SPEAKER_03

Good morning.

The Select Budget Committee will come to order.

It is 9.31 a.m.

October 16th, 2024. I'm Dan Strauss, chair of the Select Committee.

Will the clerk please call the roll?

SPEAKER_11

Council President Nelson.

Council Member Rivera.

Present.

Council Member Saka.

SPEAKER_07

Here.

SPEAKER_11

Council Member Wu.

Present.

Council Member Hollingsworth.

Here.

Council Member Kettle.

SPEAKER_10

Here.

SPEAKER_11

Council Member Moore?

Present.

Council Member Morales?

Here.

Chair Strauss?

Present.

SPEAKER_03

Eight present.

Thank you.

And I appreciate everyone being here on time.

Seattle Channel took a moment to...

Let's get going, and award-winning Seattle Channel, we appreciate your service.

The Select Budget Committee is not accepting verbal public comment this morning.

We are having our public hearing this evening that will start at 5 p.m.

It will last until we have gotten through everyone speaking tonight, so please be aware of that.

We do have childcare provided from five until seven.

Today on the agenda, we have the introduction, Also, colleagues, welcome.

We're now in the next set of the budget meetings, which is central staff presentations.

Today, we're going to start with the general overview, the general look at our budget from central staff's position and through their analysis.

And in the next few days, we will have department by department.

So on Thursday, we'll have Office of Planning and Community Development, Office of Arts and Culture, the Seattle Channel.

In the afternoon, we'll have Seattle Department of Human Resources, Seattle Department of Construction Inspections.

On Friday, we'll be discussing the participatory budgeting, Human Services Department and Unified Care Team, as well as the Office of Economic Development.

We'll move into next week and fill in those gaps as they are created or need to be filled.

We do have a plan, but it's also subject to change.

My apologies for not starting out there.

So today we have the introduction.

process overview, the central staff overview of the 2025 and 2026 proposed budgets, general fund balancing overview and jumpstart policies.

If there is no objection, the agenda will be adopted.

Hearing no objection, the agenda is adopted.

Before we get going today, Council Member Wu has a proclamation for signature today, proclaiming October, actually, I'm gonna just turn it over to Council Member Wu.

Council Member Wu, would you like to take it away?

SPEAKER_01

Thank you so much.

And so I'm presenting a proclamation proclaiming the month of October as Filipino American History Month.

Washington has the fifth largest population of Filipinos in the United States.

The city of Seattle is also one of the historical cities.

for Filipinos.

It was a portal city on the Pacific Coast for Filipinos, and they made profound contributions in our city as well as our state.

There are many important locations, such as Filipinotown in the Chinatown International District, Jose Rizal Park, the Filipino community of Seattle Hall, and other places.

many notable and legendary Filipino-American citizens who made important contributions to the city of Seattle, which include Dolores Sabanga, Bernie White Bear, Velma Valoria, Fred and Dorothy Cordova.

And so I was hoping we could recognize the immense contributions of Filipino-Americans to the cultural, economic, and social fabric of our community, furthering the shared values of our One Seattle vision to build a thriving, innovative, and equitable city.

where we are all proud to call home.

And so I hope you will support this.

SPEAKER_03

Thank you, Council Member Wu.

I'm looking forward to signing.

Colleagues, any questions, comments?

With that, hearing no further discussion on the proclamation, will the clerk please call the roll to determine which council members would like their signatures affixed to the proclamation recognizing October 2024 to be Filipino American History Month.

SPEAKER_11

Councilmember Rivera?

Aye.

Councilmember Zaka?

SPEAKER_03

Aye.

SPEAKER_11

Councilmember Wu?

Yes.

Councilmember Hollingsworth?

Aye.

Councilmember Kettle?

Aye.

Councilmember Moore?

Aye.

Councilmember Morales?

Yes.

Chair Strauss?

Yes.

Eight signatures.

Thank you.

SPEAKER_03

We're gonna move on to the next item of business, item one.

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

And we see Director Ben Noble and Deputy Director Yolanda Ho from Central Staff here at the table.

I'll turn it over to you.

And colleagues, today we do have some flexibility with our time because we're trying to save time this afternoon to give us all a moment to get other work done before we are here until possibly 11 o'clock or later, and so We'll take questions as we go for the moment, but if we start running into time constraints, I'll make that change to holding questions until the end.

With that, over to you, Director Noble.

Thank you, Chair Strauss.

SPEAKER_09

I'm going to take just a few moments here at the beginning, kind of set the stage both for today and for what's ahead over the next week, and then also just a brief preview of what follows after that.

So as Chair Strauss mentioned, we are entering the stage of central staff's presentations, focusing first on an overview of the overall budget.

So today, you're going to hear from Yolanda representing some work that she and Ed and Cizek have done.

Just taking a look at the budget overall and giving you a sense of what's contained in there and how it's balanced.

INCLUDES A FOCUS BEYOND THE GENERAL FUND TO THE OVERALL BUDGET, LOOKING EVEN AT A DEPARTMENT LEVEL AND HIGHLIGHT SOME ADDITIONAL WORK THAT WE ARE IN POSITION TO PROVIDE YOU NOW AS WELL.

THEN TOM MIKESELL WILL COME AND PROVIDE YOU A REALLY DETAILED OVERVIEW OF HOW THE GENERAL FUND IS BALANCED.

IN THIS PHASE YOU'RE GOING TO HEAR FROM CENTRAL STAFF AND ESSENTIALLY I WOULD argues for a neutral presentation of the budget.

So we are not here to defend the mayor's budget, nor are we here to attack it per se, but rather really just to lay out for you the facts, if you will.

And you'll see there are some very important, although just deeply technical analysis, Tom's work does include some really important conclusions that he will highlight as he goes, conclusions that affect kind of the overall perspective on your actions for the biennial budget and how they'll affect the city's long-term sustainability, again, particularly on the general fund.

I'm going to then follow with setting the stage for a discussion about the jumpstart payroll expense tax and the policies around the allocations of those funds.

As you will hear from Tom Mikesell, and as I think you all know, The use of the payroll expense tax, the jumpstart payroll expense tax, essentially to balance the general fund is a major move in the budget and one that is carried forward for 25 and 26. As you'll see, by implication, potentially needed, well, would be needed in 27 and beyond to maintain the general fund in balance.

There are some important decisions that will face you on that front, and I'm going to walk you through on those.

Then for the rest of the week, so starting tomorrow through next Monday, and I'll give you the detailed schedule in just a moment, and into Tuesday, we'll provide analysis structured in two ways.

One for individual departments.

So we have done our work taking a look at each department's budget.

And again, Yolanda will shortly provide you some information about how you can access some of that work.

But then we're also going to bring you specific policy considerations for you around proposed additions to the budget, as well as proposed reductions from the budget, highlighting some potential options.

We're going to do that for some.

Some of them are going to be done by the department level.

Others are going to be for cross-cutting issues.

So, for instance, proposals around the care team and the UCT unified care team.

which are both cross-departmental functions, so don't really fit well into taking just a look at one department or another.

And as we bring you those forward, we'll, in most cases, bring you forward some potential options, things you might consider in terms of responding to the considerations that we're raising.

And at this stage, we're not looking for decisions.

Ideally, some feedback, some sense of whether you have any interest in pursuing those, and if you did, which options were of interest.

And then our anticipation is to work with you and work with the chair to potentially refine those into specific proposed budget actions.

So again, that's to come through the remainder of this week and initially next.

And I'll give you this, highlight the schedule in just a moment.

And then just in terms of what's else on this agenda, this page, reminding you that there is, as you've already heard, first public hearing tonight.

And then a key milestone that will come next week, which is the revenue forecast update.

So you will have a joint meeting of the city's forecast council, which includes two representatives from the executive side, Councilmember Strauss in his role as budget chair, and Council President Nelson.

Those are the four voting members of the forecast council, and you will join them to hear the revenue update in real time, if you will, and be able to answer questions of the forecast office.

In terms of, this then highlights the schedule over the next week into Tuesday.

So today, again, sort of higher level sense of balancing both for the overall budget for the general fund and for Jumpstart.

and then starting thursday individual departments as well as some cross-cutting issues again just one thing to note that's sort of different than the others if you will is after getting the revenue forecast next tuesday we're going to have settled department of transportation in and they will actually bring the executive back for a presentation where they are going to present the amendments that would be needed to implement the levy should it pass on election day so that it could be fully adopted as part of your actions on the budget for 2025. In addition, Calvin Shaw will be here to talk about his analysis of SDOT's base budget as well.

So that's the schedule over the next week.

SEEING NO QUESTIONS, I'M JUST GOING TO MOVE FORWARD AND THEN HIGHLIGHT, LOOKING AHEAD, THE NEXT BIG MILESTONE AFTER THAT, WHICH WILL BE THE PRESENTATION OF THE CHAIR'S BALANCING PACKAGE ON OCTOBER 30TH.

SO, AGAIN, JUST A BIT OF A PREVIEW OF WHAT COMES NEXT.

THIS IS, AGAIN, THE OVERALL TIMELINE, AND YOU CAN SEE WHERE WE ARE HERE.

SO JUST MOVING FROM STEP ONE, WELL, REALLY STARTING STEP TWO, AND, AGAIN, WE'VE OUTLINED HOW STEP THREE, THE REVENUE FORECAST, WILL BE INCORPORATED OR, RATHER, REVENUE FORECAST IS PART OF STEP TWO.

unless I get my steps wrong, and then highlighted what's coming next in step three.

As a last piece, I'm putting up a slide that I put up before, not trying to be patronizing about this, but actually just to sort of plug you in and to remind you that these high-level considerations are about to become realities for you, if you will, as you start moving on and hearing about options to amend the budget.

So one, and there is one change in this slide from the last time I showed it to you, and it's in that second bullet.

Just to remind you that around overall economic conditions, at a national level, things still look quite strong.

We had a good jobs report this month.

The Fed is lowering interest rates.

There was, however, a significant local announcement last week.

Well, two things going on at the same place, if you will.

So there is a strike at Boeing, which, presuming it does not last for the long run, would not have major long-term impacts on the local economy, or even maybe intermediate impacts.

But there was an announcement of significant job layoffs expected at Boeing.

And I think there is every reason to think that that could have a material impact on the revenue forecast.

We are past the days when the last person out of Seattle needs to turn off the lights because Boeing is slowing down.

But Boeing still matters in the local economy.

The regional forecast that underlies our revenue forecast is actually a A two-county forecast, King and Snohomish.

So Snohomish County has a big impact on us, and obviously Boeing operates within King County as well.

Those are generally high-paying jobs that ultimately are derived from sales outside of our economy.

Those are key drivers.

So just a flag on that, and you will hear the details on the 22nd.

In terms of the budget situation, things there have not changed.

The mayor's proposed budget seeks to resolve a significant projected general fund deficit.

Again, Tom McSale will give you a good deal of detail about that and how that works.

I'm going to highlight jumpstart revenues, both the policies about that and then some of the history.

I'm going to apply some context so you really understand the benefits and the risks, if you will, associated with that revenue stream.

Then these other factors, I won't read them all.

Obviously, the Ongoing policy challenges are ones that you her as we have been engaging with you in considering options around the budget are all are all Each one of those are things that have come up and again will inform your decisions.

So With that I'm gonna turn this over to Yolanda to give you a higher level budget overview Okay

SPEAKER_08

There we go.

Good morning.

Okay, before I dive into the budget overview, we have the more specific department budget overviews.

And so you will note the attachment of a 250-page document for easy reading that is a department-by-department summary of central staff.

So I just want to first...

appreciate the team for pulling this together in three weeks after we received this information.

It's always an intense scramble.

And as we've all discussed about the SharePoint question site, so we often are putting in questions, trying to get answers to help inform these.

And on that note, I will just say that information gathering is ongoing as we speak.

So this is just a snapshot in time of what central staff is aware of and would like to highlight for council's awareness in this format.

So I just had this up as an example to walk through.

And also I just want to really thank Patty.

Patty really did a massive amount of work to get this document before you all, which you realize came at 11 o'clock last night, so.

That is real.

But just noting that it follows the format of the 2019-2024 budget overview that central staff had created and presented earlier this year, and highlights some notable changes from our perspective within each department.

And it is organized by budget summary level, and in some cases, at the more detailed budget program level where appropriate.

It also includes descriptions of the 40 plus pieces of budget legislation that were transmitted with the budget.

And that is at the very end, there's just kind of a list of the pre-introduction legislation with the exception of one, which is the proposed Seattle City Light rate None of these have been introduced, and some of them will not be introduced because we have, for instance, alternative versions of the property tax bills, one that assumes passage of the transportation levy and one does not.

Obviously, we do not.

act on both of those.

So I just wanted to show you all this is just so we kind of have each of these follow the same format generally of just kind of going into a general overview and then kind of breakdown of labor.

non-labor, and then where there's operating budget versus capital.

This one only has operating civil service commissions.

And then there'll be a description of budget legislation so that you all have an understanding of what is all in the proposed budget.

So with that, unless there are any questions about this document.

SPEAKER_09

I would describe this, for its worth, as a sort of Reader's Digest, Cliff Notes, a condensed version of the budget book written from a perspective that's less technically focused.

Those of you who've, I assume all of you at some level, read the budget book, it's not always the most reader-friendly document.

This is intended to really give you the highlights.

And these documents, this document, we would read them as the individual department elements of it, is distinct from the policy consideration memos that then take another level up and really dig into specific issues.

So this is really meant as an overview, and I really don't expect any of you to read all 250 pages, but to the extent that there are individual departments of interest and you might want to have your staff read through, I learned a lot by reading it.

So I do recommend it.

SPEAKER_03

and director noble i'll just take a moment to expand on that this year we implemented some budget reform process reforms by having this five-year look back rather than looking at our budget incrementally this is a really nice update to it so that we take what we were working with and especially during the department presentations adding central staff's analysis this is a I hope that we continue into the future every year just updating it so that we can have more of a historical look back each year rather than taking budgets incrementally.

Really appreciate this.

SPEAKER_08

Thank you.

Oh, and just noting that the policy consideration papers will be kind of rolling out as the agendas are published.

Just noting that we have kind of rolling deadlines internally to get those out.

So you will see those the day before for each agenda.

And with that, we will move into the quick overview of the proposed budget.

And I also just want to very much thank Edin on our team for his work.

He and his wife welcomed home a new baby two weeks ago, but he has still been supporting the team and just been really instrumental in helping us analyze the budget.

So he would otherwise be here presenting his work, but I am doing that on his behalf.

And just noting, this is a really high level summary.

More details will be contained in the budget overview papers for individual departments, as well as the policy considerations papers.

And with that, I will just note that the 2025 proposed budget is $8.3 billion, representing an increase of over $420 million as compared to the 2024 adopted budget.

And this would further increase by over $275 million to $8.5 billion by in 2026. The vast majority of this increase is due to increased labor costs associated with the annual wage increase.

that was negotiated with city unions and also provided to nonrepresented workers as well as related market adjustments.

Yes.

Oh, am I not?

SPEAKER_00

Yeah, you're looking down at the paper.

Sorry.

Yep, got it.

SPEAKER_08

I'm back up.

So I just want to try and get my numbers right here.

So $359 million for this in 2025 and an additional $24 million in 2026 is due to this these increased labor costs.

There's also the, of course, the jumpstart transfer to the general fund of 287 million in 2025 and 202 million in 2026 that will be discussed in more detail in Tom's presentation.

And just noting that personnel costs for workers across all funds are about one third of the overall budget and over half of the $1.9 billion general fund budget.

There are also a few notable large increases across the departments.

$72 million in 2025 and $101 million in 2026 in Seattle City Light for purchased power to meet anticipated low growth and to comply with new emissions regulations as the department adds new energy resources to the utility's long-term purchase power portfolio.

$14 million of general fund contribution to the Judgment and Claims Fund in 2025 based on actuarial projections of anticipated losses that departments have incurred over the previous five years.

This is a 30% increase over the 2020 for adopted budget.

and the executive expects this to moderate in the next few years beginning in 2026. And one other notable addition is $10 million general fund to the Seattle Police Department for emphasis patrols over time in 2025 to allow the department to continue to deploy emphasis patrols in areas where crime is concentrated.

Obviously more information in the Seattle Police Department overview.

On to position changes.

So the proposed budget shows a net decrease of about 17 full-time equivalents, FTEs, in 2025, and 2026 we'll see a net increase of 28 FTE.

including 2024 legislative changes that happened through either the mid-year supplemental ordinance or other standalone bills this year.

The council added a total of 51 FTE.

resulting in a net gain of about 38 FTE in 2025 and a total of 63 FTE across the biennium.

This chart before you only shows the new position changes included in the proposed budget and not the ones that were legislated that I described previously.

And only those departments with proposed changes that had more than five FTE are named on the slide.

All others are all other departments kind of in the middle there.

Departments with the largest FTE increases across the biennium are the Seattle Police Department, which would add 40 FTE, over half of which are real-time crime center analysts to fully staff the real-time crime center.

It would also add civilian investigators to the Office of Police Accountability and investigative support positions to assist detectives and convert a number of temporary community crisis response positions to permanent positions.

Seattle Public Utilities would add 75 FTE, most of which are to support various strategic business plan priorities.

Others would be responsible for side sewer permitting, operations of the total water treatment facility, and one to establish and maintain the city's own tree nursery.

Nine FTE from SPU would be transferred to the Seattle Parks and Recreation for graffiti abatement services.

Seattle City Light would add 12 FTE to support the city's transportation and building electrification goals, reduce volatility and power supply costs, and to address cybersecurity risks.

And finally of note are in the Human Services Department, which would add seven FTE, most of which are victim advocate positions to assist survivors of commercial sexual exploitation.

Other new positions would provide administrative support for the unified care team and address school-based violence intervention.

There is a net decrease in positions in 2025, which is a result of the proposed abrogation of over 120 FTE.

63 FTEA in the Information Technology Department, Seattle IT, 20 in Seattle Department of Human Resources, 20 in Department of Finance and Administrative Services, and 20 in the Seattle Department of Construction and Inspections.

Despite this proposed position abrogation, there is still a 359 million or 14% increase in salaries and benefits as compared to the 2024 budget.

SPEAKER_03

Yolanda, can you say that one more time?

SPEAKER_08

Despite these abrogations, there's still a net increase in costs related to salaries and benefits across the city.

SPEAKER_03

Thank you.

SPEAKER_08

Sorry, Council Member Rivera, I see your hand.

Go ahead, please.

Is that okay?

SPEAKER_06

Thank you.

I want to clarify on that last slide.

sorry on the last slide in red these are the the decrease in positions and then in the in the dark color it's are these and these are the increases in this 25 26 budget proposal okay yeah sorry i just wanted to make sure i was reading this properly thank you yeah and it's the bars show 2025 versus 2026 so there are fewer changes in 2026. So the dark is 26. Correct.

SPEAKER_08

And the lighter green is 2025. Thank you.

Yep.

So on to central services costs.

These are indirect costs.

They are commonly referred to as overhead or central services.

And these are costs that account for support services that are provided by multiple departments, primarily the Department of Finance and Administrative Services, Seattle IT, and Seattle Department of Human Resources.

and it includes centrally managed costs for healthcare, retirement, and industrial insurance charges for the city.

The proposed budget would add $37 million in 2025, a 4% increase as compared to 2024, and an additional $53 million in 2026. So an additional 5% on top of that for central services.

These increases are mostly due to increased rates for healthcare and workers' compensation.

Healthcare costs are determined by the city's healthcare actuary based on actual claims over the past two years.

So these would increase about 8% in 2025 and an additional 7% in 2026. The workers' compensation is funded by city departments based on each department's share of medical and time loss claims over the past three years.

These rates would increase by 41% in 2025 as compared to 2024 due to increases in claims and the need to replenish reserves.

SPEAKER_03

And Yolanda, before you move on, can you speak a little bit about the additional work that the consultant is doing right now?

SPEAKER_08

Yeah, I'm going to talk about that.

SPEAKER_03

Thank you.

SPEAKER_08

Yeah.

So these rates are associated with the Seattle IT, Seattle Department of Human Resources, and the Department of Finance and Administrative Services.

And these would all decrease in 2025 due to the proposed abrogation of the positions that I just described previously.

And I will talk more about this at the end of my presentation.

And just a quick snapshot of the capital improvement program.

So the city's capital improvement program spans six years and the proposed budget shows appropriations for the first two.

Citywide, the capital improvement program totals $8.1 billion and over 70% of that is for utility projects.

As you all are well aware, SDOT's, the Seattle Department of Transportation's budget does not assume passage of the 2024 transportation levy, and thus was transmitted with about a 30% reduction to its total budget, most of which was applied to its capital portfolio.

Notable in SDOT's budget is the inclusion of the culture connector starting in 2030, but this has no identified source of funding at this time.

And as you all also know, SDOT will come to committee next week to talk about its package of amendments in the event that the levy passes.

The remainder of the capital improvement funding is spread across parks, Seattle Parks and Recreation, Department of Finance and Administrative Services, Seattle Center, Seattle Public Library, and Seattle IT.

Sorry, Council Member Rivera, your hand, are you still?

SPEAKER_06

No, sorry, that was from last time.

SPEAKER_00

Thank you.

SPEAKER_08

Okay, and on to future considerations.

So just wanted to note a couple items for the council that will occur after the budget is adopted this year.

One of those is related to central service costs.

During last year's mid-biannual budget adjustments deliberations, central staff noted that it was difficult to track and connect various central rates to budget changes in individual departments and funds.

This lack of clarity limited the city's ability to understand budget impacts and the cost implications of these central internal services.

So after the council had adopted the budget last year, it also adopted resolution 32116 related to the city's annual budget process, which included A SECTION REQUESTING THAT THE CITY BUDGET OFFICE, DEPARTMENT OF FINANCE AND ADMINISTRATIVE SERVICES, SEATTLE I.T., AND SEATTLE DEPARTMENT OF HUMAN RESOURCES TO PROVIDE MORE INFORMATION ABOUT CENTRAL COSTS TO INFORM THE 2025-2026 BIANAM.

In response, the City Budget Office has contracted with a consultant that started earlier this year to conduct an evaluation of the city's internal services.

This effort is currently underway, with the consultant engaging with and SDHR to understand what the programs and services each provides.

And we expect this to be complete in time to inform the 2026 mid-biannual budget adjustments next year.

So more to come.

And the next item, oh, I see some questions.

SPEAKER_03

I see Council Member Moore and Council Member Rivera.

Looks like we're Seattle-nacing, whoever wants to go first.

SPEAKER_06

Okay, I just, thank you.

On this consultant engagement, did this include looking at our, on the benefits side, healthcare for instance, looking at, you know, taking another look to see if there are other companies we can use that can provide the same level of support but for less money, things of that nature?

SPEAKER_08

I do not believe that is in the scope of this contract because this, it is, I'm just trying not to use this wonk, it's a priority-based budgeting project.

I describe it in a little more detail in the, it's kind of the first paper in the budget overview document.

It's really focused on the city's kind of internal services and how it provides those to departments just so we have like more clarity on, you know, how how this works.

And because it hasn't really been scrutinized, I think, in recent years, to my knowledge, got it more the service.

SPEAKER_06

Correct.

Yeah.

So whether there's overlap, and whether we can do more efficiently, correct.

Yeah, got it.

SPEAKER_08

So one of the things that consultant is doing is going to be looking at kind of pure cities and where they have also done a similar exercise so that we can kind of compare how Seattle is in relation to those cities.

SPEAKER_09

I described it as seemingly a benchmarking exercise.

So the firm that we've engaged have detailed budget data from comparable cities and could handle on what share of their budgets are spent on these services, what specific services are they getting, and again, where does it look like we are the high cost or the low cost producer of certain services internal to ourselves, if you will.

SPEAKER_06

Okay.

Thank you, Ben.

I had heard that the county provides benefits and ours is we're paying more and so I just wondered if there's opportunity and with keeping the level of service we're providing to our teams here at the city our workforce but seeing if there's opportunity to sometimes relook at some of those companies and see if we can do better cost-wise.

Anyway, thank you.

SPEAKER_09

Thank you.

I can just say super high-level, broad experience.

The biggest of our expenses on that benefit side is health care.

in an obvious way.

We are self-insured, to say we are ultimately paying the bills directly from the city.

We have engaged a number of firms to help us incentivize people to engage the health care system in different ways, ideally in ways that are ultimately more cost-effective so preventative when appropriate for people with chronic conditions better manage them and alike and I'm not at the moment up speed on the most recent work in that area but that's something we could not necessarily in the context of the budget review we're underway but beyond that if you're interested we could it's something we could engage in potentially next year some further discussion and review of what those efforts have been to date and where they may be headed.

SPEAKER_06

That would be great.

And I just, again, for the record, I want to make sure we're providing the same level of healthcare service to folks, but I know that you can negotiate with companies and you wind up getting, you know, better deals, et cetera.

So that's all I'm, I'm getting at.

Thank you.

Thanks chair.

SPEAKER_03

Thanks, and I am gonna just remind, if you could pull the mic closer next time.

Thank you.

I see that Council Member Moore's gonna hold her questions until the end.

I'll just take this moment to highlight this is an example of budget reform not being a one-time or one-year practice.

What we have, again, we have come out of the pandemic across the nation were.

And with Clifford funds expiring this year, the COVID relief funds in plain language expiring this year, we are seeing ourselves at a moment to have to make these hard choices.

We're making big decisions this year.

And what's more important than leaping off of a cliff is creating a pathway to sustainability.

We do see the federal and the national market starting to stabilize and move into slow growth despite our local regional issues that are impacting Snohomish and King County right now.

And so this is just one of those pathways that we're gonna keep working on because we're gonna make big decisions this year, but we don't have to make all of the decisions this year.

Back to you, Director Noble, Deputy Director Ho.

SPEAKER_08

All right, yeah, more to come on that one.

So, and just also noting for council's awareness, the families education preschool and promise levy renewal that will be coming forth to this body next year, as the current seven-year $619 million levy will expire.

This funds early learning, college, and job readiness, physical and mental health services to support learning, and post-secondary educational opportunities.

There are several proposed reductions that begin in 2026 that indicate programs that the executive may be planning to fund with this levy, including a number of sweetened beverage tax revenue supported early education programs.

Since the pandemic, the sweetened beverage tax revenues have not been sufficient to sustain the program expansions originally funded, and so we've had to kind of backfill the general fund or other funds over time and although it's slightly better it is still insufficient to fully fund these programs that are important to community and so they will looking they were looking to see if perhaps these can be funded by the levy instead and just noting that the Sweden beverage tax fund reserve is basically will be zeroed out to maintain funding in 2025 for these programs, looking to 2026 to see how else these can be funded.

Additionally, there are other programs that are currently supported by either the Jumpstart Fund or General Fund that may shift to the levy, and I recommend looking at the Department of Education and Early Learning Overview Paper for more details there.

And with that, I have concluded my presentation.

SPEAKER_03

Thank you.

Council Member Moore, would you?

SPEAKER_05

Thank you very much, Chair.

I had a couple of quick questions on slide two under the annual wage increases and related market adjustments.

What percentage of that is the driver?

I know you mentioned like the judgment and claims is a 30% increase.

Just wondering what the AWI...

SPEAKER_08

So there's a $420 million increase.

$359 million is due to the annual wage increase or market adjustments.

Let's see, so and then the...

Let's see, we had the judgment and claims was 14 million.

SPEAKER_05

So the annual AWI related market adjustments, that's 14% of the significant driver change between 24 and 25, 26. Sorry, I'll get this up on the screen.

SPEAKER_08

So there's $424 million increase.

Of that, $359 million is due to the annual wage increase.

So doing math at the table is never great for me.

So I think it's around 90%, I think, is the increase, somewhere around there.

Between that and the Jumpstart Fund transfer, those are the large majority of the increase.

SPEAKER_05

And then, I'm sorry, your question around judgment and claims fund.

I'm not understanding what percentage of the drivers, what percentage is the annual wage increase?

SPEAKER_08

I don't know.

Can I do some quick math for you?

Yeah, we're going to do some math.

Okay.

You got it?

All right, that's what I'm getting, 85% is the annual wage increase.

Okay, thank you.

SPEAKER_05

And those salary and benefit increases, those were across the board, right, for all departments?

SPEAKER_09

That's correct.

SPEAKER_05

Correct.

And that does include all the labor contracts that this council has approved?

That's correct.

SPEAKER_08

Okay, so that would be- There were some market adjustments as part of that as well, right, dating back to, I think, 2021 even, because it's kind of rolling through as there's been evaluations around how our our positions are paid versus others, right?

And so there's that aspect addition to the annual wage increase.

SPEAKER_05

Okay.

So that includes the city union contracts as well as SPOG and FIRE and all the independent unions as well.

Okay.

And then I had a question about on slide four, there's a huge difference between the figures for 20, I'm assuming 25, yeah, 25 and 26, pretty much in each category.

even in the deficit categories.

I'm just wondering if you can explain why there's such a significant difference between the two years.

SPEAKER_08

So I can very easily explain the 2025 changes in terms of the deficits, because those are related to the position abrogations in each of those departments, because those are purely labor-related costs.

So that's why those are going down in 2025. But we...

there is a healthcare, yeah, sorry, Ben, you're going.

SPEAKER_09

I would say what happens in 25, there's a net reduction.

So I mean, each of the departments was facing its own set of inflationary pressures, but they're actually able to reduce eliminate that effect and lead to an overall reduction.

So they set a new base for 2025. I'm just thinking about the lower half here of the chart, IT, SDHR, and FAS.

I'll come back to the, you know.

So they set a lower base for 2025, and then there are a set of inflationary AWI increases that from that lower base add cost in 2026. So that's why you see that reduction in 25 followed by the increase in 26. So it's an increase relative to that now lowered base.

healthcare I have to check it that could be a compounding effect so that you so it's if you will 27 million dollars a year and there's that increment in 25 becomes again a higher base for 26 and then there is again additional increase because there is this growing pressure on on health care costs but I can I

SPEAKER_08

Yeah, we're looking into some of these numbers.

This is just what we received in the transmitted budget.

So we also are kind of trying to interrogate some of these increases as well.

SPEAKER_05

Yeah, I mean, the cost from 2020 I mean, it goes down by half between 2025 and 26. I don't understand how health care gets cheaper or workers' compensation goes down by $16 million or other central service expenses goes down by 14.

SPEAKER_08

Oh, no, this is the net change.

So it's a $51 million increase in 2025, and then it's...

$27 million increase in 2026. It's not going down.

It's $27 million in addition to the $51 million.

Sorry, I realized this graph may be a little confusing.

SPEAKER_05

So it's going to increase $27 million?

Yes, it's still increasing.

Over the $51 million?

Yes, yes, that's correct.

Got it, okay.

SPEAKER_09

Sorry, I confused the colors myself for a moment.

SPEAKER_05

Okay, thank you.

It's always confusing with the two years.

SPEAKER_08

It's easier with the one.

Okay, thanks.

SPEAKER_03

Just to clarify there, for the $51 million that's in addition to what we are currently spending,

SPEAKER_08

Correct, so this is the delta, this is the change.

SPEAKER_03

And then the dark green line is in addition to the 51 million plus.

SPEAKER_08

Correct, it's additive, it is additive, accurate.

SPEAKER_09

Which is a correction on what I said and I apologize.

SPEAKER_08

We'll try to do this bar chart a different way next time.

SPEAKER_03

Thank you.

SPEAKER_05

It's not my strong suit, let's just say.

SPEAKER_03

I see Council Member Saka's up next, Council Member Saka.

SPEAKER_07

Thank you, Mr. Chair.

And I guess first a quick comment on slide number six.

With respect to the blurb there about the pending consultant report and study, kind of analyzing and assessing policies, when you mentioned the quote-unquote benchmarking exercise that's being undertaken right now, that filled my cup.

That gave me a lot of warm fuzzies.

You all know, colleagues, I've been talking about that, the importance of that.

year round and I'll continue to talk about that.

It is important for us to collaborate and that is really the only way I think to live up to the One Seattle approach in a regional approach, in a statewide approach and even in a national approach.

Adhering to best practices, avoiding duplication of efforts across departments, understanding, you know, I call it three P's, policies, practices, and processes.

So understanding what other municipalities are doing in similar areas is very instructive.

So kudos to that.

Look forward to seeing that report when finalized.

Comment on, or question rather, on slide number three.

The positions and personnel changes slide.

Yolanda, you noted, well, I heard you speak to certain cybersecurity personnel and investments.

Can't recall which department that was purportedly for, but can you talk a little bit more about what that investment is and where that's going?

SPEAKER_08

That was in Seattle City Light, but I could not speak to any detail on that that might be outlined in the Seattle City Light paper.

So I would recommend looking there.

Yeah, I do not know, but I understand it is extremely important, obviously, especially in our utilities, to have such a focus.

But I cannot give you more detail on that this time.

SPEAKER_07

Sure.

No, well, I couldn't agree more.

And...

I am a lawyer, although a non-practicing lawyer.

And I always say, you know, I was a tech lawyer, but more specifically, I was a cybersecurity lawyer when I was practicing.

And so help organizations and companies be more resilient and enhancing their cybersecurity posture and best practices.

So this is a critically important function that I know firsthand we've seen firsthand with, was it the libraries this year?

Cybersecurity attack, criminal actors, there's nation state actors, landmines are everywhere.

The cyber landmines are everywhere.

I think the port recently declined to pay for a ransomware attack.

So it makes a lot of sense that we continue to strengthen and beef up our cybersecurity posture across the city, especially in some of these critical infrastructure utilities like City Light and public utilities, et cetera, which are federally designated.

Emergency management speak, public safety chair kettle.

They are federally designated important critical infrastructure assets.

So I just want to emphasize the importance of continuing to strengthen our cybersecurity posture.

SPEAKER_09

Just to build that and highlight, obviously cybersecurity is important to the entire city, and Seattle's Information Technology Department is a significant focus of theirs.

But just to your point, City Light...

as an energy supplier is subject to federal regulation.

And I know from previous work in the city that the security requirements around their IT infrastructure are yet again another level.

So again, without having any of the details myself, it sort of makes sense to me that they, City Light, would have an ever deeper focus on that issue.

Thank you.

SPEAKER_03

Thank you, Councilmember Soccer, Councilmember Kettle, followed by Councilmember Morales.

SPEAKER_10

Thank you, Chair Strauss.

I just wanted to say, first, thank you, Director Noble and Deputy Director Ho, and really to the entire staff for all the work that you've been doing.

I've been primarily engaging with the public safety realm, but not solely.

And I really appreciate all the work of Mr. Doss, Ms. Goldman, and Mr. Johnson in particular.

So I really appreciate it.

My question is, well, it's a question more of a statement.

Slides three and six, I note when I see the personnel changes and outside of the SDCI, which is in one category, the rest all kind of come from within the family of support, administrative support generally.

in its various ways, the IT or finance and HR.

And I am keenly like my colleague at the other end of the dais on the central service evaluation because my experience at the federal level, when budgets kind of get bigger and all of a sudden they go like this and the intent when they go like this is to cut the, administrative side of things and and usually what ends up happening the work doesn't go away it just gets transferred to the people who weren't doing that work in the first place and that's got to be part of the you know the considerations and you know if we need to go forward on that fine but we should do it eyes wide open because I suspect that at the city level the experience won't be any different than mine at the federal level so that's a statement that I could turn into a question like what do you think about that statement but Yeah, actually, the question is, have we done this before in terms of the ebb and flow of government?

Have we done this before?

We're talking about right now, but did we go through this 10, 20 years ago, and were there any lessons learned from that time period?

SPEAKER_09

We have been through the Great Recession being the one that comes to mind as the last time there were significant city layoffs.

And there are, as an example, the city, just in terms of individuals, the city has a program, suddenly blanking on its name, that offers opportunity for city employees who are laid off to look for positions elsewhere in the city.

Because as you'll see in this chart, at the same time that we are limiting and there's a net reduction, there are new positions opening in other departments.

Whether there's a skill set match is a different question, but that's one of the things that SETL's Department of Human Resources will be engaging in.

SPEAKER_10

I recognize that, and again, I do value the work of HR, IT, the Finance Administration, and my concern is how much gets shifted on those individuals who need to be doing X and Y and Z work across their departments.

Thank you.

SPEAKER_09

At a higher level, whatever.

a seasoned long-term bureaucrat, I do think and worry that at times the city, the pressures are clear now to focus cuts elsewhere from direct services, but these internal structures are actually important.

One way to think about it, the city is an employer with 12,000 plus employees delivering an amazing array of services and products, and managing that and managing the internals of that are non-trivial.

Again, I'm not arguing with the priority placed on services delivered to the public, but this infrastructure piece, we starve ourselves too much.

We actually will affect that as well.

It is hard to quantify that, and I'm not arguing against any specific proposed cut.

Just to recognize that Army marches on its feet, sorry for this analogy in this case, but that internal service stuff really does make the city work or not, if you will.

Yes.

So far, I look forward to the evaluation.

SPEAKER_10

Thank you.

Sure.

SPEAKER_03

Thank you, Council Member Kettle.

Council Member Morales.

SPEAKER_04

It's hard to figure out where to put all this stuff in our little space here.

I want to stay on this slide.

Well, first, I do want to echo what Council Member Kettle is saying, which is that even the internally facing staff here at the city provide all of us really important service and sort of help keep the machines moving.

Um, so, uh, it is, it is troubling to see so many positions, um, for the, the central service costs, um, being considered to be cut.

Um, what I'm interested in about this chart, um, and I, I understand I'm looking for the care and UCT, uh, additions that we made, and I understand why they're not here because those were voted on in 2024. They were not part of this budget per se in terms of the legislation that created the positions.

But I'm trying to understand in the last bullet point here of the—I don't know if they are included in that $359 million increase over 2024 budget, but I'm interested to know where they show up in this budget, whether it's what percentage of that $359 million or what share of the increase over 2024 that accounts for.

SPEAKER_09

Not sure we can give you that answer right now, but we do have coming up a policy considerations paper about the care program specifically that will call out those additions and the cost associated with them, and not just the incremental cost in the 25 budget, but sort of the net cost of those that were approved this year as well.

SPEAKER_04

And then for the unified care team, that's been really hard to track because there's no line item for it here.

It's not in the table of contents.

SPEAKER_08

Yeah, that's going to be an individual policy consideration paper as well, so that will be kind of brought together into one holistic conversation there because of that exact issue.

So we wanted to make sure it was clear.

SPEAKER_09

You have inadvertently provided a great advertisement for the way we've organized the presentations this week so that we have one specifically on care and one specifically that touches on the UCT and gives you an overview of this for the very reason you described it.

They cut across enough departments that you can't see it easily in the budget documents themselves.

SPEAKER_04

Okay, thank you.

SPEAKER_03

Thank you.

I'm gonna just take this opportunity because colleagues, we are clearly already digging into the details here.

Tomorrow we will have OPCD deep dive.

Then we will have Office of Arts and Culture followed by the Seattle Channel.

To Council Member Kettle's point, we wouldn't have this broadcasted without the Seattle Channel.

without our internal services.

We then have, in the afternoon, Seattle Department of Human Resources, followed by SDCI.

On Friday, we will have Participatory Budgeting, Human Services Department, Unified Care Team, and the Office of Economic Development.

With Monday, having the Police Department, the Care Department, and the Fire Department, as well as the City Attorney's Office.

Public Safety Monday.

FOLLOWED BY TUESDAY, OUR JOINT MEETING OF THE FORECAST COUNCIL.

YOU'LL HEAR THE NEWS AS SOON AS WE DO.

THE SEATTLE DEPARTMENT OF TRANSPORTATION IN THEIR OUT-OF-SYNC PRESENTATION.

SO, COLLEAGUES, ANY OTHER QUESTIONS ON THIS PRESENTATION?

OTHERWISE, WE'LL MOVE INTO THE NEXT AGENDA ITEM.

AND, CLERK, I'M NOT SURE IF WE'RE SUPPOSED TO BE READING EACH ITEM INTO THE RECORD.

I THINK WE ARE.

IF YOU COULD READ, I'M GOING TO PULL UP MY AGENDA AGAIN, ITEM Actually, we've already had item number two.

So if you could read item number two in and then item number three, just to keep us legal.

SPEAKER_11

Thank you.

Agenda item two was a central staff overview of the 2025 and 2026 proposed budgets.

Agenda item three, general fund balancing overview.

SPEAKER_03

Joined by Tom Mikesell now and Yolanda Ho, Deputy Director Yolanda Ho is subbing in for Eden Cizek.

Eden, thank you for all your work there.

Moving on with Tom Mikesell, we've got the general fund balancing.

This has both a memo and a presentation attached to it.

At your convenience, I'll let you take it away, Tom, as well as Director Noble.

SPEAKER_02

Thank you, Chair Strauss.

Good morning, members of the Select Budget Committee.

I'm Tom Mikesell with your central staff.

This morning, I'm going to be covering an analysis of the general fund in the mayor's 25-26 proposed budget.

Just real quick, why do we look at the general funds so specifically?

It's generally because it is our least restricted revenue source.

So it's the funds that can be used for a variety of city purposes.

And from that perspective, many community and council priorities are funded from within the general fund.

So the trade-offs implicit and the balance are of significant importance.

So I will dive right in with this review.

WITH AN OUTLINE OF THE KIND OF OBJECTIVES THAT I HOPE TO COVER WITH YOU THIS MORNING, WE ARE GOING TO KIND OF GO BACK IN TIME A LITTLE BIT, LOOK BACK AT THE 2024 BUDGET, HOW THE GENERAL FUND LOOKED BACK IN LAST NOVEMBER WHEN THAT BUDGET WAS ADOPTED, REVIEW SOME OF THE CHANGES THAT COUNCIL HAS APPROVED SO FAR THIS YEAR.

and the impact at the ending 24 balance of those decisions.

Then move into some of the proposals in the mayor's budget, see what the impact on the 24 ending balance is from those changes.

And then kind of wrap it up with the kind of ultimate summation of where 24 is projected to end, which then generates resources.

that then are used in the 25 proposal.

We'll look at first kind of the baseline technical changes, kind of the cost of just continuing the 24 programs.

To stop for a second, see what that baseline deficit looked like, then proceed into some of the mayor's proposed spending revenue changes AGAIN, RECAP WHAT THE FINAL BUDGET BALANCE SITUATION LOOKS LIKE, THEN PROCEED INTO A REVIEW OF KIND OF PROJECTING OUT THE GENERAL FUND INTO THE NEXT TWO YEARS TO SEE WHAT THE SUSTAINABILITY VIEW IS AND THEN END WITH KIND OF A SEGUE INTO JUMP START FUND AS IT DOES PLAY A SIGNIFICANT ROLE IN THE BALANCING OF THE GENERAL FUND BUDGET.

So without further ado, I will go back in the Wayback Machine about a year ago when the 24 budget was adopted.

What you see on the screen is the projected financial plan that projected a approximately $224 million deficit in 25 and 26. So essentially, this means that revenues were $224 million short of the expenditures that would be projected in 25 and 26. And just real quick, I should have said this from the beginning.

This is some fairly technical information.

There is an even more technical memo that has been attached.

I'm not going to cover all of those, that level of detail.

Happy to discuss it extemporaneously as we cover this material today.

But this is technical, and in the view of that, I've included key takeaways on each one of these slides that are what I view to be the most important salient details that I would hope that you would take away from each one of these detailed slides.

And so with that, you can see the key takeaway is that the budget adopted for 2024 last fall projected a $224 million deficit for 25 and 26. And so, as I just got, as I mentioned, first step is to kind of look at the things that you, the council, have approved so far this year.

So we started the process with an assumption that the general fund was going to end with basically a million dollars unreserved fund balance at the end of the year.

First thing was the city finance staff completed their assessment of the of the financial situation from 2023. And as part of that process, they determined there was about $164 million more cash in the general fund than what they had originally projected.

So that's good news.

A lot of that money is going towards supporting carry forward.

So this is spending that was originally proposed in 23 that is kind of for programs that are not yet finished or for contracts that are still ongoing.

live and need to have the resources to pay them.

And so a lot of that money is used to support those changes.

And kind of in that regard, the automatic carry forwards and legislation that has been approved to date adds some $60 million of new revenue, but it's really more than offset by $348 million of added appropriation.

So that's going to include things like the wage increase bill, so there were a number of city contracts with collective bargaining groups that were approved by council, and so money had been reserved in planning reserves in the past to pay those contracts, to kind of build the money into the budget to pay those settled contracts.

So that's the largest piece of the increase.

There's also some money from carry-forward appropriations from 23, so that's, again, continuing the...

the programs that were adopted in prior year budgets, and also the mid-year supplemental bill, which we discussed in August, which adds some slight new spending but also added some minor new revenue.

All of these bills are detailed in the memo.

I'm not going to go into too much detail because, again, it's already been passed.

It's just a matter of kind of assessing what the impact on the balance is.

And then finally, the August revenue forecast.

So that was part of that process.

They not only do projections for the next few years, but they also kind of re-update what the forecast is for the current year.

The, I guess, less great news in that process was after you account for things like grants and carry forward revenue appropriations, the underlying base revenue In the oops I accidentally hit the button.

Sorry about that that forecast removed about $10 million of revenue from the 24 forecast so that that has kind of a drag effect on the on the resource balance but the key takeaway is that after all of the approved changes to date.

So the various approved legislation carry forward from prior years, update to the forecast.

The impact on the 24-year imbalance is $27.4 million.

So that's not the end of the story.

That's kind of a guidepost.

This is where we are before looking at the mayor's proposals.

So now they propose changes.

SPEAKER_03

Tom, everything you just presented was giving us the preface for the decisions that we have to make in this current budget.

Is that correct?

SPEAKER_02

That is precisely correct.

SPEAKER_03

And so everything that you've just shared is leading us up to today.

We received the mayor's new proposal.

Take it away.

SPEAKER_02

And here we are.

SPEAKER_03

Yes.

Thank you.

SPEAKER_02

Exactly.

SPEAKER_03

Thank you.

And I see Vice Chair Rivera's got a question.

SPEAKER_06

Thank you, Chair.

Thank you, Tom.

I just want to confirm.

So at the end of all of this, we have $27.4 million balance in our favor, not a deficit.

SPEAKER_02

Correct.

So I said, you know, what...

Moving back to last November, it was a million dollar balance.

All of the things approved to date.

Yes.

SPEAKER_06

And the 27.4 doesn't include carry forward and all of those things that we're on the hook for.

SPEAKER_09

Thank you.

And Tom's about to explain this.

The mayor's proposed budget took advantage or acknowledged that 27.4 million and has some ideas about it, if you will.

But again, turn this back to Tom for that.

SPEAKER_02

Okay, so now we're going to talk about some of the proposed changes.

And again, this is high level, talking broad strokes and how it impacts the resources that are available.

So first, there are three key pieces of legislation that were submitted with the proposed budget, year-end supplemental.

So that's sort of the second of the comprehensive budget legislation that adjusts the current year spending for emerging needs.

That bill would increase revenues to the general fund by $13.6 million.

Much of it, Clifford revenue that is being moved from the Clifford fund into the general fund.

And then there are also some offsetting appropriations to spend that money.

And in fact, the general fund expenditures would increase by $29.9 million as part of that bill.

So the net impact of that legislation is $16 million draw on that $27 million balance.

SPEAKER_09

Just real quick, one of the allowed uses of the Clifford dollars is revenue replacement.

So having expended it for all other things, any remaining balance made sense to claim it, if you will, as revenue replacement.

And that's what's happened here.

So the last of those dollars are claimed and need to be expended by the end of the year.

So it makes sense to do that in that context.

Sorry.

SPEAKER_02

Thank you.

Good add.

And so the next bill, so this is revenue neutral.

This is similar to the mid-year bill.

whereby the council accepted revenues from external parties, so like for grants and contracts with outside providers, and then that revenue is then backed by an offset in appropriation.

So we accept the money, we spend the total dollar amount of that bill is $3.3 million in the general fund.

But it's again, cost neutral, revenue in, expenditure out.

And then the third and most significant change is the second wage increase bill.

So back in August, I believe, there was the first of two bills of this type whereby the city budgets were updated, the salary budgets were updated to account for the settled labor contracts.

At that time, because there was a hiring freeze in place, There was the hope that the total cost because of that higher increase of the impact on labor budgets in 24 could be reduced because of the hiring freeze.

And so the full amount of the wage increase was not built into the budget in the mid-year bill, anticipating that we could possibly reduce the impact this year because of that hiring freeze.

And in fact, the...

This bill would increase general fund appropriations by $110 million, actually not general fund, total city funds by $110 million, and $29.7 million of it is general fund.

And that impact is backed by just a spreadsheet change, which is deducting the amount from the planning reserves, which are not budgeted in the city budget, but are held back in terms of financial planning so that monies are available when contracts are settled.

And then also there is what is called a health care holiday.

This is essentially the health care fund balance had accumulated some extra money in excess THE CURRENT YEAR'S NEED.

SO CITY BUDGET OFFICE DETERMINED THAT THE ASSESSMENT TO THE SELF-INSURANCE FUND COULD BE REDUCED FOR 2024 AND THEN JUST RELY ON THE EXISTING BALANCE TO PAY THOSE BILLS.

AND SO THAT HAS HELPED KIND OF OFFSET SOME OF THE COST OF THE WAGE INCREASE TO THE APPROPRIATION IN 2024. So to kind of recap it all, the net balancing impact of the proposed legislation is a $16 million reduction.

SPEAKER_09

So, Tom, I'm going to put you on the spot.

So that means that the 24.8 in the previous slide is then reduced by 16?

Correct.

Yeah.

So if you follow the flow, if you will, of the funds here, that's...

SPEAKER_03

So just to do the math on the books, it's $27.4 million minus $16 million.

SPEAKER_09

That's where the proposed change to $24 would leave the general fund balance as we enter 2025, except that there are further changes.

So it's not a $16 million in the whole.

SPEAKER_03

This is $16 million less than $27 million.

SPEAKER_09

And that was exactly the distinction I was trying to make.

SPEAKER_03

Thank you.

Because, colleagues, it just, the way the slide looks makes it look like the mayor's office didn't do everything possible.

And in the reality, they did everything that they could to make sure that we were not in a worse situation.

I was going to ask you, Tom, what would be the situation if they had not taken those corrective measures earlier in the year?

I'm not going to put you on the spot, but it just...

illustrates you were talking the hundreds of thousands of dollars, possibly the many millions of dollars here.

SPEAKER_09

I don't know if it's been updated.

The generalized expectation is that the hiring freeze saved about $20 million of general fund, just to put some numbers in that context.

Thank you.

SPEAKER_03

Council Member Kettle, old hand, new hand?

Thank you.

Colleagues, Council Member Rivera?

SPEAKER_06

So we're really ending with 11.4 million deficit, no?

SPEAKER_02

I haven't gotten quite to the end yet, Vice Chair Rivera.

SPEAKER_06

It's going to get worse.

SPEAKER_02

There is a comprehensive table on page nine of the memo that tracks this all linearly through.

So yeah, we have one more slide to go before we get to the punchline, if you will.

So the continued changes to the 24 budget.

So this is a one that I'll talk about a little bit because it's also a strategy that's employed in 2025 as well.

One is that the executive is including a $24 million underspend in the.

in the kind of revised budget.

So basically what they are saying is they are committing that spending in the general fund is going to come in $24 million below what the appropriation is.

It's actually a strategy that has been employed in the last few budgets.

And you'll see, I'll show you the track record of kind of the assumption against the actuals and how this number is not generally in line with what our expectations would be.

But I will just say that An underspend is it's an assumption.

It is not a guarantee When when the when all is said and done the budget has to come in below available revenue so It's it's I guess perhaps more predictable when you know where those cuts are coming from versus having to come up with them on the fly.

The ability to make the more deliberate decisions and those cuts into the budget in the first place gives you more time to think it through.

When you have to react, the decision scope that you have is a little more limited.

So just gonna point that out again.

We have had underspends in prior budgets and we have exceeded them as you'll see.

And then finally, the planning reserves.

So this is the unbudgeted amount in the general fund financial plan.

The budget office has increased that by $10 million.

So when all is said and done, the revised 24 ending balance increases to $24 million, which is a $23 million change from what was assumed in the adopted budget.

And so those resources, you'll see, are fully deployed in the 2526 proposal.

I will stop for just a second.

SPEAKER_09

Okay.

The reserves that are referenced there are held for outstanding labor contracts and also potential judgment and claims issues, and the increase there is reflective of risks on both those fronts.

SPEAKER_02

Okay.

So now we'll dive into the 25-26 proposed budget.

One thing you have possibly heard through kind of the intro to budget during the summer, the budget select summer series is that we do incremental budgeting here at City of Seattle.

So each year's budget is based on the prior year's budget as the starting point.

And so in this analysis, the starting point is a $1.722 billion general fund budget.

So that was the 24 adopted level.

And so all of these changes that I'm gonna run through here in the next few slides are either incremental or decremental to that $1.722 billion.

So this is where we get really technical, but one of the kind of first changes that the Budget Office does is rebasing the budget.

So that's basically saying taking out largely the one-time stuff.

So there's...

you know, a common theme that you'll hear when we talk about budgets, ongoing versus one-time spending.

So one-time is kind of usually capital.

So building something is a very discreet expense, doesn't continue into future years.

Ongoing is more like, it's like a streaming service subscription where you sign up for it and it just perpetuates until you proactively decide to take it out of the budget.

And so this first mechanism takes out the stuff that's one time and kind of readjusts to, so we're only including those items that are truly intended to go into future years.

And so this is the largest adjustment, is technical increases.

And so this is kind of making more technical changes, adjusting things to the levels that would be required to maintain the 2024 service levels at 2025 costs.

The biggest change, and so this is going to include things like updating the budget for legislation that was approved this year that's continuing in nature and it has a 25 cost.

the internal service charges that Yolanda was discussing earlier, transfers to various reserves, transfers to things like police and fire pension programs, and then the biggest one is the AWI.

So we're basically updating the 2024 budget for the salary cost based on approved contracts.

And that was $158 million total technical adjustment in 2025 and $213 million in 2026. And then next, planning reserves.

So these, as Director Noble mentioned, these are those things that we hold money for known and contingent needs.

That was a $51 million increase in 2025 and $82 million in 2026. And then finally, transfers to fiscal reserves.

So the general fund makes regular transfers to our two principal fiscal reserves, which are the emergency fund.

which is for unforeseen emergent needs in the budget, and the Revenue Stabilization Fund, which is for when general fund revenues come in below expectations.

We're able to decrease, our proposed budget decreases those transfers by $3 million in 2025 and $11 million in 2026. And in the next slide, I'll kind of recap where we are with the fiscal reserves because it's a good news story, to be frank.

SPEAKER_09

And just again, to be clear, those negative numbers don't mean that we're drawing from those reserves, but rather that the that the amount added in 2025 is a little bit less than the amount added in 2024. And Tom will explain why and similarly for 2026. So we're continuing to build both reserves.

It's just that the rules and the policies we have about how they build lead to there being a smaller contribution, again, relative to 24 in each of 2025 and 2026.

SPEAKER_03

Mr. And Director Noble, do you know offhand when the last time those policies were updated?

Was it 2008 or has it been since then?

SPEAKER_02

I don't believe the revenue stabilization fund policy has been updated for a while.

It's been prior to my time.

But the emergency fund policy was updated during the COVID pandemic because essentially the entire balance was used.

And then a five-year repayment plan, which kind of that's my good news story is that We're at the end of five years, and so we fully replenished it.

But I believe that was in 2021. I believe that's correct for the emergency fund.

SPEAKER_09

The previous policies had implied that you'd restore the emergencies immediately at the beginning of the next year, which, given our circumstances, Well, it wasn't practical.

It didn't make much sense.

But at the same time, we want there to be an emergency sub fund if we need it again.

So the idea of building it back up aggressively was important.

And again, I mean, in the context that we're talking, we're continuing to contribute to that while we're also cutting some city services.

I mean, that is a conscious choice and a recognition that you don't know when the next storm, I mean, in a generic sense, storm might come.

Well said.

Thank you.

SPEAKER_02

So just the key takeaway, baseline technical.

So adding to the $1.72 billion starting point of the base budget, these baseline and technical changes that I just covered add $171 million in 2025 and $262 million in 2026. And now the fiscal reserve status.

So this shows you the...

kind of balance history.

So starting with 2025 beginning balance and then showing the transfers that are coming from the general fund into the fiscal reserves and then showing what the ending 26 balance is and then how that compares to our policy.

So you'll see underneath the table what the different policies are.

The emergency fund is to be funded at amount equal to $60 million in 2016 dollars inflated by CPI.

And so at the end of 2026, the emergency fund should be at $88 million.

The transfers that are included in the proposed budget fund it to that level.

And as you can see, you can kind of see the impact of the decrease.

You can see in 2025, the transfer is $12.7 million.

And then in 2026, it's $2.4 million.

And then after that point, it'll just be maintaining that transfer.

And the revenue stabilization fund has been at 100% of policy for a while.

That policy is 5% of general fund tax revenues.

And then the annual contributions are essentially what's necessary to keep up at that level.

There are additional policies that come into play after you use the revenue stabilization fund, but that's not our situation at this point.

So the key takeaway of this is good news, that the fiscal reserves will be fully funded at the policy levels at the end of 2016. And in fact, the revenue stabilization fund is already there.

Okay, so we covered the expenditure side of the baseline technical changes.

Now I'll just really quickly touch on the revenue side.

And so this derives from the August revenue forecast from the forecast office and CBO.

So last, in August, they projected that general fund revenues in 25 would be 1.5%.

$1.64 billion, and then in 26, it would be $1.71 billion.

The 25 number is about 2.3% higher than the 24 revised forecast, which is not really great in comparison to inflation.

So inflation is 2.8%, at least based on the August forecast.

So we were actually not quite keeping up with inflation in 25. 26, however, increases to 4.3%, which does outpace the inflation rate of 2.9% that was in the forecast office regional economic model.

I will say that these are just the baseline numbers.

They don't include the proposals in the mayor's budget.

That's kind of additive.

TO THESE NUMBERS.

AND THEN FINALLY, AND AS I THINK WAS COVERED EARLIER, THERE WILL BE THE THIRD AND FINAL FORECAST UPDATE WHICH SETS THE PARAMETERS FOR THE CHAIR'S BALANCING PACKET AND FOR ULTIMATELY THE BUDGET THAT YOU ALL WILL CONSIDER.

THAT WILL COME TO A JOINT MEETING OF THE FORECAST COUNCIL AND THE BUDGET COMMITTEE on October 22nd.

SPEAKER_09

Just a little bit of history here and observation, again, for someone who's been around for too long.

This pattern where growth is either below inflation or just above is what has been forecast and what has been realized in the last couple of years, but it is a significant change from the city's pre-pandemic situation.

We were pre-pandemic in the midst of a significant boom, really driven most specifically by technology, but that boom was leading to significant amounts of construction on both the commercial and residential side.

So revenues were outpacing, and we were also in a historically low inflationary environment, like below 2.5%.

In that context, we're in the best of both worlds, if you will, and that's not the pattern we're experiencing, nor the one that is projected.

So I just, again, you weren't necessarily all here for that, but this is a paradigm shift for the city in terms of managing its finances year to year.

It's less a question of what new things we can fund, and rather, how can we manage to sustain what we have?

Not entirely, and you'll hear more about that as time continues, but that's been a significant shift and worth noting.

SPEAKER_02

So this is kind of a milestone.

We're not done quite yet.

But this is the assessment of the baseline deficit.

So the comparison for this is the numbers that we were talking about in May when we did a forecast update.

And at that time, we were talking about a $258 million or so general fund deficit in each year.

And as you can see, I'm not going to cover we've covered all these all these these points in the table, but I just kind of like to.

It shows that when you include all the baseline changes, the proposed budget has about a $254 million ongoing deficit and the the 26 proposed is $262 million.

So it's pretty much right in line with what we were projecting back then.

Just to say that that's why we provide the updates, is to kind of give a look ahead of what to expect, and those kind of methods seem to be holding fast.

But this, again, isn't the end of the story, because we cannot adopt an unbalanced budget.

So let's go now into some of the proposals, spending and revenue, and then the chair.

SPEAKER_09

Just to highlight, when the mayor was building the budget in July, if you will, July and August, this is a situation, the bottom line that they were facing as they move forward to find a way to balance, if you will.

And Tom is now going to walk through how they got back to that balance, but just sort of the context of this and kind of the flow of history in time, if you will.

SPEAKER_03

Thank you, Tom.

Thank you, Director Noble.

I know we're gonna talk about Jumpstart in the next presentation, so I won't go into that here.

Yeah, if you could stand on this side.

Understanding this was the situation everyone in the city was looking at in May, June, July.

This 254 and 25 and 262 and 26 does not take into account any use of Jumpstart, is that correct?

That's correct.

And in the past, we'll get to the jumpstart.

Every year we've had jumpstart, we've used jumpstart.

So colleagues, these are hard.

There's not really an apples to apples.

There might be types of apples to apples comparisons to be made.

I just want to highlight that when I might have been cool, calm, collected during the select budget series.

This is what was keeping me awake at night.

And so we'll get into the next set of this is the problem with the mayor's office and the CBO solved.

SPEAKER_09

And just to build on that, this didn't consider potential use of Jump Start because unless and until this council approves a new city ordinance, it's precluded by city ordinance.

So in doing this math, it wasn't an option.

unless and until it was made an option.

And as you'll see, the mayor is proposing that it become an option.

But just to highlight that, that it wasn't made up.

That really was the state that we were in, if you will, and arguably still are until you consider this legislation, which is actually a topic of my presentation that will follow this.

Sorry, Tom.

SPEAKER_03

Okay.

So, Council Member Rivera.

Sorry.

SPEAKER_06

Thank you, Chair.

Although, Ben, some of this could have come from Jumpstart for those purposes for which it was passed, no?

I mean, some of this will include all those four uses of Jumpstart.

You're just saying it can't fully back all of it.

SPEAKER_09

Yeah, and I think...

The city law that was passed by previous council was designed that the jumpstart monies be incremental to the baseline spending that is represented in this table.

So there were potentially some opportunities to be a little bit creative about the application of the definitions, but that certainly wasn't the intent.

And I don't mean to belabor this.

I'm just trying to describe that the existing city code is designed to be prescriptive and restrictive on the use of those dollars.

SPEAKER_06

And I guess the point I'm trying to make is some of those uses are part of the two, the deficit figures here.

These deficit figures are not exclusive of those uses by which, for which Jumpstart was passed.

Some of that is contained as part of this deficit number.

SPEAKER_02

And there's two kind of flavors of transfer from the Jumpstart fund to the general fund.

One is the just revenue backfill, which in 2024, that was $85 million.

And that was temporary by current law.

But there's also administrative.

The Jumpstart Fund can be used for administrative expense, and it is in the general fund for tax collection purposes.

And some administrative CBO branch gets some of that as well for the kind of additional work on Jumpstart.

That's on the order of $7 million and is actually projected to increase.

I'll cover that here in a few slides.

And that's just part of the spending plan of Jumpstart.

which allows up to 5% in current law to be spent on administration.

SPEAKER_03

And Tom, just to pile on there, sorry.

It was 5% for administration in part because we were setting up a brand new tax.

Maybe that's not a question.

SPEAKER_02

It was a choice of the sponsor, but that's the parameter.

And then there was clearly an administrative burden of collecting the tax and that sort of thing.

But then there's also kind of additional programmatic ads that need administrative expense.

And we covered kind of that as that's part of programs as well.

SPEAKER_03

It seems like I've led us into the next presentation.

I'll turn it back to you to stick on this one.

SPEAKER_02

So this is going to be very high level.

There is an attempt to know this in detail, but then even in that case, it doesn't get the true flavor.

That's why we have the budget overview documents and the policy considerations paper.

I am just really trying to capture what the impact is on the general fund balance.

with this, so apologies that I'm not going to go into a great level of detail.

But what this table shows is kind of how the budget is increased through appropriation of proposals, because sometimes it's not clear.

You only hear the net, and you don't hear the kind of the ins and outs, if you will.

So you'll see in the attachment that I have separated things into expenditure decreases, so places where the budget is being decreased in a proposal.

And then I isolate things.

And then you can see from the table, there's about $54 million of decreases in 25 and about 50 in 26. Then there are these transfers.

So that's moving a program from one part of the budget to the other.

That actually results in a net decrease to the general fund of $1 million.

So the subtotal of expenditure decreases, there's probably 100 plus of those, is $55 million reduction in 25 and $51 million in 26. Then the proposed budget adds more spending, so this is kind of novel spending in programs, totaling $78 million in 25 and $74 million in 26. So the net result is that all of the proposals included in the budget increased 25 spending by $23 million in both years.

And then the second year, and again, this is getting into the one-time ongoing distinction, even though it's a $23 million, DECREASE IN 2025, IT'S REALLY $25 MILLION OF ONGOING DECREASE THAT IS OFFSET BY A $2 MILLION ONE-TIME REDUCTION.

SO ONCE YOU MOVE INTO THE NEXT YEAR, THAT $2 MILLION ONE-TIME GOES AWAY AND YOU'RE REALLY JUST SPENDING THE ONGOING MONEY.

SO THIS IS JUST, AGAIN, the kind of gory details, if you will, of the various pieces, the ups and downs in the budget, but then you can see what the net result of the new proposals included is.

SPEAKER_09

These increments are relative to that adjusted baseline, so we've taken the 24 budget, inflated it to sort of what it would cost to meet current services, and then said, okay, that's not going to, we want to make some changes, we're going to make some changes, so the mayor in particular had some priority adds to make, so increase of services in certain areas.

Given the overall situation of revenues, in order to make those possible, there had to be reductions.

You might literally read this as a shifting in priorities.

There are reductions made in some areas, presumably of lower priority, to invest in new areas of higher priority.

Not to be too philosophical, but that's what budgeting is about, and that's what you're on net seeing here.

Again, referring to that comment I made a couple of slides ago, in a previous revenue environment where revenue growth was outpacing increases in cost, you could have expenditure increases without having to make that priority choice of what needs to be cut in order to fund them.

And that is, again, sort of an example of how this is playing out in the decisions that you are facing that in some ways are distinct from the ones that preceded you in years where, again, revenues were growing more quickly.

SPEAKER_02

So before we move to revenue, I mentioned earlier that in the 24 revised budget, there's a $24 million kind of IOU, I guess, for lack of a better word, to say that spending will come in below budget.

There's also a $10 million assumption included for 2025. Smaller, it's $10 million for 2025. That helps balance that year.

And as you can see, It's fairly conservative compared to our recent experience.

You can see since 2022, we've been including underspend assumptions in budgets, and at the end of the year, the spending comes in in excess of that assumption.

And so it's part of it.

I'm only mentioning it because it is part of the balance package, but it is an assumption.

There is really not a kind of a decision specifically to be made on that point.

And now we'll move into the revenue proposals.

So this kind of packages it all up and balances the deficit plus the new spending.

So there's a table included in the memo that captures this, but you can see that in...

both 25 and 26, there's an increase in parking fines.

And there's actually budget legislation that's submitted with the proposed budget that would institute these changes.

I understand that's about a 50% increase in these fines because they have not been updated since I believe 2011, I think.

So it's been a while and inflation has, as we all Paul experienced, been fairly brisk.

And so this kind of updates to inflation.

It generates nearly $5 million in each year of ongoing revenue.

And then next, another ongoing change is we had discussed the Jumpstart administrative transfer.

So this isn't to balance the fund.

This is to provide resources to fund administrative expenses in the general fund.

And that would increase the transfer by $2.5 million in 25 and $3 million in 26. Miscellaneous changes add about $1 million in each year.

And then finally, the most significant move in the budget, and there's an entire presentation to cover this following this one, is increasing the Jumpstart Fund's contribution to the General Fund for Revenue backfill.

And so this transfer would add $287 million in 2025 to the General Fund and $232 million in 2026. THE 2025 NUMBER IS HIGHER BECAUSE IT INCLUDES KIND OF BALANCE, LIKE EXCESS BALANCE REVENUES IN THE JUMP START FUND THAT ARE AVAILABLE TO HELP BALANCE THE GENERAL FUND, BUT THE ONGOING CHANGE ACTUALLY IS $232 MILLION IN 2026, AND THEN THAT'S CONTINUED INTO FUTURE YEARS OF THE FINANCIAL PLAN, AND WE'LL COVER THAT IN A FEW SLIDES.

But the key takeaway is that the revenue proposals add a significant amount, $295 million in total in 2025 of new revenue and $232 million in 2026. And this brings it all together.

And so first in the, so this kind of starts with the starting balance, adds in the baseline of proposed revenues, adds in the baseline proposed expenditures and the underspend assumption, and then shows how the two years balance out.

So if you look at 2025, you can see that $24 million balance that we covered kind of in the assessment of where 2024 is projected to end.

That then generates in the end of 2025 a $52 million ending balance.

So that's kind of one-time resources, one-time cash in the general fund that continues into 2026. revenue and spending proposals in 26, then bring that final balance down to $1 million.

So that, in how state law and how we interpret a balanced budget, is a balanced budget.

However, I will note that it is balanced using $52 million of one-time balance in 2026. And that is important.

because now we'll move off the proposed budget into the kind of future projection, the sustainability.

And this graph shows that.

So this is the kind of where we are now compared to the first slide in the presentation, which was the where we were.

And this is just kind of a...

One thing is the lines, as you can see, there's a projected deficit still for 2026 and 2027 of about $76 million.

So this means that revenues are insufficient, at least as projected, to support spending in the future.

I will note that I can no longer fit that number in between the two lines, so that's good news.

Say that again.

because it's getting smaller.

However, because of that use of that one time $52 million to balance 26, and because generally spending growth is outpacing revenue growth, you have that $76 million projected deficit.

One thing I will point out from a kind of purely technical point, and I believe it'll be covered in the next presentation, is the financial plan submitted for the general fund assumes the $232 million from the Jump Start Fund is flat in the future.

And so that's an assumption.

However, that revenue source overall is projected to grow 4% in 25 and 6% in 27. So the Jump Start Fund payroll tax revenue is growing.

However, the general fund plan as submitted does not assume that growth.

If you assume that growth, that is part of the general, so you assume the general fund, the jumpstart fund transfer to the general fund increases at the same rate as the revenue growth, that deficit projection gets smaller.

Again, that's a policy decision and that will lead into the next presentation.

SPEAKER_09

And like $10 million, well, it doesn't go away.

Yeah, it doesn't go away.

SPEAKER_03

Before we move on, if I might, I just wanna really highlight to get to this slide, we had to make, the mayor's office made some really hard decisions.

This was not a easy to come to PROJECTED DEFICIT.

WE'VE BEEN GOING OVER THIS, WE'VE BEEN HEARING IT IN DEPARTMENT PRESENTATIONS, WE'VE BEEN HEARING IT FROM THE COMMUNITY, AND I SHARE WITH US COLLEAGUES, TO ZERO OUT THIS DEFICIT THIS YEAR, WE WOULD HAVE TO MAKE the magnitude of difficult decisions increases nearly exponentially.

And this is why I really center on the fact that we need to create a pathway to sustainability.

If you remember the permit chart that we had, right now the incoming permits are at the same level as they were in 2010, which was the lull of our permits.

And so if we return back to a growth this deficit becomes smaller.

We've already had to make, again, these really tough decisions about internal services, about the programming that we're providing.

And I just, while I think everyone is happy to see this number small, it's not, an easy path to get there to get to complete sustainability this year would be in my opinion, detrimental to our city.

So I just want all of this to say, uh, thank you to the CBO and the mayor's office for getting us here.

And we need to make sure to review all of the details on how we got here.

Um, Again, colleagues, I'll be going line by line to look at the abrogations, to look at the layoffs, but that's a future conversation.

Back to you, Tom.

SPEAKER_02

If I could add, there's kind of a disclaimer at the beginning of the memo that's probably useful to add now, is that there is no requirement to balance the future years.

It's all a projection.

In two years, the numbers will be different, hopefully to the good, and higher collections than the general fund will then transfer into lower projected deficits.

So this is a point in time.

It's a useful planning exercise.

But again, the proposed balance, the proposed budget is balanced and the future years are just a projection.

But with that in mind, I just want to touch really quickly on the payroll expense tax, because it is even though we've been talking about it, it's really only been with the city in the city's finances for three years.

So it's a novel tax.

And there are just some kind of insights about that tax with regards to the unpredictability of it.

So there's two graphs that are included in the memo that I've got here on the slide.

One shows the comparison of the payroll expense tax in total with the B&O tax and the sales taxes, which are also taxes that are collected from businesses.

And you can see that in...

In 2024, starting and then continuing thereafter, the payroll expense tax actually becomes our second most significant tax in the city.

And that's only because if you add up all of the individual property tax levies, property taxes are higher.

So it's becoming an ever-increasing part of our city finances based on the projection from the forecast office, and in fact is outpacing sales taxes and B&O taxes.

And then, as you can also see from the graph, in terms of actuals, the payroll tax went down in 2022 while the other business taxes went up.

So it's volatile.

Based on information from the forecast office, it's highly linked.

Small sector.

High-performing sector as well, but a small sector of the stock market.

And so the...

The success or failures of that sliver kind of drive the success or failure of this tax in a non-significant way, or in a not insignificant way.

And so then that draws to the second graph, which is how much of each one of these taxes are collected from 10 taxpayers.

And as you can see, and I just chose 10, I'm sure there is a level at which I could go down in terms of the number of taxpayers, which they will not disclose because there are confidentiality requirements.

So I only asked, how much do we get from top 10?

And as you can see, 10% of the revenue comes from 10 taxpayers for sales and use tax, about 20% in the B&O tax, Payroll expense tax, 70% of the revenue comes from 10 taxpayers.

And so we're talking thousands of businesses across the city that participate, and there's only 10 taxpayers that pay the most of this tax.

Again, it is what it is, but it just shows that this is a volatile tax, as shown on the graph on the left.

and it's highly concentrated to a small number of taxpayers on the right.

What we do to hedge against volatility is collect reserves.

As I mentioned earlier, we have a revenue stabilization fund that we fund from the general fund that is sized on 5% of general fund tax revenues.

Because this is a transfer into the general fund and not a tax revenue collected in the general fund, it's not included in that calculation.

The financial plan that CBO provided actually includes a, I believe it's about $37 million reserve assumption.

So that's money that's not included in appropriations in 2026, part of which to provide some buffer against that unpredictability.

And that's the end of my comments.

I'm happy to answer any additional questions or I'll just turn it over to Director Noble.

SPEAKER_03

Thank you, Tom.

I will just highlight for our colleagues while folks start raising their hands, because I'm pretty sure folks will have something to say.

This presentation is a summary of your memo, which is a summary of your attachment A to the memo.

And so this is the third level of summary of very detailed information.

And so I just want to thank you, Tom.

I do have some questions, but I set up all my questions based off your memo.

So I'm going to let my colleagues go first, and I'm just giving you that heads up right now.

Council Member Kettle, I see your hand.

SPEAKER_10

Thank you, Chair.

Again, Director Noble, thank you for being here and your insight, but Mr. Mikesell, I really appreciate your insight and the work that's gone into all levels of production as Chair Strauss has been noting.

It's interesting.

Looking at this is that, you know, a few things.

One is, Director Noble, you mentioned, you know, the previous kind of the best of all worlds.

That was a Goldilocks moment.

And, you know, we're now sitting here with a lot of porridge that's been eaten.

And, you know, we're not going to be in that same position.

And that's a mindset change that, you know, that we're in now compared to that time period, you know, not too long ago.

And I think that's important as we look forward to, because as we've often noted, you know, you know, we're the nuts and bolts, the, the, you know, the fundamentals and the, and the basics kind of approach to, you know, the challenges that we're facing in budget and otherwise.

So thank you for, for that highlight.

And I think it really, you know, underscores the differences between now and then.

And I should say, The assumptions that are built in across the board, there's many of them, and one is on the inflation piece.

I have always been well aware of the Federal Reserve and the Fed chairman and so forth, but sitting here now, I am so appreciative of him trying to meet his inflation targets, because if he doesn't, that just makes things so much harder.

So that is another assumption that is built in here.

One of the assumptions as you're going through, and this is a question that I have is, because I stated earlier, earlier meetings that Chair Strauss had that, you know, the need to ensure that the emergency and the revenue stabilization funds were filled back up, you know, post, you know, the great recession and the pandemic.

And so they're ready for the next one.

My question now is that, is that 5% a good number?

Is that a good assumption?

Or should it be 7.5?

Whatever it may be, but what's the rigor that goes behind these assumptions on what the emergency and revenue stabilization funds should be at?

SPEAKER_09

There is no magic, if you will.

I mean, what we have done in the past is to look into previous down periods to see how large a dip and how long is it sustained.

So I would note that the pandemic Our own reserves would not have been sufficient.

It helped a good deal to have the federal government, particularly in the first year, the economy then bounced back faster than anyone had thought it would.

So you face, it's a difficult trade-off you're gonna face either way because as you build up the reserves and you're not providing current services, and if and when there's a downturn, you have to think about how quickly to run down that reserve.

So I would say the policies have served us well over time, and we have dipped into the reserve Again, this is a revenue stabilization reserve.

It's really sort of an economic reserve.

So I think that has served us well over time.

If there was, you know, as former budget director, if there was a bigger cushion, that can always feel better.

But you will face tradeoffs about the services you're providing now.

On the emergency subfund side, I'll tell you the story.

I used to call that an earthquake fund.

but it's not nearly sufficient for an earthquake.

If you consider the cost of a single bridge, I forget, you know, we have, whatever, it's 80 million or something like that there.

I mean, you know, it's more of the flavor of a, you know, a large storm or something.

I mean, get the idea.

But nor do I think that the city can realistically build up a reserve, you know, sufficient for that kind of a scenario.

There's a reason.

There's FEMA and the feds and the like.

And I, again, observation, I have...

I've observed the political pressure that comes on the council to use those reserves in times when spending gets a little bit tight, even though the requests don't really meet the definitions of why they're needed.

So that maintaining a large reserve becomes a policy challenge because, again, there are services, there are needs on the street as we speak today that cannot be fully met.

And as you're building up the reserve, you're leaving those needs there.

And, again, literally the reason you are all elected, our goal is only to help you or give you the information for the decisions.

SPEAKER_10

Emergency preparedness is emergency preparedness, so key part of public safety.

So on the emergency side, yes, we need to still be...

It's like insurance.

You run a risk.

Interesting, too, on the unpredictability in terms of the last...

slide is someone old enough to remember the dot-com bust of the late 90s and so forth and the other up and downs that we've had i'm very mindful of that um the pendulum may come back the other way and we may have another dip i'm also mindful and i really appreciate this slide because you know we tend to think of it in terms of the stock market going up or down but When it's so concentrated, and this graph is beautiful for that, is that this is a city tax.

This is a city effort, but these tech and the others here in the region, and this is not a county tax.

And given the nature of the work, it's easy to shift from city to county or city to the other side of the lake.

And I think that's another thing that we need to be mindful.

I think we probably all have friends and colleagues that are being shifted to Bellevue or maybe for personal reasons, they get themselves shifted back to Seattle.

But those shifts are easy to make.

And that's another viability and unpredictability as it relates to this.

And I'm just thinking of, you know, a little thing I have in my office.

Be present, you know, be here, focus, be mindful.

That means really understanding those kinds of pieces and be prepared to take the decision that's needed that's going to come up in the next briefing.

So thank you.

Chair.

SPEAKER_03

Thank you, Councilman Kettle.

Councilman Rusako.

SPEAKER_07

Thank you, Mr. Chair.

Thank you, Tom, Director Noble.

Appreciate this opportunity.

THIS LATEST ITERATION OF PRESENTATION HERE.

I WANT TO ACTUALLY CONTINUE THAT LINE OF QUESTIONING AND PULL A THREAD THAT I HEARD CHAIR STRAUSS MENTION EARLIER IN TERMS OF POLICY CONSIDERATIONS AND TIMING OF WHEN THESE WERE LAST CONSIDERED.

SO WE KNOW THAT THE PAYROLL EXPENSE TAX TOP TEN PAYORS INTO THAT source of funding, top ten account for roughly 70 percent of the total revenues received.

So, you know, for those reasons, obviously very, in those reasons alone, there's more.

It's an extremely volatile tax, extremely volatile revenue source.

I think principles of thoughtful planning and good governance demand that we be prepared for any number of scenarios.

I think there is a policy choice, ultimately, here.

There's growing needs in terms of basic city services.

Hedging that against the fact that this is, again, an extremely volatile...

REVENUE SOURCE.

AND THERE'S CIRCUMSTANCES WITHIN OUR DIRECT CONTROL AND SPHERE OF INFLUENCE AND MANY AND MOST OF WHICH ARE NOT.

SO HOW DO WE BETTER HEDGE AGAINST THAT VOLATILITY?

with our fiscal reserves, our two fiscal reserves funds.

As I understand it, the emergency of the two fiscal reserve funds, the emergency fund is less relevant.

The more opportune one directly germane to this conversation is the revenue stabilization fund.

Is that correct?

And if so, when was the last time, I didn't catch this earlier.

When was the last time that policy, I think that is a policy, when was the last time that was specifically revised?

SPEAKER_09

The 5% target has been in place for many years.

You are doing a great job of previewing a key component of the next presentation where it's going to tee up the question, essentially, If the payroll expense tax revenues continue to be maintained outside the general fund, then I think there is every reason, and we're essentially recommending that the council adopt a policy to build a reserve for that specific fund.

If those revenues were moved into the general fund, then the existing 5% policy might apply, although given the concentration and potential volatility of this new source that will be added, it might be that that 5% isn't sufficient.

But if the jumpstart PET fund is going to be its own separate thing, I think we need reserve policies about it itself.

The mayor's proposed budget includes funds of reserve, but it doesn't actually set a specific policy around that, and I think that is something that you...

should well consider as part of this budget process.

SPEAKER_07

Absolutely, and I'll just make crystal clear that if there's no formal policy or the last time it was updated, it was on a pre-payroll expense tax basis, which I think is the case, then we are past due to do exactly that, to revisit and update that specific policy to better plan and meet the needs and contemplate any number of scenarios.

Again, principles of good governance and just get old fashioned contingency plan and demand that we do exactly that.

Thank you.

To preview that discussion, that policy

SPEAKER_09

might not only be about what's the target amount, but also what are the mechanisms to get to that amount.

So, for instance, part of the policies around the Revenue Stabilization Fund have to do with automatically filling it with some of the unexpected fund balance at year end, if there is any.

And that might also be a model that could be applied to the payroll expense tax as well.

SPEAKER_07

Thank you.

No further questions, Mr. Chair.

SPEAKER_03

Thank you.

I see Council Member Rivera.

SPEAKER_06

Thank you, Chair.

And I'm going to maybe restate exactly what my colleagues just said, but I think this bears mentioning again, which is, Tom, I hear you warning me.

I'm hearing it as a warning that we are hinging our budget on a very volatile fund source.

And as a person who actually worked at the city...

during COVID and when COVID hit and we saw everything tank and we had to take some drastic measures to be able to ensure we were backfilling for that plunge, I am concerned about hinging our budget on this, you know, 70% of our budget on this very volatile fund source.

And I feel like this is a warning to us that in the near future, if any of this fund source tanks, we're going to be in big trouble, not a little bit of trouble, in a big trouble.

And so I just think it's incumbent upon us to really look at this.

And thank you, Council Member Saka, for daylighting that the Renew Stabilization Fund has not been looked at since before we had this new, fairly new fund source, the payroll expense tax.

And so we really need to take a look at, and what we've all been saying since we got here in January is the importance of looking at our city budget, because I feel like what we have here is a spending problem.

not a revenue problem, in that because we have this new revenue source, we now have added more spending to our budget.

And notwithstanding the fact that I understand we have some service needs in the city, we also have to ensure that we're balancing the budget on something that is stable so that in the near future we don't have a situation where now we're in the middle of a crisis trying to right-size our budget.

And that's the thing that actually keeps me up at night.

And so I really wanted to underscore that point and I'm hearing you, Tom.

Thank you.

SPEAKER_03

Thank you, Council Member Morales.

And then after Council Member Morales, I'm gonna focus questions on anything other than jumpstart for this presentation, because we're gonna then just move right into jumpstart.

SPEAKER_04

Thank you.

Well, taking the cue from the chair, my question is, given that this proposed budget does rely significantly on that tax, and according to your charts, we will see in 2027 potentially another $70, $75 million added to that.

That comes to about $330 million gap that we have if we don't include Jumpstart, right?

SPEAKER_02

If so, if jumpstart is not, if the jumpstarting is not at a general fund, it sounds about right.

SPEAKER_04

So we have about a $300 million gap.

That's what previous projections have estimated, more or less.

It will continue to grow.

So the question is, if we choose not to rely so heavily on this tax because of its volatility, what other options do we have, right?

So We can continue to contemplate cutting staff, cutting programs, cutting services, or we can contemplate maybe turning the dials on how and who gets taxed here, or contemplate additional progressive revenue options.

And this might be a conversation that is planned for when we have the revenue forecast discussion next week.

But this isn't going to be an ongoing problem.

We've known that we have a structural problem for some time, and we just keep kicking the can down the road.

And sure, we have this particular source now that can help address it.

But I think we all hear you loud and clear that relying on 10 people to fund city services is probably not particularly wise.

So I guess that's Maybe not a question for you to answer, Tom, but it is something that I would like for us as a council to grapple with over this budget process because it makes me very uncomfortable to know that we are contemplating laying off 150 people in the city who will then have to perhaps participate in other city services because they don't have income.

So thank you, Chair.

SPEAKER_03

Well said, Council Member Morales.

I do just want to check.

We have 78 filled positions of 160 total positions.

SPEAKER_09

I was going to make that note as well.

It's not 160 layoffs.

It's about half that in terms of filled positions versus not filled.

Not to minimize.

SPEAKER_04

Fair enough, but there are people who are being contemplated to lose their jobs.

SPEAKER_09

I was about to say the same thing, that these are people who have families.

You don't need to lecture for me.

SPEAKER_03

And I'll just bring up what I was going to say later, which is that layoffs, and I'll talk about this again.

I mean, each of these people is somebody that serves the city of Seattle, serves all of Seattleites, likely has mortgages to pay or rent to pay, transit costs or car payments, child care or elder care.

And so none of that is taken lightly.

I want to come back to the memo, Tom.

Sorry, I know you don't need to change slides because I see that we've already got the next one up.

On page one of your memo, I just wanted to check something here.

You mentioned that in 25 and 26, we use $52 million of one-time fund balances.

The next bullet has, beginning in 27, operating deficit of $76 million per year per Can you help me understand if, is this, would we be experiencing, help me unpack this.

Is this additive, I mean, is it cumulative or is it substituted?

Help me understand these two numbers, please.

SPEAKER_02

Great question.

Thanks for the question, Mr. Chair.

of the growth in the financial plan.

So it's a little bit of both.

So the 25 budget is balanced with $52 million of one-time money.

So that right there is a difference between spending and revenue, like ongoing kind of tax revenue and the regular ongoing revenues of $52 million.

So that kind of continues into future years.

In addition, just the underlying growth IN SPENDING GOING INTO THE NEXT YEAR IS LAGGING THE UNDERLYING GROWTH IN REVENUES GOING TO THE NEXT YEAR.

SOME OF THAT, BUT NOT ALL OF IT, IS BECAUSE THE CITY BUDGET OFFICE ASSUMED THAT THE JUMP START TRANSFER TO THE GENERAL FUND WOULD STAY FLAT IN THE FUTURE.

AND I THINK DIRECTOR NOBLE IS GOING TO COVER SOME OF THIS IN THE NEXT PRESENTATION, BUT THAT'S PART OF IT.

IF YOU JUST ASSUME THAT THE JUMP START Contribution is going to increase by some level that will help with some of that, but it's it's so it's basically two things It's one that we're just using the proposal uses one-time balances in 25 that that just that is a Difference that continues in every future year and then there's kind of differences in the growth between the two lines that make up for the difference Thank you

SPEAKER_03

In addition to this, I've already brought up attachment A to this memo.

Colleagues, please take a look there.

Again, I believe it was the slide that you just had up.

Your memo and this presentation show that we've got big decisions and that we need a pathway ahead.

This is clearly described by comparing the November 2023 projections to the projected deficit of $76 million.

I think putting those two Within your memo, I believe it's on page 16 and five.

Comparing these two different graphs that you've created really helps shape in a visual format the path that we've come through over the last year to get to where we are today.

This could have been a lot worse.

160 positions of 78 or so that are filled, that number would have been twice as high if not even higher than that without the work that was accomplished this year.

And I do want to note that we have talked about new revenue in this committee.

We had on June 5th in our select budget series, the presentation of what happened and the outcomes of the revenue stabilization task force, as well as on slide 12, you demonstrate the new revenues that are being utilized here.

In addition to everything that's already been said, I just want to make sure that for the viewing public on the ward-winning Seattle channel, that there is this understanding we did not turn a blind eye to new revenue.

We looked at it, and there are definitely some variables that have led us to the decision that we are in today.

So just wanted to put that on the record.

Tom, Ben, anything else on this presentation?

Shall we move, clerk, if you could read item number four, the short title of item number four into the record, thank you.

SPEAKER_11

Agenda item four, jumpstart policies.

Briefing and discussion.

SPEAKER_03

And my apologies, Tom.

I was looking off of a different set of notes.

I just wanted to conclude that last presentation with some high level, which I kind of unintentionally started with.

between November 23 and today that we have been emerging from the pandemic and the downstream economic impacts of the downturn that we experienced in 2020, 2021. Here we're filling our emergency funds.

We're formalizing keeping beneficial changes that were made during the pandemic.

Clearly jumpstarted Seattle when we needed it most, demonstrated when cities across the nation laid off staff when the job market was frozen.

Here in Seattle, we kept our employees during the worst of the storm, and these are the hardest decisions, especially the layoffs are some of the hardest decisions because every field position is a person who serves our city and Seattleites, again, has rent or mortgage to pay, childcare or eldercare, transit to cover or car payments, on top of everything else in life, groceries, you name it.

And so I just wanna raise that as my high level observation from your memo and presentation that this is us emerging from the pandemic.

It helps so much that we're here in person, working together in person, because making these decisions virtually would not have worked.

Over to you for the next presentation, thank you.

SPEAKER_09

Thank you, Chair Strauss.

So as the discussion of the last, I'm going to say, half hour or so has highlighted, one of the most significant policy proposals for you in this budget is around Jump Start and how those revenues are deployed.

And I would describe that there are at least two elements to that.

One is the actual proposed spending for 25 and 26, which, again, this will highlight, but then also the policies that govern that spending and would govern that spending in 2027 and beyond.

And as Tom has described, the overall sustainability picture is significantly influenced by the use of or potential use of Jumpstart going forward.

So this presentation is structured as follows.

I'm trying to give you some general background on the revenue stream EXPAND A LITTLE BIT ON SOME OF THE OBSERVATIONS THAT TOM HAS MADE ABOUT THE CONCENTRATION AND THE VOLATILITY AND THE HISTORY.

THEN TALK SOME ABOUT THE EXISTING POLICIES THAT ARE SET IN CITY CODE AND THE RESTRICTIONS THAT THEY NOW IMPOSE.

THEN SHIFT TO TALK ABOUT THE MAYOR'S PROPOSED POLICIES BECAUSE, AGAIN, THERE'S A PIECE OF LEGISLATION BEFORE YOU AS PART OF THE BUDGET.

that would change those policies.

The allocations that are proposed for 25 and 26 are consistent with those policies, but again, they also apply going forward.

And very purposely, the presentation ends with a slide with a series of questions, really that are questions to you at this stage.

And again, not expecting specific answers, but hoping that this will give you collectively an opportunity to discuss these dynamics amongst yourselves.

and provide some level of direction about where you might want to head.

And also really, maybe at this point, just to surface the issues for you and to have them sort of, have you start thinking through them in more specifics and more detail.

So with that, I'm going to dive in and talk about a little bit of history.

and a little bit about forecast.

So this presentation is largely graphical on purpose to try to make this sort of consumable, but happy to answer detailed questions as well.

So this chart compares two things.

One, in the gray bars are the original spending plan for the payroll expense tax as it was conceived and imagined essentially in 2020 and in 2021 as the tax was first imposed.

There's been a lot of talk about the initial revenue forecast.

In some ways, that was really an initial spending plan.

There was a recognition that this was like the gray bars, those revenue, that level of expenditures was a conservative estimate of what the revenues, what the tax would bring in and would be reliable.

And I'll get to the point that that has proven the case.

One sort of technical point to add to this is that in 2024, votes taken in 23, there was purposely $20 million added for a student mental health.

So I've included that in the gray bar essentially as a part of the original plan, although it was added because it's some level of sort of a base assumption.

And the gray bars, beyond that $20 million increment, they're basically growing at 2% per year.

So the spending plan, imagine $214 million of PET priority spending in that first year, and then it would grow at 2%.

The blue bars, the first three bars, which are solid blue, are actual received revenues.

The sort of dotted blue bars afterwards are the forecasts.

And again, the budget, current proposed budget is balanced to the 404 in 2024 because that represents a significant upward forecast over the initial 24 forecast, and then also the forecast for 25 and 2026 north of 400 million each.

To hit on a point, and just to put some more specifics to it, the revenue source has not been, to use a fancy math term, monotonically growing.

It dropped one year, particularly in 2022. And potentially, to inform a question about an appropriate reserve, it dropped by about 10%.

a little bit more.

If you recall, this was the immediate post-pandemic period.

I like to think we stopped all living online and shopping online and returned to the more physical world.

And that had some impact on tech companies.

You will recall there were layoffs among some of the larger ones, or at least hiring freezes.

And again, the growth in actual and projected revenues is informed by two things.

One is the potential for compensation to be increasing as salaries and stock values go up, but also for total employment to be increasing.

And again, it is not exclusively a tax that affects the technology sector, but that sector is a key driver of these revenues.

So you can see that drop, if you will, and then a return to growth.

But I would note as well the very significant growth that is projected for 2024 and for 2025. But really, there's a big jump from 23 to 24. And I just emphasize that has not been realized yet.

We do not know how much revenue we will take in for 2024. And in fact, I was previously in this business for a couple of years running a forecast office.

We won't know until late February of next year.

It is an annual tax.

You have until January 31st to write the check, and then it takes us a little while to process all of that.

So firms are asked to make quarterly payments.

So we have seen, but any of you who have done self-withholding for the IRS, it doesn't work that way.

These are effectively voluntarily quarterly payments.

There's no penalty for getting it wrong because we know that they can't necessarily know what their tax liability will be.

Firms have largely taken the habit of paying 25% of their previous year and then truing up at the end of the year once they know what that is.

Another point just to highlight, and it touches on something that Councilmember Kettle noted, that the tax applies for work that is done in the city, like physically in the city.

So if you are working for a firm on the east side but are working from your office at home for more than 50% of the time, then tax is owed.

But if you're working from home for a firm based in Seattle and you're not in the city, we don't get the tax.

So work from home is a dynamic in this.

And in fact, one of the factors that goes into the forecast is monitoring the level, the occupancy of offices in the city because that becomes a driver.

So, and another, again, just to say it, you can see it, we've had exactly three years of actual receipts, and one of those dropped from the previous year.

We have, contrast that to things like sales and B&O and property tax, we have literally 50 years of history, and 50 years of revenue history, and 50 years of revenue history that we can correlate with local employment and the like, and that's how the revenue forecasts work, right?

It's understanding those correlations over time, and you skip more of that history, you get better at those forecasts, sort of by definition.

Again, we just have very limited information.

So just to highlight, again, and this is effectively an undisclosed warning, or a disclosed warning at this point, highly concentrated.

We have seen it drop and also grow.

The budgets for 24, 25, 26 are anticipating a very significant increase that we have not realized.

That's just the reality of this tax.

I don't have an answer for decreasing our dependence on it in the near term because these are revenues we are receiving.

It does highlight, and we'll come back to this, to the question of building up a reserve.

That's the history on the actual revenues.

Talk a little bit about the history on the spending.

So the gray bars here are the same gray bars as on the previous chart, very purposely.

The scale is different because we don't have to include all of it.

So the gray is what was the original spending plan.

The green for 22, 23, and 24 are essentially the actual spending on the original PET priorities.

So just to say that in 2021, there was no spending on the PET priorities.

The money was all used to preserve existing city services.

That was the exact phrase.

I'm actually not the exact.

Anyway, it was sustaining city services was the idea, and it was used exclusively for that.

In 2022, again, I'm just...

Backing up real quick if I can't.

Whoops, I went the wrong way.

Sorry for this.

Actual revenues were 262. Of that, 148 was used for the PET priorities.

So still less than the original plan, essentially, with the remainder, about 85 million, being used to support the general fund again.

And I'll show the general fund amounts in just a moment.

2023 actually achieved the original spending plan in terms of appropriated dollars, and that was per policy.

The policy said, we're going to dedicate, if you will, the first 223 million of Jumpstart revenues to the Jumpstart priorities, and the remainder will be for the general fund.

And again, I'll show you how much that left for the general fund.

um in 2024 so this year we're going to fall just short um that may be arguably a technical point that the additional 20 million for student mental health is not to not to be fully allocated this year then going beyond in so in the proposed budget um and for 25 26 and if you look at the um spending plan beyond the um the allocation to the original PET spending priorities and student mental health added do fall short of that original plan.

The increments are arguably small, but they're not zero.

So the original, the idea that we would meet the original spending plan is not consistent with what is in the proposed budget.

But again, I would note that for at least We've only achieved those goals in two of the four years that you have been appropriating the tax to date.

Director Noble, just one of those two years, it was 2021, is that correct?

SPEAKER_03

2021, there was no priority spending, yes.

Then 2022, again, fell short.

You said that we achieved the original PET spending plan in two years.

SPEAKER_09

I would argue those are 23 and almost 24.

SPEAKER_03

Gotcha.

Thank you.

Yep.

SPEAKER_09

um so again i just expecting we might get to history uh get the question this is the amount of money going to the general fund from pt so sort of the reverse of that previous chart right so again in 2021 it was the full amount um again the sun expected basis um in 2022 86 million in 2023 100 this year, 85. Again, what's proposed going forward is a significant increase.

The 2025 number is a bit distorted because there's one-time allocation.

The forecast for 2024 has increased significantly since the 2024 budget was adopted.

The proposed 2025 budget expends that one-time increment from 24 the real the ongoing story is told with 2026 so again 223 million of jumpstart revenue and that I drew that little arrow there to indicate that continues into the future that is the the allocations that are anticipated going forward but again at that level you end up with a big general fund deficit so that is that is not sufficient unto itself to close that gap but I just I wanted to provide explicit

SPEAKER_03

And Director Noble, in addition to this, until the end of this year, until the end of 2024, we've been relying on COVID relief funding, one-time funding from the federal government.

Is that true?

SPEAKER_09

That is true.

And our own fund balances that have developed over time.

So again, as Tom was describing, we finished 2023 a little ahead of where we thought we would finish it.

That's helped defray 2024 spending as well.

Returning here, so this is now the previous chart with an extra line added.

So again, the gray bars are the original spending plan.

I've taken the dollar labels off them because there are so many dollar labels in this picture, but there is a reference.

So the gray is what the original spending plan would call for.

The green again is the actual and then the proposed spending plan.

It's the yellow line that's been added.

And I added it in specific response to a question that came up when you were discussing this a couple of weeks ago, which is, well, that gray target is the gray lines only were 2% growth.

What would that look like if the commitments to PET priorities have been growing with inflation?

And that's the yellow line.

And that is both for the past and for the future.

That is an admirable benchmark, but it is one that had not been met to date and is, again, just to emphasize, is not met in the proposed budget.

To highlight just how far off we are, if you look at 2025, the inflation adjusted spending from that base 214 million would be 289. The proposal from the mayor is for 233. I'm trying to get this mouse to show up here.

Sorry.

$289 compared to $233, that's the $56 million difference that I note in the bullet here on the right.

So if you wanted to try to get back to that spending plan, inflation adjusted, you have a very significant challenge.

You either have to find new revenues to that tune or cut something from the general fund to the tune of $56 million.

Bottom line, and this is a little bit editorial, but I'll make the comment anyway.

I'm not sure that either of these benchmarks, the yellow one, if you will, or the gray one, are really helpful in terms of the situation that you are finding yourselves now.

I totally recognize that there was a sense of commitment made back in 2021. I was around when it happened.

But conditions have evolved significantly since then.

But again, these are your judgments, not mine.

I just wanted to make this very clear what those two sort of benchmarks look like and where the proposal stands relative to those benchmarks.

Again, all of this is context for some important policy questions to come.

SPEAKER_03

Director Noble, before you move on here, just real quickly.

All of this, your yellow line and the gray bars really are demonstrating an aspirational goal, which we had when we passed the jumpstart payroll expense tax.

It's clear from here, the only year that we attained the gray bar metrics was in 2023, which we were backfunded with a fair amount of federal COVID relief funding.

I want to back to where have we come from?

How did we get here today?

Director Noble, you mentioned that we had a spending plan associated with the original jumpstart payroll expense tax, and that eventually became an ordinance.

And colleagues, a little bit of that was some back and forth when everyone was working virtually and a pretty serious disagreement between the second and seventh floors about the future of this funding.

And so what we would typically use as a spending plan became an ordinance because of an argument is the best way I can frame that.

And These are the aspirational goals that we set out to.

We were able to achieve it the one year with the federal funding to backstop us, but I sit here because there are multiple realities and this is demonstrating where we truly have come from when we're looking at the jumpstart tax.

I've got more comments that I'll share later.

I just wanted to focus in here.

Anything, did I get anything wrong or do you want to add to any of that?

SPEAKER_09

No, you provided a great transition to my next slide.

Oh, okay.

Which is to talk about what are actually the current policies under SMC, under the Seattle Municipal Code.

PER EXISTING CODE WITH MILD INTERPRETATION, THESE ARE THE ALLOCATIONS BY PERCENTAGES THAT ARE OTHERWISE REQUIRED, WELL, UNLESS YOU PASS A DIFFERENT ORDINANCE, WOULD BE REQUIRED FOR 2025. I'VE TAKEN THE The dollar amount that this totals to is the revenues, the current projected revenues for 2025. They don't include the unspent resources from 2024. So it's sort of a cash flow version.

And I've included the student mental health.

So just in terms of math, it's outside the percentages because it wasn't actually contemplated in the original plan.

And to be candid, it's not actually in this ordinance.

So this part of what I was saying is a little bit of interpretation on my part.

This is entirely consistent, though, with what the ordinance, the existing ordinance implies.

So, again, the percentages, um, uh, as-as set out, and then I've just done the math.

So you've got $430 million total revenue forecast.

If you multiply by 62%, you end up with $267 million.

So that's-that's the math that's there.

The thing to note, and I italicized, underlined, and bolded it, is that there's zero going to the general fund under the existing policies.

And that's for 25 and beyond.

They were allowed for 23 and 24. The other context that I would add to the chair's earlier comments are that the In the same time that this ordinance was imposed, there was a specific effort made to empower and impanel a revenue stabilization task force, which was designed to identify ways to raise additional revenue.

Council had passed this ordinance, was aware that it was creating a significant budget hole for 25 and 26. It's not hard to connect the dots that the creation of the Revenue Stabilization Task Force was about figuring out how else you might try to close that, but do it from the revenue side.

And again, no judgment on any of that is just, I think, relevant history to how this ordinance could have made sense in the moment that it did and acknowledging the disagreements between the mayors and the council at the time about, about the best approach to balancing the city's spending and its revenues.

So that's one of the existing policies.

SPEAKER_03

Before you move on, I have a council member more than Council Member Rivera.

SPEAKER_05

Thank you, Chair.

I had a question, and maybe a chair can answer this, but how did they come about, or how did the actual percentages get developed?

I know in talking to the Human Services Coalition, I talked about Chair Mosqueda had sort of put together an informal working group, and they figured out what the percentages were going to be, but be really helpful to me to know how these, what are these percentages based on how are they created?

Um, and then also just to note that the ordinance permitted support in the general fund in 2023 and 24, but you're saying chair that we were still receiving a fair amount of COVID money in 2023. So, interesting that we get to use the jumpstart money for general fund top up, even when we're getting a lot of COVID money.

Anyway, that's just an editorial.

But I am really curious about how these percentages were created.

SPEAKER_09

I wasn't here, so I'm not in a position to answer, but there are folks here who were, and we can get you whatever information there is.

I don't know if the chair has shared.

Well, there were more than one council member here at the time.

SPEAKER_03

You're two historical council members here.

From my recollection, it was a small working group, informal, not formalized, and it was a bit of how can we both...

support housing, which when we were talking about the history of how we funded housing, it was, we still had not even started receiving MHA dollars.

in earnest and so housing was number one most important.

With the economic revitalization, we were in the moment of free fall with the economy where online businesses were doing very well and market streets were doing very poorly and so it was the understanding that we had to make sure to take care of our smallest businesses.

Equitable development initiative is really the best tool that we have for anti-displacement and cultural gathering spaces in our city and there was a recognition that when I was sharing what happened to Ballard the neighborhood I grew up in that I don't want that same THING TO HAPPEN TO OTHER NEIGHBORHOODS.

THAT'S WHERE THAT PART'S COMING FROM.

AND GREEN NEW DEAL, JUST UNDERSTANDING THAT IF WE DON'T GET AHEAD OF THIS CLIMATE CRISIS, WE'RE NOT GOING TO HAVE A PLANET TO LIVE ON.

AND I THINK IN THE FIRST FOUR, FIRST EIGHT WEEKS OF 2022, WHEN COUNCILMEMBER MORALES AND I WERE HERE IN PERSON, THOSE WERE THE ONLY EIGHT WEEKS THAT WE WERE EVER IN PERSON, REALLY, DURING THAT FIRST TWO YEARS.

enormous wildfires in Australia in the middle of the winter here, on top of all of the climate things that were occurring here.

And so that's really where those four priorities were coming from, is how do we invest both in the Duwamish Valley with the Green New Deal, how do we hedge against displacement, how do we support our smallest businesses, and how do we create the housing that we needed here in the city?

That was really the general framework that we were all working within.

But Council Member Morales, anything that you wanna share?

SPEAKER_04

Yeah, thank you.

The only thing I'll add to that is it really was intended to bolster investment, particularly for communities of color.

And for folks who had historically been sort of left out of the decision making process, acknowledging that we have this huge housing crisis in the city.

And that as council member, as Chair Strauss was saying, that at the moment, so many of our small businesses that we're shutting down were also run by people of color.

that equitable development was included here because it had never been fully funded.

It did not have a permanent funding source.

And we knew that our one anti-displacement strategy needed a permanent funding source.

So a lot of it was about making sure that we have the additional investment for folks who have sort of ongoing needs because we had not invested substantially enough in our previous history.

SPEAKER_05

And how did you come up with the percentages?

SPEAKER_03

Well, I think we'll have to get back to you on that one.

SPEAKER_04

Yeah, I think it was sort of like, what is the scale of the issue?

I don't know that there was like a hard science behind it.

Okay, thanks.

SPEAKER_03

Yeah, I think we all really understood that housing, I mean, I can't, Even today in Seattle, we're having a pretty strong focus on housing.

It was twofold in 2020 because again, we were relying on a housing levy that was three quarters to a half of the size that we have today.

We really had only started getting mandatory housing affordability payments and that's booing a lot.

And yeah, sorry.

SPEAKER_05

And if I may ask one more question, because you're saying that these areas had not been appropriately funded by previous councils through general funding and I guess through the mayor's office.

So why was the decision made that you had to use a separate funding source to actually create these funding priorities?

Why could you not just bring those priorities to the general fund?

SPEAKER_03

I think Tom's got an answer, but I can editorialize after he.

SPEAKER_02

Okay.

Thanks for the question.

The first year of the tax, it went into the general fund, and there was an ordinance that elaborated on the categories of need, but it requested that the executive come back with a spending plan in the budget to show how those monies were spent.

There was no spending plan ever produced.

So then as the next step, council adopted a more formalized fund and then spending plan ordinance that then put in place those percentages of how money would be used.

SPEAKER_05

That's helpful.

SPEAKER_09

I think at the highest level, the scale of the desired investment was such that it couldn't be met with existing resource without making more painful repriorizations than sponsors were up for.

I'm going to take a moment to add one piece.

The 5% number for administration, which seems so, was in fact a bit of a negotiation with the executive, which I was a member at the time, which was an acknowledgment in part for the actual direct collection costs, but also because if you had $200 million of spending to the city across multiple departments, there is ultimately administrative pressure put on for on some margin for additional accounting staff, additional HR staff.

IT'S NOT POSSIBLE TO SORT OF FIND EVERY INCREMENT AND ASSOCIATE IT WITH EACH PIECE SO IT WAS AN ACKNOWLEDGMENT THAT LIKE THERE'S GOING TO BE SOME INCREASE IN THE OVERALL OVERHEAD COST THAT OTHERWISE ARE BORN IN THE GENERAL FUND WE CAN'T IDENTIFY IT EASILY UM BUT LET'S LET'S BE REASONABLE ABOUT THIS IF YOU WILL UM AND THAT'S SO THAT THAT NUMBER THAT ALLOCATION REALLY JUST BECOMES A GENERAL FUND REVENUE STREAM UM ON AN I EVEN WITHOUT REGARD TO THE TRANSFER IN TO TRY TO COVER THOSE REAL BUT difficult to quantify costs.

So I know that's been a question that's come up.

And again, it is imprecise, but it is also real.

I don't know a better way to put it.

SPEAKER_03

And if I'll editorialize now, if we could go back to slide four to help.

So during the pandemic, the city of Seattle invested heavily in rent stabilization.

We invested heavily in programs like the Broken Window Fund for small businesses.

We did not lay off any staff.

If I recall on the double check, there were zero, but we did not cut.

We expanded funding for fresh food at a time and for food benefits through Fresh Bucks.

And the only way that we were able to provide that rent stabilization and keeping people in their jobs and not cutting services that Seattleites depended on was using the federal funds to do that.

Those federal funds in every other city were used to create that gray bar that's in 2021 here.

And so we understood, and the reason that we called it Jumpstart was if the city had flatlined that day, we would still be feeling the economic impacts in our revenue forecasts today, where spending throughout the city would have been down, much like we're talking about this morning, Boeing having an impact on...

Those layoffs having an impact on our general economy.

If we had added to that, it would have been worse for us then.

And so that first year, it was to...

make sure to make up the gap of the revenues that we were receiving compared to the previous forecasts, not the earthquake fund, but the pandemic fund in that sense.

And I think that that's generally where I was going with it.

I had one more thing, but it fell out of my head.

Again, colleagues, I'm not reading off a script right now.

This is all just off the top of my head, so.

SPEAKER_05

The way back memory.

SPEAKER_03

Thank you, Chair Estroyan.

Council Member Morales, anything that you want to add to that?

Otherwise, we can move on to Council Member Rivera.

SPEAKER_04

Only that it was the hardest thing I've ever had to do, governing through those few years.

And I think we, those of us who were here still have PTSD.

SPEAKER_03

Yeah, and this is what I, thank you for that.

You're re...

reminding me what I was going to say, which is, colleagues, for many on the dais, this is your first nine months, 10 months in office.

When Council Member Morales and I had our first 10 months, in the first six months, I guess, no, in the first 10 months.

SPEAKER_04

We left at day 53.

SPEAKER_03

We left at day 53, but between day 53 and the middle of August, we had dealt with a recession, a pandemic, a recession, civil rights reckoning, and civil unrest within the city.

And we kept on moving.

And here we are.

One of those things would have broken most people.

And we were able to keep employees employed.

We were able to keep services running out the door for Seattleites that they depended on.

And from there, we also understood that the...

Jumpstart would be bringing in revenues once we stabilized and once kovat relief funding was not present and Therefore we put percentages on to what we believed at that time to be the top four priorities of the city Since then, you know last year the council also added mental health funding.

I'll Save my overview comments for the end Where I go back into all of this Council Member Rivera, you've been waiting quite a long time as we had this discussion.

I want to thank you for that, and the floor is yours.

SPEAKER_06

Thank you, Chair.

It's no worries at all.

Ben, and I will say, Director Noble and I were here during the COVID years as well, so we all know all too well the consequences.

SPEAKER_09

I know, having served as budget director, the PTSD comment comes to mind.

SPEAKER_06

Exactly.

SPEAKER_09

And that's not to trivialize a more medical version of PTSD.

It was a very difficult time.

SPEAKER_06

and I will say I was in the Office of Emergency Management and the EOC when all this was going on and civil unrest was happening in the city and watching it all happening as I was there.

So yes, I think there's a level of PTSD all the way around.

But that said, Ben, can you, so prior to the jumpstart, was there a budget deficit in the city

SPEAKER_09

By definition, there wasn't, because we only have to adopt a balanced budget.

But there was.

I mean, I have to go back.

It's funny you ask.

I was going to go back and look myself, because I would have been sort of the technical author of such budget.

There were projected deficits in the out years, not necessarily the scale that you see here.

But it's the nature.

What, in my experience, invariably happens, and that experience now has gotten to be rather long, is that there are always We always finish the year with some amount of one-time resource, so we always have some amount of one-time resource available as we approach budgeting.

That's either because the revenue forecast has gone up a little bit or underspend has occurred, you know, every year.

Deep recession, maybe not, right?

So you have whatever this number is, and it'll be tens of millions of dollars.

You have $1.7 billion total, and you have this one-time resource, And as mayor or as council, you're trying to figure out what's the right thing to do here.

And you have needs, again, I'm pointing to the street, you have needs, unmet needs that are ongoing unmet needs.

So from a purely sustainability technical perspective, and Tom has made this point, you would spend that one-time resource on something capital-based, something that is truly one-time.

but you look outside and you're like, you know, we can invest or continue these programs for another year, in this case another year or two, and yes, that may force a reckoning, but what do we do now versus what do we do then?

And again, it's a balance.

Like, I don't, you know...

A $250 million deficit for 2026, excuse me, for 2027, that would leave me very uncomfortable.

The 75 that's on the table, it's not ideal, right?

And it could foretell some very difficult decisions come budgeting in the fall of 26. So there is always some level, and it's because this one-time resource is available and there's this real tension about what's the appropriate way to deploy it.

SPEAKER_06

Thank you Ben and I ask because as you know at any given time we do have deficits that we backfill with the well before pet with the underspend and given all of that it sounds to me like part of the pet calculation when it was first introduced was adding new revenue for new things that we weren't doing before.

And it's interesting that in 2021, we would add, council would add new things for things we weren't doing before in the middle of a crisis, because we were still during COVID.

And so I say all that to say that a lot of this stuff was not a science necessarily, and that now that we are post-COVID, it seems appropriate to look at all of this and, you know, determine what is the best path forward.

Because, you know, given, like I said, there was a deficit prior, I'm not sure how the calculation was made to fund these particular things and new things, if you will, when we had old things that we were doing.

And I'm not sure that was ever a analysis made on what programs we were running before and whether we should maintain those before we went and added new things to the mix.

So I would love to hear more about where we were prior to PET in our budgeting so that I can better understand these new items that were added you know, and what we needed to do then versus what we should be doing now.

I think that would be helpful to me anyway.

SPEAKER_09

Again, I was mentioning I was intrigued to go back myself and look, and we will do that and get you that information.

SPEAKER_06

Thank you, Ben.

Thank you, Chair.

SPEAKER_03

Thank you, Council Member Rivera.

I'll editorialize based off of your questions there that when I was working for the budget chair in 2019, This is all off of recollection, so I could be totally wrong, but I believe, Ben, you were sharing that we were having a projected deficit from when we were in 2019, a projected deficit in 23 and 24. But it wasn't red lights flashing, but here, just to be aware, this is coming down the pike.

SPEAKER_09

And it was born from the use of one-time resources.

And again, it's almost inherent at some levels, what I'm describing.

SPEAKER_03

And it wasn't too bad because of the growth that we were still experiencing in 2019 because all of those one-time...

If we have one-time funds every single year, I think of trying to manage the household budget and your...

revenue stream might show a deficit, but you've got one-time dollars, you are still going to purchase the things that you need to live, right?

And when you rely, when we as a city relied on one-time funding for a decade that then turned off, that's in part what created a, there's a problem in 23, 24 to we have to solve a structural issue today.

I guess there's not a question that that really is just editorial.

SPEAKER_09

Okay, so with this very good setup, I'm going to move now.

So this is what the current policies would be.

This is what the mayor has proposed as a set of policies, and I just review them very quickly for you.

This is a proposed ordinance, not yet referred.

It defines seven eligible categories.

AND I PUT THE TWO NEW ONES AT THE TOP.

EXCUSE ME, THE FIRST NEW ONE AT THE TOP, GENERAL FUND.

SO IT ADDS CURRENTLY GENERAL FUND IS NOT AN ALLOWED USE OF THE PAYROLL EXPENSE TAX, ALTHOUGH, AGAIN, ONE TIME ACCOMMODATIONS WERE MADE FOR 23 AND 24. IT THEN INCLUDES THE our initial set of affordable housing, economic revitalization, equitable development, Green New Deal.

It corrects in some ways an oversight in that when council approved the additional 20 million for student mental health that I have described here as student mental health slash youth violence prevention that was some of the original motivation behind the investment and has been some of the proposed spending.

That actually wasn't, although the $20 million was added, it wasn't listed as an approved use, so it adds that.

I would note very specifically though that the student, under the mayor's policy, the category of student mental health is only eligible for 25 and 26, with the clear implication that the funding for that would be shifted to the education levy if that was ultimately your judgment.

The mayor's long-term spending plan doesn't show sustained funding from the payroll expense tax for that purpose, but there is not an intent to end the investment, but rather to find an alternative funding source.

the levy renewal being the obvious one.

And then administration, again, is an allowed use.

So it identifies a set of allowed uses, one of them for the next two years, but not beyond.

It then eliminates the percentage restrictions.

So it doesn't say how much each of those categories would receive in any given year.

And that's very purposeful.

It is an acknowledgement that priorities change over time and that the THE THEN ELECTED OFFICIALS OF THE CITY ARE I'M MAKING THEIR ARGUMENT WITHOUT HAVING NECESSARILY BEEN INFORMED BY IT BUT I CAN IMAGINE IT THAT THE THEN ELECTED OFFICIALS ARE BEST POSITIONED TO DECIDE HOW THESE MONIES WOULD BE ALLOCATED JUST AS YOU MAKE THOSE SAME DECISIONS ABOUT THE 1.9 BILLION THAT'S IN THE GENERAL FUND AND IS OTHERWISE NOT RESERVED FOR OTHER THINGS.

THAT IS HOWEVER AGAIN INCONSISTENT WITH THE ORIGINAL PLAN AND THE ORIGINAL PROPOSALS.

Also, the proposals would eliminate the Jumpstart PET Oversight Committee.

That committee has not actually ever met, but the idea is that it would provide ongoing oversight and advice about the use of the PET resources.

Among its tasks was to conduct an assessment of the effectiveness of the programs that were being funded by the payroll expense tax.

and also to measure the economic impact of the tax.

The mayor's proposed budget shifts those responsibilities to CBO and then provides some resources presumably to help them hire a consultant or the like.

As a comment, that is, THAT IS AN ANALYSIS THAT COUNCIL MIGHT WANT TO CONSIDER INSERTING ITSELF IN CANDIDLY THROUGH CENTRAL STAFF'S POTENTIAL COORDINATION WITH CBO ON THAT IF YOU WANTED TO GO DOWN THAT PATH.

BUT THAT'S ANOTHER PIECE.

AND THEN AS I MENTIONED EARLIER, THE PROPOSED BUDGET FUNDS SOMETHING IN APPROXIMATE 10% REVENUE STABILIZATION RESERVE.

I say approximate because it's $43 million in 2025, which is, in fact, exactly 10%.

They used some of that resource in 2026. So the effective reserve at the end of the two-year biennium is $37 million.

And I haven't done the math.

It's probably closer to 8.5% rather than 10%.

But it's there.

And it's a very significant investment.

PROPOSAL, IT IS NOT CODIFIED AS PART OF THE POLICIES.

AND AS YOU'LL SEE, THAT I THINK IS A SHORTCOMING AND ONE YOU MIGHT WANT TO CONSIDER REVISING.

SO THAT'S WHAT THE MAYOR'S ACTUAL ORDINANCE DOES.

IT IDENTIFIES, ESSENTIALLY ADDS THE GENERAL FUND AS A NEW SPENDING CATEGORY AND ELIMINATES THE PERCENTAGE TO ALLOCATION.

SO GIVING FULL FLEXIBILITY TO FUTURES AND MAYORS, TO FUTURE MAYORS AND COUNCILS TO DETERMINE What's the balance between supporting the general fund and the original PET priorities?

SPEAKER_03

Ben, just before you move off of that, just raising up what you just said is while the mayor's transmitted ordinance doesn't have percentages associated, their actions of transmitting a budget has met those original percentages.

SPEAKER_09

My next slide.

Oh, sorry.

Yeah, keep going.

I appreciate it.

So yes, so what's interesting is the previous slide was about the policies.

This one is about the actual spending, right?

And what's interesting is that of the money that is allocated for the payroll expense priority, original priority, sorry, which in this case for 2025 or $233 million, the percentages largely track the original proposals.

So again, on their own policies, that's not required, but that is effectively what they're doing.

Again, I think they recognize those as they share, by demonstration, that they share that notion of the relative priorities among those.

Again, the youth violence mental health piece was never in those original percentages, so it's sort of outside that math.

But I did want to highlight that so that it then leaves the remainder for the general fund.

And again, I would point out, though, that if the temptation is to lock this in, if you will, and say, look, this split, which if you look at it is roughly 50% to the PET priorities and 50% to the general fund, you might be tempted to lock that in as a policy going forward.

Um, the challenge with that is that we have this deficit facing us in, uh, in 2027. And, you know, if you lock in, you, you may or might not regret that.

I'm not just, just pointing out that, that dynamic, um, that Thomas also pointed out.

Sure.

SPEAKER_04

Uh, yeah, I just want to make sure I'm understanding that.

Oops.

Yeah.

Go back.

Yeah.

So, um, just since the, um, it sounded like, And Council Member Reda, you can clarify if I'm misunderstanding.

But it sounded like, based on your question, there was a...

thinking that the reason we have the deficit is because we added all this new spending for the Jumpstart programming.

And without this spending, we wouldn't have a problem.

But what I see here is that it does account for $233 million worth of spending, but even still, there is a $287 million deficit.

SPEAKER_09

I think there was a question really about what happened in 2019 versus what was more recently proposed.

SPEAKER_06

And the decision about how to spend the pet money.

SPEAKER_03

I am going to ask for recognition.

Keep the facilitation rolling.

So it seems as if Council Member Morales has some questions that I'm going to call on you, then Council Member Rivera.

SPEAKER_06

I was just addressing how she was asking about...

SPEAKER_04

OK, so the point I want to make is that even without the spending in the jumpstart categories, we still have an almost $300 million deficit to address.

Am I understanding this chart right?

SPEAKER_09

In other things being equal in 2027, yes.

So that's the 233 shown in 2026 going to the general fund plus the forecast $75 million shortfall getting you to 300. So the math is clear for everyone.

But yes, I mean, again, just sort of backing this up and revisiting without putting them up some of Tom's slides.

Into the pandemic, the city's revenues crashed.

High inflation hit, and we ended up with a big gap between expenditures and revenues.

And that has persisted because revenues have recovered some, but the inflationary costs have now driven up city costs as they've ultimately been reflected in no small part in wage increases.

So we've not gotten out of that reality.

And we are now...

is probably too big a word, but we are now situated with a situation where revenues aren't, we're not going to grow out of this in any time soon.

Revenues are not outpacing increasing costs.

So like there's not a version where, you know, and that in the past when I was doing this work and looking at projections three years out and seeing deficits, there was some hope that the forecasts were conservative enough that you could grow your way out of it, if you will.

The deficit of the scale that we're talking, that that's not happening.

And that's why you see this proposed transfer to the general fund.

SPEAKER_03

Council Member Rivera.

SPEAKER_06

Yes, and just to clarify my point was rather than use a jump start to cover the deficit that was increasing, we or prior leadership decided to add programs on top of the fact that we still had to deal with an underlying deficit.

That was my point.

SPEAKER_03

We could go deeper into that history, but I'm not going to.

And colleagues, the reason that I am so firm about my facilitation of our conversations is because I come from a time where impugning people's motives was a daily occurrence where what seemed to be a nice conversation suddenly became a very difficult to manage situation.

I don't believe that to be us in any case.

I do not believe that to be us, and that's also where this is coming from.

An ounce of prevention is great.

Over to you, Director Noble.

You're on PTSD, if I might.

I believe I'm not even going to attempt with the rank, but our intelligence officer on the dais reminded us that it is PTS.

SPEAKER_09

Yes.

So this is an interesting reality.

So the mayor's proposed very flexible policies, sort of the most flexible policies one could imagine, if you will.

I would highlight again that there is a very real advantage to those.

They offer the opportunity for the then-electeds, which in the near term will be some of you at least, to make decisions about what the priorities are and where the money should be spent without having to sort of revisit and undo this every couple years.

But at the same time, the allocations that I've made are, again, All the money that is going to the PET priority is largely consistent with the original percentages, if nothing else, if you will.

This next chart is just the same data visually in case that was something.

I'm fine staring at lots of tables and get comfortable with them, but not all of you are, and I understand that.

So this is a visual depiction of the same, if that's helpful.

What you generally see is that the...

The investments in each of the categories, they reduced somewhat in 2025 because the total allocation to the P&T priorities is lower, but the proportions are roughly the same.

You see the large spike in the general fund in 2025, and that is because of the use of the one-time 2024 resources to help balance the biennium.

So that leads me to the set of questions that I think you all need to battle with, if you will.

The goal has been the kind of discussion that you've had today, and this may instigate some further of that.

So let me just walk through these and sort of frame up what I see as the questions you have.

You have to answer.

Again, one version of them would be to adopt the mayor's proposed policies.

They effectively have an answer for all of these except number five.

One piece of this is that you could obviate the need for Jumpstart-specific policies if you decide that the Jumpstart no longer have its own fund and simply be put into the general fund.

I think that would make it harder to track how the resources are used so that you'd lose some transparency there.

But there's nothing, it is a policy decision itself to have separated the Jumpstart revenues into their own fund and actually the first year they were not.

And if you do that, much of this discussion that follows is not necessary.

If there is to be a jumpstart fund, I think the underlying question of would you want to set up any kind of restriction on how much money could be available for the general fund?

Again, if you look...

TO THIS ALLOCATION IN 2026, WHICH IS SORT OF THE ONGOING VERSION, THERE'S ABOUT A 50-50 SPLIT BETWEEN THE JUMP START PRIORITIES AND THE GENERAL FUND.

IT'S 48-52.

SO IT GIVES YOU A SENSE, YOU KNOW, YOU COULD THINK ABOUT A PERCENTAGE THAT GOES TO THE GENERAL FUND.

THE WARNING, IF THERE IS ONE ABOUT THAT, IS, AGAIN, THAT WE HAVE, THERE'S A PROJECTED DEFICIT FOR 27, AND IF YOU ALLOCATE THAT SAME PERCENTAGE, YOU WON'T, you won't have the opportunity to use any more of the PET to close that gap.

And that might be exactly what you want to do, that is preclude that, or it might be exactly what you'll want to do in order to avoid some other cuts.

Then beyond the general fund, there's the question of within whatever is left for the PET categories, do you want to set up specific allocations for each?

The current ones, again, are sustained effectively, give or take.

through 25 and 26, so it wouldn't be hard to continue those.

I would note that if you're going to set percentages, another version would be to consider some flexibility in those.

I did the math simply.

I think the one that this 9% goes to 10%.

I mean, there is a little bit of movement between them.

And again, the question of how strictly you would want those policy binds to bind.

Another thought is a question of what happens if and when this revenue source were to decline, and would there be a relative priority placed between the general fund support versus the PET priorities?

So one question would be, you know, if you will.

Does the first share of money go to the general fund, or does the first share go to the PET priorities?

And then within the PET priorities, are there some that are a higher priority than others?

And I've heard a lot of interest in housing, not necessarily to the exclusion of the others, but just as an example.

So you can see that there are a lot of levers there.

And again, the mayor's version makes those levers available to you and the mayor each and every year to determine.

The last point is the one that we've raised a good deal about the question of a revenue stabilization reserve.

And I can't be my recommendation that there be such a reserve established.

The amount, again, there isn't magic to that.

We have seen, the reason I highlighted it in the earlier slide, It's very limited history.

We have seen a drop of actually just over 10% in one given year.

So that gives you some sense of the scale.

And again, the concentration is a technical point and is not We actually haven't seen a whole lot of, we have limited experience of volatility, because we only have three years, but we have seen it drop and go up, but we know for sure is the concentration, and the concentration bodes poorly in terms of that volatility.

In the previous role, I mean, at some level, given that there are 10 firms that generate 70% of this revenue.

The forecast is about trying to predict the financial fortunes, the economic fortunes of 10 private companies.

And if anybody were really good at that, they wouldn't be doing this work.

They'd be working the stock market for themselves.

So that concentration will always be a challenge.

In terms of mechanisms, One way, obviously, to do it is to just dedicate a share of the forecast revenues into that pot.

Another strategy that we have used on the general fund side is to say, let's take a look at the year end, comparing what the year end fund balance is. where there's potential for revenues to have overperformed, for expenditures to have underperformed, if you will, or to have been some underspend, and dedicate some or all of that unexpected fund balance, if it exists, to the revenue stabilization fund.

That is one of the mechanisms we've used on the general fund side.

Again, that essentially taking advantage of what we anticipate to be some level of error in the forecasts.

But to highlight, you're not guaranteed that kind of unanticipated fund balance.

If the revenue forecast falls short, then you're in the opposite situation.

So again, I don't have answers for you for these questions.

I think these are ones that over the next few weeks will need to get resolved into some kind of a proposal.

And then the last point I would note is that you may think you're setting these policies for all time, but the last four years suggest exactly the opposite.

That as new pressures emerge, these are policies you're imposing upon yourselves, if you will, or upon the city.

that can be changed by literally five votes.

So I'm not trying to trivialize it in any way, I'm just highlighting that you could also get too wrapped up in this at some level because there is inherent flexibility because it is not a state restriction, it's not a federal restriction, it's one we're imposing on ourselves.

That said, some level, you know, there is a question about transparency and commitment to the residents about these spending priorities and the use of these resources.

So that's what I had for you on this.

Again, teeing up, I hope, not hope, what I know to be one of the most significant policy issues before you as part of the budget.

SPEAKER_03

Thank you, Director Noble.

I also need to call out and thank the mayor's office for their funding these priorities at the levels that we have previously requested.

This conversation at committee today might be the most frank and candid conversation I've seen about the last number of years on the dais to date.

I do see at least one hand from a colleague.

I'll save my comments for the end, but I just want to thank you for setting the stage for the candid conversation.

Council Member Moore.

SPEAKER_05

Yeah, and I'll echo those comments about all the work that's been done, and thank you for setting the stage.

I just need to clarify.

So, if we were to agree to backfill everything with the general fund, we would still be facing a deficit in 2027, correct?

Yes.

SPEAKER_09

Mayor's proposed budget at allocating 230 plus million of PET to general fund leaves a forecast deficit in 2027 of 75 million.

SPEAKER_05

And so really the only way that we can address, assuming we did that, the only way that we can address an ongoing deficit, our choices are to stop growing or to find other revenue, source of revenue.

Yes.

Okay.

And then I had a question about, so I know you talk a lot about the jumpstart being very volatile and that we only have a short period, we have a short window of experience for that, and it's based on the stock market.

But because it's largely based on the stock market, would it be worthwhile to actually look at the performance of the stock market over a 50-year period?

Because...

Really, when you look at the performance of the stock market over a long period of time, it continues to outperform and do very well.

SPEAKER_09

Let me expand that.

The reason that it's not to generalize stock market, it is particularly the stock value of the most concentrated payers, because in the technology sector, that fair amount of compensation comes in the form of stock grants.

John Doris, who will be here next week, Tuesday, he runs the forecast office.

When I was there, he was doing this work.

I've seen the correlations.

So you can very much see how changes in stock values of those particular companies that, for business privacy reasons I can't name, are correlated with the changes in our tax payments.

So those companies, projecting their performance going forward is...

difficult and again if one were really good at it one wouldn't be sitting in this chair if you will so that that's that's and like this so I don't know that the overall markets history would be informative the the history of those companies potentially yes but again going forward difficult a difficult thing to guess because again that we're talking about some of the larger technology firms that are engaged in really transforming markets as we speak so it's it's really difficult I'm not arguing that that there's some value in looking back and actually when director Doris is here next week to preventive present a forecast and you all all invited it's a joint meeting that it would be a great question for him

SPEAKER_05

Yeah, I think we need a broader perspective.

Thank you for clarifying the market that we're looking at.

But I do think a broader perspective would be helpful because we are looking at tying our potential future to something that is up and down.

But the stock markets, anyway, thank you.

SPEAKER_03

Well said, Council Member Kettle.

SPEAKER_10

Thank you, Chair Strauss.

Thank you, Director Noble and Mr. Mike Sell.

You know, I was just thinking on that point, another factor, too, is the tech companies, because, again, we probably all know a lot of techies, is that they may make the decision to move away because not all tech companies are the same in terms of compensating with the stock versus salary.

And that's another wildcard factor that's present.

I've just as listening to that.

I just wanted to thank you for these policy positions, but also it's helpful, and this kind of goes to reforming the budget process, having the five-year look back, because each of these areas don't operate in isolation, and things are constantly changing.

So it's really helpful to have that kind of look back, and I think it will inform our decisions on this much better in terms of moving ahead.

So I just wanted to say thank you on that.

And the only thing I will say about this, since I've already been quite strong about emergency fund and revenue stabilization fund, one aspect that I do, I will say right now that is having a similar stabilization, revenue stabilization fund for the PET makes a lot of sense for all the topics, for all the reasons that we've already been talking about.

Thank you.

Thank you, Council Member Kettle.

Council Member Rivera.

SPEAKER_06

Thank you, Chair.

Thank you both for being here.

These are really important considerations.

I want to say that I very much am facts oriented.

I don't like to impugn motive.

I want to know the facts and I want to know what happened in 2019 and 18 leading into 2021 and subsequent decisions because it's the only way that personally I can answer some of these very key and important policy decisions you've put before us because I do want to know if we were in a deficit situation prior to PET.

It will help inform us today because we need to be today moving forward, but it will help inform today how we should answer some of these questions.

And so I think that's important.

So thank you for following up.

with that information later and just really appreciate how you clearly laid out the history on the pet from 2021 to now and all these policy considerations.

And I too want to echo the appreciation to the mayor's office for putting together the budget and look forward to all of us working together to get somewhere that will really help our city be in a space where we are providing the much needed services while at the same time being accountable to the tax dollars while at the same time putting something that is more stable into the future because given that we've seen what happened during COVID, you know, even if, you know, and I very much appreciate, Council Member Moore, your question.

It was a, you know, great question.

And the stock market, you know, if tomorrow it plummets, we have to deal with tomorrow, and it might go up again in five years, but then we're stuck with what do we do about tomorrow, which Ben, I think is a little bit of what you were getting at if I was understanding you correctly.

So all of these are considerations and I very much appreciate the work that's before us and hopefully working together, we can get to some of these things in a more stable way.

Thank you, Chair.

SPEAKER_03

Thank you.

Anyone else?

Otherwise, I'm going to summarize my reflections from this presentation.

Seeing no other comments, I'll summarize here.

And as one of the original co-sponsors of Jumpstart, it's really important that we acknowledge two truths.

Number one, Jumpstart works.

More than that, it's a critical part of our budget.

Without Jumpstart Progressive Revenue, we would be in a much worse budget situation today.

It is the centerpiece of our investments in areas of economic development, equitable development initiative, the Green New Deal, and very, very helpful for affordable housing.

The second truth is that every year since we passed Jump Start, we have used some of Jump Start to protect other crucial city priorities from libraries to community centers.

If we decided we were going to end that practice of using it for general fund this year and not use any of the Jump Start to assist with general fund priorities, we would be changing course from past practice for the first time ever.

We'd also be in a very bad position.

We'd be talking about mass layoffs and even bigger reductions to basic services Seattleites rely on and bigger reductions to our social safety net.

We, as we look ahead to the future of Jumpstart, I believe it's important that we balance these two priorities.

We need to make sure that Jumpstart is living up to its promises.

We also need to make adjustments and protect other priorities in our budget when the city's budget faces tough economic cycles.

We need to make these adjustments because in these very short four years Jumpstart's been on the books, we've used it differently every year.

And we've added priorities without a comprehensive review.

We have not been collecting revenue long enough to complete a fire smoothing analysis.

And as it's been mentioned, Jumpstart can be a volatile revenue source.

We've only experienced it in the good times.

If we don't use our wisdom, we or future councils may find Jumpstart revenues coming in below original 2020 projections.

Page 16 of 17 in Tom's memo clearly describes this, and I appreciate the deep analysis that's been provided.

Colleagues, my approach to this legislation will be to balance these priorities, to make sure Jump Start lives up to its promises, to incorporate the realities of how we've used and changed Jump Start, and make sure that we insulate these important priorities from the inevitable economic swings.

With that, that brings us to the end of item four on our agenda.

I will note a new thing I learned today is that if you want to change the weather from cloudy to sun, you promised the Seattle channel that we can open all of the windows and there won't be any problems.

Thank you, Seattle Channel, for your grace.

I have watched as behind the scenes you've changed the white balance a few times.

Thank you.

Colleagues, tomorrow morning is 10-17, and at 10-17 on 10-17, it's not Public Safety Day, Councilmember Kettle?

Every day is public safety day for Councilmember Kettle.

It is emergency preparedness day.

While we won't have an earthquake fund in our budget, we will have an earthquake drill during budget.

And so we will have, this is part of the great shakeout across Washington State tomorrow at 1017. So prepare for some more details there.

We will close this meeting and we will restart another Select Budget Committee meeting today at 5 p.m.

sharp.

Thank everyone was on time today.

I really appreciate that.

We will have childcare until 7 p.m.

tonight from 4.30 to 7 p.m.

tonight.

We would appreciate volunteers from everyone's offices and we're gonna go as late as needed.

Council Member Moore.

SPEAKER_05

May I just make one announcement to remind everybody that tomorrow is Domestic Violence Awareness Day, so please wear something purple.

SPEAKER_03

Purple.

Purple.

This is different than Denim Day.

SPEAKER_05

Different than Denim Day, yes.

SPEAKER_03

Thank you.

Great.

Purple tomorrow.

Seeing no further comments, this does conclude the September, October 16th, 2024 select budget committee meeting.

Seeing no further business, we are adjourned.