Economic and Revenue Forecast Council meeting of 4/10/23

Well, okay.

Good morning, everyone.

Thank you very much for joining the City of Seattle Revenue Forecast Council meeting.

Today is April 10th, 2023. The time is 9.31 a.m.

Today's meeting is expected to run about two hours long, and this is a meeting of the Revenue Forecast that I have the privilege of chairing, along with our Vice Chair and Senior Deputy Mayor for the City of Seattle.

Monisha Harold.

We also have acting finance director Jamie Carnell and Brindle Swift, who is here with us on behalf of Council President Deborah Juarez.

Thank you very much, Brindle, for being with us as well.

We will also be joined by...

This meeting is being recorded.

Wonderful.

We are now being recorded, everyone.

Uh, we will also be joined by staff from the office of the economic and revenue forecast division who will share with us the latest information for the revenue forecast along with the representatives from the city budgets office.

I see director Julie Dingley with us from the city budget office as well as some members of our staff.

I also want to thank the central staff who was with us as the.

budget leads and fiscal analysts on behalf of Seattle City Council.

Thank you very much to Ali Panucci and Tom Mikesell and others for being with us every time.

This is a quarterly meeting as folks might remember the revenue forecast on a quarterly basis provides us an opportunity to check in regarding the revenue assumptions that underline our existing budgets.

And today in April, we have a chance to look forward at our 2023-2024 biannual budget that was adopted and endorsed by the Seattle City Council and signed by the mayor last November.

The August forecast will provide a basis for any changes that the mayor's office will consider before the executive transmits a proposed 2024 supplemental, if you will, or balanced budget for the council's consideration.

Again, the 2024 budget was already endorsed, so this is really an opportunity for us to consider any changes in the forecast and have the executive transmit that.

for our deliberations this fall, which the council will take on October and November in earnest to ensure that we have a final budget for 2024 codified in statute, confirmed by the executive via signature, and finalized by the city council.

Each of these forecasts will be prepared and presented by the independent office of the Office of Economic and Revenue Forecasts.

And following each of our discussions here, we will make sure that we repeat the information in Seattle City Council's Finance and Housing Committee.

This is an opportunity for us to both provide immediate transmittal of the information to members of the public, to members of the council, and to our city family at large by having these quarterly meetings presented via Seattle Channel, thank you very much Seattle Channel, and making sure that all members of the public as well have the information in real time.

We then offer the chance to have additional information provided by the City Budget's Office via Director Julie Dingley, And we have central staff's analysis incorporated as well at the Seattle City Council meeting.

We have committed to making sure that each of our quarterly meetings are followed by that robust presentation that incorporates what we hear here in the additional information from the city budget's office and the revenue streams that they also track, which not all revenue streams go through Office of Economic and Revenue Forecast.

So we combine all of the resources together and provide an analysis from cities Council's central staff to ensure that there is a robust discussion.

And we greatly appreciate the independent office.

We created this two years ago to increase transparency around the city's revenue forecasting process, to ensure as well that there's no political influence on the revenue forecast themselves, and to make sure that the executive and legislative branch get the information in real time together so that we can collectively learn what the revenue process is and we can collectively begin assessing what strategies to address it.

whether it's good or bad.

Given the revenue forecast effectively sets the financial constraints for the overall budget process, it's important to make sure that we have provided this information in a transparent and accountable way to all of us, and especially to the public.

Before we move on to any substantive items, I want to again thank you all for joining today's meeting.

and for being part of this process.

Again, I want to thank our Revenue Forecast members here today, Finance and Administrative, excuse me, the FAS Interim Director, Jamie Carnell, our Vice Chair, who's also Senior Deputy Mayor, Monisha Harrell, and thank you as well to our Executive Branch Representative from Council President Juarez's office, Brenda Swift.

Anything else before we get into today's meeting?

Hearing nothing, I move to adopt today's agenda.

Is there a second?

Second.

Thank you so much, Senior Deputy Mayor.

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

Hearing no objection, today's agenda is adopted.

Colleagues, a copy of the minutes from the March 9th, 2023 meeting have been circulated and it is also posted online.

Thank you again to Director Noble and his team for making sure that the website, the brand new website that we launched last year is constantly updated.

And it is, that information has been posted and it's also been circulated to members of this committee.

Is there any motion to approve the minutes from last meeting?

I make a motion to approve the minutes from the March 9th meeting.

Thank you, senior deputy mayor.

It has been moved.

Is there a 2nd.

2nd, thank you very much.

I'm chief of staff.

Brindle Swift.

Is there any discussion.

Hearing no discussion all in favor, please say, I.

Hi, I, and he posed any abstentions.

Okay.

The meeting minutes are approved unanimously.

Let's get into the substance of today's agenda.

Agenda item number two is a presentation of the April 2023 economic and revenue forecast and recommendations from the Office of Economic and Revenue Forecasts regarding the 2023-2024 budget.

Excuse me, regarding the 2023 and 2024 revenue forecast.

We will not be budgeting in today's meeting, probably to the relief of Director Noble, who's at the Office of Revenue Forecast.

So this is just focused on the revenue projections for today.

We are greatly appreciative of the opportunity for this presentation today.

It's going to be led by the Forecast Council Office.

I want to encourage folks, as you have questions, please go ahead and raise your questions throughout.

Obviously, dense information every time we meet.

And this presentation is going to provide a summary of both the economic conditions and the projected city revenues.

to ensure that the city forecast is fully informed and able to have its full range of questions addressed from city staff.

I really appreciate you all participating and that includes members of the Seattle City Council, central staff, and also the city's budget office who are here with us as well.

Encourage your participation.

We recognize that there's four voting members of this council.

but you collectively are the whole that makes up the information that we receive and help digest it.

So please do join in with any questions.

The presentation is going to include a formal recommendation at the end, which the Office of Revenue Forecast will be offering regarding the forecast that we're about to go through.

As a reminder, it's a role of this council to receive the information.

We can confirm or reject the recommendation.

If we reject it, we need to collectively work on how we will address that, but it is just a recommendation that comes from the Forecast Council Office, and then we, the four voting members, confirm or reject it.

After the presentation, we will have the opportunity to discuss the revenue forecast and make that determination.

For now, just before we launch in, are there any additional opening comments or questions from my colleagues?

I'm not hearing any.

Welcome back to the stage, Director Noble.

We know your team has been busy.

Thank you very much in advance for the materials that you provided, and I'll hand it over to you.

Thank you very much.

Much appreciated.

And again, it has really been a team effort, both with my colleagues here from the forecast office, but also staff with the central staff of the city council and also the budget office.

With that, I'm going to dive in, put up PowerPoint and begin this presentation.

And it's much easier to see you in this format, so thanks for the up-close option today.

I know you have a whole team with you, so thanks to them as well, even if they're off-screen.

Some of that was intentional and some of it not, but there you go.

So, again, diving in.

So this is the April forecast.

You can see the PowerPoint, just so I confirm.

Excellent.

Okay.

I've got to figure out how to advance the slide.

Oh, using this button.

So, just going to give you a brief overview of the outline here.

We're going to start with an update on economic developments that have occurred since November.

So, it's really been a full five months since we discussed both the national and the regional economy in any detail.

We met last month to review year-end revenues, but we didn't really particularly focus on the economy.

Part one is really what's happened in the last five months, because as you'll see, it's had a significant impact both on the sort of immediate revenues and in our longer-term forecasts.

And then part two is actually to look at the economic forecasts.

So we do an economic forecast for the region on this team, and then we use that as the basis for the revenue forecast.

Our own regional forecast is in turn informed by a national forecast.

So part two, essentially a shift to let's look forward.

We'll review what's happened in the past five months, what's expected in the next few months, and the next few years.

That includes a review of the national forecast from IHS Market, which is our primary national forecaster, and then again, also the results of our regional model.

And then we'll shift to part three to actually talking about the revenues themselves, both the general fund and then other significant revenue sources, including the jumpstart payroll tax and REIT, which will be both of which will be a significant point of discussion today.

We'll also review some of the transportation revenues, dedicated transportation revenues as well.

So diving into the economic update and recent developments.

At the broadest strokes, things have improved since we last met.

But, and it is the nature of an economist to always be somewhat cautious.

Risks do remain, and we'll see that in some ways the longer term forecast is less rosy than it was.

But in terms of developments in the past few months, What we've seen is that job growth continues quite strongly through the last part of 2022 and into the early part of 2023. We'll see some graphics on this later, but the original forecast of the November forecast had been for a mild recession to be taking hold at this point and for employment to be declining.

We've seen exactly the opposite, both at the national level and the regional level as well.

Inflation was also the headline news when we last met, and if you recall, it was running above 7.5% at that time, 7.7.

It had come down then from the 9.1 in June.

Those are national figures.

but it was still quite high.

As of February, it's down to 6%.

And as noted here, what's particularly encouraging is that's now eight months in a row of decline.

So inflation is being brought down, if not somewhat slowly.

And so that part is good.

So we're getting job growth and prices are coming down.

That has the flavor of the soft landing and return to that notion that had been the goal for the Fed and for other national level policymakers.

That said, though, there are there are risks out there.

So just this in March, there was the failure of the Silicon Valley Bank and Signature Bank, and that raised awareness about the financial stress on the banking system.

And we'll come back to that as well and changes that are being made there in terms of interest rates and lending policies.

And I should note that the national forecast that underlies our revenue estimates was developed before the bank failures.

That was a particular point of concern for the week or two immediately after.

As we move further from that, there's a sense that those risks have been mitigated, but they're out there.

The other risks, high interest rates have had a dramatic impact on real estate markets.

We'll see that when we get to revenues and some concern about how that might otherwise spread.

It's also increased the cost of investment in general, not just for real estate, but for other kinds of business expansion.

And then there's concern that the labor market, we're getting this good job performance, which is a good thing at some level, but it also means that there's continued pressure on the wage side around inflation.

And given the Fed's commitment to reducing inflation, if wages continue to increase at a high level, that could create pressures that would lead to further interest rate increases.

And then another point, just because we won't, by the next time we meet, this issue could be either resolved or in kind of the hottest of discussion.

The Congress needs to raise the debt ceiling at some point this year, probably over the summer.

And the nervousness around the failure of SVB and signature banks highlights, again, sort of the fragility in the financial markets.

And a debt ceiling fight that went badly could make that worse very quickly.

Again, some of the risks, just to highlight them as well.

In some ways, what's happened in the past few months is that the work that the Fed undertook has had the outputs and the effects that they were hoping for.

And that's what's highlighted here and I wanted to talk about for a moment.

So the orange line here on the left is the federal funds rate.

So that's the interest rate that the Fed has been increasing.

like to think in some ways that it's causal and having effects on the other two lines.

So the blue line is the 30-year mortgage rate.

So that's the interest people are paying if they're going to buy a new home.

And actually, at our last meeting, Senior Deputy Mayor Harrell had asked about this relationship.

So we thought it was good to bring this back and show you that, in fact, as the federal funds rate has been increasing, the 30-year mortgage rate has been increasing.

And in fact, when we last met, we showed you that there had been a really significant turn in the local real estate market in the late summer, which does correspond to this rather significant increase in interest rates that happened mid to late last year.

I'm not saying the timing was direct, but clearly you can see that relationship between the Fed rate and the mortgage rates.

Similarly, you can see relationship, the last line here is in the national inflation, and you can see that as the Fed has raised interest rates, inflation is in fact coming down.

So this has been the goal, and in some level it is working.

The other effect, and in some ways a goal of this, had been to cool the economy overall.

One way to measure that is with employment changes.

So job creation is what's actually illustrated most specifically here on the right.

And this chart starts at the beginning of January of last year.

1 thing, excuse me, you'll notice we go through the presentation today.

A lot of our graphs are anchoring towards January of last year.

We had the past much of last year.

We've been using the beginning of the pandemic is kind of a benchmark to measure change from.

I actually moved away from that in part because the changes were so steep immediately after that it distorts the graphs and you don't really get to see the kind of resolution about what's happening recently.

I think also because at this point, what's really driving the economy is now the response to the stimulus.

So it's really the Fed trying to cool off the stimulus that came as a result of the pandemic.

So the driver right now is no longer as much the pandemic as it is the policy responses to the pandemic.

So again, anchored in 2022, strong job growth through first half of last year.

I put a question mark on this arrow because one could argue that there was a trend developing through the second half of last year towards the job market cooling and less job creation.

If that was a trend, it was obviously interrupted in January and February with some really strong, and again, somewhat surprising from what had been a forecast perspective, really strong job growth numbers.

That also may explain why the Fed was willing to add an additional quarter point on the Fed rate, even in the face of the banking crisis last month, because again, they were trying to cool down the labor market.

The March results are from last Friday.

I'll get them back up here.

So that's very current.

And again, it shows that maybe we're back under this trend of cooling the economy in the way that is desired.

And again, this notion of a soft landing where we'll be able to cool the economy, still actually have job creation or anyway, minimize job losses, but bring inflation back under control.

So far, what the Fed has been trying to do has been happening.

The banking crisis was a side effect and one of concern, but at the moment looks to have been managed as well.

I do, although, want to highlight that the, in the last five months, there have been developments on the regional side that point to some issues of longer term concern.

And I, and you'll see them in the forecast.

But I think this in some ways, I'm going to illustrate some, some facts that I think we're all aware of.

I just wanted you to see what they really look like in terms of the kind of the recent history.

And in particular, the point is about the importance of the technology sector on our regional economy.

over the past, really on the left here, really the past 10 years, and then some of the graphics showing you how changes in that market are already manifesting themselves in the local economy.

So over here on the left, starting in January of 2013 as a benchmark, so that's sort of a indexed to that year, we're tracking growth in the information and professional and business services sectors.

So this is really where the technology, the likes of Amazon and Apple and Microsoft and Meta slash Facebook, this is where their employment lives, if you will.

And the blue line is the national economy.

And if you track from January of 2013 to January of 2023, obviously the notable interruption of the pandemic, but you're looking at about 25% job growth in that sector.

So significant over 10 years.

But if you look at the green line, that's Seattle.

Over that same time period, we've had 60% growth in those sectors.

And again, in a way that I think we all understand, really driven very specifically by technology.

And it's probably It's maybe a stretch to read it, but again, I think we're all reading local headlines.

This curve does in fact flatten over the second half of last year, and we'll see this in a moment in some employment data.

The red line is the state, and you can see to some degree how Seattle has carried the state with it, with this tremendous growth in the technology sector.

So I think we've been enjoying this period of a decade plus, and even, I mean, there was a drop during the pandemic, but the growth rate immediately picked up after.

If you think about the slope of this line, it was pretty steady here, it drops because of the pandemic, but then it picks right back up, and it's only now been flattening out.

And to illustrate some notion of flattening out, The graph on the right is one way to measure job openings.

In previous technology generations, if you will, there was efforts made to measure the column inches in job listings in newspapers.

The moral equivalent these days might be the number of listings on websites.

Indeed.com is the one shown here.

It's showing, again, taking beginning of last year as the beginning point, what's the percent change in the number of job listings?

Some measure of of job prospects and of potential job growth.

And you see in the national level, things have cooled off somewhat over the past roughly 15 months.

But in Seattle, it's been a more rapid change, right?

So the labor market here, in terms of jobs that get listed in something like Indeed, has been cooling somewhat faster.

So, again, this notion that risks to our region are somewhat different and arguably higher than they are at the national level.

Some other places we see that.

Well, just on that last slide, I wanted to add an editorial comment.

It's really important that those 2 slides be shown together.

Right?

Because I think that if someone were to just look at the slide on the right and not realize that that was.

1 way to measure a leveling out versus a decline, a leveling out of jobs posted, it would be disingenuous or misrepresenting the fuller picture.

So I just wanted to add that editorial comment that these are important slides to put together.

You know, agreed, and it's trying to set the general flavor that we have relied on technology growth.

or it has been a driver of the local economy for a decade plus.

And there is reason to think that going forward, it won't be the same driver that it has been.

And we'll see how that could manifest.

Some other ones, and again, some other places where it could manifest.

So the chart on the left, this one does start at the beginning of the pandemic, showing office vacancy rates.

So we had very low vacancy rates in Seattle.

It's one of the reasons there were, even in through the pandemic, there were office buildings getting constructed.

Put into the process and grounded been broken ahead of the pandemic, anticipating that we would continue to grow the blue line is the national number again.

And it was more of a 10% vacancy is not unusual, kind of at an equilibrium point.

So vacancy rates have been going up as both as largely around the work from home issue.

And you can see that in the local area, they've gone up very significantly.

And in fact, there was an article in yesterday's Seattle Times or raising a flag about the potential distress in the local office market because of the level of vacancy.

One of the things in doing some research on this as part of the forecast work, one of the things we've come to understand talking to some brokers is that some of the larger tech firms actually had more than enough office space as the pandemic hit and even beyond because they had been constrained over time by a lack of office space that couldn't grow as much as they wanted because in past years they haven't had sufficient space.

So they had acquired more than they needed.

So at the moment there's a glut Both because they're not reaching the hiring levels that they had thought and because of the work from home issues that will again come up.

So, concern about where the local office market may be going and that matters to us because office construction of office buildings is a significant source of revenue.

We materials are treated the sales tax and materials is treated as if it happens at the site.

And those are multiple 100Million dollar projects and there aren't.

aren't significant ones underway, and we don't anticipate that there will be going forward.

The graph on the right is home prices, so kind of from the office side now more kind of to the residential and individual side, and it shows home prices.

The green is Seattle.

The blue is the nation.

And again, this is just changes from January of last year, so it's somewhat hard perhaps to recall, but through the first half of last year, housing prices in this area continued to increase.

Hello, folks.

Director Noble, we lost you at.

Housing affordability crisis.

Oh, Director Noble, we lost you at then again.

Can you back up two or three sentences?

I think that it went on mute when your camera changed.

If you could go back to then again.

Yeah.

Just a few sentences.

Sure.

So I'm not sure exactly where.

So I'm going to, I'm going to,

You started, you were starting to explain the, the housing prices map that we started out this is just from January 22 and you guys.

cover everything after that.

Perfect.

Thank you.

Rewind play.

So this chart shows the housing prices since January of last year.

And what you can see, again, hard to remember, but really dramatic increase in Seattle, even through the first half of the year, almost 15%.

The blue line is the nation and housing prices were increasing there as well.

Again, the second half of last year, dramatic turn.

but more dramatic here than the nation as a whole.

And at one level, this might be good news that we do have a housing affordability crisis.

And so lower housing prices could help.

It's one way to help address that.

But on the other hand, from a kind of a personal economic perspective, folks who own those houses are seeing a significant drop in the asset value that they had thought they'd reached last year.

And there's a phrase in economics that the economy is a confidence game.

It depends a lot on consumer confidence.

And these are the kinds of changes that can shake that confidence and lead to more conservative purchasing practices, which themselves can lead to a slower economy.

So focusing again, just to emphasize this, and you can see what this looks like on the employment side.

And again, this kind of mixed message part of this.

So this is showing the chart of employment changes by sector since The middle of last year, so just June of last year, right?

In practice, that's really where you get to see the point we're making here about information and technology.

But the good news, we've created almost 60,000 jobs, and this was as of a month ago itself.

A little bit trailing, so almost 60000 jobs across a wide variety of sectors, led in some ways, led by leisure and hospitality.

So that sector in continuing to recover.

but not just that one.

But on the other hand, we see in the data for the first time the layoffs in the technology sector.

And in some ways you see that two places.

You see it in this information line having gone red.

So it's 6,000 job loss in the information sector.

The other place you sort of see it some ways indirectly is that professional and business services.

So the third blue line down, that's the other place where the technology sector is represented.

And obviously it's growing, but that's the sector that had been growing really significantly over the past few years and had really carried us through the pandemic.

So the fact that it's slowing down its growth is in itself significant.

So again, the local economy continues to generate jobs, but not in all sectors.

And that will be, the forecast really calls for that going forward.

So we'll see a retreat in information and professional business services, but growth elsewhere.

I do just want to highlight quickly that there were also losses in the financial activity sector.

This is, again, the effect of interest rates.

This is the Fed's work kind of being demonstrated.

So fewer people refinancing mortgages, fewer people taking out car loans and the like.

So people who will work in that area, fewer of them need it.

So we are seeing the kind of the pattern that one might expect and one that, depending how long it continues, could become concerning.

So, that's really what we wanted to highlight in terms of what has changed since we last met.

I think that when we were.

meeting in November and talking about the economy, the concerns about the technology sector were there, but they've really come more clear, and the actions in terms of actual layoffs have become more apparent over the last five months.

So has the persistent work from home, and again, we'll talk about that as well.

So before I move on to the national and regional forecast, any questions about that first set of slides?

not seeing any, I'm going to push forward and talk about the forecasts and comparisons.

So I'm going to talk from the picture here at the right, and then I think I'll cover most of the narrative that's on the left.

So the two kind of peach or lighter colored lines are the baseline forecasts.

The one that's labeled previous is the forecast from, it's a November forecast.

It was the one we presented in November.

And the other, A higher one at this point is the current baseline, and then the darker dash line is the current pessimistic.

So talking first from this previous baseline, when we met with you last November, essentially the forecast was saying that the expectation was that we'd reach the employment high for the current cycle, and we were expecting a modest recession.

Again, these are national level forecasts.

A decline in employment through this year, And then a return to growth in early 2024. So that's really what that lower line was all about.

And it fed our revenue forecast.

What happened since is what we were describing in that first slide about things having gone well.

Again, this is, sorry, I should have said this.

This is now also indexed back to the beginning of last year.

So a focus on really what's happened recently and an intentional focus that way.

So, but so what happened in the latter part of 2022 in this early part of 2023 is that job growth has continued in contradiction to that to that base that previous baseline forecast.

What has, however, happened is is slowing in certain sectors technology among them.

and also a sense, and you'll see in the next chart, that higher interest rates and higher inflation will persist a little longer.

So the forecast fully acknowledges the employment increases that have happened over the past five months.

But the forecast is, again, still that the Fed's efforts will take further hold, have taken hold.

We arguably saw that in those employment numbers.

And so what's projected is This is employment.

It's a minor decline in employment on the GDP.

The output side is essentially flat, so basically 0% growth in GDP.

We'll see that again later in the forecast.

You get a lot of decline in employment and sort of flat GDP because there's an increase in productivity.

But it's a very different forecast.

It's a forecast that acknowledges the growth that has occurred, but is anticipating somewhat slower growth going forward.

And we'll see what that slower growth looks like in terms of revenues as well.

And then just to highlight, there is this ongoing concern particularly about the war in Ukraine continuing to escalate and commodity prices spiking and higher inflation leading to more aggressive actions by the Fed potentially.

So there is a pessimistic scenario that is relatively lower probability than in the past year and a half, but would represent a significant downturn.

Shifting then to look at the inflation forecast.

Again, the color scheme here is the same.

So the two lighter peach colored are the baseline forecast, the previous one being a lower line.

So we were expecting inflation to drop somewhat more quickly than is now forecast.

And again, that's consistent as well.

We've seen inflation come down, but core inflation and some measures have proven somewhat persistent.

So there's, It's come down, but not as quickly as had been expected.

And the forecast again is for it to persist somewhat.

The pessimistic forecast is based on the notion that inflation would be harder to defeat, if you will, as the war in Ukraine and supply chain issues and other effects.

A banking crisis return, that wasn't anticipated in this pessimistic scenario, but it's the kind of thing that could also obviously drive a bad outcome, if you will.

But that part is largely unchanged.

The somewhat higher inflation will have an effect on the revenue forecast as well, which we'll point out when we get there in just a few slides.

So our regional forecast, and here we're just focusing again on employment, is informed a great deal by the national forecast and reflects it significantly, although our forecast in terms of employment is actually somewhat stronger, because again our local economy has been somewhat stronger again over the past few months.

So again, the same pattern is at the national level.

Our previous forecast had anticipated that we were going to enter and would have entered, if you will, a period of modest employment decline.

It was going to be a mild recession, two quarters of mild output declines, and then a return to growth in late, excuse me, the beginning of 2024, and then pretty robust growth.

If you think about the slope, the rate of increase in employment on the previous baseline, that was quite strong.

The anticipation now is that we've produced a lot of jobs, but the expectation is that overall employment in the region will be roughly flat for an extended period of time.

So, and again, That's a reflection of job losses in some sectors and job gains in others, but not the same steady level of growth that, again, in the past decade has particularly been driven by the technology sector.

So our baseline forecast acknowledges the growth that's occurred, but is expecting things to be modest to flat going forward.

And the pessimistic forecast, again, mirroring that of the national one, could be a steep decline that would set in, either because things in Ukraine escalate.

Again, it wasn't the risk that was modeled, but another one could be a downturn in the financial sector that people were nervous about as SVB crashed.

That's the regional forecast.

One of the important things that we need to do for you is to make a recommendation about whether the baseline, the pessimistic, or the optimistic.

For the sake of not having too cluttered a picture, we didn't put up the optimistic scenarios.

They're not symmetric.

So the optimistic scenario is not as much of an upside as the downside represented by the pessimistic.

But again, our sense is that the baseline is more likely the right place to go.

But before I reach that specific conclusion, I wanted to give you a sense of how we think about that judgment.

Before I do that, I notice that there's a question from Tom Mike Sells.

Tom.

Good morning.

Thanks for giving me the opportunity to ask a question.

Just trying to see if I'm understanding this correctly.

The inflation forecast by IHS Insight is higher than the Wall Street Journal average.

And this is for 2023.

That's correct.

So let me just take a moment to kind of describe this overall picture.

So our goal in this slide is to put, so IHS market is our primary forecaster.

We've used them for a couple of decades and they feed our regional model.

We recently started to buy some forecast services from Moody's Analytics so that we could have When we did our forecast accuracy presentation last fall, we noted that IHS has a pattern of being somewhat conservative.

You'll see it's actually represented here again.

So we thought it'd be worth at least seeing what other folks are forecasting as well.

So we have movies specifically as another formal forecast.

And then in addition, the Wall Street Journal does a survey of forecasting economists and presents the results of that survey.

So that's what's represented here for four key economic measures.

Inflation as measured by CPIU, so that's the first one, the federal funds rate, so that's the Fed rate, real GDP growth, and then the unemployment rate, The Law Study Journal measures these four, and then it kind of gives a summary and an average.

So the blue line, the blue dot rather here, is that average.

So that's kind of the consensus if you want to measure consensus that way.

The red line is IHS, and the yellow, excuse me, the red dot, and the yellow is Moody's.

And what you'll see as we go through here is that IHS is on the conservative or on average side for each of these measures.

So in particular on inflation, they're marginally.

So what's forecast here is that what happens at the end of this year.

So you have to pick a point and do the comparison.

So, at the end of this year, the IHS forecast for inflation is somewhat higher, probably about a quarter point higher than the Wall Street average and the Moody's analytics prediction.

On the Fed funds rate, they're all about the same.

Looks like it's about four and three quarters.

What's anticipated here, but really by everybody now, is that the Fed will increase probably another quarter point, potentially as soon as their next meeting, that that will have the desired effects, and that later in the summer, they'll start to back off so that by year end, they'll might've brought it down from five and a quarter to 4.75.

Real GDP growth, go ahead, Tom.

Thanks, Director Noble.

I'm really keen on making the inflation because I think I noticed in a prior slide the adjustment for the current year inflation expectation was actually lower than what was expected in the October forecast.

So I'm curious if inflation in 2022 and in 2023 is perhaps lower than what was anticipated when forecasts were done, particularly with regards to the expenditure budget, just because it may be useful for mayor and council to understand in the context of the biannual budget, how inflation factored into developing the expenditure budget.

And even though inflation is still high, whether or not it's lower than it was when the budget was being developed.

I'm going to turn to Jan to remind me that whether the inflation forecast from November compared to now is up or down.

It's not very, I'm going to go back a few slides.

Yeah, so this is the national forecast, and our regional one is about the same.

So the current forecast, I believe, is marginally higher on inflation, actually.

And we're looking it up as we speak.

So I think it's the...

Yeah, so...

All right, so stand corrected is down slightly, um, uh, the regional for, yeah, it's down about a quarter point, uh, on a forecast basis.

Um, uh, but I'm going to have to take a look too.

I think it may, but whether it tails off over the long run as quickly is, is, is also a separate question.

So it's slightly lower for 23, is it lower for 24 and 25 and beyond?

Um, I'd want to take a harder look.

But we will get back to you because that's obviously a very good question.

Thank you.

Returning to this, so again, federal funds rate, everybody basically agrees.

Real GDP growth, one thing to notice is that the range of disagreement here is largely between whether we're going to get 1% decline in GDP or 1% or maybe 1.5% growth.

So we're in a very narrow range of very little growth, even at best, if you will.

IHS agrees with Moody's, which is essentially predicting no or virtually no GDP growth.

So really very, again, this is this notion of flat economy.

Moody's is somewhat more optimistic, but even they're looking at 1% GDP growth.

So again, not the same level of rapid recovery that we had seen over the past couple of years.

And then on unemployment, again, IHS is somewhat more conservative, but not tremendously slow.

And the issues here are kind of twofold, because there are two things that drive unemployment.

One is number of people who get hired, but another is also how many are in the workforce.

And one of the things we're seeing is some folks returning to the workforce who had dropped out.

So there's increasing labor participation rate is the measure typically.

But bottom line kind of overall point about this is that Moody's is somewhat conservative or on the average, which is again again, this is their baseline forecast.

So, it's 1 of the reasons we're comfortable with their baseline and that's really this next slide.

So, what is our recommendation with regard to the economic scenario?

And the answer is, just to jump to conclusion, is for the baseline to just really quick talk about why the forecast reflects what we are all reading about and seeing, which is the technology sector is slowing.

Again, as we just showed in the previous slide, our national forecast we think is pretty representative.

And another key point, which isn't necessarily going to be good news, but from a forecast perspective, I think it's important to recognize, is that when we whisked you last month, we saw that both the Jumpstart payroll tax and REIT revenues had missed their, we missed their forecast, they underperformed.

And as you'll see in the next few slides, we've been able to model that underperformance and make predictions that we think are consistent with that realized underperformance.

So we're not being rosy, if you will, in places where it would be inappropriate.

So, in that context, again, this is a discussion for you as the next item, but we are recommending the baseline scenario, and the revenue numbers we're going to show from here are largely the baseline scenario ones.

So, and that will be, the next move would be to start talking through the revenue slides themselves.

So, before I do that, I also want to make sure there aren't any questions, because we will dig into this, and I'm going to put up one of those sheets with lots and lots of numbers, and walk you through it slowly.

Right now, please go ahead.

I have a question about the on page twelve that current baseline assumes a plateauing of employment growth.

And yet the information and technology sector is. seems to be going down.

How are those two reconciled?

It's a fair question.

And the answer is that there'll be declines.

And the expectation is that there'll be declines in some sectors and growths in others.

So it's going to be a shift.

And from a financial perspective, an economic perspective, some jobs are worth more, or rather, pay more.

So that won't have.

So one of the things we do track is the aggregate income, because that becomes a key driver.

But that's the expectation.

And again, we've seen layoffs in the technology sector.

What in some ways concerns me more from a longer term perspective is the question of how much growth are we going to get, right?

So there are lots of reasons why the technology sector well, any sector, we want to try to retain workers if they think there's going to be a recovery relatively soon.

So it's not that we're expecting a continued wave after wave of layoffs, but rather we've gone from an environment where that sector was leading our growth by expansion to one where there'd be a low level of layoffs or modest growth.

And that will have a significant impact on revenues.

But the bottom line is it's layoffs in some sectors, hiring in others.

So is it fair to say that the plateauing effect would be Plateauing would be happening due to lower wage job growth, lower wage jobs growing.

I wouldn't, I wouldn't, the technology sector tends to have the highest wages.

So it, but for instance, Boeing has had an upturn in its production, and those can be high paying jobs as well.

So I don't think it's as simple as that.

But that is, it is, again, one of the real dynamics here is that not only was we're getting tremendous job growth in the technology sector, those jobs are well compensated and become real drivers to the economy in terms of consumption and generate jobs in services and in other areas.

But you're projecting those to continue to slow down?

Exactly.

Yeah.

So essentially, yeah, exactly that.

So again, I'm going to move on to the actual revenue numbers here.

And again, this slide is always the most complicated because it has lots and lots of numbers.

I'm going to start and just take our time to walk through this.

So 2022, this is just showing the actuals consistent with those that were reported last month.

The next column over, this is the 2023 adopted forecast.

So this is the revenues that were part of the budget.

And then 2023, this is the updated forecast for 2023. So this is the new April forecast.

And this column is then the change.

So what's the change in revenues?

Overall, you can see, I'm going to do 2023 and then do 2024. Overall, there's a significant increase, more than $70 million, with some important caveats.

And in particular, if you take out grant revenues, and we'll talk a little bit about the grants, but I think from an understanding kind of available revenues, it's worth taking a look at it's separating out the grants because grants are accepted for very specific purposes.

And in this case, actually, there's expenditures already, it's carrying forward.

So they're not really sort of net new revenues that are available to the city in a generalized sense.

But let's walk down here and look what's changing.

And I will hit on some of these and then lean on staff, Dave Ennis and Alex Zhang from the budget office, potentially to comment on some others.

So on property tax, Property tax is usually the most easily predicted and you don't usually see significant change here.

And arguably less than two and a half million on a base of almost 400 is not very much change.

But what's going on here is actually not in the city's base property taxes, but rather in the Medic One levy.

So for simplicity, this line has always been reported as property tax inclusive of the direct revenues to the general fund from the city's property tax levies, but then also our share of the Medic One levy And the way the Medic One Levy revenues are allocated based on the share of those revenues that are generated in the city.

because the relative size of RSS value to the rest of the county has declined for 2023. So everybody's values went up a little bit, but the rest of the counties went up by more than ours.

So our share of those Medic One revenues declines.

Again, those are distributed by the county.

So that's what that decline is there.

Retail sales is up about 3%, if you do some quick math.

A couple of factors here.

One is that we finished 2022 ahead of our forecast, so the base is somewhat higher.

In some sense, our forecasts are really about growth, how much growth or loss of growth, if you will, are we going to get.

So a higher base has a tendency to increase the 2023 forecast.

And then also we've had this really strong job performance even into the first part of this year.

So that drives up those revenues.

So that's on the retail sales side.

B&O, much of the same story.

I don't know, Jan, if you'd like to add anything there.

Yeah, so 1 of the issues there too is in the inflation issues.

So, higher inflation group, the latter part of last year, increasing the nominal value.

So, some of this increase is.

And I'm going to make this point very clearly in a slide coming up about the longer-term growth and the effects of inflation.

But again, a higher base for 2022 and then some initial strong performance in 2023. The private utility tax change here, the phone revenues did not fall off as quickly last year as we were concerned by.

Other changes here are pretty small.

Parking meters down slightly, court fines down more significantly.

Perhaps, Dave Hennis, you could comment on either or both of those, or Alex.

Sure, I can do that.

So parking meters is down because of a decrease in paid occupancy, about a 6.6% drop in paid occupancy from prior experience.

So not a, you know, it's actually a reasonably large proportion, but it ties into the next thing, which is court fines, which that $5 million drop there, court fines right now is a very dynamic area.

And so it's a question of what is normal and what is extraordinary.

And what is extraordinary right now is we had refunds in 2022. And then we also have currently going on is notifications have been sent out on the collection the aggregate number of of citations that were written over since the pandemic began right and they are they're sending notifications to receive payments and people are paying some people are paying but it's a little hard to predict at this moment how that's all going to play out whether we're going to you know will it be five percent pay and and 95 of those citations go to collections or will it be 25 pay and so there's a lot of variability in this forecast and I would say that the it's on the upside that we might have better performance than what's indicated here.

But anyway, so you've got the refunds, you've got the notifications, and then it's just down to basic forecasting, which is what are the expected citation volumes, which is tied into enforcement levels, which ties back to parking meters about paid occupancy being down.

One possibility is that paid occupancy is down because enforcement is less than it has been previously.

And so people are just not paying when they go to the meters.

So anyway, there's a, there's a very connected story here, but I, I think that's the basics.

Thank you, Dave.

Moving down to next option, significant changes around grants.

And if you recall, when we did the presentation last month, grant revenues, had been less than expected in 2022. And in some ways, this is the flip side of that of that same coin.

So what we had said is that with grant revenues work is.

So the work is done, you can't build a granting entity, and we expected that the monies would become part of the 2023 forecast.

There's every reason to think that the city would earn those revenues ultimately.

So that's largely what's reflected here.

Again, that's for a set of services that we've agreed to perform.

So fund balance transfers up slightly.

Dave or Alex, I once, Sure.

Yeah, the fund balance transfer, that's mainly a Clifford revenue replacement transfer, and it was intended to happen in 2022, but because of the way they're being careful about moving it or whatever, it didn't, it's not going to happen till 2023.

The other significant change here is in this licenses permits and that again is largely kind of the flip side of something that we saw at the end of the year report.

So business license revenues had underperformed relative to our forecast.

And what was going on there is that folks can renew their business license late.

Typically they do it late in the year before.

So we get, usually we get a lot of license renewal in November and December.

And that revenue is for lots of historic reasons is accounted on a cash basis.

So what happened this year is that folks didn't, not as many folks renewed in December and they have since renewed in January.

So we expect that that's really sort of a shift in time rather than a whole lot of new, net new revenue to the city.

But the bottom line, if you add that all up, $72 million, if you take out the grants, and again, I think there's good reason to sort of think of them as a separate thing, it's about a $45 million increase.

So still significant, driven in no small part by retail sales and B&O, again, stronger performance and predicted strong performance going forward.

But what you see, and now I'm going to shift to 2024. You have a question?

Oh just before you move on I wanted to flag that Director Dingley has her hand up too.

Oh sorry.

Oh no problem I can wait till you're done with 24 uh Director Noble go ahead.

All right, I'll do that quickly.

Again, you see large, I'm not gonna go through each and every one of these because a large part of what you're seeing is the follow-on effect from what we described previously.

I would note though that sometimes the good news compounds in these things very directly and you see less of that.

So the increments in 2024 are in some cases smaller and that has to do with, again, with this notion of plateauing growth.

We are predicting less overall growth into 2024 than we had previously.

But again, on net, an increase in the general fund of $24 million, the grants being a smaller share there.

So over the two years in total, but again, if we think of general fund, effectively 67. But on the next slide, I want to talk more about kind of the longer term impacts.

But before that, Director Dingley has a question.

Yeah, thank you.

Thank you very much.

You actually got to part of what I was going to point out, and that is when you're looking at this chart, it's very easy to stay, you know, sort of focused on the difference column.

So what's red, what's black, so sort of to tell yourself good news versus bad news.

And I want to encourage the forecast council members to look at that middle column for 23 and 24 and just kind of compare across years.

So one example of the plateauing that you're seeing Director Noble talk about here where you see you know, retail sales tax, you see a very small, less than $1 million increment between the two years.

And then in other cases, you see utility taxes, which are $42 million in 23, and then $39 million in 24. So although the difference between the last forecast and this forecast appears positive, when you look at those detailed numbers between those two years, you see that difference and that decline.

So it's a real, it is actually, it's playing out exactly how Director Noble's talking about it in that plateauing effect, but I wanted to call that piece out as we're reviewing these charts just so that you see those details in there.

I see Senior Deputy Mayor Harrell has her hand up as well.

Yeah, since you mentioned that, Director Dingley, I wanted to go back to something that was from earlier, and I know we always get this information and it takes a second to digest it.

One of the things that surprised me from our earlier numbers was the sustained, um, the sustained high level of inflation, which I don't know if you talked about it, uh, director noble and I just glossed over it or, uh, if we didn't really get into that much, but the numbers look positive, but I am concerned about the levels of inflation that you predicted in the earlier slides or that, uh, are shown in earlier slides are higher than typical.

Like I'm looking at, uh, you know, going back to the beginning, sorry, you don't have to, but, uh, you know, of course we, we know about the 8% from 2022, but, um, the, what looks darn near 6% in 2023 is pretty alarming to me as well as, uh, you know, that, That high level of 4% in 2024, and it starts to return to normal in 2025. Yeah, are the inflation numbers.

Reflected in the.

Are they reflected in the increases in in.

general fund revenue.

They are and actually this is a perfect transition for me to move to the next slide because I really want to highlight this very point, the issues around real sort of inflation adjusted growth and the nominal values that you see here.

So let me move to the next slide and take some moment to describe it.

It's a different piece than we've done in the past.

So I really wanted to make this point that we're putting on a forecast this previous forecast, there's positive increment to the to the general fund worried somewhat that that might be misinterpreted in terms of the real environment that we're entering.

And again, I made the point earlier, and this is really where I said, we get back to it and you are going to get back to it.

The, I don't want to, I don't want to back up the slides all the way, but the technology sector has grown 60% in 10 years in the city.

It has driven office construction.

It has driven residential construction.

It's been a key key driver, right?

And we've been in an environment where the general fund has been growing in what economists call real term.

So growing ahead of inflation.

Based on the forecast that we have, both at the national level and at the regional level, and again, I don't just make a sort of an appeal to common sense, right?

The technology sector is as cool as it seems to be.

Again, I'm not saying that I'm expecting 20,000 layoffs or, you know, pick your number, but rather that what has been an engine of growth seemingly will not be an engine of growth, at least near term.

So play this out for a minute.

So I wanted to give you a picture of what does the growth in the general fund look like over time?

That's a little bit tricky to do.

And I'm going to start with this kind of whipsaw back and forth here.

But one thing you have to sort of reconcile if you try to look at the general fund going forward So, is it currently, there's looking at fund balance transfers across actually all three years there was 150 million, and this is the most this is a lot of this is a payroll expense tax so I just did to name what is helping support the gentleman and make and really supporting the city's budget right so.

and hugely beneficial, but they're very significant transfers.

So more than 115, not all of that expense tax, but it's 85 million, if I recall, in 2023. Significant transfer expected in 2024. Also, grants are this weird thing that kind of go up and down.

So I think those two things you need to set aside because they are kind of one time or in terms of the fund transfers or the grant revenues that, again, are being expended for a particular thing.

So if you take those aside and you look at everything else, that's what this chart does.

So, I called those core revenues because I needed to give them a title.

And so what we've done here is taken 2022 as a base.

So, again, that's these core revenues.

It took out that 150M of transfers that was there and also whatever grants were in that year.

And then on this kind of green, slightly transparent thing, this is the benchmark.

This is the inflationary benchmark.

So it took the 2022, and this is a revenue side.

This is not an expenditure side, so just to be very clear.

But we do a six-year forecast, and we do it for a reason.

So I really want you to see the full six years.

So the green is the benchmark.

So if 2022 revenues were to grow at inflation, they would be that green line.

The blue is what we're actually forecasting them to grow at.

And this gets very much to, I think, the point that you were concerned about, Deputy Mayor.

What you see is that the general fund is going to lose ground.

Again, if this forecast is right, and there is a part of it that's kind of heuristic, if you will, we understand what's been driving the global economy and what might not.

If it's right, we're going to grow well under inflation for an extended period of time.

That's a revenue environment that the city has not seen in a very long time.

And it means from a budgetary side, you're challenged immediately to maintain existing services.

I'm not going to say more than that about expenditures because it's a revenues forecast.

But this is showing you the value, the real value of this revenue forecast.

And in real terms, it's declining.

And that will inherently be a challenge for the city.

I am your leader of the forecast office, so undermining my own forecast is probably inappropriate.

But six years out, I don't know either.

But I do know that what has been that, again, I keep coming back to it, what has been such a tremendous driver around here does not feel like it will be.

So some version of this is likely the case.

And just again, you think about the effects that could ripple into our revenue streams.

I don't think anyone's going to build an office tower in the city for a long time, right?

Interest rates, again, per the article this past weekend, interest rates are already are taking a toll on the residential multifamily residential side as well.

So, there are real concerns here.

So, I thought it was important to put And we put some money on the table, if you will, in 23 and 24, but I don't want you to lose sight.

And this picture is, we could have put this picture up in November.

It's a little bit, it would be a little bit worse.

It is a little bit worse now because the growth that we're projecting is flatter and their inflation persists for somewhat longer.

And both those things drive the difference between the two.

So this is the environment that we apparently are in.

And again, that's really more about beyond even this biennium to looking forward.

So.

Director Noble, I want to go back to Tom Mikesell who has a stand up.

Yes, Tom.

Thank you, Chairman Skater.

Director Noble, is what portion of core revenues is represented by property taxes?

Because those are limited by the state to 1% of those new constructions.

Yeah, so I mean, the easiest, so there They've gotten to the point of being roughly 400M, right?

So, and the total here is in the neighborhood of 1.5.

so it's a very significant share.

So this is a point I think we made in November last year, which was that 1 of the pedestals of the general fund relies on.

Um, for really significant revenue sources, property taxes, 1 of them sales, and utility taxes, others, and 1 of them is constrained to grow at 1%.

With new construction, we were getting an additional 1 and a half.

So we were actually seeing property tax revenues grow.

It's something like 2 and a half percent.

some of that construction with those office towers, not to make my own point again.

But there's every reason to think that that won't be happening.

But the other thing that was going on is we were getting 2.5% growth, and inflation was low enough that that was keeping up.

So the 2.5% growth in property tax was sort of keeping up with inflation, and then other things were growing ahead of inflation.

The expectation is, certainly on the construction side, new construction side, is that that's likely not going to be as robust going forward.

So that's part of what you're seeing here.

What is actually the new construction forecast for 2018?

23, 24. It's down marginally for 23. Over the course of the next few years, it's down again.

Go back and look exactly something like 10-15 percent.

Part of it's not down more for 2023 because the way the new construction works is it's the increment is measured essentially from June to June.

A lot of projects are already underway and rolling.

Then further, property tax revenues So new construction through June of this year will affect property taxes in 2024, so they're probably still pretty good.

It's the increments to property taxes in 2025 and beyond where we'll start potentially see this new construction effect setting in.

And that new construction forecast is a little bit tricky to do because a lot of it is informed by permits.

people can pull permits and then not do projects.

So we're going to have to see what kind of environment we get into.

Again, it's worth reading this article in the Times yesterday.

It doesn't make that point, but folks are talking about the fact that they have these projects on the shelf, developers, that suddenly don't pencil in the way that they thought they were going to.

And that might well mean that they won't proceed.

So

Let me just pause real quick.

Tom, did you have some other questions or is there an issue that you wanted to draw out here for us with those lines of questions?

No, just thanks for asking, Chair Mosqueda.

Just drawing out that part of it is just an existing statutory restriction that is always present with regards to our revenue structure.

Not that it makes it any easier, but It's not in terms of changing economic environment, just more of a statutory constraint.

Absolutely.

Thank you.

So real quick, moving on, because that's really largely what I have to say about the general fund.

I did want to highlight just some of what it would look like in the pessimistic scenario, just so you have a sense, because again, this is a judgment that ultimately you'll have to make.

The charts here show in in the dark, the baseline forecast, and in the lighter blue, the pessimistic forecast.

And they show on the left is difference in retail sales, on the right, the difference in B&O.

The headline here is probably in the third bullet though, which is that if you, those are the two revenue sources shown here.

If you add up across all the general fund sources, so that a couple of slides ago, the pessimistic forecast would be $27 million lower in 23, almost $50 million lower in 24. So, for a total of about $78 million less revenue, again, largely in sales and B&O, but certainly not exclusively in terms of the impact on the forecast.

So, just to give you that context.

With that, I'm going to move on to the non-general fund, which is going to include payroll and REIT, so also be quite significant.

Just before you move on, I wanted to double check to see if there's any additional comments and deputy director, I see your camera on anything else you'd like to add.

Okay.

Thank you.

I'm.

That's sort of the point that I was going to get to rent property in Texas.

Okay.

So, so these are the non general fund again, same setup as before.

So, 22 actuals, the figures from the November, the new forecast and the difference.

And again, the same for 2024 obvious and kind of headline line here is on the payroll tax.

So the 2022. Actuals is that the right number?

I'm realizing it.

I think that is, that way that's wrong.

Yeah, that's slightly.

It's not critical.

What matters, obviously, is a change in the forecast.

So the adopted forecast was as high as $294 million.

That was in the November forecast.

You'll recall that we didn't update the forecast.

So that actually is a number that we generated in August.

We hadn't updated in November because we just didn't feel like we had enough information to know which way things were going.

Ultimately revenues came in and underperformed in the way that we visited last last presentation.

So, um.

The, so we are adjusting the forecast to reflect what we saw really emerged last year and, um.

That is a separate set of slides and this will come back and discuss this in detail.

So that's a 30Million dollar 31Million dollar reduction in 2023 and similarly in 2024. and again, I'd rather let me come back and we have a whole slide to discuss.

Minimal changes in admissions tax, wheat and beverage and short term rental tax.

I will call out the footnote on admissions tax.

So there's a net increase overall of about $600,000 in 2023, about the same in 2024. It's important though to understand that the revenues generated at the Climate Pledge Arena are part of the financial agreement we have around the redevelopment, and they largely stay with the project, if you will.

So it's important from a city perspective to know Um, the split between what's the climate pledge and what's everywhere else and there's more good news here.

So that the, the, the increment that's sort of available specifically arts and culture, because that's what these monies are dedicated is closer to 900,000, actually, just above 900,000 for 2023 and is 1.5Million for 2024. I mean, we'll provide all those details to staff.

Again, nominal changes in sweetened beverage and in short-term rental tax in both years.

The REIT forecast down significantly.

The REIT, even at $91 million, significantly underperformed overall.

The underperformance to our November forecast was only a few million.

But we'll come back to this, because we're going to have some separate slides here, too.

The results for the first part of this year are positively concerning.

So they've had us bring down the 2023 forecast significantly relative to November, and similarly for 2024. On the transportation-specific revenues, minimal changes overall, commercial parking tax up, the sales tax up, gone with the overall forecast for sales tax.

The parking infraction penalty is down somewhat significantly.

I don't know whether Dave or Alex want to comment on that one.

Sure.

Commercial parking tax?

Well, that and the parking infractions.

Oh, I'm sorry.

Yeah, sure.

So that's basically down to the city installed six new cameras in the fall of 2022. And essentially you have to make an estimation of what the citation volume will be from that roadway, right?

The number of cars and so forth, and just over forecast.

So this is adjusted for actuals.

And the other part of it is collections.

The actual onset of collections was later than anticipated originally.

Senior Deputy Mayor Harrell has a question.

David, is this just in lay terms?

Well, it says parking infraction penalties.

Go ahead, David.

So camera revenues are labeled as parking because in state law, that's the infraction that they're under.

But these are the speed zone cameras in school zones.

OK, so these are, in short, they're red light cameras.

Or no, speed cameras, the speed cameras in the school zone sort of thing.

Correct.

Okay.

Okay.

I will, I'll change that label going forward.

It's not helpful.

I apologize.

No, no, it's just, I was, uh, I was just trying to try to connect those to the, um, and so on those, we are predicting that they're just not as, they're just not as, uh, I don't know, I hate to say profitable, because they're not supposed to be profitable.

They're productive in terms of citations, yeah.

Yeah, and they're meant to change behaviors.

So are we seeing that, yes, there's a dip in revenue, but maybe we've changed behaviors in those areas, or is there?

That could be.

I mean, I would leave that up to the police department who tracks that to talk about what the effects have been in those areas, number of total volume of speeding people, and so forth.

I just have the view on revenue.

But I would add, Senior Deputy Mayor, that Dave and I, over the years, our original modeling had anticipated some behavioral effects.

So we originally anticipated that revenues would increase and then decrease.

The decrease hadn't happened, and maybe isn't the way that you observed it is happening.

I certainly know in my household, we are appropriately more careful than we have been in the past, and that's the kind of behavior change you would want.

It's definitely the case when you look at the older areas, the older cameras, where we have seen a decline in the volumes.

And that's one of the tricks of forecasting.

It is how quickly that behavior change and is it leveling out more than, you know, continuing a steep decline.

Uh, thank you so much.

Everybody.

I appreciate that.

We're all wearing various hats in this revenue forecast council meeting.

I think since it's been prompted and put out there, it is a good discussion for the executive and legislative branch to follow up on with the police department.

Because my concern is that this is a decrease due to staffing.

allocations for reviewing those traffic cameras.

At least that's something that came up in the last six months, where personnel was moved from reviewing the traffic camera footage to doing other work.

And we all know how important it is to make sure that there's staff in the community.

But additionally, we want to change behavior so people don't speed in these areas.

And to the degree that there's revenue to be recouped here, we'd want to make sure that Uh, that is still being prioritized.

So, um, unless somebody else has an update on that, I think it is a worthy conversation to make sure that this is not solely because of behavior change.

And also, um, if there is reallocation of staff that we need to consider, uh, outside of the forecast council, uh, to ensure that more revenue is coming in here.

I think it's a worthy discussion unless anybody else has any other more recent updates on that staffing.

Okay.

More to be said on that.

Before we leave the slide, I want to explain the 22 actual number, because in some ways it's informative in many ways.

It probably deserved its own footnote.

So the 2022 actuals are reported here as 300 million.

What I had forgotten about that is that that was 253 million of current revenue.

So those are payments for 2022 obligations.

you recall that we've for a long time had late payments from 2021. So 50 million of this, give or take, of this total was from 2021. So it was on actuals of 253 for 2022 that we are now making a forecast of 263. And you'll see this in the next slide, but just before I left this, I wanted to explain that that was a combination of the late 2021 payments and then the current 2022 payments.

So let me talk about, We're taking 30Million dollars off the table for each of 2023 and 2024. I do want to explain why I want to give you a better sense of the nature of that forecast because.

We're doing the best we can my colleague gone has done really tremendous work and trying to model this and develop the best forecast we can, but we do have very limited information.

And so I just actually want to be completely transparent about how we're doing the forecast.

I'm actually proud of it if it's creativity, but it is going to be tricky to get this one right.

So just to remind you, the actual revenues in 2021, they're not actually a little bit higher than this, they're $293.

They fell to 253, so a significant drop, $40 million drop.

We were still holding to a 294 forecast in November.

If you recall, we said we don't have a better number to give you.

We don't feel good about this one, but we didn't have a better one to give you.

We were right to be nervous.

You know, I'm not proud that we didn't have a firm forecast.

Just again to remind you, and you'll see this in the forecasting effort, there are relatively few firms that make their, that are generating a lot of this revenue.

heavily represented by the technology firms.

And those firms in particular, and again, this matters for forecasting, they've been heavily affected by hybrid work, right?

There are a lot of jobs you can do in front of a computer and you could do from a remote location.

And they're also a sector where stock compensation is a big piece of it.

So the stock value of the company matters to how much people get paid and thus to the tax revenue.

And we've actually done work on this, done work on the data level, to correlate that.

So if you look at firms that stocks values declined between 21 and 2022 in general, the revenues they paid to us declined.

Similarly, work from home, and we'll show you what this really looks like in just a moment here.

Firms that appear to have more folks going to the office in 2022 compared to 2021, they appeared to be, well, they did in general pay us more.

So that's kind of what we expected and we got that.

But imagine that this is a handful, there's 25 to 30 firms that are generating most of this revenue.

So this is a handful of data points between those two years.

This is not a robust, set of information, but again, this is who is driving the revenue.

I would add, and that's this last bullet, we are continuing to work very hard.

I'm going to leave this meeting and probably dial up some folks at ESD again to try to secure more detailed data.

It's data we would need to keep very, very secure, so we've recruited IT to this conversation.

It's a very complicated problem.

ESD has been quite helpful, but it is going to be a difficult nut to crack to make sure everyone is comfortable with us having access to what amounts to individual level employment data.

But I just want you to know we are continuing to work on that front.

So again, what we did on a modeling side, I'm going to flip a slide here in just a minute, is we looked at, we were able to link this change in revenues between 21 and 2022 to stock values and to office, to folks in the office, and I'll explain how in just a moment.

If we're going to forecast going forward then, we actually need a prediction of what stock values and in-office behavior will be for this year, for 2023. I'd mentioned previously that forecasting this was going to involve essentially forecasting the financial prospects for individual companies, and that's literally what it's come down to, because again, the stock price drives things.

We've been able to do is to go out into the public space and there are folks who are forecasting.

what firms' stock prices are going to be by year end and quarter by quarter.

And those are represented just for a handful of some of the companies that pay are represented there on the left.

And you can see it's a mix.

And the graph shows you the midpoint is the red, and then the spread is kind of the range of forecasts.

And I see Allie has her hand up or did.

Yes.

Oh, you can finish explaining this about the location of work.

So I was just getting in the queue when you completed your.

Yeah, yeah, we will get there in just a minute.

So again, you can see some are projected to increase, some are projected to fall.

As an economist, I feel very uncomfortable doing this because there are all kinds of theories about why this shouldn't be as predictable as this.

But it is the information that we have, and we know it's a potential driver.

So we are doing what we can.

And again, we have this information for those who are most responsible for the revenues.

On the right here is This is actually just meant to be representative and I will explain it kind of in more detail what we've actually done.

So this is data that we have access to from placer.

It's anonymized foot traffic data that's generated by tracking cell phones.

It's the same kind of information that tells you how long it's going to take you to drive from one location to another, right?

They're tracking cell phones and cars and computing speed, so you can do this in general.

And you can do it over geography.

You can essentially use GIS in combination with this data.

And so this shows you behavior, again, a share of people going to the office.

And the baseline here is the pandemic, because that's really been the driver.

We have three different geographies shown here, South Lake Union in red, Belltown in blue, Central Business District in yellow.

And again, these were illustrative of the data we have access to, because if you consider some of these firms, they operate from relatively centralized locations.

So you can develop pictures like this for individual corporate campuses.

And that's the nature of what we have been able and have needed to do in order to take this information, these correlations, and turn them into a forecast.

So we know what behavior on some of these corporate campuses measured this way has been in recent months.

And that's largely the basis for guessing and predicting, forecasting what will happen over the rest of the year.

And again, Our basic assumption is that recent behavior is going to forecast future.

So if, in fact, a lot more folks return to the office, that would provide an upside to the revenue forecast.

We can monitor this not quite real time, but we'll track this quarterly and see, again, how in-office behavior is changing.

But these two data sources are informing the 2023 forecast most directly.

So question before I great, thank you.

Yeah, it was thank you.

Dr. Noble and thank you to you and your team.

I appreciate that continued sort of creative thinking and ways to refine how you are forecasting this relatively new source of revenue and look forward to you continuing to enhance that.

Especially if you get that agreement with which I think is critical.

to continuing to refine your model.

In thinking about how the location of work or the work from home piece is impacting this model, I'll be curious to see in the next forecast in particular this sort of location-based data you are tracking, particularly given that at least one of our major employers has announced, I think, a higher requirement for return to the office later this And so I'd be curious to see how this impacts the data you're looking at and how those sorts of announcements in the future might be considered as we're thinking about this.

This particular revenue.

Yep, that's the right thing to be thinking about.

And stock price predictions will move as well quarter to quarter.

But the in-office behavior is obviously a key issue.

And really for the forecast overall, to the extent that it might also generate more retail, more folks in office might generate more retail activity and more B&O attributable to the city.

So I'm going to go back a slide just to continue.

I want to illustrate what we're doing for 2023. for 2024 and beyond, because again, it's a long range forecast.

there's no way to predict what in-office behavior will be in 2024 and beyond, nevermind stock prices.

So for that share of the forecast, we revert to the regional model and to the general trends in payroll for the information and business and professional services sectors.

So again, doing the best we can, if you will.

So again, just to highlight, the result has been a significant reduction, essentially $31 million a year for both 2023 and 2024. But I also want to highlight that the, so this is the same for, this is the forecast for payroll tax going forward.

So there is, it's not just 23 and 2024. The expectation now is for a lower base that will be reflected going forward.

So there's 22 actual that probably should have done this as the 253 actually in retrospect.

It gives you a sense of, that we're growing from that 253 base and we, The November forecast was much more robust.

I think we're bringing in line to what we saw for 2022 obligations is the phrase we used, so that 253, and then how it increases or is expected to increase over this time.

And again, so it is both lower and the growth is relatively modest, because again, this is a sector that we expect to be growing modestly now.

Some, if you try to plot out the line connecting the blue, there's starts to see more growth in 2027. Don't have a November forecast for 2028. So I left off 2028 in this picture, but wanted to give you a sense that this isn't, this is a longer term effect, if you will, in terms of the revision in the revenue forecast.

Director Neville, I saw a hand from Tom.

Tom, I don't know if you have a question on this slide or the previous slide.

I just wanted to confirm, I think what I'm understanding for the work from home is that you are just assuming the current levels as observed.

So whatever that graph before says.

Yeah, it's not exactly that.

So again, this is where there is some art and some science in this.

So we can see this on a monthly basis.

So in places where we see a trend that's been up, we forecast something of a trend up.

But again, This is payer by payer, if you will, for others where it's flat, you can kind of assume that that has been flat announcements that, you know, if we see a trend and there's been announcement that, like, this is really a change in policy, then feel better about about projecting that that will also increase again.

Our bench is to be somewhat conservative in this.

So.

that may still be upside as people come back to the office, but we haven't consumed completely flat.

Because again, we're seeing some margin of increase and you can see it in that picture.

Well, I can go back.

You can see there's some trend, hard to read exactly, but it does seem to be some ongoing increase.

Yeah, absolutely.

That's a good question.

Yes, Mayor Harrell.

On that trend.

On the 100 percent that you have, That is, you know, when people when there was a culture of working from the office, pretty much you came into work Monday through Friday.

The 50% where you kind of have it right now.

We haven't heard of any, any companies calling their people back in person 100%.

So are you paying attention to that and kind of is an adding that to your future projections?

Yeah, the.

Yeah, I mean, expectation, again, is certainly not that we'll get there.

I mean, the correlations we have are between the 21 and 22. So if you look at the, there's been, the data that we have are really just measuring those two points, not measuring all the way back to 2020, because the tax was first collected in 2021. So we've only ever collected the tax in a not office environment, if you will.

So anything is an improvement at some level.

But yeah, I mean, we'll see where the longer run trends, ultimately end up, but our expectation is certainly not to get to 100, you know, three days in a week, you know, rough terms is 67%, right?

Or excuse me, it's 60%, so three fifths.

We'll, you know, we'll all be watching this going forward.

Let me just double check here, see if anybody else is in the queue.

Okay, a few questions on this slide for me.

You mentioned the, how much was it, Allie, that we put from the general from jumpstart to the general fund over the biennium?

About 180 million over the biennium, 85 million, 185 I think.

Yeah, that's what I was going to say.

Great.

So we put 185 million from jumpstarts higher than anticipated projections into the

Biannual budget to help offset the reduction in general fund revenues.

We also put funding into a.

Reserve, you know, let's just call it a rainy day for jumpstart.

Obviously, we would have put much more into a reserve, but we're trying to be good about preventing any cliffs and public funding and be really conscious about not.

having new expenditures when we had programs that were invested and sustained from the American Rescue Plan Act, the Coronavirus Local Relief Funds, and the ongoing need for those services, but wanted to recognize that those federal dollars were going to go away in this biennium, and we wanted to make sure that no people fell off a cliff in terms of services and that we didn't engage in Layoffs during a time when more and more people need public service, but I just wanted to reference the fact that we do have.

Some reserves tucked away for jumpstart as well as the general fund.

Does any of your slides currently.

Incorporate some of that information.

The only information that's incorporated is the actual budgeted transfers.

Okay.

We're looking at revenues, not at reserves, but obviously an important point to clarify.

Yeah, and this is challenging work to do, I'm sure, across the nation as people try to respond to probably some of the impact of the tech sector changes in their local economies as well.

Is there any other jurisdiction that we're working with to try to do some forecasting in a pretty volatile sector with our colleagues across the nation?

We've been in touch with some of the regional folks here, but you raise a really good point.

I actually have contact in San Francisco, which is another place that is likely experiencing much of the same.

I haven't had an opportunity in the past couple weeks as we were putting this all together to reach out, but I think that would be a good idea.

So I'll suggest and note it, and a good one.

I'd be interested to see how they're, I mean, interestingly, San Francisco is even more deeply impacted because the way their property taxes work, as real estate values fall, their revenues fall.

So they have significant concerns about essentially the assessed value of the downtown core.

But understanding what they're seeing in employment trends I think could be important for us as well.

So I think that's a really good idea.

Great.

I also want to thank some of the folks, both from the executive branch, CBO and central staff when we were initially crafting jump starts, progressive payroll tax, the upper limits of the anticipated amount were 214M because we wanted to be cautious, cautious in our assessment.

So I'm still happy to see that we are over.

performing even with these projected forecasts in the out years.

If nothing, the initial forecast was good to be conservative and we appreciate all the early work you all did on this.

So with that, I'm going to shift to Reid and spend a little time there, because again, it's another significant change.

So I apologize for all the words on this one.

There's a lot of a story here to tell.

Let me start by actually just talking about the chart on the right, because it says a lot about what's going on here.

So in the bars, I have the total quantity of home sales, and that's measured by, in thousands, measured on the left axis.

So in 2021, you know, 50,000 homes sold in Q1, those kinds of numbers.

You can see the very dramatic tail-off beginning in the middle of last year.

So we're down to, in the neighborhood of, you know, 23,000 units, something like that.

And then the forecast going forward, and this is a regional forecast, to be clear, not just the city.

And what the forecast going forward is that the volume of activity, and again, REIT is a tax on transactions, so it's price times quantity is what drives revenue.

how many homes they're selling and at what price.

And they're both reflected, both those elements are reflected in the chart.

So expectation, again, on a regional basis, the same is true on a national level, is that we're not going to see a huge amount of growth.

A lot of things going on here.

High interest rates mean that folks have, it's not an attractive time to borrow money to buy a house.

Interestingly, if you own a house and you have a low interest rate, it's also not a great time to sell because you'd have to give up your mortgage.

You don't get to transfer your mortgage to your new house.

So a lot of people are mortgage locked because it's just too advantageous to stay where they are.

So that interestingly, there's less demand because people are worried about interest rates, but there's also less supply because people don't want to sell, interestingly, for the same reason.

So that's actually one reason where prices are predicted to drop.

but not a whole lot.

I mean, I showed you the chart before, but that was really from the peak of here, the peak in bottom line.

Prices look to be relatively stable because supply and demand are both declining, but the volume of transactions dropping a lot.

So that's the residential side, and that's a big part of our revenues.

The other thing is on the commercial side, we're seeing some of the same issues.

So the interest rates mean it's hard to make a commercial purchase.

The office part of this and the uncertainty about the office market is a big part of this so a non trivial share of our revenues year to year had been the sale of large office assets, office towers in the city.

They're often owned by real estate investment trust to really treat them as investment vehicles.

We haven't seen a sale of more than $100 million, which would be a small tower, in going on a year.

Interest rates are high.

I think part of it, nobody quite knows what a tower is worth.

And the buyers and the sellers certainly can't agree on what they are worth.

Sellers potentially owe a fair amount of money having put up a building or bought a building recently.

It's probably worth less.

It might be worth less than they paid.

That market appears to be a little frozen as well.

And again, I point you to this article over the weekend that highlighted some of these issues.

So, both the commercial side and the residential side are being negatively affected.

We brought the forecast down in November.

So, just to remind you that we had been predicting as much as 95. We brought it down to 68. we're bringing it down yet again because the decline has continued.

And in fact, the initial results for January, February, and March, they wouldn't have met our November forecast or particularly gotten close.

So we've reduced the 23 forecast from 68 million to 55 million, the 24 forecast from 69 to 60. In the next slide, I'm going to show you the longer term.

Before we do that, I do want to just emphasize that we're not the only 1 seeing this and it's not just isolated to the city.

So, the state revenue forecast office revised, put up a revised forecast last month.

There was a significant decline for them.

The 20. 4 to 25 or the 23 to 25 by any of it that starts in July.

So, there are forward looking forecast was down several 100Million, but more than half of the decline was was changes in because the speed with which revenues have declined has caught us all off guard.

The county.

They collect REIT on unincorporated King County, so much smaller base, but they are seeing some of the same effect as well.

So this is something that's systemic to all of us who are relying on these real estate transactions for revenues.

The next slide I think is a good job, just kind of highlighting longer folks to know when the Seattle Times asked about the the mandatory housing affordability.

I'm lower than anticipated returns as well.

I referenced the slides that you had brought up in August and November last year.

So I just wanted to reiterate for the group here as well.

That that was my understanding.

And if that needs to be corrected, of course, let me know.

But that's what the assumption.

You know, you're seeing less multifamily development and again, for the same underlying interest rate and market dynamics.

So this is comparing the REIT forecast.

This is sort of analogous to the chart we had on payroll expense tax.

This is 2022 actuals.

Again, thing to remember here is how quickly they dropped off.

We actually sustained almost $95 million in revenue in 2022, but a big majority of it came in the first half of the year, not the second.

So we've revised forecasts.

Again, November we brought it down, we're bringing it down yet further and bringing it down for not just 23 and 2024. Particularly relevant for re-forecast is this money is spent on capital.

So you're looking out a few years to program its use because it's the time it takes to develop and implement capital projects.

So this is going to ripple through the out years in the forecast as well.

We do eventually get back to some growth.

So 2027, we start to pick back up and return to levels that had previously been forecast.

Again, the anticipation here is both the interest rates will have come back down and also that the economy will be moving out of what this kind of stagnation period and back into growth.

And I see Ali has a hand up.

No, it's Tom.

Sorry, Tom, I'm misreading my screen.

We put the hand above your head, but it's actually Tom's hand.

Okay, Director Noble, I'm just curious, so I'm not sure if 2022 is the peak for collections in this cycle, but I'm curious how this, the April forecast decline compares with the peak to trough decline during the Great Recession, which was as we will recall, very steep.

Is this steeper or less steep than that decline we experienced about 10 years ago?

In terms of forecast, it's a little bit smaller, but it's still a significant decline, a very significant decline, something like 40 percent.

It does really feel like the switch has gotten turned off, if you will.

And interestingly, I think part of that is ironically the anticipation that inflation and interest rates are going to come down soon.

So I think particularly sort of in the residential market, a set of folks are kind of waiting to see how this plays, right?

So if I wait another year, I might be more, if I'm a seller, oh, I'll be able to get a low interest rate and I can move to a bigger house without having to take on a high interest rate, the opposite for buyers.

So there's still a little bit of standing on the sidelines waiting for this thing to correct.

and we'll see if it does.

But yeah, no, the difference there is in the Great Recession, just to remind folks, the credit markets froze up entirely.

So you couldn't get a loan.

Now it's just expensive and we're having some weird dynamics about the timing of that.

But nonetheless, I mean, candidly caught off guard by how quickly this came down.

I do think that the work from home and pandemic dynamics on the commercial side are a very unusual effect as well.

And again, we spent some time talking to some brokers.

It's actually an article in the Wall Street Journal, I believe, or the New York Times as well about commercial office markets nationwide and some real concern.

Again, our vacancy rates are much higher compared to the nation as a whole, but the nation as a whole is also seeing somewhat higher vacancy rates, and they're concerned about refinancing in these markets and the like.

So that's the detail on the REIT forecast, and that's actually the end of our presentation.

So we've worked through the general fund, the non-general fund, and had the opportunity to give you more detail on both jumpstart payroll expense tax and REIT.

So again, high-level general fund up, but not really for the long-term, and then significant downward adjustments in the jumpstart and REIT forecasts.

We'll obviously continue to monitor these and we'll be back in August with an update that will be informed by the next few months of realized revenues and then overall economic activity.

All right, thank you, Director Noble.

Colleagues, are there any questions, additional questions you didn't get a chance to ask throughout the presentation?

And that is true of our entire table here for everybody who's with us.

You are welcome to ask any questions.

Oh, go ahead.

I'm sorry about that, Ali.

I was just going to ask, should we formally adopt.

The baseline as recommended.

On page 14, the, the forecast office recommends using the baseline economic scenario for the.

April 2023 forecast, should we adopt that?

Yes, that is, I will take that as a motion for item number 2 on our agenda.

But before we get to the accepting of the revenue forecast as presented, and I will come back to your, I'm going to take that as a motion, Senior Deputy Mayor.

Before we get into that, just very briefly to inform that discussion, additional comments or questions, Director, Deputy Director Panucci, did you have something else you wanted to add for the purpose of discussion?

Thank you chair Mosqueda and thanks for the presentation Director Noble.

I just wanted to sort of put this in some context of it's sort of a mixed set of news on different revenue sources.

There is a plan for the biennium that is currently budgeted.

This changes that that landscape a bit.

I just want to really appreciate the work that Director Nobleshop does in highlighting some of the nuances and the difficulties in doing this forecasting work.

And just for context, I want to highlight that as the decision makers think about how to address this news, there are a lot of moving pieces.

In November, the Council adjusted the plan for the biennium based on the November forecast, which had for that forecast issue in in November now all taxes down a little bit.

There was an increase in the transfer from the payroll tax the general fund has A lot of moving pieces here, so they're both sort of short term decisions to think about in terms of balancing the biennium and trying to hold to the commitments made in the adopted and endorsed budgets as well as longer term thinking about our policies, particularly around reserves.

So that the city is better situated to respond to fluctuations in changing, changing revenues in the short term.

Thank you very much.

Great, you've given us some good food for thought as we continue to evolve this growing new body.

I really appreciate the collective work we're doing here across branches to take these issues on together.

Okay, I don't see any additional hands.

Senior Deputy Mayor Monisha Harreld has, oh, excuse me, please go ahead, Director Dainley.

I apologize.

Can you all hear me okay?

I've had some connectivity issues on my end.

Okay, great.

Seeing head nods.

Thank you.

I think I heard Ali make some points that I was, I'm sorry, Deputy Director Panucci was making that I was going to hope to also just reiterate.

So if this is a little bit of a repetition, just blame the terrible Wi-Fi where I am.

So thank you very much, Director Noble and team for all this work and to Dave and Alex on my team and CBO for their work on this forecast.

This forecast does present, you know, I think a continuation of the uncertainty that we've been seeing over the last year, where we just are seeing different economic indicators pointing in different directions.

And as you heard, I think you heard Deputy Director Panucci intimate, a lot of different of these revenues are going in different directions and for different reasons.

It presents a real challenge in the budgeting space.

As you, as you think about what does it mean to have that short term growth, but in just like literal, just this year, but long-term stagnation.

In the budgeting sense, as you saw in Director Noble's chart, where the buying power of the city decreases over time, even if you were to hold a budget flat for the next five years, that is to say no new programs, you would still be in a scenario from a budget perspective where you would have to make reductions because the cost of providing services increases over time.

I don't mean to be overly pedantic about that point, but it's something for us to all keep in mind as we are looking at what looks like more near-term better news in 2023. But that stagnation is real and persistent across quite a few years in the out years.

So I also appreciate Chair Mosqueda that this is a lot of food for thought as we continue to have those conversations.

And I appreciate you and your team's partnership in those conversations as we move forward.

So thank you all very much.

I appreciate the presentation.

Wonderful.

Thanks, Director Dingley.

I'm going to second what I believe Senior Deputy Mayor Harreld noted, which was to accept the recommendation per the ordinance created by the Office of Revenue Forecasts and the Forecast Council.

It's this body's role to review the presentation and to review the recommendations.

If we believe it's appropriate, we can approve the recommended forecast that has been presented today.

Approval of the recommended forecast does not require a formal vote.

There is a consensus or concurrence that we will seek here today, and we can then direct that the meeting minutes reflect that agreement.

But if there is a desire to adopt an alternate forecast scenario, which I don't want to discourage anybody from doing, but just the process would be that we would need to vote on such a proposal.

I have heard interest in adopting the Baseline as recommended in our forecast presentation today, I will 2nd that and I'm interested to hearing if there's any additional conversation about that.

Okay, I'm not hearing any additional conversation.

It has been moved and 2nd and if there's no objection, the.

Forecast recommendation as presented to move forward with the baseline will be.

Concurred upon.

Okay, please have the meeting minutes reflect that we have concurred with the recommendation for today and we know that this is a very iterative process.

Look forward to hearing more from the conversation that you have with similarly situated cities in terms of the presence of the tech sector in other local economies, such as San Francisco.

If there's any need for an update midway between now and August, of course, we would welcome that.

We don't anticipate, though, meeting until August.

Our August forecast meeting will be at 2 PM this time 2 PM on August 10th.

And again, we will make sure that that information is projected out to members of the public.

This is going to be a critical forecast for the executive to make any adjustments to our endorsed 2024 budget.

This is the 2nd, part of our effort to create a biennial budget process in this 2 year round, which I very much appreciate.

to create greater stability in both how we govern and also how we budget.

And so I think that this is a good chance for us to make sure that we have all the information as much as possible before the executive transmits any changes so that we have a balanced budget, a continuous balanced budget for the 2024 latter half of our biennial process here.

Any additional questions or comments for the good of the order?

I, uh, I just wanted to say, I realized I jumped directly to, uh, the, the move to adopt without expressing my gratitude to the forecast team.

Um, I know that this is a lot of hard work, especially with, um, things that are changing really quickly and how the national landscape, uh, impacts the local landscape and how our situations are a little bit different, uh, with our, um, you know, we have a large segment of tech and others.

And also what looks like the good news from all of this, which what looks like a, a growing hospitality and tourism segment that will certainly help some of the local downturn.

So thank you to our forecast department.

I know again, I jumped straight to the business without acknowledging all of your hard work.

I really appreciate the team and bringing everything to us today.

Well, much appreciated.

We are business outcome oriented ourselves.

So completely understand.

I do want to acknowledge both Jan and Sean and the work they do.

And again, our independence is really important, but also as a collaboration, both with central staff and the budget office, and actually the finance department as well.

So Jamie and her, Director Carnell and her entire team.

We're very much hand in glove on a lot of issues.

So we will continue to keep at it and we'll see you in August.

And if something comes up before, we'll let you know.

Thank you.

Thank you.

And I want to echo Senior Deputy Mayor's comments as well and thank Director Dingley and Deputy Director Panucci and Tom Meisel, Budget Lead, as well as the team at the Office of Economic and Revenue Forecast for all of the work that you've done chiming in today.

You know, I think overall we are well prepared to deal with this.

We are, you know, all appreciative of the tough situation in front of us and the changing nature both locally and nationally.

But while it's not ideal news today, a $6.7 million shortfall out of a $7.4 billion budget I think is manageable, especially with the collective partnership that we have been growing with the executive.

And I know that we will be working very hard to make sure that if there's any additional information from the revenue forecast, that that information continues to be shared simultaneously with the executive and the legislative branch.

That's the purpose of this body.

So I think that this is a really great way to concretize making sure that Both branches get access to information at the same time as well as members of the public.

And I want to again, thank you all the revenue forecast who was just in their 1st year last year, as we were working on the 2324 by angle budget, we did have the chance to hear from the office of economic remedy forecast through this forecast council meeting.

We knew that there would be some potential for.

volatility in our November forecast.

And we did some, as I noted, we did some accounting for that in the 2023-2024 budget to note that we wanted to be able to identify additional revenue to balance in the out years.

So wearing other hats, the senior deputy mayor and I have been very busy Trying to plan for some of the ways that the future years could balance and appreciate our partners at the table and the ongoing conversations that we've had with members of the community and frontline workers.

We are all collectively interested in helping to address this near term 6.7Million dollar shortfall again in the scheme of things not to.

unmanageable in the near term.

And as we look at those larger numbers that you showed us in the out year, recognizing that especially Jumpstart was codified to go into the spend plan, we are collectively working on helping to make sure that our commitments remain on track.

So lots of moving parts on this.

This is one of them, and we really appreciate your work.

Let me see, Director Noble, the other thing I would ask is if you have any additional information to compare The state revenue forecast projections and sort of what we're seeing locally, that would be very helpful.

We know that their general fund also shows an uptick as you're showing us a general fund uptick, and they have different revenue sources at the state level, but be interested to continuing to track any analysis that you might have.

It doesn't have to be formal, but we know you're busy.

But if there's anything that you also want to add, given what their recent forecast was, of course, we'd be happy to receive that information.

Yeah, I can send you an email just real high-level quick.

Much the same, near-term uptick, but then the longer-term projections are for slow growth and off a little bit, again, a huge impact on REIT.

But we can make that a little more quantitative and send out some email to give you, kind of put that in some perspective.

Okay, great.

Sounds good.

Well, colleagues, thank you so much.

We are actually within time, very dense presentation this morning.

We have reached the end of our formal agenda again, August 10th at 2 PM is our next forecast council meeting.

If there is any updates or urgent need for additional information for the forecast council, director Noble has indicated that he'll be notifying us and also sending information to reconvene if necessary.

But if there's no further questions.

Thank you all for joining us this morning.

And have a great rest of your week.

This meeting is adjourned.