And so I think it's, there's no reason for them to have a driver's license because they don't own a car.
And so I think that this is, could be misleading, a misleading data point in terms of our ability as a city to accurately estimate what the population growth.
I just think this is a very out of context, outdated way of viewing data sources that could give us a perspective on what our anticipated population growth and those trends might be.
Those are health observations.
We generally don't rely on any given data source, but I think your point is well taken about some of the shortcomings with this one.
If it has an attractiveness is that some of the population data take longer to get reported to us, but I think your points are well taken.
Thank you.
So you want to move to housing market?
I would like to go back to the housing market.
I would like to go back to the housing market.
rental data source, which is Dupree and Scott.
And so we're trying out Zillow here.
But again, what this shows is the rapid increase as you move into 2017, 2018 peaks.
And then what you see is a decline and sort of a leveling out.
And we will continue to watch this, obviously, very closely.
But what we are interested in thinking about is that we've added a fair number of housing units, about 28,000 since January 1st, 2016. And there's another about 18,000 that are on the books, that are under construction.
And what we would propose or theorize is that increased supply should bring down rents, should make it moderate to some degree.
And we are seeing some moderation.
And we'll be very interested in continuing to watch this.
The next slide is about single family home sales.
Before you go on, one of your bullet points says roughly 1 in 10 apartments are vacant.
I mean, I'm surprised at that number.
Heartened, because one of the things we've been trying to do is to create this landlord liaison program so we can get more people into housing that need housing.
And I've talked with Robin Kosky.
from our Office of Housing just last week.
So, I'd love to know more about data for the lower income or at least middle income of what we can do with this.
So, if you would follow up with me after this presentation to learn a little bit more about 1 and 10. Is this high end?
Is this medium?
Is there something here that we can really point to to help us move forward?
And just a follow-up on that, a 10% vacancy rate does sound high and I'm wondering does Zillow, is their research different than, do they have a different approach than the former, our former vacancy reports which we used to obtain from Kane and Scott?
And they, I think, focus specifically on units that were vacant and that the property owners were actually seeking to rent.
I don't know if Zillow is doing a broader look at not only units that the owners are seeking to rent, but units that are being held as vacant for maybe investment purposes, maybe using as pedeters, pied deters I think is the term, yes.
So it would be helpful to know what the methodology is for this particular data point.
Yeah, we can provide more on that.
And I think this is, there have been a lot of new units and this says nothing about the price of those units in the sense that many of what's vacant might be high price units versus low income and so forth.
Looking at the next slide, this is the single family home sales from Northwest Multiple Listing Service.
So these are closed sales.
And you see how the actual median price of a single family home doubled, essentially, from the 2011 period to the 2018 period.
But then over the last several months, about last eight, nine months, we've seen some declines month over month and year over year.
And again, we're watching this closely because this is a huge factor.
One of the things all of this housing is based on is construction industry.
This next slide shows value of permits issued for construction.
And you can see the ramp up again in our usual pattern, left to right, with a peak in 2017. 2017 is a bit anomalous because there were some rule changes, policy changes that led to a lot of developers trying to get applications in by the end of 2016. And so there was a glut of applications in 2016. that then is playing out in 2017 and 2018 in terms of permit issuance.
And so that number is a little, that column in 2017 is a little high.
What we are seeing in 2019 though is about approximately 5% below 2018 levels in terms of permits issued, the value of permits issued.
And so we are seeing a slowdown as well in our permit data.
One of the factors that we are concerned about, and I think Ben may have more to say about this a bit later, is that when you think about construction and revenue, we have become increasingly dependent on construction-related revenues in our general fund tax stream.
And so when you look at the chart, you can see that 2018 was the peak year at about $116 million of construction industry related tax revenues.
And so this does not include things like finance and real estate, B&O tax revenues or sales tax revenues.
This is just the construction industry, the builders and so forth.
So this sort of understates our dependence on construction.
We're up now at about 8.6% of the general fund in 2018 was related to the construction industry.
And that makes us a little nervous.
As opposed to coming up, you know, we were down in the 40s and 50s and 60s.
So that's a fair thing to worry about.
What is not in there is the real estate excise tax, for example.
In 2018, we saw $77 million in real estate excise taxes, which was a record high, beating our 2007 record of $72 million, I believe.
And the forecast is going forward for it to remain pretty high, and that what we have is a fair amount of commercial transactions occurring and some residential activity starting to take the place of commercial activity.
Thank you so much, Chair.
In terms of the data reflected on slide 12, as well as slide 13, I'd just like to make sure that these forecasts include, particularly for some of the outer years, include and are taking into account some of the legislative changes that occurred in our Washington State Legislature regarding condo development, for example, and some of the modifications made to the real estate excise tax framework.
I think the real estate excise tax won't change the city's revenues.
I think it'll be effective for the state but not the city.
As far as factoring in some of these other legislative changes into the forecast, I believe Tom has that in there to the extent that he thinks it's going to make a huge change in this forecast period versus moving forward.
I would appreciate it if in follow-up we can get some additional information of what factors were taken into consideration as it specifically relates to some of the legislative modifications we saw around some of these tax revenues that allow us perhaps a little bit more of a window into understanding what factors were taken into the forecast but also give us a higher level of confidence that they are more accurate forecasts.
So if I may, briefly, as far as the REIT tax specifically, the state has moved to the progressive rate REIT tiers, but that is for the state portion of the tax, not the local option half percent REITs.
However, they did also make some modifications that don't affect the amount that the city will collect, but provide some broader authority to utilize half of the REIT revenue, the REIT II category.
for investments related to housing for the homeless.
And so again, that doesn't drive the numbers that they're putting forward, how much, but rather what can be done with it and create some potentially interesting questions about choices between the newly authorized uses and some of the things that would otherwise be done with the money.
Thank you.
That's sort of my recollection from the legislative session as well.
I suppose that that leads me down another path, which is whether or not the forecasts are subject to having that level of granular detail that you just described.
So given the amount of tax revenue that we anticipate being able to be subject to local collection, if we sort of layer on top some of the legislative actions that occurred, then how much can we anticipate now being available for some of those competing priorities that you laid out, but in my mind, you know, how many, I'd like to get a better sense now, how many dollars we think we might have available for discretionary use and appropriation for affordable housing in particular.
Next slide.
attempts to show annual growth of the general fund tax revenue.
And you can see that it increased significantly beginning in 2014 through 2018, up above 5% each year.
This is rather robust growth.
And as you can see from the black line with the diamonds in it, that that's Seattle CPI, so well above CPI, which may or may not reflect total city costs, the rate of growth of city costs with health care, with wages, et cetera.
But it just gives you an indication of how we're doing.
2018, we want to point out that there's a few factors that led to the sort of large outsized growth, 8% and above for 2018. The first is obviously the little red bit of the column there, which is the sweetened beverage tax.
We added that, that added about 22 million dollars to revenues last year.
And the other changes, similarly, are policy changes of a sort.
We increased the tax base because of the state, the Wayfair decision, which increased taxation on internet sales.
So remote sellers were obligated to pay sales taxes, let's say, to Washington and therefore the city of Seattle.
That's increased our revenues maybe three, four to five million dollars.
beginning in 2018 and that will continue forward.
And then we also increased the B&O tax rate by about a percent in 2018. That was the last of a series of increases that got us up to our maximum B&O tax rate.
Council Member O'Brien has a question.
Just a suggestion, my sense is this is telling us a little bit about how revenues relate to CPI and are we kind of keeping up.
And so obviously inflation is one measure of that, but the growth of population is another one that's really big.
I think of the things that we do, you know, a number of first responders, play field areas, library hours.
And if there is a way to combine those two to see how population growth and CPI are relative to, you know, other measures, that would be a useful thing for me.
And we've done some of the analysis.
We'd be happy to present it.
In fact, population growth has been significant enough that if, you know, not all of our costs are proportionate to population, but they certainly outpace for the reasons you described.
I know there's outpace CPI.
So this is really just a rough notion of that, but it's always important to scale it.
your observations are critical as well.
And I appreciate you bringing this up, Council Member O'Brien.
And as you're looking at items going forward, a couple of the areas that I'm very interested in, we're always, and my colleagues who have been up here for a number of years will know, that we are so often criticized for how we spend our money.
And I hear it from, you need to be doing more with less.
At some point where the population is increasing and we are responding to people's rightful demands and interests and things like what Council Member O'Brien just brought up, you know, better, more library hours, whether it's more parks, more parks hours, whether the road conditions are better, and particularly now as we are responding to people who are homeless and trying to get facilities open that are meeting the needs and responding to the demands for, you know, cleaner city streets and so on.
I would love for us in the next few weeks to begin to collect that.
The revenues coming in are good, but what we are spending our money on, particularly around responses to homelessness, and I know we'll be talking more with HSD, with OH, we've got the emergency response set up.
We now have many things to our fire department for the work they're doing around low acuity.
But I'd like to get a list of that so we could actually come back.
We do it every October, but I'd rather have it before we're dealing with the budget so we can see areas of investments that are working, areas where we think we need to do differently.
So I'm going to ask the four of you to be working with my office on that so we can have a real good handle on how we're spending those monies and what are the underlying policies.
We have a pretty detailed accounting of that prepared and updated ongoing.
So that should be relatively easy to provide that information.
It may be helpful to give you a brief and you give it some context, but absolutely.
Good.
Thank you.
Council Member Herbold.
Thank you.
I'm just curious as to the large bump for the sweetened beverage tax in 2018, but not a subsequent one for 2019 and 2020. This is, you go ahead.
So the absolute dollars are still there, and they are growing, but they're just growing at a much smaller rate, and so they're not adding as much of a percentage growth change.
Understood.
Thank you.
Thanks.
Council Member Gonzalez.
Sure.
Following up on that, Lana, questioning with regard to the sweetened, not sweatened, that would be weird, sweetened beverage tax.
Oh, man, that really put us into the nanny state category.
We're going to tax your sweat now.
I wanted to just get a sense from you all in terms of that projected growth, which I appreciate is sort of on top of what we already expect to have.
Is this a conservative estimate?
Can you just talk to me a little bit more about the methodology in the forecasting?
Because I think in the past years, well, in the last couple of years, there's been criticism about how the city had initially made forecasts or estimates about what we would receive in revenue, and we have far exceeded those revenues.
And I think that argument has been utilized, unfortunately, as a argument against the sweetened beverage tax and in favor of repealing it someday, because it's not meeting its intended policy, one of the stated policy goals of reducing dependence on sweetened beverages.
I appreciate the opportunity to speak to that point because we are responsible for those estimates, and I'm happy to explain.
They've been directly involved, but let me just, at a high level.
For 2018, what you're seeing here are actually not forecasts at this point.
Those are actual data.
So that shows you, we took in $22 million from the sweetened beverage tax.
That represents, you can see on the graph, roughly a little bit less than a 2% increment on the general fund overall.
So it's a significant revenue source.
We did systematically under forecast what those revenues would be.
And the reason, to put it simply, is that until we started to tax soda or sweetened beverages, we had no idea what level of consumption occurred in the city.
There was no way, you know, we collect sales tax, but people don't report what that sales tax is paid on.
And a good deal of sweetened beverages are sold in restaurants where, again, we don't necessarily, well, we don't have an itemization.
So we didn't know, to use a technical term, we didn't know what the tax base was.
We didn't know how much soda was being consumed.
And if you think about that, that's both residents, you know, at home and at restaurants, but also our entire daytime population of employees.
So what we had was some national data that was indicative of the total volume of soda sales in various communities, and we had a little bit of information from Berkeley, California in particular, where they had imposed such attacks.
But again, the pattern of consumption there is potentially different, A, because it's different people and because their balance between, if you will, nighttime population and daytime work population are different.
I mean, Berkeley is an employment center, so it's not like it's completely different, but the proportionalities could be different.
So we developed an initial forecast of about $15 or $16 million, if I recall, and what we see now is that it's closer to $22 million.
What we do not see, or have no reason to conclude, is that the soda tax is somehow not to, if the tax in theory had, and you have expressed a desire to discourage the consumption of soda, it was essentially, if you will, a syntax of a form.
We don't know what the level of consumption of soda was before the tax.
We know the level of consumption now, and actually we're still, as the tax is being rolled out, if you will, and we're now a year into that, but it was a complicated tax because it's actually assessed under the distribution.
So setting up the channels by which the money was paid to the city, it took a little while.
In any case, we have no reason to think that the soda tax is not discouraging consumption, but we don't have data to prove it either.
And again, the reason the revenues have come in ahead of forecast is that we were conservative in estimating what those figures were.
That is our bent because we don't want to over-promise and then, if you will, under-deliver.
At this point, with a year's experience, we think we've got this just about right, but I don't doubt that it could continue to slightly outpace, and you'll see we have an upward revision as a result of the final numbers for 2018 as well.
And I have obviously oversimplified.
what the policy intent was around the sweetened beverage tax for purposes of framing up the question that I just asked you.
You know, I recognize that there are, that this is a multifaceted, this was a multifaceted effort that was fueled by a lot of different policy motivations, one of which was not necessarily to immediately see the reduction of sweetened beverages, but certainly to provide a revenue source that would allow us the opportunity to better educate and inform consumers who ingest sweetened beverages at a disproportionate rate that has some really disparate public health outcomes.
And of course, there was a lot of other intents there as well, alongside early education investments and also food insecurity throughout the city.
So I don't want my question to be perceived as one that is squarely focused on just the reduction of consumption, because I recognize that that was an oversimplification of what the intricacies of the policy actually were.
Great.
Council Member Bryan.
We appreciate the clarity on the budget fiscal reality of us not really understanding or not knowing how much is consumed and then the complexities of how we're going to collect it.
I just want to flag, though, for the public that from a public health perspective, there is extensive work being done to maybe not be informative for budget purposes, but not totally telling, to really establish a baseline of consumption and monitor that over time.
And they went out, did some surveys after it was passed, before it was implemented.
Again, it may not be comprehensive enough to dictate budget, but it's more to look at the public health trends and see what's happening.
And so as those numbers continue to come in, that might be informative too.
And we will have this data as well, and we'll also have data on population and employment growth to try to help scale it.
So as we see trends over time, this will be actual revealed consumption, if you will, as taxed.
So that will be useful information to have going forward.
Good.
Thank you.
And just as a quick time check for my colleagues here, we've got three more pages discussing revenue and forecast risks and the general fund update.
We also have after this a financial condition report from our auditors.
And we have public comment after that, so please.
Okay, so we can go quickly through this table, depending on how many questions you might have.
This is the table we generally present.
It shows three years, 2018, 19, and 20 going across the top.
And the tax instruments and revenue instruments are down the left-hand side.
We show actuals or revised forecasts in the non-shaded columns, and then the shaded columns are the change from our November forecast, which was the basis of the 2019 adopted, 2020 endorsed budget.
I think the big story is the grand total row, about halfway down the page, where you can see that in the gray shaded We are looking at adding about 3.7 million in 2019 and 2.8 million in 2020 over the previous forecast.
Just to emphasize that point, on a forecast of just under $1.4 billion for each of those two years, the difference we are showing you now is less than $4 million a year and actually in total just over $6 billion.
Again, that is relative to $2.8 billion in expected revenues overall in that same time period.
Of course, each revenue stream has its own story, but to draw your attention to 2018 in that grand total line, you see 34, almost $35 million.
Most of that, as you can see, is coming from that other general subfund revenue category just above that.
The thing to know about that line, it's important, is that most of that revenue has direct expenditures associated with it.
So these are grants that we receive or reimbursements for payments for services delivered or their transfers from one department into the general fund and what have you for services rendered.
So it's not really new available discretionary revenue to spend because it's already been, has a call on it.
In particular, the fourth quarter supplemental will have included a bunch of grant acceptances, so that money gets counted as revenues.
But again, it can only be spent for specific purposes that were also dictated at that time.
So that's, every time we give you this forecast, this time of year, there is this big bump in that category.
And again, it's really most, The essence of it is grants, or else it's one department paying another for a specific service.
So it's not net money available to the general fund.
The figures for 19 and 20, those increments in the gray box, those, however, are forecast increments.
So those are increases beyond what we had originally expected and don't immediately have a call on them, although in a moment I'm going to give you a sense of what I see as the impact on overall general fund.
Yes, also not just increase, but you've got decreases in that general sub fund revenues.
There's a mix of things in the individual categories.
Some are going up and some are going down.
And again, in the context of $1.4 billion and a variety of sources, that's also not unusual, but it gives you a sense of what's changing.
Council Member Herbold.
Thank you.
One of the projections here reminds me of a SLY request that the Council made last year, and I think we got an initial response saying we didn't have enough information, and that relates specifically to the short-term rental tax.
As Council Member Bagshaw notes, this looks like we might be forecasting a reduction in what was previously forecasted?
Correct.
Could you provide a little bit more detail on that?
So this tax is a new tax and it was intended to have an effective date of October 1, 2018, which would have meant we would have had a quarter of revenue that we would have seen in the first quarter of 2019, implying that we would get a full year of revenue for 2019. The Department of Revenue moved the effective date of that tax back to January 1, 2019. And so what we've done is we've lost a quarter of revenues.
And so what we originally predicted at about $10.5 million is reduced by that loss of a quarter of revenue just because of the way it's being administered.
The money will come.
It's just coming later than we thought.
And given our time periods, it's shifting out of 2019 into 2020.
So given that the council asked for this slide report and under the leadership of Council Member Mosqueda, who's not here today, the interest was specifically focused on whether or not there might be revenue that the council could consider using its bond authority to bond against for housing in the future.
And given that the The projection is less to do with inaccurate forecasts and more to do with the timing.
I'm wondering if we could go back.
And I think the slide report that we got a couple of months ago said that we didn't have the information.
It seems like maybe we do have a little bit more information than we thought we did.
If we could go back and take a look at that.
Yeah, no, it's time that we respond to them.
We didn't have this information, and I'm actually now all the more glad we waited because this is an interesting development.
I don't think, just from a policy perspective, it has significant impacts.
This money, as you know, a significant share of it is dedicated to equitable development and then also to affordable housing.
Given the timing on the likely draw, the demand for those resources, I think it's really just a cash flow question that we'll be able to handle.
So a little bit less money arriving this year, but we weren't expecting to put the money out the door.
So don't think this will force significant policy shifts there.
And we should be able to answer that question more generally.
I do want to take...
A chance, though, before we leave this page to talk about some of these other ones, and you highlighted one of them, Councilmember Hurdle, but I did also want to note, if we shift below to the green box, well, first of all, on the sweetened beverage side, so the line directly above, I want to note that per the comments we made a couple moments ago, we have once again revised those forecasts and revised them upwards.
So there will be some additional resource flowing into that revenue stream.
We've purposely not listed it in that grand total because although it is technically a general fund source, it has a number of dedicated purposes.
So we're purposely keeping those out.
And we are going to bring you legislation actually for both this and the short term rental tax.
with the budget that will formally move these sources out of the general fund and put them into their own special funds going forward.
That was another request from the slide.
And although we asked for you in response, you let us do it with the budget because it's just cleaner from an accounting perspective, not to switch mid-year.
But the point about segregating the funds and keeping track of them makes sense to us as well.
So that'll be some one-time resource available in 2018. So the 2018 monies on the sweet and beverage side, I think the way to think about them is one time, because that is money that is now sitting as a fund balance.
But for 19 and 20, we recognize the neighborhood of $2.4 million.
that will be ongoing revenues that we'll be able to program.
And we've started initial consultation with the Citizens Advisory Board about the potential use of those revenues.
So, again, we'll bring you proposals on those.
We mentioned already short-term rental tax.
We see a one-time drop there.
Moving to the green, if you will, and these are funds that are really not in the general fund already.
They're tracked separately.
excuse me, real estate excise tax.
As we mentioned, there are some things that change at the state level overall, but not to our specific revenue streams.
The city gets, there are actually two quarter percent taxes on real estate.
One is REIT 1 and the other is REIT 2. And what we saw was actuals for 2018 fell somewhat short of forecast.
And given what we're seeing in the prices in the market stabilizing, Reducing the forecast for 19 and 20 in total about an average of 3 million a year.
This will potentially have budgetary impacts for 19 and 20 as those funds were essentially fully appropriated.
So we have appropriated more money in 19 and 20 from REIT than we any longer expect to get.
So we're going to have to adjust those appropriations and we're looking at that now.
and looking at where we can make suggestions for you to reduce.
Expectation here, again, is there may be opportunity to reduce appropriations to projects that weren't actually going to write checks out the door this year, so we can minimize impacts on the ground.
But that is a real issue that we are dealing with now.
Similarly, the commercial parking tax, so we charged 12.5% tax in addition to the sales tax on commercial parking.
We had projected growth in 2018 and beyond in that stream, and what we saw To a significant surprise in 2018 is that there was not an increase in actual revenues from the commercial parking tax.
So they had flattened out.
We're now continuing to assess what's happened there, but we have brought down the forecast.
And this money flows specifically to SDOT.
It's actually a source that we have issued debt against.
So we're going to have to do some work and bring you some proposals on how to address this shortfall as well.
And then a small change in the school zone camera fund.
But both REIT and commercial parking tax are going to require changes in appropriations for 19 and 20 in the negative direction, if you will.
And we will bring you proposals for those with the budget, if not before.
All right.
Not what we want to hear, of course, but thank you for that.
Forecast risks and then general fund update.
So on the risk side, we've talked through most of this.
At the national level, I was going to refresh, not that this is the way we should be doing forecasting, but the Dow was off 600 plus points when I checked a couple of minutes ago, only to say that there was a good deal of uncertainty at the national and international level.
And that was a sell-off that was triggered by developments on the trade front with China.
We're a trade-dependent region.
I'm not telling you anything you don't know.
This is real time concern out there, and specifically cited there, tariffs and trade war.
Construction, again, we've highlighted, we're projecting a flattening but not a dramatic drop in construction activity locally, but that significant share of revenues.
Amazon has been a driver of the local economy simply through its hiring, if nothing else.
Again, we're expecting that to have slowed and flattened.
And obviously Boeing is going through a difficult circumstance right now, and the impact of the 787 MAX issues on local production and employment are somewhat to be determined, but are clearly not in the positive direction.
Boeing is a smaller share of our economy than it has been in the past, but again, those are high paid jobs that have important impacts overall.
So we talked a lot about revenues.
I want to talk a little bit about what this implies on the budget side.
So this is the general fund and the fund balances that we are expecting.
So I just want to walk you through this and give you a sense of the bottom line and how tight things remain and some of our, from the budget office perspective, our response.
We started the year with just under $64 million that included some significant reserves, in particular related to the police officer guild contract that was settled in 2018 and retro payments that went out accordingly.
We took in $1.34 billion, the budget, total expenditures, We're just over that, again, relying on some of the fund balance.
And then this last line here in red, the additional anticipated expenditures, these are the funding reserves we're holding to address a number of outstanding issues, among other things.
We are negotiating with the city's unions around wage and compensation for 19, 20, and beyond.
So, bottom line, we ended 2018 with a fund balance in the general fund of about, unreserved fund balance of about 22.5.
That's within a half a million dollars of what we had projected, so we are spot on there, but we're not in excess.
I candidly had hoped that we would finish, money we finish with at the end of the year like that is essentially one time resource available to take on some one time expenditures.
At this point, we're not leaving 18 with those kinds of fungible one-time resource.
The $22 million is exactly what we need to carry into 2019. That's the fund balance we were anticipating.
You can again see revenues at about $1.4 billion, expenditures.
Some of what you see in this line is not yet reflected in the budget.
We're about to bring you the carry forward ordinance.
that will take some of the budget authority from 18 and bring it into 2019. In particular, unspent grant resources are something that we carry forward.
And again, we're starting to build up this reserves for unanticipated expenditures.
You see that build up in 19 and 20. The bottom line, if you follow this through, is currently when you adopted the budget in the fall, we expected the fund balance at the end of 2020 to be zero.
This would show that there might be as much as $5 million available, 4.9.
And again, relative to expenditures over 19 and 20 of $2.8 billion, that margin is very, very thin.
It's not red, it's not negative, so I take some solace in that.
But any small change in the revenue forecast, and we'd be looking at a situation where on a projected basis we'd be underwater for 20. So we are on a very thin edge.
Revenues have come in as projected, so we're seeing the slowing of growth that we had anticipated.
In response to this, and essentially expecting this, when we began the budget process internally, which we do in January, February, March, we told departments that they should consider their 2020 endorsed budget to be their budget.
So we are not running a budget process this year that is trying to, if you will, throw open the full range of expenditures and policy issues that the departments might be facing.
We have a biennial budget.
You formally adopted 2019 and endorsed 2020 without a significant shift in revenue, which again is what we're seeing.
It makes sense that 2020 be the basis for our budget.
So we have only been asking departments for situations where they need a change relative to 2020. And in almost all circumstances, we have told them if they need to change an allocation, they should assume that they're going to have to find the resources within their existing 2020 projected allocations.
because, again, we don't see significant new revenue on the horizon.
So the budget process on the executive side is being run in a much, in a narrower way than perhaps otherwise, and relying on the decisions that underlie 2020, which are largely to reproduce what was done in 2019. Obviously, there's some one-time issues that don't.
There's some things that are ramping up.
So to give you an idea, I mean, having said this, there are, it's not that there are no financial pressures.
The Office of the Employee Ombud was budgeted at a relatively low level.
We're recognizing that it probably needs to get staffed up some in order to be effective.
To give another internal employment one, we're working to move employment investigation functions, internal investigation functions that had been left to individual departments into a central function in HR.
That's going to require some juggling of resources and potentially some investment in resources as well.
continuing to monitor judgment and claims where again news is not is not wonderful.
So that there are some financial pressures out there from things that have already been sort of put into motion that we are managing but managing on a very thin margin.
Thank you.
Council Member Herbold.
Yes, thank you.
Just as a little bit of context for the exercise that you go through every year, it would be helpful for me to understand what exactly, I mean, maybe this is what we've been talking about this whole presentation, about projections around when a recession is going to hit.
This time last year you were projecting a negative fund balance of $28 million for 2019 and a negative $53 million for 2020. Is it just simply a recession that has not yet started yet or is there more to it than that?
I have to go back and remind myself of the details, but the revenues probably came in somewhat higher than we had forecast, and there were expenditure risks that we have been able to manage in different ways.
So we are, by definition, obligated to bring you a balanced budget.
So when I showed you those figures this time last year, I was giving you a sense of the challenge we were facing then, that we knew if we had tried to reproduce everything that was on the table, that's what it might have cost.
to attack that from both directions about how do we reduce the expenditures that have been proposed and then also as appropriate are there, is there opportunities on the revenue side either legislatively or because the local economic conditions are changing.
Thank you.
I want to acknowledge one thing and then Councilmember Gonzalez.
Ben, what I appreciate about this I know that it's always challenging and we always want more like everybody else, but I'm appreciative of the fact that your revenues and the forecasts have been so close to spot on that it's very helpful for us to be able to rely upon that and know that we're not going to have, you know, what we would love to have to spend coming up, but thank you for being so direct about this and Claire and I.
Acknowledge your team and Dave and George Eric too.
It's been very it's great working with you and knowing that we can count on these numbers being Thank you, and actually I'd be remiss if I didn't make a comment in his absence Tom Kern who's normally one of the horsemen here if you will and has been the author of our regional forecast for ten plus years, is retiring this year.
Had he not been on vacation, this would have been his last meeting with you all.
And I do really need and want to honor the work he has done.
He is, I mean, other folks involved, George and Dave, but he has been sort of the rock upon which our forecast has been built for some time.
We're in the midst of hiring a replacement and creating opportunity for there to be a smooth transition, but it won't be the same.
Thank you for that, and give Tom our thanks and best.
Council Member Gonzalez?
Thank you.
I know we are trying to get to the next presentation, so I'll just keep my question as brief as I can.
So, we are well into May, and our first quarter ended in March, and I'm just, I'm curious as to why we don't yet have quarter one supplemental budget before us and can you talk to us a little bit about why and when we might be able to anticipate it.
Yeah, as we communicated to Chair Baxhaw and the essential staff, we're not sending a first quarter supplemental.
We're going to send a second quarter supplemental that will cover requests for first and that is being prepared as we speak.
Again, given where we are with resources and given that we have the 2020 endorsed as well as the 2019 adopted, we weren't in a position to really, typically first quarter supplemental is requests for additional funding.
We weren't in a position really to entertain.
and other pieces of it like grant acceptance and the like, we thought we could largely postpone and take up in June in particular.
There was or will be a standalone grant acceptance for SDOT because they'd taken enough money in a timely way that that we needed to handle separately.
But candidly, part of this is creating, is changing expectations on the executive side as well, that the budget is the budget and these are the resources that are available.
And spending needs to be managed within that rather than the assumption that there will be sort of an opportunity continually to ask for more.
And in a framework where the revised forecasts aren't indicating that there are additional revenues, that's just a reality.
There aren't new resources to allocate that way.
All right.
Well, thank you.
If there are no further questions, we'll say thank you for this, for this projection.
And I'd like to move forward right now with the financial condition 2017 report.
Thank you very much, all of you who came.
Thank you and welcome, and if I may ask for introductions because David Jones told me last week that he wouldn't be joining us, so please go ahead.
Yes, Cindy Drake, Deputy City Auditor from the Office of City Auditor.
Jane Dunkle, Office of City Auditor.
Thank you, Cindy and Jane, for being here with us.
Well, let's just dive in.
Thank you for having us here today.
I'm just going to provide a little bit of background and then hand it over to Jane Dunkel, who did all the work on the project.
Go ahead and switch to the first.
Okay, thanks.
The report is required by city ordinance, and the intent was both to provide a general context for council members when determining making budget decisions, and it was also to provide the public with information about the city's financial condition.
One thing I wanted to emphasize up front is whereas you were just hearing from the budget office forecast and projections going forward, this report is looking backward and it's providing a picture of the city's financial condition as of the end of 2017. And the reason we cut off our analysis at 2017 is because that's the last year for which the city has audited financial statements and that's the primary data source which we're using for our work.
And then the last thing is that the report includes data on 30 different indicators, and it also presents 10 years of data for several of these indicators with the goal being to provide some long-term financial trends.
But for the sake of our discussion today, Jane's just going to discuss a handful of these.
If there's some you'd like some more information on or we can provide you with something else outside of the meeting, we're happy to do that.
And with that, I'll turn it over to Jane.
Okay, good morning.
Let's see.
We're going to start with our conclusions just to make it easy.
Through 2017, most of the financial indicators that we examined for the City of Seattle were positive, and there are examples of those on the sheet, and I won't go over them because I'm going to talk about the first four in more detail.
The first is that the city's general government, and that, think non-utilities, everything except Seattle Public Utilities and Seattle City Light, their sources of revenue are fairly diversified.
Although 72% come from taxes, the types of taxes are different.
So that's a good thing for the city.
And there's also some revenue from charges for services and grants and contributions.
Another key indicator for us is short-term liquidity.
And the way to think about this chart is just in your own household budget, all we're really saying is that the city needs to have enough cash on hand to be able to pay its bills, such as, or have within the year.
And that orange line is a one-to-one ratio that shows that you would have enough.
And so you can see that the city over the last 10 years has done really well on this indicator.
We have more than enough to pay our bills.
A next critical indicator is our bond rating for our municipal bonds.
The city borrows money for major capital improvements, as you well know, spreading the cost over many years.
And in 2017, and as of the time of this report, the city had maintained the possible highest credit ratings from the three major agencies, AAA, for both its voter approved and its council authorized bonds.
And this is good because strong credit ratings, decreased borrowing costs, debt's considered less risky for investors.
So that's good.
Another good indicator is that we have two reserve funds.
And these are the balances over six years in our two reserve funds in millions adjusted for inflation.
One is the rainy day fund, which is money that's set aside in case the revenue projections were not to come in as anticipated.
And that's governed by city ordinance.
And the other is the emergency fund.
And that is governed by both state law and city ordinance.
And that's for natural disasters.
Can I just back up?
This is the Wayback Machine, but in my recollection in 2010 and 2011, when we were really having some trouble meeting our revenue forecasts and just paying bills, that we dropped down to like $5 million in that rainy day fund.
I mean, we were just at bare bones, as I recall.
Yeah, I don't have the data on that right here.
I just went back to 2012, because I think some of the definitions of the accounts changed, which is why we didn't do the full 10 years for this.
But we did want to make the point that even though it's comforting to see these grow, they are there for the purpose of being used if they're needed.
So one would expect some variability over time in those accounts.
I don't recall what the minimum balance that was reached, but those funds were actually utilized.
As you noted during the last recession.
Right, there were some real problems and Beth was our budget chair at that point and just trying to make sure that we could have the balanced budget relied upon that rainy day fund.
And I know we're always trying to think about tapping it for different purposes, but just how important it is to have.
we are in compliance with state and local laws for the statutory caps so that's good as well.
Now this next chart is just of interest.
So if you are a city of Seattle property taxpayer, and you were paying $100 of your tax, 28 of it would go to the city.
The rest of it goes to the county, state schools, Seattle Public Schools.
This is what $1 of that 28, how it would be divided.
So it's just to give you all an example.
On the right side are all voter approved levies.
So those have to be spent for those purposes.
Things like the Move Seattle transportation levy.
family and education.
And on the left side is the general property tax that you all authorized through the budget process.
So just to underscore here, 28 percent of Seattle property taxes come back directly to the city.
And you mentioned that of the 72 percent, it goes to the county and the state.
It's interesting to me that so often we find during the legislative session that people are angry at Seattle for one thing or another.
And if that much of our property taxes are going to help fund the rest of the state, I'm always curious about what we can do and how we can do better to make our friends and neighbors elsewhere in the state understand that we could be considered to be a bigger friend than oftentimes they think we are.
Because we're funding what they need for education, for roads, as two examples statewide.
that is true.
It is also true that 23%, another 23% does go to Seattle schools and 15% goes to the county, two to the Port of Seattle.
So it is divided up.
The 22% goes to state schools and some other 3% to Sound Transit, 3% to the Park District.
So that's where the rest of that goes.
But we wanted to just focus on what the city gets in their budget, which is only 28%.
And those are important, like you said.
Our Seattle Public Schools are getting a percentage of this.
Seattle Transit is getting a good percentage as well.
And these are things that we rely upon.
Right.
That's a good point.
Another important indicator for the city of Seattle's financial condition is our pension liability.
And our main pension plan is the Seattle City Employees Retirement System.
The most recent actuarial report for that was produced on January 1, 2018. And at that point, our funding ratio was 69.9%.
That is basically the...
The percent of it takes the value of the plans assets and divides it by the amount that actuaries calculate the city would need to pay employees the benefits we owe them.
So that means we have right now about 70% of what we need.
However, the Seattle City Council did commit to fully funding Sears by 2042. And you do that through approving the employer contributions that are made every payroll along with the employee contributions.
And we just wanted to say that we support that decision and hope that the City will continue to fund Sears at or above the actuarially determined rate.
That's that.
And there's just more and more about Sears funding ratio.
This is the funding ratio over a 33-year period.
It varied over time.
As you can see, it wasn't even 100% from 1998 to 2000, and as low as 62% in 2010. So slowly, since 2013, it's been growing again, since that commitment was made.
Okay, now I'm going to transition to some demographic and economic indicators because there's one way to look at the City of Seattle's financial condition is to look at how well the city government is managing its finances and through 2017 the news is pretty good on that.
But another thing is to just look at how well people in the city themselves are doing.
So this first slide, we just have some selected data.
We thought you just might, you probably know this, but just to confirm based on the data we have, that in 2017, 53% of Seattle households were renters.
So 53% of the people were living in renter-occupied homes and 40%.
in owner occupied.
And then in terms of property values, this is based on the value of all the property in the city of Seattle, regardless of owner.
It's in billions, unadjusted.
And it's from King County Assessor.
So in 2008, all the property in Seattle was worth $137 billion.
And in 2011, it was worth $213 billion.
So it's just kind of to give you an indication for those people lucky enough to be living in their owner-occupied homes, they've seen some substantial appreciation, as we all know.
Oh, oops.
Yes, please.
Just because I wanted, I like this little factoid, but I think there's a little bit of a nuance that sometimes people miss, and the city auditor got it right, and I just want to highlight it because it's a stat that we use a lot.
It's not that 53% of Seattleites are renters, it's that 53% of the housing occupied by Seattleites is occupied by renters.
And the reason why that number might differentiate between the tenure of individuals versus the occupancy of households is because of the household size.
So the actual pure number of renters is actually, I think, a little bit below 50%.
The percentage of households, physical structures occupied by renters is higher than 50%.
Oh, thank you for that clarification.
You got it right.
OK.
Now next, we wanted to do a poverty indicator, but we didn't just want to go use the federal poverty level.
Thanks to the city demographer, Diana Canzanieri, she was able to connect us with Dr. Diana Pierce from the Center for Women's Welfare at the University of Washington.
And Diana Pierce has been calculating a self-sufficiency income measure.
Since, for 20 years, she calculates it now for 39 states, the District of Columbia and New York City.
And what this does, it's a measure of income adequacy that's based on the cost of basic needs for working families.
It takes more costs into account than the typical federal poverty measure.
It takes into account housing, child care, food, health care, transportation, and it's also geographically specific.
So it's much more realistic in terms of what families need to get by.
However, it's still a bare bones budget.
So in other words, the food that's allocated in this budget is for groceries only.
does not include any restaurants or takeout foods, even one latte.
So it's a self-sufficiency income.
And what we want to bring your attention to on this one is they do it by family size and configuration.
I want you to note that a single parent of two children, depending on their age, in 2017 needed from $70,000 to $82,000 a year.
That's what they needed to make to live in the city of Seattle.
Then we're going to take you to the next slide where we have median income by, again, household size and configuration in 2017. And what we're really just pointing out here is who's vulnerable in the city of Seattle.
If you look down, you see a single.
A single dad with children, the median income was 64, and a single mother, 36. So you can see that, you know, that's who's vulnerable in this city, in this economy.
And then a few more slides with more demographic information about this.
This is by age of household and head of household.
And again, you can see that the people that are at risk are our young adults and our seniors.
And then finally, we also wanted to do this by race and ethnicity.
For this, we had to go back a few years because we had used data from 2011 through 2015 because otherwise the sample sizes aren't big enough.
And in fact, you really shouldn't look at the Native Hawaiian or Pacific Islander or some other race alone because they have very high error rates on those.
So we probably should have taken those out.
But the other ones are reliable estimates and we just wanted to point out like for two of them, The household overall median income for these years was $70,000.
And for American Indian or Alaskan natives alone, it was $26,000.
And for black or African Americans alone, it was $30,000.
So again, just kind of showing you who's vulnerable in the city.
So finally, to kind of loop it back to the revenue presentation that you had, we just wanted to offer a few ideas on what you might want to consider moving ahead.
You might want to be aware as you pass new budgets of monitoring revenue streams that are most sensitive to changes in the economy, and those are your sales and business taxes.
The property taxes are a little more resilient.
Consider whether revenue sources, especially for new and expanding programs, are sustainable.
Monitor the pension funding ratio and continue to fund it at or above the actuarially determined rate.
And then anticipate increased demand for services as the economy slows, especially from these populations that are vulnerable.
So that is our presentation and we're happy to entertain questions.
Excellent.
Any questions for my colleagues?
Thank you.
You've identified where the full report is.
I believe you sent it to everybody a couple of weeks ago.
Thank you for that.
I really appreciate your good work.
Do we have any other comments on this?
Yeah, please.
Council Member Gonzalez, can you check?
Jody, can you check the public comment sheet?
On the previous slide where you were talking about potential impact of a slowing economy, and I'm taking these as sort of for lack of a better term, recommendations from the city auditor's office in terms of what to watch for.
On the first point where you talk about the need to monitor revenue streams that are most sensitive to changes in the economy, I know that both of you sat through the previous presentation.
I just wanna make sure that I have an understanding of which revenue streams from your perspective you are referring to specifically.
sales tax, real estate excise tax, and business and occupation tax.
Those ones would be more sensitive than the property tax, at least in the short-term horizon, because there's usually a lag in the impact of a downturn on property tax.
So when you're flagging this particular issue for us, you are flagging the traditional revenue sources that we typically get from some of our bigger tax bases that exist within the city of Seattle?
That's correct.
Thank you.
Well, thank you for that.
Jodi just announced that there has no one has signed up for public comment.
So if there is nothing else for this, the meeting is adjourned.