Economic and Revenue Forecast Council meeting of 10/16/2026

Good morning.

Today, Friday, October 16, 2026. This is the meeting of the Economic and Revenue Forecast Council, and the meeting will come to order.

I'm Dan Strauss, Chair of the Economic and Revenue Forecast Council.

I'm here today with my forecast colleagues, Director Mark and Vice Chair Mark Ellerbrook, City Finance Director Dwight Dively, and Council President will be joining us shortly.

So We're going to figure out these scripts, because these scripts are a little odd, but usually we would call the roll.

So I'm just going to call the roll.

Dwight?

Here.

Mark?

Here.

Council President is excused until present.

I'm Dan Strauss, and I am present.

The main purpose of this meeting of the Forecast Council is to receive the Economic Revenue Forecasts, which will be presented by the staff from the Economic and Revenue Forecast Offices and the City Budget Office.

City Council is now reviewing the Mayor's 2027-28 proposed budget, and the forecast we are now going to receive and review is the final revenue update of this year.

This revenue forecast is especially important because it will serve as the basis for the 27-28 adopted budget.

It will set the stage for the City Council's budget deliberations and determine the total resources to be appropriated through the Council process.

Before we begin and before we move on to the presentation, we need to adopt the agenda.

So if there's a copy of the agenda has been circulated to members and is available online on the office website, If there is no objection, the agenda will be adopted.

Hearing no objection, the agenda has been adopted.

We will move forward into the first item of business, item number one.

I'll read that item into the record.

Approval of the minutes from the August 7th, 2026 meeting.

A copy of the August 7th meeting of the Forecast Council has been circulated to members and posted on the website of the Forecast Office.

I'll move and seek a second of the approval of the minutes.

So I'll move approval of the August 7th minutes.

Is there a second?

Second.

It has been moved and seconded to adopt the minutes.

If there's no objection, the minutes will be adopted.

Hearing no objection, the minutes are adopted.

We're going to move into the meat of today's presentation, the presentation of the 2026 Economic and Revenue Forecasts and recommendation from the Office of Economic and Revenue Forecasts regarding the 26, 27, and 28 Revenue Forecasts.

Sorry, that was me reading the second item into the record.

So let's move into today's agenda item.

Jan is gonna lead us through the presentation, and we'll also then turn it over to CBO in their particular areas of expertise.

With that, Jan, we're gonna be looking at the three, the pessimistic, baseline, and optimistic, and you'll have a recommendation for us at the end.

With that, let's dig right on in.

Thank you, Chair Strauss.

Good morning, forecast council members.

For the record, Jan Drurs, interim director and chief economist at the Office of Economic and Revenue Forecast.

Let me share the slides here quickly.

Alright, so we'll do it the same way as we do it always.

We'll first look at the economic forecast, the economic conditions, and then move on to the revenue forecast itself.

The reason again for the viewing public why we do that is that there are several large revenues that are driven by the economy and they're responsive to economic conditions and so it's important to understand those and it helps to understand what's going in the economy to be able to understand the magnitude of those revisions to the forecast and where they are driving from, what potential risks there are.

So with that, let me talk a little bit about the current economic situation.

This is the chart that we have shown in August.

It plots the oil prices and the Seattle area gas prices.

After the war in Iran, there was a significant spike in oil prices.

that has also transferred into higher gas prices.

The ceasefire in June resulted in a little bit of a retreat.

Prices came down a bit in July and August, but then started to go up again.

Currently diesel prices in particular are at record highs on the US as a whole, 6.5% per gallon and has implications for a potential pass-through into inflation overall.

So that's certainly a continuing risk.

That said, it's been, the economy has been pretty much throughout the last couple of years described as resilient and the household spending has been described as resilient in particular.

The chart here shows the inflation year-over-year change in the CPI index in gray.

And then the red line shows the year-over-year change in the consumption expenditures.

So as you can see, the spending by households is keeping pace with higher prices.

Year over year, the spending is growing faster than the inflation rate.

And that's not just the direct results of higher oil prices.

Even if you exclude spending on food and energy, those items that have become particularly expensive over the last couple of years, You can see that the spending, again, excluding those volatile food and energy items, that spending has gone up, has grown over the last couple of years.

It has gone up year over year even as the inflation has picked up in the last couple of months.

The way households were able to finance their spending has been increasingly in recent months, increasingly by using borrowings, lowering their savings, the wage growth and income growth has slowed down, and so relying on the spending is the way how they can support their spending, but that certainly poses significant risks going forward, especially as the interest rates start to rise, which I'll talk about more.

later during this presentation.

Now, moving on to the regional economy, the chart here is the one that we typically show.

We use labor market as the general...

It helps us to understand the general state of the regional economy.

The GDP numbers that are published for US are released reasonably reasonably fast with a reasonable little lag.

For regional economy, the GDP numbers, they usually come out with significant lag.

So right now, it's a couple of years back.

We don't know what the current output in the Seattle metro area is.

But the labor market, the job numbers are a useful way how to gauge the overall health of the regional economy.

And so that's our primary go-to economic indicator.

The two top bars, the red and the blue bar at the top, labeled total non-farm, show the year-over-year change in the job numbers.

The blue one is for the US as a whole.

In the first eight months of the year, employment in the US has gone up by about 0.2%.

So it grew, not spectacularly, but it certainly went up.

There was a lot of volatility month over month, but the labor market in the US has been, in general, described recently as a labor market that has stabilized.

It's rather stagnant.

It's not very dynamic.

It's not growing fast, but it's certainly not declined.

There is, again, a lot of volatility month over month.

But overall, 0.2 year-over-year grows in the first eight months.

Now, looking at that red bar, total non-farm job change for Seattle metro area, that one shows a year-over-year decline.

There has been a couple of industries that have added jobs, education and health services in particular, and leisure and hospitality, those two large bars that are to the positive side underneath.

These industries have grown, but there were some significant job losses elsewhere in the economy.

So those bars below the top non-farm, they showed you contributions by individual industries.

If you stack them up, you get the total change.

There are some changes to the positive side, like I said, but the significantly negative ones offset the additional jobs in leisure and hospitality, education and healthcare.

In particular, trade, wholesale and retail trade sector has been in decline over a number of years and has been further negatively affected by both the tariffs and the higher inflation due to oil prices.

Tax sector, we have discussed that in previous meetings.

Tax sector is going through a very transformative period and there have been significant layoffs announced and that's starting to show up in those job numbers as well.

So there isn't any growth in that sector.

It has disproportionate effect on the Seattle region, in particular given how large the share of total employment there is in the tax sector.

So with that, let me move on to the economic outlook.

First of all, changes in the outlook overall for the U.S.

There has been certainly those risks, the elevated inflation, the higher oil prices.

Recently there has been a surge in long-term interest rates and the Fed has started to tighten its monetary policy.

Those are all risks going forward, but the economies Overall, consider the current situation reasonably good.

That would be probably the takeaway from this chart, or at least better than what the overall impression about the health of the economy and the risks were in 2025, let's say, when the tariffs were introduced, or in 2023 when the interest rates started to rise as the Fed was trying to bring the inflation down after the disruptions to the supply chain caused by the COVID.

So what I mean by that is the chart here shows the average probability of a recession in the next 12 months as reported by the Wall Street Journal.

It's coming from the survey that they conduct each quarter.

They ask 60 to 70 economists a couple of questions.

They provide their outlook for GDP, for inflation, unemployment rate, couple of other indicators.

And then one question that they ask them is, what do they perceive to be the probability of a recession in the next 12 months?

There is a wide range of answers.

Some are very low, some are very high.

The chart here shows the average of those answers.

Right now, and that average is at 24% and it changed very little since August when it was at 25 and it came down from 33% in April.

given the GDP data that has been released over the last couple of months, last couple of quarters, given the state of the labor market, even with higher oil prices, even with higher inflation, economies generally believe that the risk of a recession have come down over over time from their highs last year after the tariff was introduced, it was close to 50%.

Right now it's significantly lower than that.

And so the risks are there.

They are higher than the average, which will be somewhere around 15%, but certainly not as high as what we have seen in 2023, let's say, or in 2025. Now looking a little bit closer at those risks, high inflation, high interest rates that I mentioned, here is how the change in the forecast looks like.

I'll go a little bit back.

I'll start with what was expected back in March when we were working on the April forecast.

So those two lines here that are labeled March 26 baseline, that was the forecast for the US economy.

that was released in March and was used as the underlying US economic forecast when we were developing the April revenue forecast.

The April revenue forecast came after the war in Iran started and the inflation forecast has been already adjusted upward.

due to that impact on oil prices that was expected to come eventually.

And then with the next update, when we were presenting the revenue forecast last time in August, and we used what's labeled here as the July 2026 baseline forecast, that inflation was actually higher.

The actual inflation was higher in the first, a couple of months of 2026 than what the economists believed.

So there was an upwards revision to the inflation forecast.

And there was also an upwards revision to the expected past of a federal funds rate.

And it was already that concern that, well, this shock is something that the Fed will not be able to look through.

Even though it's an oil price shock, there is a risk that it will bleed into the overall inflation, and so the Fed will have to do something, even that it's an additional supply shock, and the accumulation of supply shocks can cause inflation expectations to go up.

So, forecast for the federal funds rate has gone up between March and July.

Then here is where we are right now.

That last line that just showed up that's labeled as September 2026 baseline is the forecast for the US economy that we used as the underlying starting point when developing our regional economic forecast and the revenue forecast itself.

That forecast is an average of what S&P Global, Market Intelligence and Moody's analytics expect.

We are using both of them and the average to kind of make sure that we are not using forecast is overly optimistic or overly pessimistic.

The interesting thing about the last forecast is there is actually very little disagreement about the path for the inflation going forward among different forecasters, among those two institutions in particular.

So as you can see, the forecast for inflation has been brought down a little bit.

The peak that we saw in the first couple of months in May and June, that inflation is considered to be the peak and from now on the perception, again this is back in September, was that the inflation is going to slowly ease down.

Now, that forecast is obviously a little bit dated.

We are already in the middle of October since then.

There have been further CPI data released in the middle of September for August, and we have seen the inflation also reported for September, the recent October.

release.

Both of them suggest that the September forecast is probably a bit too optimistic and the next revision will be to move the inflation forecast a little bit back up towards where it was in the July baseline forecast.

So that's certainly a risk.

That said, there is a really strong commitment by Fed to bring the inflation down and so the expectation is that Fed will do what it takes to bring the inflation back to the 2% target.

That can be seen also in the chart on the right which shows the federal funds rate and again has been revised higher.

That actually Again, it's a bit dated, and forecast from early September, so before the meeting of the Fed, where they did raise the interest rate by 0.25 percentage point, and the Fed officials have signaled that they do believe that another 0.25 percentage point increase is appropriate by the end of this year.

In addition to that, financial markets are pricing in additional interest rate increases in 2027. It's a little bit unclear how that thing will really play out, but again, there is certainly going to be an upwards revision to the federal funds forecast that we are presenting here, and that's something that needs to be kept in mind.

The second scenario, the pessimistic scenario that I'll talk a little bit about here, is one where, as you can see, the inflation would actually pick up, and that's something that we did observe in recent months, so that darker brown line that shows the pickup in the fourth quarter is certainly the one that's more closer to the expectations.

On the other side, you can however see that the pessimistic scenario, because it's built around the assumptions that basically mean that the economy is going into a recession.

So it's a 25%, roughly 25% case scenario.

If the economy goes into recession and there is a significant slowdown in economic activity, significant job layoffs, FED will have to balance these two dual mandates.

A risk of higher inflation and a risk of significant job losses would mean that it would look at how far it is from those two targets and if the job losses are significant it would actually be forced to cut the interest rate to support the economy because inflation is actually going to be expected to come down by itself due to less demand due to lower employment.

And so the path for interest rate there is actually showing quite significant declines again to support the economy.

That's what FED will be trying to do.

Moving on to the outlook for growth overall and economy growth overall and the job growth.

These charts again show the underlying forecast back when we were working on the April revenue forecast and used the March US forecast.

There is that lag between when we deliver the forecast.

It takes a couple of weeks to finish it, so usually those economic forecasts are or one month prior to when we were delivering the forecast.

The GDP was expected to grow around 2%.

Employment growth was supposed to be already pretty low.

There has been a significant slowdown in job growth throughout 2025 and the outlook was that that's going to continue with the additional information about the impact of the Iran war, but at the same time federal government, fiscal support in terms of the HR1, and then the build out by the AI companies.

Overall, that meant that the real GDP forecast has not really changed much.

It has been revised slightly down for 26, but actually slightly up for 27 and so between March and July there wasn't any dramatic change, still hovering around 2%, employment still pretty low, below half of a percent growth.

And then here is where we are right now.

The September US forecast is actually slightly better than the July forecast for the GDP growth above 2%, so what would be described as a solid GDP growth.

The households are struggling, but they are still able to use those spendings that I talked about before to support on their expenditures, the AI investment is boosting the overall growth, and so there hasn't been a significant impact so far on the economic growth.

Employment, not much of a change there, slightly improved compared to the July, but very, very slow employment growth in the baseline scenario as before.

Then this is what the recession, what that 25% recession scenario would look like.

The GDP would decline in the first half of 2027 and job losses would ensue because of that and the kind of narrative around the scenario is that those disruption to oil supply shock and high oil prices, they can lead to the cracks that eventually lead to the economy falling into a recession as households are forced to restrict their spending, a loss of confidence in the AI and how on those earnings are going to play out and when exactly they will materialize.

All that might lead to a significant pullback by businesses and their investment, sell-off in stock prices, which through a negative wealth effect, if there is a significant drop in stock prices, the 401k look much worse.

Again, that would lead to households and retired people would be more cautious with the area spending, and overall that would lead to that slowdown, that recession in 2027. That's the basic narrative here.

25%, like I said.

So not the baseline scenario, not the most likely outcome, but the significant risks there.

Moving on to the outlook for the regional economy, there has been a revision to the employment data by the Employment Security Department.

Washington State Employment Security Department revises the employment data regularly.

This time it was a revision to the upside, so higher job numbers for 2026, and that has led to to overall better picture for 2026, but not necessarily something that would translate into higher growth in a couple of years.

The chart again goes back first to show the April underlying employment forecast, how it was revised in August, the change in the historical data that reflects those revisions to the historical employment estimates.

So it's not just a revision to the forecast going forward, but it's usually a revision to the historical data going back.

And then the last last line that, like I said, the revision improved the 2026 job grows slightly, still hovers around zero, and that essentially flat employment is also expected in the next year.

And the regional economy would go significantly beyond its pre-pandemic employment levels only in 2028, so next year it doesn't look like year with a strong employment growth, there is just hard to see where that growth would be coming from, given the recently announced layoffs and overall high economic uncertainty.

The pessimistic scenario is similar to what it looked like for the US economy.

Notable job losses, roughly 3.2% jobs lost between the second half of 26 and the third quarter of 27. That's roughly 58,000 jobs in the regional economy.

And it would not be a long-lasting recession in this forecast.

Those job losses would be recovered reasonably quickly, but that means still by the end of 2029, so not quickly enough in some sense.

Finally, the last thing when it comes to the updated economic forecast, this is what the inflation forecast looked like in April.

Similarly to what we saw for the U.S. forecast, we have revised it up in August to incorporate the actual impact of oil prices we actually have seen in the inflation data reported by BLS.

And then because summer and third quarter, the August, the reading was lower than our August forecast after it was released in September, the inflation for August was actually lower than what we were predicting it to be.

in the early August forecast, similarly to what we have seen in the U.S. inflation data, the current forecast revises the baseline outlook down by about 0.2%.

But it's not a significantly rosier outlook, I wouldn't really call it that.

And then the pessimistic scenario, that one is the one where we would see more of a pickup in the fourth quarter of 2024. The actual outcome will be probably somewhere in between those based on what things look like right now.

That said, there's obviously a lot of risks there.

It's hard to tell how the situation in Iran will really play out, what might happen to oil prices.

Just lots and lots of uncertainty there.

So with that, I'm happy to take any questions about the economic outlook.

Thank you, Director Duras.

I got so excited for your presentation.

I forgot to introduce the table.

We have one new person with us today.

You've also got Sean from your office.

Sean, always great to see you.

From CBO, we have Joe.

Always good to see you.

Alex, always good to see you.

And we now have Matt.

Matt, welcome to the table.

It sounds like you started in July, so really happy to have you here.

With that, colleagues, are there any questions about the general economic situation or statements?

No?

I'll just share my reflections, and Yana, Director Duress, I always appreciate your analysis here, especially this time looking at pulling in the ceasefire of the war into your analysis, because across our economic spectrum, this war with Iran that was unprovoked and unnecessary has completely disrupted what was a slow-growth economy into something that is completely unknown at this time.

We're seeing those impacts across the diesel sector, but then also floating into every other aspect of our life.

In addition, we're seeing the stock market make huge gains in these last couple weeks, but it seems like it really could be that AI bubble that may finally burst, because we've also seen some pretty big drops.

And so you always choose the best week to do these revenue forecasts.

I think in the last couple revenue forecasts, we've had and some other wars.

I mean, it seems like every time we get together, there's something that goes wrong in the U.S. economy the week before.

I don't know.

Anything you want to- I see you maybe want to share something to that?

No, that's certainly true.

It seems like Washington State Economic and Revenue Forecast Council is better in timing their forecasts.

and I'm especially worried about the April because last April, April 25, it was the tariffs.

This April, it was the war.

So yeah, it's six months from now and a lot might happen by then.

There are certainly concerns there, yes.

And all of those things have been self-induced from the United States as a national economy, which is really quite unfortunate because as this current federal administration came into place, we were all looking at slow growth coming out of the pandemic, and we've seen bursts, but then also huge drops, and that's led to the inflation situation that we have going on right now.

On slide six, or I guess there was one slide, let's go back to this one, about, what was it?

Slide 10. This one I think really just shows where we are today in a really meaningful way, and that's we're at a flat line.

We've been at a flat line for a number of years with the hopes to increase, you know, this is both real So with GDP and employment here, we're really seeing this flat line that's occurring.

And for several years now, we've been either warned or warning that we were going to hit either a recession.

It's good to see that that has dropped 1%, but that, you know, probability of recession has been high at times.

And, you know, we've all been hoping for this slow growth, but this slide 10 really shows how much of a flat line we're at right now.

On slide six, just kind of calling out what is driving our own economy.

A number of different times through this budget process and through the seven-year look back and all the rest, We ask, how did we get into a structural budget deficit?

Yes, all 281 cities and towns in the state are in a structural budget deficit because of the way the state property tax structure is structured.

Anyhow, Seattle does have more levies that helps us close those gaps, but at the same time, how did we get into the structural budget deficit?

It's 10 years of high growth, now experiencing very little growth.

and this slide for me tells the story of how do we get out of it or what do we need to do.

I just highlight that manufacturing here in Seattle is outpacing the national average as well as leisure and hospitality.

So while we have downtown office space that goes unrented, which impacts our commercial parking tax, it impacts our Sales tax, it impacts so much, but if we didn't have these cruise ships down here, our downtown would be hollowed out.

And I just say that because as a born and raised Seattleite, I was always skeptical of the cruise ships coming in at first.

And my gosh, it is what is keeping downtown floating right now.

And so I just note that, but then also manufacturing.

It's the sleepiest industries in our city.

It's the industries that have gray walls and no windows and big, tall fences that you can't see behind.

and it always looks like there might be nothing going on on the other side of that wall or fence, but here it shows it's what's booing our revenue forecast today.

So I just wanted to call those things out.

Can you help me understand the wholesale retail?

Is this just because people are buying online more or is it that we don't have enough Costco's in town?

What's going on here?

Sure.

So for wholesale and retail trade, the employment has been in decline over some time already before.

That has to do with a shift to people buying online.

So less employment needed in brick and mortar.

There has been some advances in technology and some automation that help to increase the productivity and so businesses, especially because they are facing higher cost, the inflation has been high already before and it's even worse now with the high oil prices.

Those companies are looking for a way to cut their costs and so when they can automate, they do.

So there has been additional some layoffs announced in that sector, not as big as the layoffs in tech sector and they definitely didn't make headlines as those other ones.

But those would be a couple of reasons that why we see what we're seeing here.

I want to tease out what you were saying about automation.

You're not talking about AI, correct?

And the reason I asked that, because when you talked about the tech sector having their different set of layoffs, I assume that that is more closely tied to AI, which is also occurring.

But when you're talking about automation, you're talking about computers self-checkouts at the grocery store.

Is that what you're talking about?

That would be the kind of thing.

With AI, it's still a little bit too early to tell what exactly the impact on the overall employment is.

There's certainly less hiring, so companies are still trying to figure out what that might mean for their employment.

It's eternally a bigger factor for the tech sector, like you said.

But still, even in retail trading, those companies have all sorts of jobs, not just people who are physically there in the store, but their corporate offices, their HR, lawyers, those kind of, there are lots of tasks that can be automated that might be done by AI, or AI might help do it faster, and there's certainly a lot of hopes that it will do that in future.

So less hiring with that also mean that we are seeing less employment growth.

So even if there aren't layoffs, less hiring can lead to slower growth because some people will be retiring, some people might decide that this is a good time to do it.

Computers are taking people's jobs.

There are certainly some worries that there is going to be potentially big disruption.

And the uncertainty is very large.

It can be a significant disruption in the job market, yes.

Vice Chair Ellberg.

Yeah, great.

Thank you very much.

This is really interesting.

I just wanted to ask, in this wholesale retail trade line, is there something about our region that makes us more susceptible to that?

Because I would assume that whether you're here or you're in Topeka, Kansas, that shift is generally occurring.

But we see something like four or five times that shift for our technology or in the wholesale retail area.

Yeah, we have to look a little bit deeper into that.

There are certainly large revisions between those forecasts that we are presenting.

We'll look into it.

It's possible that some of those job losses will be revised.

What the ESD does is they use the administrative data.

Every quarter when they receive the unemployment insurance data, they update their employment estimates.

that are previously based on just some small sample survey.

And so right now, what they do have is that administrative data only for the first quarter of 2026. So when they will receive the second quarter administrative data, they will provide more precise estimate what was actually going on in the first half of 2026. But yeah, that's certainly something you'll want to investigate, yes.

I'm going to tie this back to downtown as well, where even as recently as 2022, 2023, we started rezoning parts of Third, Pike, Pine, this area from being a type of zone that was created for downtown retail.

This is something that we have to look at beyond just what are the economic policies that we're passing or any of this.

We actually need to rezone parts of downtown, and there's more to do because the zoning was built at a time when people would physically come downtown to go shopping.

We see Pacific Place being empty.

We see Westlake Center potentially.

I mean, it would be a good place to put another civic hub at this point.

You know, we see these places that have traditionally benefited and actually the outcomes require human beings to come down and that's just not happening anymore.

So there's so much work that we need to do.

Retail is one of those where, especially over my lifetime up until the last decade, it's really people come downtown to go shopping and that just doesn't, especially after the pandemic, that doesn't really happen.

Any other questions, comments?

first group of non-politicians I've had at the committee table in a week.

With that, if you want to take us into our economic forecast.

Sure.

I guess one last thing before we move on away from this slide.

The leisure and hospitality, one thing I forgot to mention is the World Cup certainly helped and we have seen an uptick in employment in that sector over those months where we would expect the positive effect of World Cup and that would explain why increase is also larger for Seattle area than for the U.S. as a whole here.

Yeah, before we go on now that you bring up World Cup, so I know in the last year we had pretty high projections and then those projections got downgraded again with the federal administration's international posture and then especially right before the World Cup we were seeing very low I don't know.

We had high vacancy rates in hotels as compared to what we were thinking was going to happen.

But then it felt like in that week, in those three weeks of World Cup, everything just kind of popped off.

I'm hoping, before we get into the bad news of this revenue forecast, I'll just kind of speak some hope into the future that I'm hoping that when we get our receipts next year, they're better than what we thought, because this is another area where, Director Duras, it's just challenging.

It's just very challenging to get an accurate forecast on a situation where we've never hosted this before.

It's a one-time experience.

The indicators that we were looking at, like hotel vacancy rates and others, just couldn't give us a good picture.

Do you have any thoughts after you had the same experience of seeing high projections, low projections, and then maybe what happened?

Yeah, we'll talk a little bit about those things when we get to the revenue update.

There has been certainly an uptick for sales tax.

There has been, I believe, good news for short term rental.

So it's not just hotels, but the Airbnbs, they definitely benefited, maybe even more so than the hotels from additional visitors.

But yeah, international visitor numbers are negatively affected by federal government's actions, and so there is a hope that that will pick up over time.

The Blue Jays aren't coming here to play baseball this year, so there's a problem.

Okay, moving on to the revenue update.

First, just to give the viewing public an idea of what it is that we already know about 2026 at this point.

It's October, but by this time of year, the city usually receives slightly more than half of the overall annual revenues because of the lag between when the economic activity takes place and then the due dates and then the time by which those returns are processed and posted in the city's financial systems.

The chart shows how much variation there is among those different revenue streams and how much of a revenue share we are receiving by the time you're delivering the April, August and the October forecast.

So we have just recently released the Q3 revenue report has been shared on our webpage and members of the public can subscribe to a newsletter and be updated about these releases and the forecast that we put on our webpage.

What the third quarter report shows is that the general fund has been about 1%, 11.2 million below the anticipated August forecast, but that has to do with the grants.

Grants are a special kind of revenue where they are entered into the forecast when they are awarded, but the There are reimbursements only when the activity actually takes place and so the actual grants often vary significantly from those initial forecasts, but that money is expected to show up eventually.

So what we usually do is we look at the general fund excluding grants and we also exclude fund balance transfers because that won't be in double counting revenues from payroll expense tax in particular which is reported separately on non-general fund revenues.

So for general fund excluding grants and fund balance transfers, the revenues are actually above our August expectations by about 11.26 million, so that's 1.15%.

A lot of it is higher revenues from sales tax and from a business and occupation tax.

I'll talk a little bit about those when we get to the forecast table.

at this point, so to summarize here, what we have so far received and what was used for the forecast is returns as of the second quarter for business and occupation tax.

We now have sales tax revenues through July, so that already covers the period during which the World Cup took place, and we have rate revenues through September, so for the first three quarters of the year.

So sales tax revenues first the chart here is going to provide some kind of look back on where we are What the sales tax revenue looks like?

It's the revenue that where we receive updates every month so coming reasonably time is there is still about two months delay like I said we have data for July as the last month that's available for July filing periods, obligations.

What we have seen this year, what we have seen is a significant growth in sales tax revenues from information professional and business services and what's labeled here as rest of industries in general.

That has to do with the expanded tax base due to 58.814.

The year-over-year growth rates are really significant.

The purple bars starting with January 2026, as you can see, they are significantly taller than in 2024 or 2025, as the tax base has expanded.

And that has contributed to the overall growth by about 8%.

On average, we have about 11.6% more year-over-year in the sales tax, and 8% of that is information and professional and business services sector and the rest of the industries Then the red bars here show the contribution of the leisure and hospitality sector.

Those last two bars all the way to the right, that's June and July filing periods.

And as you can see, the World Cup has contributed to the year-over-year growth.

Those bars are slightly higher than...

than the bars in 2025. But overall, it's a relatively smaller share of overall revenues.

Leisure and hospital is about 15% of overall revenue.

So even if there is a significant year-over-year growth, the total contribution to the sale tax looks smaller in this chart.

So it contributed about 1% to 11.6% year-over-year growth.

That's the leisure and hospitality's contribution.

And then what we have seen is the construction sector, it was a little bit up, a little bit down over the year.

In general, better than what things looked like in 25 or 2024 when you can see that those yellow bars have been pretty much consistently below zero and there has been a decline in construction activity in 24 and 25. This year has been more stable.

Overall it deducted only 0.2% from the overall sales tax growth.

So that was a bit of improvement compared to last two years.

Then finally the blue bars here show the contribution of the wholesale and retail trade sector.

That sector has contributed 2.8% to the overall growth.

It has to do with the fact, with a chart where I was showing the spending, the consumption expenditures year over year and the fact that the households are still being able to spend even though they are more cautious, they are certainly going to be more cautious about big ticket items but there have been certainly some some higher than expected retail sales report and consumption expenditure report and that definitely helps also with the sales tax from the trade sector.

And so finally, this is what overall the growth looks like.

The black line adds up the positive, subtracts the negative ones and shows how the year-over-year sales tax growth evolved over time, the takeaway is what I said before.

It has been significantly higher year over year for 26, primarily because of 58, 14 and some positive, slightly more positive changes in the trade.

So with that, let's look at the update for the forecast first.

Focusing only on the bottom line here, the two lines at the bottom show the total general fund and then the one below that, that's total general fund excluding grants and fund balance transfers.

Like I said, we believe that that's a better measure of the trends in revenues because of some technical things about grants and because we don't want to double count the fund balance transfers revenues.

So overall, this forecast adds about $9 million to the 2026 general fund revenues.

Those two lines actually don't differ in terms of the difference, in terms of a change between the August and the current forecast, because grant and fund balance transfers forecast have not been revised in any way.

There is no change there.

the ads the difference between proposed budget and the current October forecast is the same in those two lines 2 million for 2026 only 1.2 for 27 and then a slight downward revision 2.4 down for 2028 overall about 7.8 million up over the three years out of what's roughly 6 billion.

If you add up the three years for general fund, it's going to be about 6 billion for general fund without grants and fund loan transfers.

It's somewhere around 5.6 billion, so 7.8 million out of 5.6 is not a large, relatively large revision.

And Director Duris, I'm just going to double check the assumption that I have, which is in your column's difference from 27 to 28 proposed budget forecast, by that you mean the August 2026 forecast.

Is that correct?

So what we are doing here is the same as we were doing in past.

After the official forecast is adopted by the Forecast Council, the Mayor proposes its budget and so when we are presenting these forecasts, we take into account the policy changes, any sort of policy changes that are included after the August forecast is presented.

And so that will be in particular important when you get to the payroll tax on the next slide.

It will make more sense.

But whenever, let's say, there is an additional change in some of the revenues, again, between that official forecast and what the Mayor presents as a proposed budget, we take the proposed budget itself, not the one that has been approved by the Forecast Council.

there's quite a bit of further discussion that we will have.

Keep going on.

I think that it is critically important for the transparency of this Forecast Office that we are clear with these things.

That's how the ordinance states it.

So the mayor, whenever there is a change between the forecast that is officially approved by the Forecast Council and what the mayor is using, they have to submit, and they did submit an official letter explaining what those differences are.

We'll have further discussion.

Yeah.

So, looking now at those individual items, going over them one by one.

As I said, the overall changes are not large, but there are significant changes to some of the revenue streams, and it's going to be useful to talk about them, and some of those changes in the economic conditions will be that we have discussed will be useful to understand what's going on here.

So let's start at the top.

For the public, those lines that are highlighted blue, those are the revenues that the Office of Economic and Revenue Forecast has in its purview.

The other lines are the forecast where the Budget Office is in the lead.

So we'll be taking turns and budget office team will talk about those non-blue lines first, starting with property tax.

Alex?

Oh, sure, thank you.

There is a considerable revision downward for- Welcome, Alex.

Thank you.

If you could introduce yourself as you start talking, we're glad to see you again.

Sure, yeah.

I'm Alex Sang, economist with the City Budget Office.

Property tax is under my purview, and so this considerable revision downward for 27-28 is solely due to the Medic 1 levy.

which is a county levy of which the city gets a share.

So there have been state legislative changes to the senior exemption for property tax that take effect in 2027 that expands the senior exemption program.

And so generally exemptions reduce taxable property value, which in turn shrinks the tax base.

and so while this does not have a significant impact on our general expense property tax because when the tax base changes, the tax rate for the general expense simply adjusts so that we collect what we want to collect the EMS levy share moves in direct proportion to the city's AV, the city's assessed value.

And so, although the preliminary assessed value for the city for 2027 can still change between now and the end of the year.

There is strong indication that there is a sizable decline from last year, at least partly due to this expansion of the senior exemption.

Part of it is probably also due to market conditions, but the senior exemption expansion is is significantly impacting taxable property value for 2027. We do expect this to be, since it's a policy change, to be a sudden drop in 27 and for the tax base to then resume its growth in the out years.

But again, that's why the EMS levy has been revised downward, about 4 million in 2017 and 6 million in 2018.

So Alex, as I'm hearing this, you would characterize this more like a correction rather than a change.

So like, we'll make this correction now and then you'll have a better forecast in the future.

Is that, or more accurate?

Well, I wouldn't call it a correction.

I'd call it just a change in the forecast in response to a policy change.

It's certainly not.

It's more of a policy change than an economic change in that the state has taken action to change this exemption program and make it more generous, which, again, means that our tax base is just smaller.

Maybe I'll try it a different way without trying to use economic terms that I don't have the depth that you do, this is a one-time experience.

We would expect, yes, yes, because it's a one-time policy change that takes effect in 2027, yep.

Fantastic, thank you.

Yep.

All right, so now moving on to the sales tax, or cast revision overall at about 7.1 million.

Most of it is coming from higher revenues in 2026. That is driven by, as I said before, a bit of a positive surprise for revenues coming from trade.

Definitely good news on leisure and hospitality.

Only slight downward revision for the construction sector, which overall held reasonably steady.

And then a good chunk of 6.6 million is revenues from the rest of the services, professional business services, information sectors where, again, we are working on revising our estimates for the impact 58, 49, it's a little bit more challenging to get the forecast right.

So we are seeing these larger, relatively larger revisions this year in the sales and use tax forecast.

Can you explain that a little bit more about the changes from the state bill?

I can't remember the state bill's name, number 14?

5814.

Can you explain what that means?

Bill 5814 has expanded the tax base.

It also has implications for business and occupation tax, but for the sales tax, certain activities, certain services that were not subject to the sales tax are now taxable.

And so that expands the tax base and adds significantly to the revenues.

It's custom software, advertising.

those sort of things where there is a substantial amount of sales and they do contribute significantly with this change.

Great, thanks.

The next one's business and occupation tax On average about slightly over 2 million Over the three years 6.9 in total In the third quarter revenue report we talk a little bit more about Where the actuals are relative to the August forecast the gap there is actually wider as of third quarter which is based on tax obligations for quarter one and quarter two, given that lag between when the economic activity takes place, when the returns are due and when they are processed.

Business occupation tax for first two quarters, those revenues were above our forecast by about 9.5 million 7.5 out of that is due to refunds.

What we usually do, we talk to the Office of City Finance team and get some input from their team on what they expect to see for refunds and assessments throughout the next couple of months.

those can substantially change the revenues that the city receives and whenever there is a large refund request that's likely to be processed, approved, reviewed and processed and posted by the end of the year we do want to incorporate that into the forecast.

So we have been informed about a number of really large refunds Overall, they add up to the 7.5 million, where there is currently an expectation that that will be processed by the end of the year.

It has not been yet, and so temporarily the revenues are significantly higher.

There is still some uncertainty about the timeline.

Those reviews are not easy, and so it's a little bit harder to tell when exactly it might be wrapped up and finalized.

They occasionally do change a lot, but given the information that we have, given what the likely outcome is, we do believe that instead of 9.5, 2.3 million is more of an appropriate change to the 26 revenues, given that we do have slightly more business and occupation revenues than expected.

That said, with the B&O restructure and that impact of a 5814, the uncertainty about where business and occupation tax revenues will land this year is certainly larger.

One thing that I should probably mention here, and that is a little bit technical, but the restructure has also shifted some of the filers from quarterly frequency to the annual frequency.

The deadline for the annual filing has been shifted, has been moved from end of January to April.

That means that some of those revenues can actually, for 2026, obligations can actually only post after the books close for 2026. And so we are not, again, that additional uncertainty there means that what we are presenting here should, is our best understanding, but certainly we have less confidence in the business occupation forecast.

I want to be really, really clear about that.

less confidence this year than in previous years.

Too many, a lot of things, a lot of moving parts here.

Moving on to utility tax, private utility tax, if Sean can provide some more context there.

Yes, thank Ian.

I'll be happy to walk through what's going on with private utility taxes.

So private utility taxes are- Sean, can you introduce yourself?

Oh, of course, of course.

My name is Sean Thompson.

I work with Yon Durris in the Office of Economic and Revenue Forecasts, and I help do private utility forecasts along with some assess value work as well.

Anyways, so private utility taxes are taxes on private companies that provide utilities like cable, telephone, steam, natural gas, and then solid waste.

As a group, they're about 40 to 45 million a year for the city.

and as customers' bills go up, revenues go up, and as customers use less or they move away from the service, revenues will go down.

Actuals through September had been tracking about 1.8 million below expectations, about 6%, and that forecasting miss is primarily driven by cable and telephone forecasts.

So for telephone, in 2025, we actually had a large boost in payments, and this pattern did not occur again in 2026. It has returned to its long- this long-run trend of continued decline as customers move away from landlines.

Cable is a similar story.

As people cut the cord, cable companies have less subscribers, and we've seen that decline revenues within our receipts as well, too.

Natural gas, which is another part of utility, is a little bit of a positive or bright spot in spite of a warmer winter this year, we actually had higher revenues primarily driven by Puget Sound's energy's rate increase that occurred earlier this year.

What does that mean for private utilities?

Well, we can see here that for 2026, we actually increased revenues about 0.2 million, 200,000, but for 2027, 2028, we have a decline of 1.2 million and 2.4 million, respectively.

This is primarily reflecting the Resetting of cable and telephone forecasts to reflect the lower payments this year.

Furthermore, some slight offsetting from natural gas due to its higher rates.

A few things to keep an eye out for private utility taxes.

Weather forecasters are expecting a stronger El Nino this year, which means a milder winter for us.

With less heat demand, we should expect less revenues within steam and natural gas.

On the opposite side, on the positive side, Pisa Sound Energy has asked state regulators to further increase rates at the beginning of 2027. This decision is still pending and isn't really reflected within this forecast.

And then finally, due to high office vacancy rates and building emission standards, that might suppress growth in natural gas and steam in the long term.

But in a nutshell, private utilities is a stable and small tax base that is moving away from cable and telephone revenues and more towards energy.

and we have revised the growth downward to reflect the payments we have seen this year.

And I think that's about it.

If there's any questions, I'll be happy to answer.

If not, I'll be happy to toss it back to CBO.

Yeah, just clarifying there, when you were talking about the PSE natural gas rate hikes that are going on, that is what is driving up your analysis, but what you are worried for is a mild winter.

Oh, yes.

Essentially correct?

The weather forecasters are expecting a mild winter.

That's to the downside for steam and natural gas.

As for the upside, yeah, there's another rate increase on the books that has been approved yet.

It would only affect natural gas.

It wouldn't affect steam.

But those are the two factors within the energy side of private utilities, yes.

Great, but if a steam plant used natural gas to create their steam, there might be something there.

Potentially, potentially, yes.

It's a very small market, but yes.

Fair enough.

We'll turn it back over to CBO, and if you want to introduce yourselves for the record as you start your sections, thank you.

I will start with public utility taxes and other city taxes.

So for public utility taxes, perhaps standing out a bit because there is no change, 2026 actual collections are tracking very closely with forecasts currently.

There is also typically not a compelling argument to change the forecast for the budget years so close to the proposed budget.

Public utility tax revenues are usually a fairly stable revenue source because usage is usually fairly stable.

It can obviously change with sudden weather fluctuations, but typically aren't impacted very much by economic conditions, and so there's no change for public utility taxes.

Other city taxes are revised down just slightly across the three years.

That is driven solely by leasehold excise tax.

2026 actuals are coming in a little bit lower due to the largest taxpayers making payments that are lower than expected, and those larger taxpayers include SeaTac Airport and the Port of Seattle.

It's hard to say that there is a direct correlation between this revenue and economic conditions, partly because a lot of these contracts can span multiple years.

And so it's a little bit hard to tease out the year over year trend.

And so 26 through 28 have been revised down due to what actuals are looking like this year.

Hi, Matt Franklin, City Budget Office.

Parking meter forecasts.

We have improved our parking meter forecast 1% in 2026 and 5% in both 27 and 2028. And the gains came primarily from November rate changes that SDOT recently announced, which are increasing parking rates in 35% of our busiest locations and decreasing them in 9%.

Additionally, we had some modest gains from additional events that were announced at Climate Pledge Arena, and those were carried forward in out years as well.

Additionally, court fines.

The court fine forecast was pulled down and that was driven by parking citations.

Our parking citations in 2025 Q4, our citations issued fell drastically, 33% in November and it fell 50% in December to a year prior.

Our model has showed in 2026 that citations were returning to 2025 levels faster than anticipated.

However, Q3 results have bucked that trend.

Q3 parking citations finished down 14% to 2025. We expect that to continue going forward in our conversations with parking enforcement management.

We understand the decline is driven by the discontinuation of automatic license plate readers and staffing expected to remain at their current levels going forward.

Thank you.

It sounds like we're finally getting the tail end of changing our parking rates and increasing our fines.

It used to be cheaper just to get a ticket than to pay your parking rates.

The one question that you might not have the answer to, because this is real time, I'm just thinking, I know that the parking rate structure for uptown around Climate Pledge Arena is dynamic because it is intended to support the local neighborhood while ensuring when there are big events that people choose other modes of transportation or find a place that does not take from the local neighborhood.

Do we know if that same model is applied to the stadiums and the stadium area here in Soto?

To my knowledge, it is not.

I think Climate Pledge Arena is the only neighborhood that has that pricing model implemented right now.

Thank you.

I think we might need to look into that Keep on going, and Joe, did you get rid of parking meters?

Yeah, I dumped it on Matt, that's right.

Well, you did all the hard work, and now things are stabilizing.

Matt, you missed a couple years of, not Joe's fault, but up and down.

Well, we saw it in the data.

Yeah, welcome to Matt, a new member of our team, and I'm very happy to have him in doing these topsy-turvy transportation-related revenue streams.

I will speak to the line in this table labeled licenses, permits, interest income, and other, which is quite a grab bag of things.

But the lion's share of what happens here is mostly an interest income, and that's what's driving the change we see here.

We see a revision upward of about almost $9 million, $8.9 million across the three-year term here.

This is driven largely by the bond market.

You've seen maybe in the headlines lately that yields on Treasuries are up significantly, and most of our cash balances are invested in these short-term, very secure U.S.

Treasury bonds, and so this upward revision reflects higher expected yields from those investments.

The next row in this table is labeled, excuse me, is labeled revenue from other public utilities.

Very little change here, up almost a million, at $700,000 across the three-year term.

This line is composed of state shared revenues.

These are revenues that the state shares with local government for things such as marijuana and liquor sales excise taxes and criminal justice purposes explicitly.

And we have had some declines in those transfers for marijuana and liquor excise taxes.

Those have been offset here by higher than expected transfers for criminal justice purposes, which are mostly based on sales taxes to the state and a sort of complicated formula of population crime rates.

And so we've seen slightly higher transfers from those that offset dips in other transfers.

So no other changes in this table, unless there's questions on those final lines, or any of my colleagues want to say anything there.

I think I can pass it back to Young.

Director Duras.

Okay, so if there are no other questions about the general fund, we can move on to non-general fund.

I'll just do a high-level summary of all of these ups and downs that you've just described.

Across the three-year period of 26, what we have to budget for 27 and 28 in this biennial budget, there's a net positive of $7.8 million.

Is that correct?

That's a good summary.

And in the last few years, before we get to payroll tax and all the jumpstart and all that other stuff, in the last few years, I'm saying since 2020, since the pandemic, so I'm excluding the great growth spurt that we had, what were we generally seeing in this realm?

Is this a low, medium, high?

This will be one of the smallest changes, I would say.

We have seen a lot of volatility over the last two years.

April forecasts, as I said, were usually bad news due to tariffs last year, due to iron war this year.

In August, there was a little bit of relief in both last year and this year as after that initial negative response in the financial markets and overall more pessimistic outlook things improved by the summer, so there was quite a lot of volatility and this thing here is reasonably, well, rather small.

It's 7.8 million out of 6 billion, which...

0.13%.

Thank you very much, Derek.

That's a pretty good forecast.

Change is small.

We are benefiting from an accurate forecast and the downside is that this is one of the smallest increase.

Would you say the smallest or one of the smallest?

One of the smallest, I believe.

I would have to look at the numbers exactly, but I think there was one of the forecast that was quite of a wash recently, but I don't know the numbers off the top of my head.

For general funds, overall the changes are very small.

The caveat here is that this is still a forecast.

We don't know what 26 will end up like, so there might be a bigger variance, like I said.

There is certainly that impact of the B&O restructuring 5814 on the business occupation tax, sales tax, revenues with higher interest rate.

We'll see what the rest of the year looks like.

The overall changes here are small because the underlying things did not change that much for general fund.

So I'll prep Sean to do the research while we're going through the next section of when we adopted the pessimistic forecast in April of 25.

We did, yeah, April 25 we adopted a pessimistic outlook.

There was quite a, yeah, sorry, go ahead.

Yeah, I'd love to compare the actuals between that pessimistic forecast and this one.

So Sean, maybe while we're going through this next table, if you could pull up what the general fund three-year difference and what the other fund's three-year difference was back then.

But back to you, Director Duras, to take us through the other selected revenues.

Alright, this is a table that shows the selected other revenues, the baseline scenario forecast for non-general fund revenues.

Starting at the top with a payroll expense tax that has been the difference between the current the October forecast and the proposed budget forecast is 12.4 million overall to the positive side with 6 million roughly in 27 and 28 here.

What I need what I should point out is that what we are comparing is the current October forecast with that proposed budget forecast not the Official forecast adopted by the Forecast Council in August as I said that that's The practice that's in place that has been in place over the last couple of years to get a sense of how much additional revenues are there and starting with what the Mayor has proposed as the budget.

In particular, for payroll expense tax, the proposed budget assumes the extension of the healthcare exemption That's not the current law and the October forecast is based on the current law which assumes that the exemption goes away.

What that means is that if the exemption is not extended that there will be 5.7 million more in 27 and 5.8 million more in 28 relative to relative to the proposed budget which again proposes the exemption to be extended.

So overall that adds up to about 11.5 million.

Taking the 11.5 out of the 12.4 that upward revision for payroll expense tax is very slight to the positive side, but certainly not what it might appear.

The other way, if we were presenting here not the difference from the proposed budget forecast, but from the forecast that was presented to the Forecast Council, it would not be 12.4, but of 0.4 minus 11.5, so only 0.9 million in this table.

And the 0.427 would be only 0.3, and the 6.1 would change again to 0.3 only, if that makes sense.

Then moving on to, and I'll talk a little bit more about the payroll expense tax since we have a separate slide for that, so right now let's move on to the interest rates.

Joe?

Yeah, the next line is the interest income on the payroll expense tax fund.

Similar story to the interest income for the general fund we saw on the previous slide.

we do have an upward revision across the three-year period of almost $4 million in this line, and that, again, is due to higher yields expected based on higher Treasury yields on short-term Treasury bonds.

Director Duras, you want to speak to Reid?

Alright, so moving on to the rate, this is where the really bad news in this forecast is.

It has been revised down by 19.5 million over the course of three years with significantly big downward revisions for 27 and 28, that has to do with the changes in the outlook for the interest rate and for the housing sector.

And again, I have separate slides on that, so if that's okay, I would postpone the discussion until we get to that part.

So then the next one is the admissions tax has been revised down somewhat.

That has to do with the changes in the number of international visitors.

Even though the World Cup was definitely a benefit for the sales tax, it has not really been the case for the admissions tax.

Those events themselves, the admission tax was not imposed on those games, so they did not contribute directly to the admissions tax.

And we have discussed in past that previous central staff director Noble had quite a nice summer in one of the meetings where he was talking about the crowding out effect where somebody goes to a soccer game they don't go to a gallery for example the people who are coming here for the soccer games might be crowding out the visitors that would otherwise would have come here and attended some of the landmarks in Seattle that are collecting the admissions tax so that's the reason for the slight downward revision for the admissions tax.

Then moving on to sweetened beverage tax.

Joe?

Yeah, I'll speak to that.

Sweetened beverage tax here, we see some ups and downs, but overall a $2.4 million upward revision over the three-year period.

This change is, we can see a little bit of a dip in 2026 of about half a million dollars, and that is driven by slightly smaller first quarter revenues than we had previously anticipated.

Overall though in the out years we do see an upward revision to this forecast and that's driven largely by one of the leading indicators which is employment and leisure and hospitality which was revised upward in this forecast and we spoke a little bit about that trend as being one of the few bright spots in local employment picture and so that is mostly the story for the out-year upward adjustment.

There was also some technical adjustments to how we incorporate lag payments in the model that projects these revenues, so that also accounts for some of the upward adjustment in 27 and 28. Alex, you want to speak to short-term rental tax, please?

Yeah, returning to our previous discussion about World Cup impacts, so we did take a conservative stance on World Cup effects in August.

Since then, we've received actual collections for short-term rental tax for June and July, and pleasantly surprised that there does seem to be quite a bit of a bump from World Cup for those two months.

about half a million, which, you know, for a tax stream of about $12 million, that's not nothing.

However, of course, this is a one-time event, and so that is not affecting 27 and 28.

I know there's interest in the World Cup effects on these revenues, so I did want to go back to sweetened beverage tax.

I omitted to mention that we had projected a small bump to these revenues in 2026, and we do have actuals for the second quarter, and those came in relatively consistent with the bump we had projected, which was around a 6% increase, a one-time increase in the Q2 revenues for sweetened beverage tax.

There is some increase in 2026. You can see that reflected in the overall higher revenues in 2026 for this revenue stream.

All right.

The next two are again in preview of the forecast of affordable housing sales tax.

That one has special rules about the cap that imposed on how much the city receives from the state.

In general, there is very little variation.

Not a particular big difference there.

For transportation benefits sales tax, here we are showing the revenues for 26 and for the first quarter of 27 because the transportation benefits district sales tax, it ends on April 1st, 2027, if it is renewed at the 0.3% rate, there would be additional revenues in 2027, about 94 million, an additional 125.4 million in 2028. But again, given that the forecasts in this table are following the current law, we are not showing them explicitly in this table, just as a footnote for the sake of completeness.

Then vehicle license fee, Joe.

Yeah, the other component of Seattle Transit Benefit District is a vehicle license fee.

This is a $50 car tab fee that you pay when you register a car in the city.

This forecast has been revised up slightly at about $1.1 million across the three-year period.

This is driven mainly by the state's forecast for car registrations.

We piggyback on that forecast to to predict local car registrations.

And so that was revised upward slightly in their latest, in their, I believe September was when they updated that forecast.

And so that's what's driving this change here.

and the last revenue source we'll speak to is our automatic traffic safety camera program.

We've got a few different camera types that are driving the upward revision in our forecast.

For one, our school zone safety cameras, we've got 70 cameras total, 28 of which were launched in the last 12 months and 10 were still in their 30-day warning period in September when we were running this forecast and we saw a modest improvement about 1% overall in the citations issued from these cameras from our prior forecast.

Additionally, our block the box and bus lane cameras saw a large spike in June and July, possibly due to World Cup traffic.

We made sure to take those out of subsequent years for the forecast.

But nevertheless, they did add about half a million dollars in 2026 revenues.

That's really great information.

There's been a large push for the last six years to get more red light and speeding cameras installed throughout the city.

and I don't know what the problem, this is not for y'all, this is me speaking into the ether, I don't know what the problem is between SDOT and the Seattle Police Department, it has literally been easier to negotiate the care department's ability to respond to the streets of Seattle than it has been to get these cameras put in place.

And this is all the while that SDOT is having incredible problems with their transportation fund.

So I'm not noting this for the forecast office, but I'm noting this for all of the 3,000 people watching Seattle Channel.

Yeah, and worth noting here, just in that final line, the traffic safety cameras row there, you do see, if you look at the totals from 26 through 28, you do see a leveling up there, and that is due to the assumption that those full-time speed cameras would be installed in the middle of 2027.

And let me just double-check this, though.

This is just the first tranche of cameras that are being expanded since 2020?

This would be full-time speed cameras.

This would be a new type of camera that the city has not had before.

So the assumption is that the initial tranche is all that is included in the 27 and 28 numbers.

So it has taken seven years to get speed cameras on our streets, it sounds like.

That's not for you to respond to.

But I'm glad to finally have this revenue stream.

Carry on.

Thank you.

Sorry, I didn't mean to disrupt you all so much.

Who's up next?

Yeah, I think we are at the bottom of the table.

So the final line here shows the overall grand total taking general fund plus all these other non-general fund revenues, adding it all up.

So there is about 8.8 million to the plus side for general plus non-general fund revenues.

with the caveat here that there is 11.5 million in that healthcare exemption, which has been proposed to be extended in the proposed budget, but the October forecast, since it's based on the current law, it does not incorporate it.

If that extension is passed, there is 11.5 million less, so it would change from 8.8 to the positive side to 2.8 on the negative side.

But the change is very small.

Again, given that there is 7.5 billion, it's less than a half percent either way to the positive or negative side.

So with that, unless there's any questions about...

I'll just take some top lines here for you before you tick on.

So between the general fund revenues and the selected other revenues, we're looking at about $16.6 million additional since the proposed budget.

Is that correct?

Can you repeat it one more time, please?

I got 16.6, but if you don't have these summary slides, we might need to start creating them.

So you are adding these 7.8 million here and the 8.8.

So the 8.8 already incorporates the 7.8 on the previous slide.

So the line here is not the sum of the non-general fund revenues.

It's already adding the previous line.

So it's a grand total for general fund plus this thing here.

If you are Interested only in how the non-general fund revenues change You should need to take out the 7.8 out of the 8.8 So non-general fund revenues shown this slide add up to plus 1 million over three years

So we're looking at, so this grand total at the bottom incorporates slide 16 and 17. And so what we are looking at is 8.8 net positive since August.

I'm going to call it the August forecast, even though there's some nuance there.

Is that correct?

That is correct, yes.

And then Sean, were you able to find when we adopted the pessimistic forecast in 2025, what our net positive was there?

Or was it a net negative?

for April of 2025.

So I guess just to clarify, are you interested in the change that was presented in April or then the positive upward revision in August?

Because in April there was a downward revision?

Yep.

And that's the one that you are interested in.

I'm looking for that April.

What was this 8.8 number in April of 2025?

Maybe there.

Are we including the grand total or just non-general fund revenues?

Well, you can break it out, general fund first and then...

And it's for the baseline or the pessimistic scenario?

We adopted the pessimistic that year, correct?

Of course.

Yeah, this is the number, right, Jan?

Yeah, so for the general fund revenues, April pessimistic scenario back in the last April's forecast, We had a three year total difference for the general- Oh, this is April 26th.

Oh, sorry.

Let me double check.

I think I have it here.

April 2025 forecast was presented for years 25 and 26. So we have the numbers for 27 and 28, just not in the slides, and we can definitely provide those.

But when we were presenting it, when we were presenting that forecast because it was 2025, the 27-8 budget was not in the works yet.

We were only presenting the forecast for the year 25. That was the revised forecast for 25 and then for 26. So over those two years- Hang on, Director Duras.

I'm just going to kind of focus those here.

Right now, we've got the three-year total difference grand total.

I'm looking for the comparable number there for April of 2025 in the pessimistic scenario.

All right, so just again to clarify, the question is which years would you want to compare in that forecast?

From that forecast, we were forecasting the next two years, so I'm just looking for that.

What was on the slides when we were presenting it?

It was two-year instead of three years, it was two-year, 25, 26, and for general fund without grants and transfers, it was 50 million to the downside.

Okay, so in our pessimistic scenario on April 25, it was negative 50. This 8.8 number was negative 50.

Well, that was just the general fund, and I have a breakdown.

We did not have the grand total line in the slides that I'm opening here, so I would have to...

Give me a second.

That's 50 million general fund, and then additional 150 of non-general funds, so overall about, I believe, 250 million, give or take.

Negative.

Negative.

Negative.

And then when we got to that August correction, what was that?

Because I'm just trying to baseline where we are today versus like the worst place we've been in the last few years.

That's a great question.

So when the August baseline scenario was recommended and approved in 2020, the two-year difference was 62.8 million to the plus side for the general fund.

and what looks like about 32 million to the plus side for a non-general fund.

So 32 plus 62, about 100 million.

So it did not reverse everything.

One thing that happened in 2025 is that we got much less than expected in payroll tax revenues for year 2024. and that brought down the payroll expense tax considerably.

Even after the situation around tariffs has calmed down, the effect of lower payroll tax revenues persisted and so the August forecast did not reverse all those downward revisions last year.

Yes, and when we're doing the annual budgeting process, the April forecast is important for us to understand where we are baseline, but when we're looking for net positive, that August forecast that still had about $100 million, is that not an additional $100 million from the budget previous?

Not relative to the proposed budget.

So the April forecast lowered revenues considerably relative to the previous year's adopted budget for 2025. And then given that downward revision was significantly bigger than the upward revision in August, the August 2025 forecast still showed revenues below the adopted budget for 2025.

Okay, by about $50 million.

I would have to look at the numbers.

Sorry, I'm not really good with numbers right now, but we can certainly provide that information.

Okay.

I'm sorry, I haven't prepped you well to just talk at the high level because what I'm just trying to do right now is ground us in where we today versus where we were in the most uncertain time in the last few years.

And so what I'm hearing generally is that I think we're maybe having a little bit of nuanced difference here, but that at worst it was 50 million negative, but at best it was 100 million positive in the worst, most volatile spaces.

And this year we've got 8.8 positive.

Yeah, oh, I see now.

So yeah, ignoring the payroll expense tax, because that's a separate thing, and looking at the general fund only, that 50 million, that's the correct number that you were saying.

Yeah, you're referring to.

All right, I'm just trying to do a pretty high-level comparison.

I think we're going to move on at this time.

So if you want to talk about the next slides, please.

Okay.

So the next couple of slides discuss the risks for those most volatile revenues, and in particular, jumpstart payroll expense tax and the REIT.

First, the payroll expense tax forecast is informed by the data that we do have on employment from Washington State Employment Security Department.

The data here comes with a significant lag.

So right now we have information available through first quarter of 2026 and we do see some effects of the layoffs already in that data.

So we have incorporated the impact of layoffs in the tax sector or what would we expect the impact on jobs, job numbers to be in this forecast.

The other important factor here are the changes in stock prices.

We have discussed in past that a large share of a compensation is a form of restricted stock units and movements in stock prices have significant impact on the compensation that the tech workers receive and by extension have significant impact on payroll expense tax revenues.

So we have tried to incorporate what the current outlook is for stock prices through year-end 2026 and then outlook for the next year.

Our usual source of data for this are the Wall Street Journal analyst ratings, where they provide stock price targets, the average, the low and the high end.

and that's what the chart shows here.

The companies here are for illustrative purposes.

They are not based on Vesero or not.

These companies have a payroll expense tax obligation, but they do provide some insights into just how much uncertainty there is around where the stock market is potentially heading in 2027. So the dots show the expected average change in the stock price of those companies here.

and then the range, the line shows the range from the low to the high estimate from those Wall Street Journal analysts.

As you can see, on average, they do expect the tech companies, those that are involved in the AI build out, they expect their stock prices to continue to grow and quite notably next year.

but with a lot of uncertainty and things can be significantly better but also significantly worse than what the average scenario shows so that that's one risk the other risk is because we only have limited information on the impact of layoffs we have changes in overall headcounts through first quarter, but we don't really have information on how many of those employees were subject to payroll expense tax, how large their compensation was.

We don't have any of that information, so there is probably even more uncertainty around payroll expense tax forecast than typically.

and that's something to keep in mind.

Can I just note that what this says is the mean expectation is that these companies' stock values will go up 25% next year.

And the worst case outcome that anyone is predicting is that on average they'll go down 5%.

Something like that, yes.

And that suggests you wouldn't have, there's no possibility of a recession in that scenario.

There's no possibility of an AI bust So, and I guess I'm not a stock trader, so I'm not qualified to say, but it seems real optimistic to me.

Yeah, well, you can see that there is some variation.

Oracle, for example, in the worst case scenario, would fall down 25%.

But yeah, it's surprising how little of a downside there is.

Potentially, there can be a significant correction and it looks like these ratings from the analysts are not really incorporating that and they I do believe that there is a lot of upside, more upside than downside.

So a lot of uncertainty when it comes to the timing of those earnings, when they will materialize and whether that justifies the incredible amount of investment.

So yes, risky.

Yeah, that's a good point.

Alright, so that's payroll expense tax and then the revenue that has seen the largest revision in the current forecast, REIT.

REIT is really very volatile.

We have a much longer history than for payroll expense tax revenues and the chart here shows the year-over-year change in the overall REIT collection over the last 30 years.

So that's a quite a long history, and it's long enough to see just how volatile this revenue stream is.

There have been years where it has dropped by more than 50%.

The largest drop is close to a 60% year-over-year drop in 2008, followed by an almost 30% drop next year.

and then a couple of years after that in 2012 that was the record growth for re-revenues and it grew more than 60% year over year so very volatile because housing market is in general more responsive to changes in economic conditions.

When mortgage rates change, a lot of people might be pushed out of the market, so how many homes are sold varies in addition to that.

A lot of that revenue comes from sales of large properties, office or large apartment buildings and when their value changes or the overall outlook changes the amount that we receive from sales of those properties can vary significantly And so the chart here shows how the forecast has evolved since the adopted budget for 2026, that's at Feind-Salman line.

Then it has been revised down for the current year.

Crows has been essentially removed completely out of the forecast for the current year in the April forecast.

We have seen further downward revision in August and this is the current one.

So overall we are now expecting about a 10% year over year decline in 2026. So That is based on the US forecast from September that has already incorporated some increases in the interest rates, but not to the full extent.

So there is certainly some downside.

As you can see on the table shows the overall impact of those downward revisions to the REIT forecast.

We have seen interest rates in general, interest rate forecast revised up that has led to lower forecast for home sales and lower forecast for REIT.

And that's what the next slide shows.

The panel on the left shows the third year mortgage rate and the panel on the right shows the US sales of the existing homes in the US.

One thing I want to note here, point out here is that run up in the mortgage rates was really fast in 2022, so it went from 4% to 7% over a very short period of time.

3% each point increase in mortgage rates has also led to a drop in sales of existing homes from 6 million to 4 million.

So that's about 30% drop for a 3% each point increase in mortgage rates.

So about 10% drop, back on envelope calculation, 10% drop in existing home sales for each percentage point increase in the mortgage rate.

and that again ties to the fact that we have seen rates decline significantly in 2022 and 23. Those are the two years where rate revenues have gone up, down significantly even when those years were not years of recession.

In past, those significant declines occurred during the recession years.

2020 recession was a little bit of a strange one.

There were some other things going on there, The major decline in 2009, that was the financial crisis and the recession that followed, and then the previous decline in 2001, again, a recession period.

But in 2022 and 2003, a recession did not occur in the US.

The US came super close to of a soft landing, which is quite remarkable, but the impact on REIT was substantial because of that run-up in mortgage rates.

Now, what we have seen in this year is a similar sort of thing, just at a smaller scale.

So when we look at how the changes in mortgage rates forecast evolved over time, there has been a little bit of downward revision in March, but home sales were forecasted lower, Then in July forecast, there has been already the expectation that mortgage rates are not coming below 6%.

They will actually go up in a shorter period and then start to decline gradually with the significant impact on home sales.

This is a forecast that underlies the October revenue forecast.

September 2026 saw even further upward revision in the mortgage rates and a downward revision in the home sales.

and just yesterday we have received an updated US forecast so that's not the one that built into the revenue forecast but because mortgage rates are currently over 7% and they are expected to go down but only gradually the home sales forecast has been revised down and that has implications unless there is a quick reversal that has implication for REIT revenues going forward.

So six months from now when we are presenting the April forecast it's quite possible that we are going to see another download revision for that forecast.

Thank you, Jan.

This is the worst part of the revenue forecast simply because REIT is our telltale.

We had that brief reprieve in 2024 where we thought things were getting better, but that was, again, before the federal administration changed with all these federally self-induced negative economic impacts that have occurred.

Colleagues, any other questions on REIT right now?

Director Duress, I see that you have offered us, you've recommended the baseline scenario, so you've got about two minutes to get through the pessimistic.

So we're going to go high level.

You can take us to the grand totals if you'd like, but you've got about two minutes.

Thank you, sir.

Yeah, so for the viewing public, we are preparing three scenarios.

We are tasked with preparing a baseline scenario forecast and two alternatives, an optimistic one and a pessimistic one that we have.

Here we have focused on the baseline.

The table shows the pessimistic scenario, but...

Director Duras, I'm going to help you out, and if we could just roll the slide 23 so you can show the comparisons.

Sure.

Thank you.

Yeah, so this is a...

broad overview of the changes from the baseline scenario to the alternatives.

Significantly less revenues in a pessimistic scenario, significantly more revenues in the optimistic scenario over the course of three years.

We always recommend one of those scenarios to be adopted as the official forecast.

Given what the current outlook looks like, we have discussed the probability of a recession, the likelihood of that pessimistic scenario being somewhere around 25%.

Our current recommendation is to adopt the baseline scenario since that is the most likely outcome.

The high uncertainty is there, the risks are there, but at this point it does not look like the economy is heading into a recession, which is what that pessimistic scenario is built around.

So with that, I'm happy to take any questions.

I know that there's no such thing as a localized recession, but it sure does feel like we are in one.

That is different than a national recession.

So all of the indicators that we have hoped would come back up since about 2021, 2022 have risen slightly and then flatlined.

So this is positive that it's not in the negative direction, but the flatline, if you're not growing, you're shrinking and a flatline to me is a little bit of shrinking.

So I take this as a bad forecast.

I know that most people will take a bad forecast once it goes negative, but just the understanding of what you shared earlier that this is one of the smallest, if not the smallest gains in a forecast.

And there's nothing to say about your forecasting skills.

Your forecasting skills are great.

It's that this is one of the smallest gains that we've had since in the last seven years.

So that's a real big problem.

Not your problem, our problem.

But I'm just like, that's the gravity of the situation we're in.

Colleagues, any discussion on slide 24 or the presentation?

All right, well, I gave you two minutes and you did it in one.

Appreciate you, friend.

Anything else that we should think about before we adopt or finish this meeting?

Fantastic.

Well, I really appreciate everyone from CBO, Alex, Joe, Matt.

Really appreciate Sean, Director Duress, Vice Chair Elderbrook, Mr. Dively.

Always a pleasure.

I'm just going to jump right on in.

Per the ordinance that created the Forecast Office and this Forecast Council, it is the role of the Forecast Council to review and approve the forecast.

It is We represent the elected leadership of both the legislative and executive branches, and as two separately elected bodies, we have the ability to override the recommendation of the forecast office should we judge this makes sense.

Per establishing the ordinance, such a decision would require three-member voting approval of an alternative scenario.

and, as you've heard, Director Duras recommends that the baseline scenario of the October 26 forecast is used as the official forecast.

If we all agree that this is a forecast that should be used, we do not need to take a vote.

I would simply request that the meeting minutes reflect our concurrence regarding the recommended forecast.

This is the formal step called for under the bylaws as we as the way we will report our approval of the forecasts.

Are there any objections to approving the forecast as recommended by Director Douglas?

No objection.

No.

Fantastic.

Not hearing any objections, I will direct the Forecast Office to record our concurrence with the recommended forecast in the meeting minutes.

That means that we have reached the end of our formal agenda with two minutes to spare.

If there are no further questions, any further questions, any further comments, anything for the good of the order, the Economic and Revenue Forecast Council will be adjourned, and we'll see you in April.

Thank you.