Finance and Housing Committee 8/10/23

the Finance and Housing Committee meeting.

Today is a special meeting that we're hosting on Wednesday, excuse me, Thursday, August 10th, 2023. The time is 9.30 a.m.

I'm Teresa Mosqueda.

I am going to call this meeting to order.

Madam Clerk, could you please call the roll?

Council Member Herbold.

Council Member Peterson.

Present.

Council Member Nelson.

Present.

Council Member Lewis.

Present.

Madam Chair Mosqueda?

Present, and I see our Vice Chair logging in.

Council Member Herbold?

Present.

Good morning.

Good morning.

Madam Chair, that is five present.

Thank you so much.

Thanks, colleagues, for joining us here today.

We do have a full house, so I appreciate you dialing in.

In August, we have a meeting each week, so thanks for your extra time today.

I don't think we're going to go long, so I will make up for our meeting that we had last time.

We have an opportunity today to hear public comment, and the only thing on our agenda today is a briefing and discussion of the Seattle Revenue Stabilization Workgroup and a corresponding presentation from central staff, which will go into the background, the history, the origin of how we find ourselves in this gap between revenue and expenses.

the history over the last about four or five years that has led to the current situation as we look four to six years out.

If there's no objection today's agenda will be adopted.

Seeing no objection, today's agenda is adopted.

I see two people in person, but I don't know if anybody's providing public comment today.

Doesn't sound like it?

Okay.

And I don't see anybody online, so that will open our public comment and close our public comment.

If you do have additional comments, I would encourage you to send in your written statements to councilatseattle.gov.

With that, we're going to move on to our first and only item on the agenda today.

Madam Clerk, could you please read item one into the record?

And item number one, Seattle Revenue Stabilization Work Group for briefing and discussion.

Okay, great.

And just want to make sure, can folks on the Zoom hear the clerk?

Okay, great.

We got a thumbs up from our Deputy Director, Ali Panucci.

Thank you very much, Madam Clerk.

With that, we have with us today Deputy Director Panucci.

And I'm going to do a quick call to see if we can make sure that our good Deputy Mayor, Tiffany Washington, is able to get into the Zoom.

So, if somebody can help me with that and making sure that she has all the credentials needed to get in.

We're going to have a presentation that includes two panels.

Myself and Deputy Mayor Washington will be here to present on the upcoming presentation or handoff of the Seattle Revenue Stabilization Work Group.

We will then have a second panel that includes members of the central staff, including Deputy Director Panucci and We have an opportunity as well, of course, to have any technical questions answered by central staff, but the city budget's office has also suggested they can make themselves available.

Originally, we were thinking about having them here, but they are very, very busy, as you can imagine, preparing the a 2024 budget for our consideration this fall, and given the technical expertise, also, it coexists within our central staff.

They are not part of the panel, but obviously, they wanted to make sure that they knew that they were available as well.

And with that, I understand that Deputy Mayor Tiffany Washington is logging in, and I will say some opening comments as she joins us.

Thanks, colleagues, for your patience.

I know a lot of people have been eagerly anticipating today as we present the Seattle's Revenue Stabilization Workgroup.

Yesterday, Mayor Bruce Harreld sent out a press release with his administration and our office that announced the Revenue Stabilization Workgroup had completed their work and had issued a final report considering revenue options to address the city's widening gap.

As folks know, this was founded last year, and the group includes a diverse array of civic, policy, community, and business leaders who have worked together to consider revenue options, progressive revenue options, to address this looming revenue gap and continue to support the city's crucial services and programs.

Again, the gap is projected in 2025 and for the six years forecasted after that.

Given the looming gap between projected expenses and projected revenue, as the mayor's press notice stated, we all must find solutions to close this gap with additional revenue.

I really appreciate that the mayor's team, the city budget's office, central staff, my office, and the community organizations that participated in this group, leaders in their own industries and areas were able to outline a report of what options exist.

And with that, I want to welcome Deputy Mayor Washington.

Thank you so much for joining us this morning, and I will turn it over to you for your introductory comments, and then I'll wrap up with Panel 1, and then we can hand it to Panel 2. Good morning, Deputy Mayor Washington, and thank you again for all of your work on this Revenue Stabilization Workgroup and helping us get over this finish line.

Good morning.

Good morning, everyone.

Thank you, Councilmembers, for hosting this conversation today.

Before I jump into my comments, I'd like to thank you, Councilmember Mosqueda, for joining with the Mayor's Office to convene this Revenue Stabilization Workgroup.

We work together from the formation of the workgroup in which both of our offices jointly identified and approved the membership to your serving first as co-chair with Senior Deputy Mayor Harreld and then as co-chair with me. to each of our branches, providing staff with technical expertise to help support the work of the work group member and provide insight into which potential revenue sources were realistic to consider.

What we learned and we continue to learn is that it's invaluable when we work together.

So the final report that Council Member Muscata and I have the pleasure of presenting to the public today is the accumulation of nine meetings over the last 11 months.

This report contains the thoughts and feedback of many smart minds who are invested in the success of the city and its people.

I'd like to offer a special thanks to each of the 13 work group members who volunteered their valuable time to delve into challenging issues and have, at times, tough conversations.

While there wasn't always unanimity, there was always respect, and we should each be proud of that.

The workgroup was asked to evaluate new revenue options for addressing the sizable budget gap in the years ahead.

$224 million and $25 million alone.

I know that later in this meeting, Council Central staff will review the individual findings one by one, at which point the hard part begins.

Both Mayor Harreld and you on the City Council will need to evaluate efficiencies, review spending, seek support from our state and federal government partners, and consider revenue options, preferably ones that don't put a disproportionate burden on those least able to afford it.

This work group report gives us many options to consider.

I hope our two branches can continue to partner, as we did last year, to address the challenges and opportunities ahead.

The work will be difficult, but it's achievable, and I'm glad to be doing it with you.

Thank you.

Thank you so much, and I'll conclude my comments, and we will consider the report handed off to the Seattle City Council for further deliberations.

Thank you again very much, Deputy Mayor Washington, for being here to present the report with me.

As co-chairs of this work group, I know that we have been diligently working hard together, and as Deputy Mayor Washington noted prior to her joining the work group, We had the opportunity to work closely with Senior Deputy Mayor Harreld and my team beginning in October of 2022. That was the first official convening.

I want to thank Senior Deputy Mayor Harreld and Dan Nolte, who for the year prior to that had helped us identify individuals who were going to participate on this work group, along with Sejal Parikh, who was Chief of Staff at the time, who helped us identify the folks who could sit at the table knowing that Revenue is critical and crucial to helping create a resilient economy and avoid an all austerity budget.

We knew we needed the right folks at the table to help us look through the options to prevent further harm or future harm to families, businesses, and anything that would slow growth.

We also had the chance over the last years since October to look at the growing population needs, the increased services that were needed to serve the growing residents of our city, the increased number of small businesses and community demands, and the conversation that we had really elevated that we needed solutions to help scale to meet the needs of Seattleites.

I, too, am very thankful to the members and all of the executive team, our central staff team, and my office, as well as Deputy Mayor Washington's office and everyone within Mayor Harreld's administration for helping to finalize this report.

There is much work ahead of us, as Deputy Mayor Washington noted, much work ahead of us to close this gap together.

And again, today is just the beginning of the conversation.

There is no action scheduled for a vote today.

We are in receiving mode.

And we'll sort of treat today as if it was the mayor's team coming to present us with their proposed budget.

Similarly, we are presenting the report to council today with more work to take place over the next few months with central staff.

Again, I want to thank every member of the participating workgroup as well.

They brought to the table important lens to make sure that we evaluated each of the over 60 potential ideas.

The evaluation criteria that was developed by the workgroup included criteria to look through the lens of whether or not there was going to be significant and potential revenue generated.

We looked at the practicality of approval and implementation.

We looked at whether or not the revenue source was progressive in who it would impact and whether or not it would have a disproportionate impact on underrepresented communities.

We also looked at how it could be a stimulus to support citywide economic activity with an emphasis on small businesses.

And after generating this over 63 list of potential ideas for revenue options, as you heard, the work group applied this evaluation criteria, and we narrowed it down to a shorter list of nine new or expanded revenue options, all of which are options that we will take from today and do further analysis on.

The nine options identified in the report, just for the record, include changes to the Jumpstart Progressive Payroll Tax, the second is city-level capital gains, the third is a CEO pay ratio tax, the fourth is a vacancy tax, fifth is progressive revenue real estate excise tax, sixth is a state tax, seventh is inheritance tax, eighth is congestion tax, and ninth is an income tax.

I want to be clear, as stated in the release yesterday and by Deputy Mayor Washington, the group also noted areas for future analysis, noting that we did not have a legal team evaluating each option at the table.

That's actually what central staff does with our law department as we consider possible priorities.

or options for the council, that is the next step.

The group also acknowledged that there's some areas included in this nine-item list that require future changes at the state level to give us the statutory authority and additional flexibility to move forward with some of those suggested options.

And there is much work to do in partnership with our state legislative partners who I greatly appreciate have been moving forward on many progressive revenue options at the state level over the last half decade or so.

I greatly appreciate them.

Further, the group also identified that we need to continue to look for any unintended consequences and the need to elevate equity tools as we look at any new revenue, especially for underrepresented communities.

These recommendations are, excuse me, these options have have the intent of just being the start and just the beginning of an ongoing conversation that we will have jointly with the executive branch.

The work group offered specific feedback on various strategies.

We are thankful for all of those participating members who not only provided feedback in the meeting, but did in-depth analysis, research that we greatly appreciate, some of which are included on today's Finance and Housing Committee agenda and linked in the materials.

I greatly appreciate that we have such partnership with the mayor's office.

Thank you, Deputy Mayor Washington, again, for being here.

And colleagues, before we hand it off to our second panel, I want to just remind us of the charge that was in front of us with the statement of legislative intent.

FG002B001, which was passed in 2021, which requested the mayor's office and council in collaboration to, and I quote, review Seattle's tax structure and identify ways to make it more equitable and raise new progressive revenue.

That was the charge of the work group.

We know outside of that, people will absolutely be bringing their priorities and strategies to the mayor's office as they finalize their budget priorities for the upcoming 2024 calendar year, even though we are in the midst of what we are trying to treat as a biennial budget.

We know people will come to council.

and make similar requests of council members as well.

That is obviously something that we're used to and are anticipating.

But the conversation about levers, levels, priorities, reductions in the existing budget was not the charge of this workgroup.

This workgroup was convened specifically to look at Seattle's tax structure and identify ways to make it more equitable and raise new progressive revenue.

So, again, thank you to our colleagues from the work group for adhering to that directive and for helping us finalize this presentation.

With that, I just want to thank Deputy Mayor Washington again for your incredible leadership in the end there.

to rally and herd cats, and to make sure that everybody knows who was on the work group.

I want to read the co-chairs, myself and Deputy Mayor Washington, Alicia Gregory-Davis from the Coalition of City Unions, Andrew Guillen, who's with Seattle Indian Health Board.

Daryl Powell from Principal Finance Services.

Senator David Frock, former senator from the 46LD.

Former Deputy Mayor Haeok Kim, who is now a principal at INSA Consulting.

Joe Fugere, our local celebrity with Tutabela.

Katie Garrow, who is our Executive Secretary-Treasurer at MLK Labor.

Katie Wilson, and congratulations to her on her growing family with the General Secretary at Transit Riders Union.

Lindsey Grad, longtime community advocate and leader within labor at SEIU 1199. Luis Chernin, everyone knows Luis, former Executive Director at Greater Seattle Business Association.

Misha Werschkel, our Executive Director at Washington Budget and Policy Center.

Patience Malaba, Executive Director at Housing Development Consortium, and Rachel Smith, CEO of the Seattle Metropolitan Chamber of Commerce.

Again, thank you to Deputy Mayor Monisha Herold, who co-chaired from October through July of 2023. And the participating staff, because we always love to recognize staff, is a Director of City Budgets Office, Julie Dingley, Dan Eder, our Policy Director at the Mayor's Office, Dave Hennis from the City Budgets Office, Tom Mikesell from Central Staff, Allie Panucci from Central Staff, And Alexandra Tseng from the city budget's office.

And with that, Deputy Mayor Washington, any closing comments from you as we close out panel number one?

Okay.

I know that she may have had to go to another engagement.

So thank you so very much again to Deputy Mayor Washington.

And I will take some questions before we go over to the detailed presentation of the workgroup and central staff memo.

Again, I just want to remind folks we're in receiving mode today.

no action or, you know, even prioritization from council members is necessary at this point.

And I'll summarize as well what the next steps would be because we know we have a lot of work ahead of us to do.

Got it.

Thank you.

In your introduction, you mentioned the list of potential options taxes that can be considered in next steps.

And I just wanted for the public to, for their information, reiterate what you and the mayor said in the press release.

You suggested that none of these options are in fact recommendations and the report did not make a recommendation to go forward with any of these options.

That's correct, yes.

The report as it states and I think council members will appreciate this.

There's a lot of work to do with the law department and with central staff on the policy analysis, so these are listed as options.

Thank you.

Okay.

Well, with that, thank you again to Deputy Mayor Washington, and I will go ahead and turn it over to our second panel.

Folks, if you haven't had a chance to read the central staff memos, it's gold.

It is detailed analysis that provides historic context to the current situation that we are facing.

important facts to ground us and helps us get away from the sort of binary thinking of whether it was one thing or another.

It's very much a combination and compilation of the situation that we found ourself in over the last three to five years.

And I will let central staff do a much more eloquent job of explaining what has transpired over the last few years.

And I want to thank Deputy Director Panucci, and just want to make sure if Tom Mikesell was going to join us today, that he's also given permission to be added to the speakers here.

With that, I'll turn it over to Deputy Director Panucci.

Thank you, Chair Mosqueda.

Good morning, Councilmembers.

Ally Panucci of your central staff.

Um, as terminated described, Tom, myself and myself will provide some context today.

I'm going to before I walk through the options from the work group identified by the work group, I'm going to provide some additional context and then Tom will describe in more detail the historic analysis of the general fund deficit.

So.

In terms of providing that context context, since at least the fall of 2020, we have central staff as part of the council annual budget deliberations, analyze and describe for the council and the public issues related to the sustainability of the general fund.

And in fact, in the last year and a half, we have provided updates on that analysis at 2 other points during the year to inform the council's decision making.

This analysis consistently has illustrated that the annual general fund budget could not be balanced without temporary support from one-time fund balances, one-time revenues, such as the one-time COVID relief funds provided by the federal government, and transfers from other funds, highlighting that this is not sustainable over the long term.

With this context of balancing ongoing programs and services using one-time resources, both the council and the mayor have adopted budgets that prioritize maintaining and expanding city programs and services to respond to community needs.

This includes investments in small businesses and workforce development, responding to the city's homeless state of emergency, investments in community safety and public safety and housing amongst many other general fund programs and services.

These one-time resources that were used to balance these programs in the general fund are expiring, resulting in a need for additional ongoing general fund revenue to maintain the current level of service.

The difficult question that the council and the mayor need to come to a decision on in the near term is whether maintaining this level of service and having the ability to expand services to meet emergent community needs is the priority.

If you agree that the current level of investment across all city funds is needed to meet community needs, you need additional ongoing revenues to support those investments.

If you believe that city services can be scaled back, you need to identify specific city services and programs to reduce or eliminate.

In 2021, The council at that time confirmed that maintaining and expanding services is the priority and therefore new revenue was the preferred solution.

This led them to adopt the statement of legislative intent in 2021 that this workgroup report is responding to.

With that context, I'll briefly walk through the revenue options identified by the workgroup for the city's consideration, and then I'll pass it off to Tom to walk through the analysis of the general fund deficit.

Before I do that, I'll just note that I'm just generally highlighting the information from the workgroup report, and in some cases, just providing some additional context to describe what the tax is.

The report, though, is a product of the workgroup, was not authored by central staff.

If the council decides to pursue any of these options as Chair Mosqueda And council member Nelson both described additional work and analysis is needed and this and again, the statement of legislative intent from 2021 requested that this work group just identify a list of options not to make recommendations.

So, and I'll also just black here.

I did have a memo that outlined the process.

Much of that was described by deputy mayor, Washington and chairman data.

So I won't reiterate that.

I'll just flag to correct for the record.

I noted there were 12 members plus 2 co chairs.

I believe there were 13 members plus 2 co chairs.

So just corrected that.

So as described previously, the group met nine times between October 2022 and August.

After some initial discussions that provided some context and background that led to the statement of legislative intent, the work group evaluated over 60 potential revenue ideas using the criteria that Chair Mosqueda just described.

I'll also just note or reiterate what Chair Mosqueda described, Is that the city was not able to provide detailed legal advice because the work group is not covered by the city's attorney client relationship.

And therefore that did not include inform the work group deliberations that analysis will be provided to the council and the mayor if any of these options are pursued.

So, in the end, the work group narrowed that list of over 60 ideas to 9 revenue options to present for the mayor and the council's consideration.

And I'm happy to take questions as you have them along the way.

We might not have all the answers today, but again, with direction from all of you, we will continue to research and analyze these ideas.

So the first option identified by the group was changes to the jumpstart payroll expense tax.

This would increase- Deputy Director, do you want to scroll through the report so that it's shared on the screen as well so people can track which item we're on?

Sure.

Okay, great.

And I wanted to offer something as Ali's pulling that up.

Folks might see that there's two numbers being used.

We talk a lot about the cliff that's coming in 2025 being $221 million.

The press release and Deputy Mayor Washington and myself also this morning just noted there's a $224 million gap.

$224 million is the annual average gap that we are expecting starting in 2025. So there is a projected out, you know, out six years gap.

The average of each year is $224 million.

So just want to make sure that folks know where those numbers are coming from.

If you're looking, for example, at the bottom of page two, before we head into the summary there.

Thank you, Ali.

Please go ahead.

Thank you.

So this first option would be changes to the jumpstart payroll expense tax.

This would increase the tax rate for those who already pay the tax that could be played out by increasing the number of businesses required to pay the tax in 1, like, lowering the threshold for which businesses, the tax applies to, or increasing the number of employees for whom the.

the tax applies to which would essentially mean lowering the salary threshold or making other policy changes.

This could be achieved without voter approval and the work group assumed that if such a change was made that there would be that any revenue that is generated from this additional increment from this adjustment would be general fund revenue rather than being dedicated To the jumpstart spending plan for which the existing revenues are all directed to starting in 2025. Um, the 2nd option, it would be a city level capital gains tax.

This would oppose a tax on the annual gains to individuals from sales of non exempt capital assets.

It's assumed that this would be modeled after the state tax, which would apply to those assets over those gains above 250,000.

dollars and I will note here and with the both option one and option two there is legislation already introduced that relates to these two ideas and with the capital gains tax idea council member a bill sponsored by council member Peterson was introduced earlier this year.

The amount of new revenue generated from a local capital gains tax would depend on the rates.

The estimate that was used to inform the work group discussions assumed that a 1% tax could generate between 25 and $30M annually.

Start to scroll here.

The third option would impose a tax related to high CEO pay ratio.

This would be a tax on corporations that pay their CEOs or top executives significantly more than their lowest paid Workers or the median pay of non executives.

This could potentially be structured as a surcharge to the existing jumpstart.

Tax and the estimate ranges are a bit unclear.

There are 2 examples that the work group looked at in these discussions.

1 was from Portland.

That has an estimate of about $4 million annual revenue and another is from San Francisco that I believe the range is between 60 and $140 million.

So more work would be needed to understand what the potential revenue generation would be locally.

And I would just want on this one either ask for clarification or clarify the first bullet there on the high CEO pay ratio tax.

Says this tax could be implement implemented and it goes on to talk about how that we would still need to do additional work To identify like the vehicle or the policy approach And I think that's consistent with what it said on the last line of your memo.

Just noting the first two clearly have a Statute that we can build upon this this third one is um is in a similar vein.

We have the statutory authority to do so, but it's lumped with the other seven because you would need to do additional research on how to apply it or stand up the infrastructure, if you will.

Is that correct?

Yes, that is correct, Chair Mosqueda, and I would just note on this one that In general, you know, all of these ideas would require additional work.

This 3rd high CEO pay ratio we think is likely.

Possible on a shorter term than some of the other ideas that are very clearly need a state authorization, or there's more complexities.

Um, we just central staff has not done as much work on this idea.

So it wasn't quite a immediately, you know, as from a practical standpoint listed in our in our memo.

But, yes, we do think that this 1 is likely more achievable on a shorter timeline than many of the other options that might require a longer.

Okay, thank you so much.

Okay, the 4th option is a vacancy tax.

This would impose a tax on buildings that sit empty for some period of time.

Typically, that threshold is a 6 month vacancy assumption.

The work group, the estimates that were discussed in the work group assumed that this could generate between 5Million and 20Million dollars annually, depending on how it is structured.

The intent of this tax is to provide a disincentive for property owners to leave properties vacant.

So presumably then increasing the supply of housing if they were no longer vacant.

And again, more work is needed to understand this proposal in the context of the state's requirements for property tax uniformity.

And that's true for other of the options as well.

Option is a progressive real estate excise tax.

This would be an additional tax increment on sales of property over a certain price.

This would require state action granting the city this additional authority.

If that authority was granted, the estimates assumed by the group was an annual revenue between 7Million and 14Million.

If you assume that this was applied to properties valued higher than 5Million dollars.

Just a little context on that one.

The reason that $5 million is used as an example is because Los Angeles County just last November authorized a progressive real estate excise tax on property sales of more than $5 million, and obviously that is a level that could be adjusted for.

I do want to take a second to thank Representative Chopp.

I understand he and members of the been working on advancing a progressive real estate excise tax option last legislative session and look forward to continuing to learn more about that effort in the upcoming legislative session as well given that it's on our list of options here.

The sixth option would be an estate tax.

This would be levied on the estate based on total assets after all allowable expenses and debts have been paid.

Washington State's estate tax has a graduated rate.

that ranges from 10 to 20%.

So one way the city could consider structuring this would be to impose an increment onto that state structure.

The estimates that were discussed with the work group would be that a local tax could generate between $5 to $10 million annually.

The seventh option is an inheritance tax, which is similar to an estate tax, except the taxes are paid by the beneficiary of a bequest, not the estate, and it's valued at the time of death.

The work group considered modeling this on other state inheritance taxes.

Washington State used to have a similar tax until it was repealed by a voter initiative in 1981, and then it was replaced with the state estate tax.

The revenue generation is a bit unclear, depend on a lot of factors.

So it wasn't a current estimate.

Discussed in the work group and would like, this would likely require state authority.

The 8th option would be a congestion tax.

This would essentially tax people for entering or driving into highly congested areas with the goal of reducing traffic and generating revenue.

This is tolls on local roads.

We are authorized by this by state law in a transportation benefit district to impose.

such a tax, but the revenues are restricted to transportation purposes.

So in the spirit of looking for revenues that can support a general fund investments, there would need to be changes to state law to allow that flexibility on the use of funds.

And there are likely significant sort of technical and administrative challenges to getting this set up.

And the final option just identified by the work group is an income tax.

There was a Washington State Supreme Court decision that's confirmed that municipalities are able to impose a flat income tax of up to 1% of total income.

However, it doesn't allow for a more progressive income tax where the rates would increase with total income.

The estimate is a 1% flat tax could generate 670 million annually.

And much of the discussion in the work group on this one, it was important that in order to consider a flat tax, a flat income tax, which is not particularly progressive, There would need to be a consideration of how some of those revenues could be used to mitigate the impact, for example, investing in programs and services targeted to address the needs of lower income households.

So, as requested in the statement of legislative intent, the work group identified 9, these 9 options for further consideration by the council and the mayor.

So now it is an all of your court to decide which, if any of these ideas should be further developed, as I noted previously from a purely practical practical perspective, options 1 or 2 are the most ready to move into deliberations as there's already legislation developed.

The remaining options will require more time that may vary depending on the complexities and requirements around changes to state state law.

And then, of course, all 9 options of policy and administrative considerations that we would further explore.

If you decide to take those out.

Okay.

Well, we're going to hold on those next step conversations for right now.

I think that it's important for us to include in this discussion before we do that, the how we got here.

Because I feel like we've talked about it quite a bit in the last year and a half, but there seems to be a lot of questions or confusion about how we got to this situation in the first place.

And so the problem statement is something that we can continue to come back to so that everybody has the facts and information at their fingertips.

There is no one party or one incident or one strategy that has led to this.

It's a combination of both conditions of the economy and the need of the population and small businesses and support during COVID.

It's a combination of the approach to budgeting traditionally prior to 2020. 20 when COVID started, and it's also a combination of the growing population that we have in this area and how we've responded to that.

So I'm going to turn it over to Tom Mikesell at this point, and then we will come back to the discussion and have additional questions.

And before we wrap, we will talk about next steps.

Good morning, Tom.

Good morning, Chair Mosqueda.

Good morning, members of the Penison Housing Committee.

Tom Mikesell with your central staff.

So this morning I'm going to cover, as described by the Chair and Deputy Director Panucci, some of the history over the last decade or so leading up to where we are today, explaining the kind of financial dynamics of the general fund revenue and spending to perhaps better flesh out some of the characteristics of why we are facing a deficit.

So a difference between revenues being less than expenditures being in 2025. And there is a, as, as Chairman Skoda noted, there is a staff memo that was included with the agenda.

I'll just be really talking from, from that memo and going through it in order.

This memo is intended to just be complementary to the other materials that you've heard this morning, the work of the Revenue Stabilization Work Group in particular.

And it's intended to go into a bit more detail in some places and perhaps expand the range of the analysis that's being offered.

And I did structure it as a timeline, though we really, speaking personally, don't really want to relive the last four years too much.

It is useful to understand.

It does seem like there is a gap in understanding how we got here.

That continues to come up.

It came up last week in a committee.

It's come up again this week.

So let's do it, Tom.

Let's relive the last few years.

Indeed, let's have at it.

So with that, I'll just kind of dive in to kind of give the rough outline and it's structured, again, with a timeline.

focus, looking at the kind of basic touchstones, looking at the years preceding the pandemic, where we were experiencing rapid growth in revenues, a very hot economy, a low inflation environment, where significant community needs were met with expansion that was commensurate in city services.

And the revenue growth was there to support that.

Then COVID sort of changed the underlying foundations, our expectations.

and council and mayor met the emerging needs through the pandemic with public health and other emergency assistance to, given that population was still growing and we really, there wasn't, if anything, there was an increase in service need and how the budget was balanced during that timeframe.

And then looking at where we are post-pandemic, particularly with regards to both how the service needs have not gone away, and the inflation, unfortunately, has turned and is now growing at a much more rapid pace.

And there are still some lingering impacts on the tax base that have not been fully filled back.

And so those are just the realities that we face.

And then also, finally, to close out, I'll cover on just some sort of lessons learned over the last few years and some things which are actually currently underway that council has put in place to perhaps avoid these types of challenges in the future.

So just to go into kind of the first stage, after the Great Recession, Seattle was, I guess, to lack a better word, off to the races.

So there was a 21% increase in population, about 3.5% per year.

And I'm pulling this information from publicly available sources, in this case, the city's annual financial report, which updates as we disclose our financial statuses each year.

Do you mind zooming in?

Just zoom in one more time.

I think that that will clear the margins there.

That's a little bit better.

Thank you.

Population was brisk.

Population growth was brisk from 2012 through 2019. Inflation was fortunately very low.

It grew by 16%.

The CPI-W, which is a standard inflation gauge that the city uses, grew about 2.3% on average, which in context of what the numbers we see these days is very low.

The population, based on population, service need was growing.

There was significant demand, as you'll see kind of under the next bullet, the prior page at the Director of Commissioning.

Yeah.

So the services, the budget kept pace.

It actually grew by slightly over 50% from $926 million to $1.4 billion, which is about 7% annually.

positions, staffing, and city services.

So if you just look at the non-utility, non-transportation staffing, and I exclude those because those types of positions have dedicated revenue streams versus general services.

But staffing grew by 26% during that time period.

Um, it's, it's really difficult to say precisely how many of those positions were strictly in the general fund.

Um, because we, well, we don't have a system stood up to track, um, budget positions by fund.

Um, though, um, but though roughly the, you know, by excluding utilities and transportation, it seems it's on the order of 26% increase.

So the resident population is growing rapidly.

City staffing was, was keeping pace with that.

Um, but there were, um, other things.

to consider that are just not purely captured with a kind of algorithmic population plus inflation sort of metric.

And that is some significant community needs that were unique to a dynamic and rapidly growing city.

First, we had a settlement agreement, and we still to this day have a settlement agreement with the Department of Justice.

that resolved a lawsuit that was alleging the Seattle Police Department had engaged in a pattern of practice of constitutional violations.

And so that required, and currently requires, work on the behalf of the city and resources to boot.

Further, back in 2015, both the King County Executive and Seattle Mayor declared a homelessness emergency, which, again, continues and was in fact exacerbated in some way by the pandemic.

a shortage of housing commensurate with population growth.

People need a place to live when they move here.

And that is something that, again, we struggle with to this day.

And then finally, something kind of unique is the emergence and growth of the gig economy, which in some ways provides great efficiencies in the provision of service, but it also can, in some ways, increase the impact on labor standards and inequality, um, in the, in the population, um, with regards to income.

So, so those are, those are kind of the, uh, additional characteristics that, that add, um, to the community need and perhaps, um, require a greater level of expenditure than just keeping up with population inflation growth.

Um, but the good news...

Oh, yeah.

Before you go to C, I just want to add a comment as well.

Are you ready?

Are you headed to C?

Yeah, I was just going to go to see next.

Okay, perfect.

Well, the comment that I would add here is And thank you again, Tom, for this presentation.

You know, looking at sub one, 21% increase in the population over the previous decade, basically, corresponds almost similarly with the 26% increase in the staff needed for services to serve the ongoing population.

So, 21% increase in population, 26% increase in staff to serve that growing population.

And as people have asked, you know, why are we adding additional staffing?

You know, is the city growing?

Are we being thoughtful about where positions are being added?

And then, at the same time, say we need more investments in police, in homeless services, and in housing.

Your memo specifically calls out that the investments that were being made were helping to further the need to serve folks.

who are providing services in the police department given the budgetary impact of the consent decree, the investments in homelessness due to the declared state of emergency, and the need for us to scale up support for housing services as the top three.

So I just wanted to call out the importance of the correlation where people are saying you need additional services in these areas and the direct investments that were made in addition to the staffing that was scaled up to meet the growing population need.

Thank you for starting with those, those two sections.

And I would add, and I would add to that, that as the city government and all governments in large part are service businesses, and require staffing in order to provide the public goods that they exist to provide.

And I see a question from Vice Chair Herbold.

Sure, Vice Chair Herbold, your camera is not on, but we can.

I see that, I don't know what's going on.

Sorry about that, but yes, I can hear you well.

I'll see if I can address that after my question.

I don't know how you came up with these four particular factors.

They're very useful.

I'm wondering, Were there criteria that you applied to identifying these four particular things?

I'm just – the only reason I'm asking is I can think of, you know, another factor, but perhaps because of the way you sort of filtered the possible factors for purposes of this memo, it wouldn't qualify.

So I'm suggesting it while recognizing you might toss it out, but the Judgment and Claims Subfund has increased over the last few years as well greatly for the payment of various claims and lawsuits.

I would wonder if that is also a factor.

Vice Chair Herbold, that is – I David Ensign, PB – He, Him, His): By all means, would would have added it I largely the criteria was those things that were most top of mind just kind of reviewing through books, though, though it is completely accurate that that is also most recently been something that has added to David Ensign, PB – He, Him, His.: : The financial need for the city.

Thank you.

So, so I could absolutely have been added.

I would just add to that.

I would think of this, these factors as illustrative of some of the key things driving some of the increased investments, but it is not not be the only factors.

And so happy to continue to to build the list.

And I think another one of those factors that is important will be brought up in E as well when we look at the human service contract inflationary adjustment that was a good catch from Tom Iksil during that budget year as well.

Okay, let's go on to C.

So we've described the kind of rapidly growing service need prior to 2019 after the Great Recession.

And now to talk about the really hot economy that Seattle was experiencing during that same time period that enabled the city to support those services.

Just a few statistics with that in that regard.

Real personal income nearly grew by a half, so 46% during that time period.

Housing permits also grew by over 50%.

And then private employment grew by 21%, which is quite similar to the growth in public employment, I would just add.

Assessed value, which is the basis for property taxes, really took off.

It grew, it almost got, and in fact, it did more than double in that time period.

And that's just kind of, again, something to note along the way, that the growth was so rapid in that assessed value of property that there was a decision made through Resolution 31717 in 2016 to disconnect the size of the emergency fund from the growth in assessed value and instead use the CPI metric because, as I described earlier, CPI was growing much more slowly.

And the rapid growth in assessed value was requiring ever larger contributions to the emergency fund at a time when, as stated in the resolution, we were in a homelessness emergency and resources were needed to be allocated to the greater need.

So in retrospect, it seems that perhaps beefing up the reserve fund in good times may have been an alternative decision to consider.

However, that's something that I guess I will touch on later on in the toolkit for looking ahead with regards to how to navigate when times are really good.

If we go to the next section here.

So.

I do have to say that thank you for flagging this change to the assessed value and the holiday that was given.

I wasn't actually familiar with that history.

So I was learning something new as I was reading your memo.

It reminded me of at the state level when in good times, individuals advocate for a rate holiday related to the workers comp compensation fund.

And then in recession times, A lot of people need those funds for either unemployment insurance or workers' comp.

And that was a really hard lesson during the recession, or the Great Recession, when the rate holiday was applied for unemployment insurance, and then almost everybody needed it.

During the Great Recession it sounds like a good idea during good times, but that's why it's so imperative to protect these Reserves and to save times for when things are bad, so thank you for flagging this I had not realized that that was a part of our recent history that that was changed and appreciate the flag perhaps that's for future work of the council to think about how to recreate that.

I'm sure that that would take a lot of work.

I'm not suggesting it here.

It is not a part of an option, but I am flagging that that is a history that has replicated itself at the state level, which has only been, you know, made harder times worse for both workers and small employers.

So thanks for flagging that.

So to kind of to touch, to relate the growth in the economy um, with revenues.

Um, so the revenue base grew rapidly, um, since 20, from 2012 to 2019, um, about grew similar to expenditures about 50% or 7% on, on annual average.

Um, and, and, and, um, and during that time period, the, uh, actual revenues consistently outperformed the forecast.

There was a really good analysis of forecast accuracy that was done by the forecast office.

It's available on their website that looked at the historical review of accuracy over that time period.

In terms of median, the budget actual variance, so revenues coming in better than expected was about 1.7 percent.

What that meant is that each year, and as the committee will recognize, having looked at the recent mid-year supplemental bill, that that beneficial revenue performance adds additional money to the next year's fund balance, which enables mid-year budget adjustments to be made.

So that's a dynamic that factors in, and it'll come into play a little bit later when we talk about fund balances and how those play into balancing the budget.

And so now, just kind of to round out they look at the pre-pandemic period.

It is fascinating if you look at the financial plan.

This is a document that we've been highlighting over the last couple of years with the committee and with the council, showing not only the near-term, but also the long-term view of the general fund financial situation.

But the financial plan that was submitted with the adopted budget, immediately prior to 2020, so immediately prior to the pandemic, showed that beginning in 2021, there would be a $39 million deficit.

So that meant that even before the pandemic, there was already a projection that expenditures were going to outpace revenues.

And to touch on what the chair mentioned, it appears, based on our review, that that plan didn't, in fact, include an important statutory provision that had been approved by council in that year, either 2019 or 2018, which basically provided for inflationary contract adjustments for human services providers.

That now has been included in the plans that we're looking at today.

But back then, if that had been included in the projections, it seems that the deficit projection for the future would have, in fact, been larger, as much as $18 million larger by 2023. So this is just to say that even before the pandemic, there were some kind of imbalances that were projected for the future, which perhaps makes it harder when you go into an emergency to deal with those conditions then.

And I would note that at the time, it's not particularly clear what assumptions were being used for those financial projections.

And we are currently, and this is something I'll talk about with the toolkit for the future, is knowing what those assumptions are makes it better.

When you're trying to figure out what's going on to understand alternatives and what different projections what different guesses about the future could mean for your finances.

So.

So that's kind of the review pre-pandemic.

Well, let's just pause there for a second.

This last one's really important, and I want to thank Tom.

I think it was you and the central staff team who identified that the human service provider annual inflation was not included at the time.

That was legislation that was passed and clearly codified into statute.

It was imperative that you caught it when you did so that we could identify how that would affect future budgeting and that we could bake it in.

So thank you for catching that and the team at Central Staff.

I also want to call out this first sentence of that second paragraph.

It is unknown what detailed assumptions about growth were used for the financial plan as they were not disclosed by the executive to the council or the public.

This is exactly why we are in the midst of budget transparency discussions right now.

This is part of the recommendations that central staff have been asking for for the last three years that I've been budget chair and part of what we are trying to get at with some of the budget transparency legislation that will be coming next month.

We've also taken steps in last year's budget and maybe the budget prior to try to lift up some of those assumptions into like the above the line calculations, at least a lump sum that is sufficient enough to potentially carry forward in future years so we know what some of the costs will be given the ongoing negotiations that are happening.

We don't know a specific dollar amount.

We're not supposed to, right?

But we want to make sure that that's part of the budgetary planning going forward instead of like a below the line analysis that doesn't get daylighted.

I'm sure there is a more eloquent way to say that.

And Tom, could you both remind us of what we have already done to try to elevate the financial plan, the financial planning that needs to go into future expenses related to the assumptions pursuant to to some of our contracts and also what we are going to be doing in the very near future if we're successful with the legislation that I'm moving forward.

Absolutely Chairman Spada.

So today we've been doing under your with your leadership the the updates of the General Fund Financial Plan Act Committee.

So that was something that previously had not been done.

And now it is a regular topic discussed at committee.

Every time there is a revenue forecast that's presented, we update the numbers and show what the new projection looks like.

And then with regards to with revenue forecast, two years ago, council adopted a new approach with regards to revenue forecasting by creating the independent Office of Economic and Revenue Forecast.

And so that group, which there is actually a meeting this afternoon of the Forecast Council, that group is independent, so not directly respondent to either the executive or the legislative branch.

And they're given the freedom to produce independent, non-biased revenue forecast that are then provided to a Forecast Council that is led by two members of the executive, two members of the council branch to kind of determine what the revenue assumption should be with regards to economic scenarios.

So that kind of puts an arm's length approach with regards to revenue forecasting.

Also, there was a, as required by a slide from last budget, last fall's budget process, there was a work group that included members, central staff, and the city budget office to look at just this type of material and figure out different ways to deal with biannual budgeting, treating the second year of a budget as a true biannual budget with minimal modifications, doing some more deliberate financial monitoring of expenditures.

The forecast that was created does a regular quarterly revenue report, so showing the kind of performance of our general fund and other fund revenues as the year progresses.

And looking forward to the future, the city budget office is underway, and hopefully we'll have a complete product by next year that will kind of inform the expenditure side of the equation.

So that gives the real-time performance on city finances.

There is, as part of that work group's recommendation, um, a, uh, a intent to look at planning reserves.

So as you were, um, you very well described the kind of below the line elements of the budget, things that are not included in the annual budget discussion and appropriation, particularly with regards to, um, some labor costs and other, um, legal, um, considerations, moving those above the line.

So they're part of the budget that gets deliberated and adopted.

Um, that's looking ahead to try and have that in place for 2025. And then finally fiscal notes.

So the last committee meeting was last week.

We went through a review of our current template process for producing fiscal and summary estimates of legislation and provided a series of observations and options that could be considered.

And as you indicated, we are now building legislation that includes some of those best practices to go into effect beginning in 2024. So those are perhaps not an exhaustive, but a list of the highlights of the various things that have been underway for the last several years to enhance fiscal transparency and enhance financial form of monitoring that is possible for the executive and the city council.

Great.

Thank you.

So, please note that, as Tom said, these have been underway for years.

That's part of the reason that we had the workgroup.

This is part of the strategy that we were already moving in.

It calls for additional transparency and accountability and openness to having central staff and the executive have better access to the data, something that we've been actively working on.

And that only helps to inform the public as well.

When we have greater access to this information, we share it via central staff memos.

We make it part of our process.

And the legislative branch is the place to do the deep dive into the budget proposal, right?

The mayor's is a proposal.

Ours is the analysis and the final construction.

So everything that we can do to give ourselves additional tools, transparency, furthers accountability both to members of the public and between branches of governments as well.

This is something that has been long anticipated, long been worked on, and I'm excited that there seems to be a lot of interest in helping to move forward some of these transparency ideas.

So, colleagues, please do be on the lookout for that legislation.

Again, we will have committee meetings on the 14th and the 20th in September to consider such legislation.

All right, let's go into forward looking and talk about what's happened.

that has exacerbated some of our budgetary crises given the pandemic and the way in which revenue flowed and the needs that we saw emerge.

So this is under item 2 of the memo and it's on page.

Page 5. So.

As we all recall, the COVID pandemic began around March of 2020. And there were a series of proclamations of state of emergency, both local and statewide.

And there was a Governor's Stay Home, Stay Healthy order, which shut down non-critical movements of residents and visitors around the state, which had two important effects.

One was it It addressed a public health emergency, which at the time we were very uncertain about, and it was leading to loss of life.

But it also shut down critical sectors of the economy, at which the economy is the base for the revenue that supports services.

So we had an increased level of service demand and, unfortunately, an abrupt hit to the economy that helps fund those services.

And then, in fact, looking under item B here of the memo, in 2020, the first year of the pandemic, the ongoing actual general fund revenues decreased by about $186 million, so that's about 13%.

The impact was immediate and fairly steep, though revenues did begin to grow again.

However, it was at a slower rate.

If you'll recall earlier, I mentioned that prior to 2019, after the Great Recession, revenues were growing about seven percent per year.

However, during the pandemic period through 2022, that really takes down to about two percent annual growth.

It's like digging a big hole and then slowly adding dirt in, but we haven't added all the dirt back in.

Um, and so, um, so that's, that kind of summarizes kind of the, the really brief snapshot of, of immediately what happened.

Um, however, the pandemic lasted for three years, um, as we will recall.

Um, and, and there, the issues that, um, that the city was experiencing, um, kind of as a, as an effect of our, of our success and the growth, um, prior to 2019. the things of the housing crisis and the homeless emergency, they were exaggerated by COVID emergency demand and then a racial reckoning that was sparked by the murder of George Floyd by a Minnesota police officer.

And so as a result, adopted general fund budget expenditures grew by 18%, so 246 million.

So we had a kind of double whammy for lack of a more eloquent term of declining of a seriously impacted revenue base with slow growth and just critical needs that were, if anything, increasing.

And so that's sort of, as I indicated earlier, prior to 2020, the financial plans were projecting a deficit.

And then we go into the COVID crisis, and then matters got much worse.

So that's what, what, um, mayor and council have had to address over the last three years.

And if we could look at the next slide, um, we'll kind of talk about how we managed to deal with that, um, with that, with the, uh, the service need, um, because expenditures have not, have not been decreased and, and nor has there been a significant, um, decline in the demand for service, uh, in, in the, in, in the city.

And in order to balance the budget, given that our structural revenues were still down and growing more slowly and expenditure needs were higher, there were a variety of measures and it's perhaps best to just go through them one by one.

One thing that we have used is prior year fund balances.

So I mentioned that there is a track record of revenue actuals coming in better than forecast.

Well, that just means that there's a little bit additional one-time money that can be used to balance the next year's budget.

Another element, it's not here, but it's similar, and part of one-time balance is underspend.

So as we've noted in our financial planning presentations that we've done at committee over the last few years, at the end of the year, we have have benefited from spending being less than planned.

And so that just leads, that just provides extra resources.

It's one time, but it can support spending in the near term.

Also, particularly in 2020 and 21, there was the use of the Revenue Stabilization Fund, which is intended to be used when revenues are impacted by economic forces.

And then also the emergency fund, which since we were in a COVID emergency, was the use of that bucket of money to support spending.

Fortunately, council has been able to replenish the Revenue Stabilization Fund to its full level.

However, the emergency fund is still down and still in progress of being replenished and perhaps should be by 2026. Also, there were two significant novel federal grants that were available for our use.

First was the Coronavirus Relief Funds from the Coronavirus Aid Relief and Economic Security Act of 2020. So that helps significantly with some of the public health measures that were underway.

And one thing with regards to the general fund is because city staff were being redirected from their originally intended purpose to do really COVID-focused work, we were able to use those CRF funds.

We used those CRF funds to support that work on a limited basis and where it made sense to do so.

Also, the ARPA, so the American Rescue Plan Act of 2021, actually provided for just direct general fund revenue replacement.

So there were some of those funds that were used for increasing need, like additional public health measures because of COVID.

But then there was also a portion of it that was just used as revenue replacement.

So given the fact that we were able to demonstrate that across all city funds, we're about $311 million where we should be based on the federal benchmark.

we were allowed to use some of those funds to just backfill general fund revenue.

Also, more recently, there have been some one-time spending reductions that have taken place.

But I would note that in a lot of those cases, they were offset by ongoing spending increases.

In this case, this is highlighted in the memo from last fall that was provided early in the budget deliberative process.

There was about $52 million of ongoing spending that was added, and it was paid for by temporary spending reduction and a temporary underspend assumption in 2024. But that was the measure, you know, where there was additional service that was added, but it was kind of funded, for lack of a better word, by one-time production.

And I think the conversation was hard, just as a reminder, the conversation was hard because we all knew in 2020 and 2021 that there was increased needs.

and that these were one-time dollars.

And we really tried to remind ourselves that these are federal infused dollars that will go away, but we wanted to set up systems and responses to meet the ongoing needs of the community, whether it was small business support, food assistance, domestic violence intervention strategies, direct services in the community, we needed to get those dollars out.

I think the hard part has been recognizing that the impacts of COVID are ongoing and the lingering shadow pandemic in terms of the crises, whether it's financial instability, housing instability, interpersonal violence, those issues continue.

And we don't have federal dollars to continue to backfill our general fund that has yet to catch up as articulated in the memo here.

We'll talk about when it's projected to grow to at least pre-pandemic levels, and it's not right now.

So we have been trying to be responsive to community needs, quickly expedite the use of these federal dollars, which our delegation, our federal delegation continues to applaud Seattle for because we are among the cities that were really efficient with getting those dollars out the door.

But as those dollars are no longer available, we continue to see the need in community without federal support for those funds.

So I appreciate that this is a good summary of how we use those dollars to plug holes in decreased revenue, but the increased need continues right now and into the future.

Absolutely.

I think plugging holes is a good characterization.

And in fact, the last element of the one-time solutions is because it's one of the most significant, particularly with regards to the near-term budgets.

And this is the Jumpstart Payroll Expense Tax.

So this was a new tax approved in 2020 by council that is structured as a progressive tax on high levels of compensation expense paid at large private business groups.

And so through a series of spending plan legislation, the use of those funds is codified with the bulk of it going towards affordable housing, and then also amounts going to equitable development, investments, economic revitalization, Green New Deal investments, and then some administration of those investments from the fund.

That was the intent of the Jumpstart payroll expense tag from 2020. However, we were in the midst of a really difficult situation with the COVID pandemic.

At the time, the first year's revenue was heavily structured towards helping bridge the gap, the revenue gap.

A portion was also directed towards new COVID investments.

That was viewed as a temporary measure.

However, that temporary measure has been continued for a series of years at a somewhat smaller amount.

A good measure of The total of the tax had been able to go towards its originally intended purposes.

However, there still remains some portion of the tax that is used to backfill general fund loss.

Most recent legislation, Ordinance 126719, which was labeled the Fund Flexibility Ordinance, does allow, through 2024, some amount from the Jumpstart Able Expense Tax Fund to go towards the general fund backfill However, beginning in 2025, the full measure of the tax revenue will go towards the intended housing pre-new deal with economic revitalization and equitable development investments.

But again, all of these measures have been temporary.

They have been in a way of being able to meet the needs with resources at hand, though because they are temporary, they drop off beginning in 2025, which is which leads us to the projection of the financial situation of the general fund.

And I would say the Deputy Director Panucci, her initial comments indicated that across all funds, there are some decisions about revenues and expenditures that need to be made.

And I get that with regards to the jumpstart payroll tax in particular.

It's worth noting that those those funds do go towards a codified spending plan.

And so it's not as if they are a diversion of that money towards the general fund is a choice and and it reduces the amount that goes towards towards housing and those other purposes.

And I do see a question from Councilmember Peterson.

Councilmember Peterson let me just ask Tom to summarize this last paragraph here that summarizes the whole section and then I'll turn it to you.

Great.

Yeah, so this last piece is just to highlight the most critical need that the Jumpstart Fund was intended to address, which is the affordable housing crisis.

I did link to a Washington State Department of Commerce analysis that showed the depth of the need.

And so that's useful information to show that those monies do have a purpose, which is, I guess, It goes without saying with regards to the council codified spending plan that relates to that.

But then also that the investments for small business and workers are also, you know, kind of the title jumpstart is intended to kind of revitalize.

And because we are dealing from a smaller economic base, they are beneficial in that regard as well.

Okay.

Thank you so much, Tom.

I have a question from Council Member Peterson.

Please go ahead.

Thank you, Chair.

I just want to just I haven't commented during the whole committee meeting, so I just is this a good time to sort of summarize thoughts that some of the other committee members have or should or are we going to hear something else?

We are going to let's if this is like general high level summary thoughts, let's get through the memo and then I'll come back to you first.

Thank you.

Oh excuse me.

Council Member Lewis please go ahead.

Oh no I just took that as an invitation to get in line.

In line.

I love it.

Okay great.

We have two people lined up and appreciate your engagement colleagues.

So Tom let's go through the last two sections of your memo because this is this is sort of the critical next step components.

Great.

So this Part 3 is the sort of where we are now and what we're looking at.

And I just want to highlight that it's difficult to see, but there are, it's important to also note that certain sectors of our economy have not recovered to their 2019 levels.

So I just, I looked at the CTAC passenger volumes and last year, it's kind of on the page that I linked to in the notes, the passenger volumes are 11.9% below 2019 levels.

So you'll see in the press that this year we're doing better than last year.

and the year before we're doing better, but we're still not up to where we were with regards to tourism.

And you can see that impacting our revenues when you look at the Department of Revenue's sales tax distribution, which if you adjust them for inflation, show that we're about 20% below 2019 levels for that important piece of our sales tax portfolio.

Also, office vacancies are 19.3%.

They were much lower than that prior to the pandemic.

And then also the forecast office, regional economic forecast showed that algae permitting is 25% below 2019 levels, and we'll actually not get back to that level until 2026. And in terms of real-time feedback, you can see the sales tax, similarly, is 20% below in real terms, so inflation adjusted below 2019 levels.

And so that's just representative of loss of general fund tax base.

And then also I look at the pre-2020 financial plan.

And in those plans for 2023, so for this year, for several of our revenue categories, we were projecting to have higher dollars, higher amounts than we actually are receiving right now.

So I won't go through the list, but it's in these areas that are not really dependent on inflation as much.

They are really built by caseloads and and parking activity and things like that.

If those revenues were performing at 2023 levels, we would have an additional $46 million to deploy for general fund services.

So this is just a snapshot kind of similar to the kind of items of expenditure growth, but these are just kind of real obvious indicators that we're still not quite even back to where we were with regards to pre-2020 planning.

And again, the service needs are still there.

Affordable housing, homelessness, community safety are all things that are topics for consideration at council.

There's no indication of a lower need.

Affordable housing was a topic that was discussed at the Select Housing Levy Committee.

And then inflation, so unfortunately, This similar to pre-19 inflation, as we all know, it's very high.

And it's fortunately coming down, but it was very high for the last several years.

And that matters because it impacts our city labor contract.

which as indicated previously, we added staffing to keep up with service demand prior to the pandemic.

And now we are faced with many open labor contracts in the context of higher inflation.

And as a service business to provide the public good that matters because a lot of our expenses with regards to staffing.

Madam chair, could I actually ask a clarifying question on that point?

Thank you so much.

And sorry to jump in, um, uh, like that, but it's probably probably best asked here.

Um, so Tom, am I, uh, correct from looking at some of the other materials that 85% of the projected future shortfall is from anticipated labor agreements that are yet to be, um, fully bargained just as a clarifying question?

Um, Council Member Lewis, that's, that's, uh, The work of CBO, though, nothing in my experience working with the plans suggests that that's not inaccurate.

I mean, it's consistent with what I can see in the financial plans and the assumptions that I'm able to see.

So I think it's consistent.

This paragraph puts most of that on inflation, but are there other contributing factors?

That's a significant portion of the deficit that we're dealing with in this category.

And obviously inflation has been a big impacting factor, but are there other things that contribute to that category?

Council Member Lewis.

I, my, my assumption is it is all inflation.

My assumption for the, the financial plans that are produced by CBO that they are not adding additional staff and their projection.

Um, but again, without without knowing the assumptions that they're using, that's that would be my, my default conclusion that it all is basically looking at existing staffing.

Um, and and kind of applying some inflationary adjustment.

But again, the labor contracts are under negotiation.

I don't know the specific details.

Thank you, Council Member Lewis.

I wanted to invite Ali as well to comment on it.

It's noted on page six of the Revenue Stabilization Work Group report as well.

And in addition to what Tom noted in terms of the cost, there is also sort of a bow wave impact that is affecting the percentage And I'm hoping that maybe Deputy Director Panucci can chime in if you have anything to add to this.

But part of what the workgroup discussed with the City Budget's Office during the Revenue Stabilization Workgroup is that for many of the positions that were front-facing, think libraries, community centers, you know, direct community engagement programming, A lot of those were put on hold in 2020 and 2021, started to come back in 2022. So what we see is almost like a bow wave coming up where that percentage is relatively high compared to other costs because we're trying to scale back to full capacity at libraries and community centers, etc.

And I wanted to just ask Ali if there's anything else that you would add to that based on the workgroup discussion that we had given the percentage looks high relative to these other components.

And given that it's noted on page six in the revenue stabilization workgroup.

I don't, I think the only thing I would add is, I think there are a number of factors that drive the cost of or the need for increased wages, right?

It is inflation.

It is also just other factors that drive, like, there's a higher housing costs in Seattle and those sorts of factors that are a consideration in.

what employers decide to pay their employees and what employees request.

And so I think it's a complicating factor.

And I would just sort of reiterate what Tom said, which is most of city services and programs are human focused, right?

They are delivered, they require staffing.

And so most of the city's costs, particularly those that are services and programs funded by the general fund are labor, are labor related.

And so it is not that surprising that with that increase in staffing at a time when we were projecting that the cost to increase those positions would be lower over time in a low inflation environment, that that's currently driving such significant growth and expenditures now, because it's the bulk of the general fund is paying for staff or paying for contracts with human service providers, which is a human-to-human service.

And so again, those are labor costs.

And just one clarification on that, too, Allie.

As we talk about inflation, it seems that central staff is confirming to me that one of the biggest Factors in that paragraph, that category is the inflation pressures.

How is CBO anticipating and projecting what the near-term inflation is gonna be?

Are they projecting that it's gonna remain elevated?

Are they projecting it's gonna taper off?

How is that factoring in to the forecast of the anticipated deficit?

Um, I can't disclose all of the details that go into the sort of confidential labor discussions.

But what I will say is that we do look to the office of economic and revenue forecast does provide regular forecasts of inflation.

And so those are what we are looking at as we look at adjustments.

to the financial plan.

And I believe the last release is showing, like we are hearing in the national news, a decrease over time.

But given the number of open contracts that in some cases will be retroactive a couple of years in the high inflation we've seen in the few years to get wages back up to where what they would be adjusted for inflation today, it's significant.

So that is Is part of it.

So, over time, that incremental costs might not be quite as high year over year, but to get.

To catch up, essentially, it's a, it's a significant cost.

And it's a good plug for this afternoon.

We're going to have the Revenue Forecast Council meeting at 2 p.m.

It is broadcast on Seattle Channel.

I think a press advisory is going out for any members of the press currently watching.

Please tune in because that exact question, Councilmember Lewis, is going to be addressed in part there.

And then, colleagues, it's another good plug for next Wednesday where we will have the Office of the Economic Revenue Forecast and the City Budgets Office in our committee.

There is some revenue streams and some inflationary adjustments that CBO will complement and add to that are provided by the Office of Economic and Revenue Forecast.

So we'll have both of those entities in our committee next Wednesday as well.

Council Member Lewis, before we move on to the next question, did you have any other follow-up?

No, thank you, Madam Chair.

Okay, great.

And Council Member Nelson, do you have a question here, or are you getting in the queue as well for summary comments?

The queue, fantastic.

Okay, I believe we're on our last page, so I'm going to turn it over to Tom, and then we'll get to some summary comments.

Okay, thank you, Madam Chair.

This will be brief.

These are just kind of the tools, and some of these tools are already in place, and some are anticipated for the future.

One is to seems obvious, but to focus on the one-time ongoing nature of decision, because particularly the ongoing one, as we've seen through this morning's discussion, they will have ramifications for the future and can perhaps require difficult decisions in the future, depending on what happens.

Also, transparency and different formats for communication Um, it's, we find it's helpful to display this gap in terms of lines that, um, that show revenues expenditures.

So you can graphically see the difference.

Um, so different formatting, different ways, um, to understand what's going on are better, um, in this, in this, um, venue, um, also paying attention to how the data, um, corresponds and relates to the actual assumptions.

So looking at the financial monitoring on a regular basis, So it keeps track of the performance and gives an early indication when there may be problems ahead.

And then finally, considering reserve policies in the context of saving more when times are good.

And so this relates back to the decision in 2016 to kind of limit the growth in the emergency fund.

And of course, right now it's more difficult given that there is a financial challenge to do this sort of thing, but with the anticipation that there will be good times in Seattle's future, It's it may be instructive to to consider looking at some of those reserves and brief them out if you will.

And so that's that's the extent of my comments.

So happy to answer further questions.

Okay fantastic.

Well this looks like a popular presentation.

So thank you colleagues for your interest in this.

And again thank you to central staff both for your participation Director Deputy Director Panucci in the revenue stabilization work group and the summary of the process and an overview that you provided that complements what Deputy Mayor Washington said.

And thank you very much, Tom Iksil.

You have been providing components of this memo and this summary over the last, I would say, two years in our committee.

And it is helpful, very helpful to have it all condensed in a chronological summary of how we got to this point in a 10-page memo.

So we are trying to push this out to make sure that more members of the community, members of the press, and our colleagues and all city hall, including our city staff, have a better understanding of how we got here.

And I think that this is a dynamic report that shows that it is not just one thing.

For example, it's not just spending, might not just be revenue, right?

It's a combination and a confluence of situations that led us to where we're at right now and wanting to respond to the crises that continue to grow and worsen.

exacerbated by the pandemic.

But as you noted, we're beginning to show signs of the need to address this prior to the pandemic as well.

With that, we have a few summary comments and some questions that our colleagues are going to chime in on now.

So I'm going to turn it over first to Councilmember Peterson.

Thank you so much, Councilmember Peterson, for your patience.

Thank you, Chair Mosqueda, for enabling these presentations and this forum today.

And there's been a lot of effort before and during the committee meeting to summarize and understand and frame the revenue and expense situation at City Hall.

And so I appreciate the opportunity to add my own assessment to the mix.

First, thank you to central staff, City Budget Office, and the Revenue Stabilization Work Group members for all their hard work.

I do want to thank our budget chair, who has creatively navigated several challenging budget situations during the past 4 years.

And of course, that's a preview to my contrarian remarks, which will now follow.

So I do want to have a special thanks to the Transit Riders Union.

They have an even longer list of progressive revenue recommendations attached to today's agenda.

And their list includes revenue source that we see in 70 other cities and across the nation, transportation impact fees.

In my view, Seattle's been an embarrassing outlier in that we don't yet authorize these impact fees.

And I'm, I'm concerned that the mayor and the next city council may be forced to increase property taxes yet again.

To replace the 9 year move Seattle levy that expires next year.

Recent polling shows an impressive 75% support for transportation impact fees.

So I just want to lift up that additional option of a fee, not a tax, to address the many transportation safety infrastructure needs we have, including sidewalks.

And this impact fee could also free up other dollars in our overall budget to finally repair and upgrade Seattle's aging bridges.

Big picture, however, I believe City Hall doesn't have a revenue problem, it has a spending problem.

And with a total budget of $7.5 billion every year, City Hall could have learned a lot from an expense stabilization work group as well.

So I appreciate our city council central staff always looking carefully at expenditures for us and our budget chair's commitment to budget transparency.

There have been many cost drivers.

We've heard of several of them today.

A couple of key cost drivers that were not fully discussed are the ongoing city hall decisions to grant compensation increases in past years that exceeded inflation for city government employees.

And that creates a more expensive compounding baseline that we've inherited.

And city hall deciding a few years ago that city taxpayers should shoulder a greater burden of the permanent pension costs paid out to city government employees.

I think pension reform is something that could be looked at as well.

So until we get more results on public safety and homelessness, I believe we should not be getting additional revenue from new taxes unless we use new progressive revenue to eliminate unfair regressive taxes too, like Seattle's tax on drinking water.

Nearly 60% of Seattle voters said their taxes are too high and nearly 2 3rd, so they don't trust city hall to spend their tax dollars responsibly.

According to a survey conducted by EMC research in April of 2023, perhaps that that has changed since that was several months ago.

So, tax reform that would.

proactively eliminate a regressive tax can help rebuild trust with residents and small businesses who might be skeptical of financial proposals from City Hall.

For a fair, balanced, and truly progressive system, I believe we must also repeal regressive taxes The tax on drinking water disproportionately harm Seattle's lower income households.

So, I encourage passage of council 120602 to eliminate the regressive tax on everyone's drinking water.

And regarding the discussion on the future deficit and the general fund, I just want to.

clarify that it's my understanding this deficit is not today, thanks to the hard work of the budget chair and the city budget office, but would be in 2025. It's not for the entire city budget, but it's for the general fund.

The jumpstart payroll expense tax has benefited city hall.

And to the extent that we face a deficit in 2025 for just that single general fund, I think the next city council could consider once again, liberating those payroll tax revenues to handle that deficit rather than locking up those dollars permanently for new programs or piling on another round of new taxes.

I know there's not consensus on that opinion of mine, but I just wanted to put that out there.

Thank you, Chair.

Thank you.

Council Member Lewis.

Thank you so much, Chair Mosqueda, and appreciate this report back from the work group that's very thorough in the time that central staff has spent with us this morning walking it through it.

It's a very helpful report.

It does a good job of clarifying the variety of options that are in front of us to make sure we are on a sustainable financial path, particularly in the context of the next biennium, which is where a lot of these assumptions come to bear.

While I appreciate this analysis on the potential new revenue sources, and this is a good list to queue up for some additional analysis, I do think we should continue to look into, as this council has done, although we don't get a lot of credit for it, Um, in some of the efficiencies and reforms that are present in our current biennial budget, uh, that includes $60 million worth of efficiencies and administrative savings that we factored in, um, uh, through the normal attritional process of creating a new budget.

So it, it hasn't just historically always been an exercise in seeking new revenue.

I don't, um, see why we have to completely limit ourselves to that approach, not that anyone is advocating doing that in our current process and think that we should, to Council Member Peterson's comments, cue up a focus that also looks over the course of the next year in 2024 of setting up maybe a way to challenge some base assumptions and really look at ways the government, the city government can analyze how we deliver services, improving the provision of services, looking at ways to consolidate certain executive functions that may have certain overlaps and redundancies.

It's been my observation from being on the Council over the last four years that we've really been blessed by having a significant amount of economic growth, success in the city of Seattle over the last decade that has resulted commensurately in an expansion of the scope of city government to meet new and emergent needs.

I mean, Office of Labor Standards is a great example.

New and emergent need, something that hasn't historically existed, something that the city created to safeguard and make sure that there was accountability for people violating the rights of working people in the city.

That's a good service and it's one that we took advantage of our economic growth to create.

But a lot of these new and emergent needs during a time of particular economic vibrancy, you know, do start to add up and having a real focus where we look back and have a period of assessment as part of our biennial budgeting process of how we can consolidate certain functions within the city government, how can we look at having a more effective and responsive city government, I think is something that should be a part of this.

I'd be interested in working with central staff, just to flag my interest in this now.

on formalizing how we might have a practice like that with some council participation through our budget process this fall, either through a resolution or through a statement of legislative intent on how we might formalize with the city budget office.

I'm queuing up some opportunities to really look at We can look at ways we can maintain city services, but potentially look at, you know, things like office and departmental consolidations or other kinds of strategies that might be part of the the deficit that is at the center of this analysis.

So appreciate the work that's been done and appreciate the chair's work in convening all of this information before we leave on recess and go into the budget process in earnest in the fall and look forward to ways to build on this body of work.

as we, in a comprehensive way, as we go into 2024 and work on building that next biennial budget that will be the work that defines the council budget process in the fall of 2024. So, thank you.

Thank you so much.

Council Member Nelson.

Thank you very much for this discussion.

So this whole conversation has emphasized that or seems to suggest in general that spending increases are a result of or a function of population growth, increased service needs, and increasing inflation.

But to me, it really just It comes down to policy choices.

And Exhibit A is the fact that in 2020, council passed the payroll excise tax with anticipated annual revenues that were, I think, projected at about $200 million or $219 million, making it the largest tax in Seattle's history that didn't go to a ballot.

And then before the checks were even due to start coming in in 2022 Council passed a sly in November of 2021 expressing the Council's commitment to raise new progressive revenue to pay for Council priorities for things like.

participatory budgeting, and other initiatives because, quote, the 2022 proposed budget includes ongoing appropriations but does not include an ongoing revenue source to support those investments.

And then just recently, council committed to another policy choice made in 2021 to establish wage equity between nonprofit social service workers and the wages of workers at, for-profit companies in all sectors of the economy, which I voted against because I didn't think it was realistic.

But that's another example that we continue to make these policy choices.

And here we are looking for a source of revenue to pay for that as well.

So I just want to remind people that this report not only didn't recommend any of the of specific policy options that we've discussed today.

It did not even recommend that we should go in that direction of a new revenue source.

In fact, it does offer that there are some other ways of aligning our spending and revenue.

First of all, the report says we can increase revenue through new taxes or tax increases.

We can also reduce general fund spending for services, repurpose restricted revenue and reduce services that it funds and shift that to the general fund.

and take steps to grow the city's tax base by spurring economic activity.

So there are other options on the table that are not listed in the central staff memo for under next steps, but I am interested in considering those other options as well.

Personally, I just believe that city leaders should do everything in their power every day to generate and encourage economic activity, especially downtown as it continues to recover from the pandemic.

And this doesn't just have to be simple trickle-down economics.

One thing that would help is fixing permitting slowdowns, which could attract new businesses and allow businesses to engage in some economic growth.

That's just one example.

Number two, reduce or eliminate services that do not meet measurable outcomes, are duplicative of other agencies or entities, are no longer aligned with the city's residents' current priorities, or have grown faster than real world demands.

look at all expenditures against all revenues, and then clearly align articulated plans to make progress against them.

And then govern in a way that delivers results before there is any discussion of new revenue.

So all of this, I think, should be on the table going forward.

And we are working within a context where we still have a lot of progress to make on some of our major challenges.

Homelessness being one, and the newly, it's not new, but it's now more in the public eye, which is our fentanyl crisis.

And so we have to make progress on our challenges, we have to maintain public trust, and simply just going and saying, here's a list of new revenue sources that have not even been vetted for their legality at a very minimum, or the potential negative consequences is not the way to continue to try to build public trust.

Councilmember Herbold, please go ahead.

I have a couple questions and I'm just resisting the urge to respond.

I don't want to argue with the perspective of some of my colleagues.

I appreciate that it's a perspective, but I don't I just want to say that I feel that it is a perspective that is supported by the analysis that we have heard today.

You know, we've increased wages above inflation.

Well, how can you possibly talk about the delivery of mission-critical city services, whether or not it's employees within city government or people we contract without city government?

How can you talk about speeding up permitting times?

For instance, we have vacancies in every single department of the city and every single city contracted services that we provide.

Those are the factors outside of our control that are driving us to make some of these decisions.

Similarly, inflation is out of our control.

Things like the increase of the judgment and claims out of our control.

I just feel like we're saying things that are not supported by the facts.

It is true that we made a policy decision as it relates to Jumpstart.

to focus those dollars not on addressing this gap that is largely out of our control and the result of structural budget problems, but we made that policy decision to focus those dollars to allow us to double the investments of the housing levy to support economic development, particularly in the face of COVID, and support climate change investments.

So that's true.

We did make a policy change to use those dollars for those priorities, and we made a policy change to not shift those dollars to address the gap or to limit how many of those dollars that we're using to address the gap.

Because we did, we had the flexibility spending ordinance that compromised with some folks who were arguing we should use all of those dollars to address the gap.

So again, I want to just, focus maybe um on some of the questions i have um about the uh revenue stabilization uh work group uh rather than but i just i i could not not say anything so um well where i do agree with councilmember peterson we're not going to have a debate on this we let each council member say their pieces and councilmember herbold has the floor right now we will have time to have a conversation about revenue in the future about

Let me let I'm still speaking Councilmember Nelson.

Thank you.

Where I do agree with Councilmember Peterson is, although I do appreciate the work of the work group, I am disappointed that.

opportunities for revenue like transportation, impact fees, specifically, don't appear to have moved forward.

I understand there was something like 63 things that options that were looked at by the work group, I don't think we have that list.

So maybe transportation impact fees was on that list at some point.

If it was, I don't understand why it was taken off because if you look at the criteria listed in the central staff memo, doesn't seem to be a reason based on these 1, 2, 3, 4, 5, 6, 7 criteria for patient impact fees to be left off of this list.

Further, we'd love to know, there's something like another 26, or not another, there's overlap, there's 26 options that the Resident Riders Union identified would really be interested to know if these 26 options were included in that original 60-some-odd big list that the work group originally looked at and how those were filtered off.

So, again, interested in you know, not just these top couple options, understand they're not recommendations, these top couple options that could be implemented quickly and that we have the authority to implement.

I'm very interested in knowing how certain options were taken off the list.

Secondly, another point at which I agree with Council Member Peterson on as it relates to one of the things that he's proposed, and it's a position I've taken in the past as related to the large earners income tax that the council supported a number of years ago.

The large earners income tax, we made a commitment in exploring that legislatively, we made a commitment that if we were successful in implementing it, we would use some of the funds generated from that to reduce the tax burden of taxpayers.

in the spirit of Councilmember Peterson's proposal on capital gains, I do think that we should be looking at that proposal as a way to both address some of the funding gaps that this conversation has identified, but also to reduce the regressive utility tax as well, because that will be a benefit to general rate payers as well.

And I think that's really important.

I'm really happy to see that the SPU rate advisory group recently signed on in support of that proposal as well as a number of other stakeholders.

So just wanted to get on record on those two revenue options that Councilmember Peterson is leading on that I'm very supportive of pursuing.

Thank you.

Thank you, Councilmember Herbold.

Councilmember Nelson, I see your hand up.

So I understand that there's some emotion about what I said.

However, I am simply suggesting that spending within our means is not austerity, it's our responsibility.

But my question was, when we were talking about labor costs, which Council Member Lewis did identify in his question, when we were, do you happen to know, Tom, if the, estimates about increased labor costs, they were simply internal employees, correct?

This did not include contract adjustments, is that correct?

Thanks for the question, Council Member Nelson.

So the general fund financial plan will largely include cost increases for labor contracts, but it will also include those areas where there are statutory allowances and provisions for other service providers.

Most notably, the human services providers contracts.

Those inflationary adjustments will be included as well.

Those are the ones that I'm familiar with, but the bulk of it will be in internal city employees.

I might just add to that Council Member Nelson if I might.

I think that is one of the ongoing areas of conversation we're in with the City Budget Office to both disclose more assumptions and to use the best available data to make estimates about future growth in our contracts because it's not entirely clear to us how much the future expenditure estimates are assuming the You know, the increased costs of other providers outside of the human service workers that it might might require to deliver those services.

And so I would say, generally speaking, the, the expenditure projections and the out years have improved in the last couple of years as we strengthen that partnership with the city budget office.

But there's, I still think it is likely understating.

the overall cost of providing the full scale of current city services right now, because I don't know that our sort of contracts outside of human services are significantly assumed to increase.

And so it may mean that organizations we contract with can't continue to provide the level of service they're providing today, because their labor costs will also increase, particularly if inflation remains higher.

I see.

Thank you.

Thank you.

And just an additional point on that, I think a good example of where we've seen inflated costs over original estimates were with some of the contracts that go through the Regional Homelessness Authority as we scaled up the investments in RHA as well.

Okay, so we've gotten through the presentation.

We've gone through the central staff memo I don't see any additional hands at this point, so I have a few comments to wrap us up here for next steps Colleagues, thank you.

Thank you for engaging on this conversation and Again, I do hope that some of the perceptions and assumptions that we may carry with us can help be grounded in the central staff memo.

The memos that we received over the last few years are also hyperlinked in the central staff memo that Tom Meisel provided.

I think it behooves us to continue to go back and reread through those past memos in addition to this 10-page memo to really ground our conversations over the next few months in what has occurred.

We all carry with us our own, you know, perception and opinions.

Clearly, I do as well.

But I have also been able to reorient myself in many ways based on the feedback and the presentation we've received from central staff and city budget's office.

This is not a opinion.

These are not unique to central staff.

This is very much a shared understanding of how we got to this situation and it does not appear that there will be an immediate correcting of our Revenue situation which we will hear more about this afternoon at 2 p.m Nor a decrease in community need or a decrease in population.

So again, just want to re-emphasize the importance of looking at all of those central staff memos that are linked within this 10 page one and Continuing to have this on the top of your desk as we come back and have these discussions Before I continue with additional follow-up conversations and next steps I'm gonna see what our vice chair has to add to the summary comments here

I just want to get back to the concept of austerity, Madam Chair, something that you talked about a lot when we were in the COVID emergency and the throes of it.

And this idea that living within our means is not austerity, I think is extremely flawed.

expecting to budget at the same level without recognition of increased costs, if that results in economic hardship, That is austerity.

The definition of austerity is a situation in which people's living standards are reduced because of economic conditions.

So if our decision to not look at new revenue results in economic hardship for people, then that is austerity budgeting.

And so I just, simply living within your means where it sounds nice and it's a great soundbite.

I'm sure it'll get picked up today.

It sounds great.

It's just, it's not accurate.

That's right.

That's right.

And there's national trends that talk about this as well.

There was a piece on NPR on January 2nd of this year talking about increased population needs have yielded more hardship within cities who are trying to absorb not just what we have been traditionally charged with, you know, 30, 40 years ago, but trying to respond to increased population growth, more people moving to larger cities and jurisdictions.

and relatively stagnant tools to address that in terms of revenue.

This is a national issue that many large cities are dealing with, and I know, as we've seen manifested by the number of people who are living unsheltered in large cities across the country, many people are also struggling with how to respond to increased community people to serve and increased community needs amongst those populations.

Council Member Nelson, follow-up comments, and then I really want to summarize and get us out on time.

Go ahead.

Go ahead?

Okay.

Thank you.

Because there will be more conversations to come on this, so we will have additional discussion on this.

A few things to summarize.

Thank you for reading through the Revenue Stabilization Workgroup.

Again, thank you to the time that each of those workgroup members spent to participate in that discussion to understand more about the problem statement that has been summarized well, I believe, by Tom Mikesell here today.

Thank you for all of the staff participation in helping to generate this.

Again, this list of options is intended to be the response to the directive in the Statement of Legislative Intent.

As Deputy Director Panucci noted, It was never the charge of this group to come up with recommendations and an action list.

It was the charge of this group to come up with options.

So they fulfilled that request by submitting this report today.

There is a complementary document that is linked on today's agenda.

It is also one of the resources that was noted in the report.

And thank you, Councilmember Peterson and Herbold, for noting that the Transit Riders Union provided a comprehensive summary dozens of individual one-pagers that offer more information on possible revenue sources.

We have provided that here as an example of many of the options that we looked at.

That is a tremendous amount of work and I wanted to compliment them as well.

I want to also recognize that we will continue to have discussions about the strategies that are listed.

And it was not the charge of this workgroup either to get into other strategies such as evaluating the budget, evaluating budget priorities, looking at Changes in levels whether it's an increase or decrease to those levels that was not the charge of this group nor did this group make?

Recommendations at looking at spending reductions or repurposing as you can see on page 6 It says the work group was formed for the express purpose of providing feedback about potential new revenue options This report simply acknowledges that there are other strategies to address the projected gap including looking at Spending and reductions, but that we just simply acknowledge that those are conversations as I said at the beginning that organizations or individuals will continue to have with the mayor's office as they create their proposed budgets and the council as we finalize the budget and and create the final 2024 budget and future year budget.

So other strategies, other places is clearly going to happen, but that was not the purview of this work group.

They are not recommending any of those strategies here.

The sole purpose of this group was to identify new revenue options, which they delivered on.

So thank you for that.

There is a opportunity for us now to finalize this conversation because it's about stability.

The Revenue Stability Work Group is the name of it.

And I want to offer to central staff the following.

You've heard from our colleagues some desire to look at additional revenue strategies.

I want us to underscore the importance of using the stability framework as we look at revenue options, just as much as we look at the progressivity of those options.

I have a lot of concerns about whether or not using Jump Start and diluting the spending plan to just go to the general fund, as suggested, would yield additional stability.

There's a lot of changes occurring in the tech sector right now.

We have a very, you know, new revenue source.

It still is in its infancy.

I think that there is a lot of interest in looking at that, as clearly articulated in the Revenue Stabilization Workgroup, but it cannot be a standalone solution to the revenue crisis that we face.

In fact, none of these options that we've identified can be a standalone solution to the 200 plus million dollars that we see as a cliff in 2025 and beyond.

So stability and progressivity are the two things that I really want to underscore as we go forward.

My colleagues today have named a few of the things that they would like to look at.

I would like to name three as well, given that there are three items on this list that are, have been indicated by the work group as technically implementable, i.e., that we have the statutory ability and don't have to ask for the state legislators to give us additional authority or flexibility.

Clearly, those items 1, 2, and 3 on this list are something that I would be very interested if central staff could continue to evaluate those options.

have conversations with law, and we can continue to have discussions in our budget committee later this fall.

Those three, and what I also heard from my colleagues was an interest in impact fees was mentioned by Councilmember Peterson and Herbold.

Councilmember Herbold also noted an interest in this large earners income tax, given the flat rate that we are dictated to look at in terms of income tax, you know, as directed by the court.

Part of what the work group also talked about was any offset.

I'm going to just use the word offset as a, you know, general term to make sure that we are baking in the progressivity that I believe the large earners approach was intended to accomplish.

If that is something that we could potentially look a little bit more into to see if there's a policy analysis that could transpire on that.

Council Member Herbold, did I capture that appropriately?

I mentioned the large earners income tax, but it was intended to be mentioned because of the The principle behind the large earners income tax was if we were going to be increasing taxes, progressive taxes, that we wanted to reduce taxes in another area.

So I was talking about that principle that the council had agreed to in exploring the large earners income tax, that for me that also applies to council member peterson's capital gains tax proposal so that in creating a capital gains tax i would want to use it not only to help address some of the revenue gaps that we're identifying here but also to reduce existing regressive taxes such as the utility tax okay then what he calls the drinking water tax

Thank you for that correction, and I think that in that case, we will just apply that principle as we ask central staff to look at item number three on the list.

There is much more conversations to happen around this.

The initial direction, I think, is to look at what is actionable, what is authorized, what is statutorily implementable to provide us with additional feedback as we continue in with the budget process.

My assumption here is that we will all try our best to continue to treat 2024 as the second part of the biennial budget.

We're biennial budgeting in concept here.

And 2024 is intended to be the second year of that.

If we stay true to that, we will be able to free up additional time so that we're not doing, you know, 100 plus amendments to the 2024 budget.

And we have structured our budget meetings this fall to allow for us to have a more condensed timeline, given that we really want to treat 2024 as the second part of the biennial budget.

So if that's the case, then my hope would be towards the end of the budget process, we would have the chance to come back and have Council Central staff offer additional sort of the next step, the analysis, the possible proposals.

on some of the items that we talked about today.

So, more to come on this, but just a real great appreciation for the members of the work group, central staff, CBO staff, and the mayor's team, and the mayor himself for the interest in this effort.

And collectively, with the mayor's office, we will continue the discussion that's just been initiated here today.

I too was restrained in trying to respond to some comments today because I recognize this is just the beginning of the discussion, but hope that we can continue to have conversations that are rooted in fact, are consistent with past actions that council members have taken themselves and allow for us to recognize the the gravity of the situation we are facing in 2025, if not addressed in the very near future.

a practice.

This is not theoretical.

We are going to face severe hardship starting in 2025 if we don't have additional solutions to address this revenue gap.

It is not just a spending problem.

As noted in the factual documents that we've continued to receive, we need to have a balanced approach to this that will require additional revenue.

So with that, I thank central staff for all the work that you will potentially be doing now that we are handing this report off to the legislative branch.

Our next meeting will be on Wednesday next week, starting at 9.30 in the morning.

We will continue this conversation about revenue with the Office of the Economic and Revenue Forecast, and we will have the general fund plan and projected deficit at that time.

Essential?

What?

Essential comment?

Do you have an essential?

I thought you were going to ask for other business.

Please go ahead.

I can't hear you.

Oh, yes, so I I included in the chat the a link to the chamber's Report on the work group Report and I also we were talking about preference for option one I didn't say preference for afternoon.

I said I'm asking central staff to look at options one two and three okay, well

One included, I just, I also included, and I'm saying this just because I feel like this is a public meeting and I have to do this instead of just putting it in the chat, but there is a link to an article about San Francisco's dependence on technology taxes, taxes on the technology sector.

You and I might be saying the same thing right now.

I was raising concerns as well about reliance on one source that is facing volatility in that industry.

Right, exactly, yeah.

Well, with that, kumbaya, let's go ahead and wrap today's discussion and look forward to seeing you all next Wednesday.

Please tune in at 2 p.m.

today, Revenue Forecast Council meeting, 2 p.m.

today, and that will be broadcast by Seattle Channel.

Thank you so much, everyone.

Have a good night.

Good day.