SPEAKER_04

Good morning, everybody.

Good morning, Forecast Council.

We are here on August 5th, 2024 for an August Economic and Revenue Forecast Update presentation.

Before we start with this presentation, the first point on the agenda would be to approve MEETINGS FROM A PREVIOUS MEETING FROM APRIL.

SPEAKER_08

SO MOVED.

SECOND.

SPEAKER_10

SECOND.

SPEAKER_04

WE DON'T HAVE DIRECTOR STROWS HERE WITH US.

vice chair iraq uh uh is excused and appointed uh then i'll be at least designate me um yes good morning my apologies for being late next morning seven four and i started talking with barbara about in the past And so I will hand it to you and start this event.

SPEAKER_06

One of the first days that I don't have Kate on my team, so I'm not sure, probably don't have a script today, but this is opening the August 5th Joint Forecast Council meeting.

I'll pass it right back over to you.

SPEAKER_04

Thank you very much.

So the first point of agenda was to approve the meeting minutes from April 8. Now that the forecast council is here, we have moved them secondly.

So moved.

Great.

SPEAKER_06

Who calls for the vote?

SPEAKER_04

Good.

And it has been on the chair of the forecast that comes in the past.

SPEAKER_06

Okay, great.

And we're going to miss a little bit on the fly because I don't have a.

List in front of me, um, director.

Hi.

Hi.

SPEAKER_09

Hi.

SPEAKER_06

Okay, I'm setting in for chief of staff.

Mr. Hi.

Remember, are you on the committee?

Are you joining?

SPEAKER_08

I was this was on my calendar.

Somebody invited me to it.

So I am here.

So, do I have to vote or not?

SPEAKER_02

No, no, no.

SPEAKER_08

What did you say?

No, no.

Okay.

SPEAKER_06

Great.

What Sandra is saying, John.

Camera on you and something to share.

SPEAKER_10

Good morning.

SPEAKER_06

Good morning.

Wonderful.

Um, with that motion passes unanimously.

The minutes are approved.

Second agenda item would be update.

SPEAKER_04

Okay, so let's get to it.

This is the economic and revenue forecast update, August 4th update.

As usual, we will go first over an update on the recent economic developments and provide a summary of the economy forecast, both for the U.S. and for the regional economy for the Seattle Metropolitan Division, which is against which counties.

And then as a second part of a we are going to look at the August revenue forecast.

The first step, important because those economic forecasts are used as the input in the revenue forecast models.

So some of those changes that you'll see, we are driven primarily by the changes in the economic forecast rather than changes in the year-to-day collection, revenue collection.

First, the output for the US economy.

This chart on the right summarizes the main takeaways from the July economic forecast for the US economy.

Our forecast office uses the FNP Global forecast for the US economy as the main input in the regional economic model and some of the revenue forecasting models.

The forecast from S&P Global is summarized by those red dots in the chart.

So there's four of them.

Each of them represents one of the main indicators.

The one on the top is the CPI inflation, which S&P Global forecast to be somewhere around 2.7 or so.

For the federal funds rate, again, you can see the red dot that represents their forecast for the end of the year federal funds rate.

The remaining two dots are for the unemployment rate and the real GDP growth rate.

So again, the main indicator is summarizing the outlook for 2024. In addition to S&P Global, there is Moody's Analytics Forecast summarized by the yellow dots and the Wall Street Journal median of the service of economic forecasters as a blue dot.

And the reason why we do this, we are trying to get a sense of how optimistic or pessimistic the S&P global forecast might be relative to what the other forecasters are seeing, what they are expecting for the year.

So each of those grey dots, then one of the forecasters from that survey of forecasters, there is 60 per take of them.

For some indicators, there might be more of them.

As you can see for the real GDP, there is quite a spread in their forecast.

For the other ones, they are more concentrated for federal funds trade.

You can see there's essentially just three lines, depending on how many cuts they see taking place between now and the end of the year.

Now, the main takeaway here is that S&P Global's forecast, those red dots, are not far away or significantly different from the other forecasts, from Moody's analytics, from the median survey, which gives us confidence that their forecast represents the general sense of where the US economy is heading for the year forward.

more precise represented what the general sense was in July 2014. There has been some recent developments which I will discuss, which we'll look at and that changed the outlook a little bit.

But when this first survey was done at the beginning of July, the overall sense was that the economy is performing Well, the recession has been avoided.

The overall recession probably has gone down from 60% a year ago to just 28%.

So looking ahead 12 months future, likely the U.S. will be at some point in recession was just 28% among the economies.

As a point of reference, 15% is a historic leverage.

So 28% would be elevated, slightly elevated likelihood of recession.

But again, significantly below the 60% likelihood of a recession foreseen a year ago.

For a while, essentially up until inflation started coming down at the end of 2020. they're going to be through August or July 23rd, July 24th.

Okay.

SPEAKER_06

And I know just in the last couple of years, we had a Fed meeting where they decided not to run interest rates on the stock market.

Does that change the rating today?

SPEAKER_04

Okay, sorry.

That's a very good point, and that's exactly where we're heading now.

and I'll get there in just a minute.

So looking back a little bit more at March forecast for US, now focusing on the S&P Global's forecast only.

Again, that serves as a main input for our forecast.

This red line shows S&P Global's expectation regarding the federal interest rate.

So they were expecting federal fund rate down federal uh fed starting cutting the interest rate and in general sensible that there would be a couple of cuts and you might do about one percent by your end there has been a series of rather developed uh rather disappointing inflation readings uh in the first half of um of the year which led fed to more cautious approach to the cuts they delayed trade cuts and um As a result, the revised forecast that S&P Global released in the middle of July has shown me this red line, expects rates to stay higher for a little bit longer before Fed will start cutting the interest rate and the assumption that the first cut will be delivered at the end of the year in December only.

The Fed has met recently last week and kept their interest rate unchanged.

Between now and at the end of the year, they will be meeting three more times.

The next meeting is in September.

And since that meeting last Wednesday, there has been a situation, employment situation report released on Friday, which showed that in general weaker than expected job creation, higher unemployment rate, and that was followed by a couple of reports on weaker than expected outlook for earnings of some major companies.

It was followed by a report on job opening and hiring, which again was weaker than anticipated.

And so all that then the speculations.

Very recently, and last week was why.

Quite eventful, so there have been some speculations after that report where it's released on Friday.

Better effect is kind of behind on the.

interest rate cuts on regulations that will actually have to move faster to avoid a hard landing.

And as of this morning, the financial markets are putting the probability of a rather large 5% cut at 99.5% in September.

And that's up from about 74% chance just a few days ago before the employment situation report was released.

So again, there is a general sense of concern.

The labor market is weakening and it's weakening maybe faster than what would be ideal.

And if that does not start cutting the rates fast, we might be heading into a hard landing and recession.

So that recession outlook is a part of what the S&P global includes in their July pessimistic scenario.

As you can see, interest rates are coming down fast because of the significant softening in the labor markets, significant job losses, which I will be then trying to kind of avoid by cutting aggressively.

Unfortunately, maybe not early enough.

So again, there is some concern among economists to what extent the interest rate Cops are coming, maybe be too late.

And if today, the Wall Street Journal under survey or question probably question as most likely provide slightly higher answer instead of 28%, we would more likely see something upwards from 33. So 35 to 40% probably be, that's again, just my sense of and some of those news that have been reported and some of the opinions of the economists have been asked there.

SPEAKER_09

Percent chance of recession is that just the, uh, the, the Wall Street Journal's latest or is that your definition?

SPEAKER_04

That would be the 2nd.

Yeah.

So, the lighter, um, my, my, my sense of what I have heard, for example, that we are following that we trust, um, their senses that.

The likelihood of a recession is going up.

We are not in a recession yet, but, uh.

It's definitely, there's definitely some reasons to be concerned.

The likelihood of the recession is higher.

Again, not 60% as last summer, not as low as a few weeks ago before that employment report.

And we're looking, we're watching that very closely.

Depending on how fast those rates are coming in, the recession would probably be estimates.

SPEAKER_09

somewhere between 28 and 60%.

SPEAKER_04

Well, yeah, again, 60% was highly elevated chance of a recession last year as things were looking rather bleak.

Since then, US economy has shown quite strong performance for labor market.

The GDP, the first quarter estimates came in just recently, again, very strong.

So it's not going to go to 60%, but in the next survey, there's a sense of how things are going would be, well, not as great as we saw at the beginning of July.

So the overall balance of risk kind of goes towards the time cycle.

All right, so looking at the labor market, again, what was the input for the models was back in when we were developing the April forecast, shown by this red line.

S&P Global was anticipating slowdown in job creation, fewer jobs created, fewer lower employment growth.

That strong performance of a labor market and the fact that it helped perform the expectations can be seen here again by the change between the pink line and the red line.

The expectation regarding the employment growth in the July forecast are above March forecast.

And that was the forecast that S&P Global developed before the last important report that was released on Friday.

And so that slowdown in the job growth, currently at 1.6% year over year.

And the unemployment rate that rose to 4.3% are again taken as, are not taken into account in this July forecast, something that S&P Global will build into their next forecast at the new development.

Could alter their overall outlook for the rest of the year.

I think that might see that as a red line.

down um or alternatively and or the likelihood of that uh recession probability likelihood of uh only following the thread fast baseline scenario or a dark brown pessimistic scenario ability will shoot towards that um before you move on i've been told that it's hard to hear me on the computer so that's why i'm speaking loudly i'm not yelling at it

SPEAKER_06

In each of these scenarios where you're presenting the pessimistic, that's all based on if we hit a recession, is that correct?

So if we hit a recession, then we're going to lose jobs, I'm assuming?

SPEAKER_04

Yeah, that's essentially what the chart is showing.

And so in general, pessimistic scenarios don't necessarily have to nail a recession.

In this particular case, for this particular forecast, it is a recession.

You can see that by the fact that pessimistic scenario line crosses below zero, which means year over year losses in employment.

How deep it goes and how fast it goes tells you how deep of a recession and how severe of a recession it is.

This one in particular would imply at the peak about one and a half year over year job losses.

which is considerable.

It's not the deepest recession.

It would not be the deepest recession, but it would be a significant, would have a significant impact on driving.

SPEAKER_06

The July 2024 baseline is indicating a higher level of employment than the March 2024 baseline.

SPEAKER_04

Yes, that's correct.

That's, again, the result of strong performance of the U.S. labor market, which up to the very last report was in general showing a lot of resilience, higher growth, stronger growth.

All right, now looking at the regional economy, so moving from the U.S. labor market to the regional labor market, there are, again, a couple of things that we are seeing that are concerning.

First of all, there has been this cooling of the labor market in the U.S. and the regional economy was not going at the same speed.

U.S. labor market again showed a lot of resilience.

Slow down, the cooling off was much faster in the regional economy.

Chart here shows the job postings.

So how many jobs are open and presumably hiring based on the data from Indeed.

So Indeed publishes an index that compares, that allows us to compare different regions, different parts of U.S. over time.

And what this chart here is showing The overall amount of hiring those job postings for the US as a whole are now above pre-pandemic level.

So the blue line is now somewhere around 10% to 15% above the pre-pandemic level.

So more job openings than right before pandemic hit.

For the red line, that's the Seattle regional labor market, which again includes the three counties of the statistical area.

So in Snohomish and Piers, that region as a whole, the number of job openings is more than 20% lower than in the pre-pandemic, right before the pandemic.

And what we are seeing is that the red line and blue line are both coming down, but the gap between them is So again, the cooling of the regional labor market is much faster compared to the U.S. one.

The gap is opening.

It's not opening more widely recently, but it's not closing either.

Again, compared to pre-pandemic, the element for everybody is worse in terms of the job openings.

In addition to that, the other indicator that shows weaker labor market in the region compared to the U.S. is the unemployment rate.

Traditionally, the unemployment rate in Seattle area has been lower than in the U.S.

There has been a reversal in the last couple of months, and starting from March, we are seeing unemployment rate in the region, which is above the U.S. rate.

Both of them are trending out.

unemployment rate is right now 0.2% higher in the region compared to the US.

Last indicator and that's probably the most important one in terms of the impact on the revenue forecast are number of jobs, the employment in the Seattle area.

Mateusz Piorkowski- job numbers number of jobs that we are using in the forecasting model are coming from Washington state employment security department, they are releasing a report every month with their estimates of the overall employment by region by industry.

Mateusz Piorkowski- and The line here in this chart shows their March estimates for year-over-year employment as measured not in a survey of individuals, but a survey of companies, which are essentially reporting how many jobs they have.

People might have multiple jobs.

So employment in terms of the number of jobs and its change year-over-year.

So what this chart shows that back in March 24, their estimate was that the overall employment is growing somewhere around 1.3% or around 1.5%.

Now, these estimates have been revised down and that's something that happens regularly.

There are revisions to the official numbers, more information that ESD processes.

They occasionally revise their employment estimates down, they revise it up.

What we have seen in recent past are a series of downward revisions and the very last one, shown here by that red line shows their July.

or estimates that one had brought the employment growth in the last 12 months to 0.3 year over year.

So significantly less employment growth than what was expected, what we were believing based on those, based on that report in March.

So roughly 1% less employment growth, barely about.

SPEAKER_10

Moving on, just so I'm clear.

they released the mark one looking good and then do they typically release these like on a certain sequence or are they releasing them more than they typically do which is what we're now seeing kind of the result of their they are releasing them every month so we are

SPEAKER_04

Showing here only the March and the July reports because March was used as input for the April revenue forecast and July is used as the input.

SPEAKER_10

So in between March and July where you see and then revise this down as dramatically as it is?

SPEAKER_04

As dramatically.

So these are three months.

So every quarter there is potentially a large revision.

given the way how the data is collected every quarter, there is a large amount of additional information processed, and every three months there is potentially a large revision.

In between those releases, the revision is usually much smaller.

SPEAKER_10

Okay, so it wasn't really an indication.

SPEAKER_04

No, so if we were to go back before March 2024, like I said, there were a couple of, again, significant releases, significant revisions, and they were revisions.

SPEAKER_09

Would the national trend look similar?

SPEAKER_04

In terms of the revisions or the job?

SPEAKER_09

There was a blue line on this because if job postings are lower than pre-pandemic compared to the U.S., which they're above, that was a slide before, and unemployment is going up, faster here than elsewhere.

What would job growth look like on this chart by comparison?

SPEAKER_04

That's a very good question.

And that's what this chart will try to address.

So the blue lines will now show the United States.

Again, looking at March versus July estimates for employment growth in that geographical area.

So for United States as a whole, That slowdown in the labor market is represented here by the fact that the blue line is trending down.

There are fewer job openings, slower employment growth, and it's trending towards zero.

Now, the resilience of the labor market that I was talking about is represented here by the fact that the line has moved up in the period between March and July for the US.

If we add Seattle area to the chart and those two red lines from a previous chart, here is what we get.

So now this chart shows not just the historical data up until July 2024, but it includes the forecast.

So this is a summary of the US national forecast from S&P Global and our forecast for Seattle regional labor market.

Those revisions are essentially going in the opposite direction, whereas U.S. employment forecasts have been revised up as of July, mid-July, because last employment report is not built in to the forecast.

And similarly, the only thing that we have in this chart for Seattle area is the report from mid-July for Seattle.

The July employment numbers are for Seattle, they have been already published for the U.S. and they have been for the U.S.

SPEAKER_07

It says the Seattle area is expected to lag, but I see employment growth in the Seattle chart above Washington state and the nation.

Am I reading this wrong?

SPEAKER_04

That's a correct observation.

So what this chart is saying essentially that throughout 2024, almost all the way to the end of the year, the job growth will be lower in the Seattle area, but we'll be catching up.

It's the result of some trends which are different in the Seattle area compared to the US.

The leisure and hospitality sector is expected to perform quite strongly.

The manufacturing sector has seen some setbacks, but again, in general, the trajectory for manufacturing sector is stronger growth than where we are right now.

For professional business services, the information sector There are reasons to believe that those job losses that were in this sector as major tech companies were laying off, there are indicators that the worst is over.

that strong growth that we have seen in the past for professional business services for information sector is kind of resuming and would bring the job growth back above the US level eventually just later than we were expecting before back in April to a smaller degree than we were expecting.

The other factor here is that with the interest rate cuts that were anticipated back in the beginning of July, lower interest rate would help stimulate national economy and probably improve the outlook for regional economies.

But yeah, this stack over here would be that the job growth for 2024 for Seattle regional market is just 0.7% for Washington state, 1.3% for US, 1.6%.

So regional employment probably significantly slower than state.

Very quickly here, if recession were to occur, so if the US economy were to follow the trajectory from a couple of slides before for the employment, where the recession occurs and there are job losses in US, there will be significant amount job losses also in Seattle area compared to Compared to the current level of employment at the bottom, it would be about 2.5% fewer jobs.

Comparing the baseline and the pessimistic scenario would mean that the comparison filter would be about 5% fewer jobs.

So again, significant amount of job losses in the regional economy in case of recession.

SPEAKER_01

I've got a question about this slide, but any slide that has the pessimistic scenario.

You've got a baseline.

which has been updated, and a pessimistic look.

Is there an optimistic look that the baseline is in the middle of?

I guess I'm trying to figure out how seriously or how worried we should be about the pessimistic scenario versus the baseline, if the baseline is something in between pessimistic and optimistic.

SPEAKER_04

Yes, so there is an optimistic scenario.

We typically don't present it.

It is something that we can review on and we can provide information on that.

The monthly report that we are sending for...

national forecast updates include that optimistic scenario, but and all those extra lines.

That said, as you can see at the very top, the first bullet point, there is a 55% chance of a baseline scenario and a 25% chance of a pessimistic scenario.

So what that means is that S&P believes that the balance of risk is more towards downside.

And that is, again, given the recent developments, that's the one that we are more concerned about.

we might end up closer to rather than the optimistic scenario, which right now has 20% chance assigned to it and it's 5% higher compared to March, given last couple of months have been in general good labor market in terms of GDP growth.

The optimistic scenario is slightly higher than the baseline, but it's the gap between the baseline and optimistic is not as large as between the baseline and pessimistic.

Again, the balance of risk is towards the downside.

It would be the outcome that would be quite concerning.

Again, to summarize, we do have the optimistic scenario.

We do develop three forecasts for revenue with three scenarios, and we will look at that after we move on to the revenue forecast.

All right.

A few more things on the regional labor market.

In terms of return to the office and trends there, we are not seeing significantly different things compared to the April.

In Central Business District, there is pretty much no improvement.

Starting from 2023, it's hovering somewhere around 50%.

For South Lake Union and Belltown neighborhoods, the trend is generally going up.

improvements in terms of the employees presence at workplace, Amazon and other tech companies have pushed towards their employees.

So that's certainly good news.

Now, Related to that, development in office vacancy rates.

Again, something that leaves us worried.

A recently released report on the demand for office space.

There is a smart border interface platform .

provides quarterly updates to the index that they construct, summarizing the demand for office space, and they do it for US as a whole and also for a couple of large cities.

On the West Coast, it's Seattle, Los Angeles, San Francisco.

Then on the East Coast, it's New York, Washington, Boston.

The report also includes Chicago.

So among those cities that demand for office relative to the pre-pandemic form was the lowest in Seattle.

So the demand right now sits at 47% of what it was right before, sorry, 37% right now, compared to what it was before pandemic, in the two years before pandemic.

And it's a, down from 47% last quarter.

Less demand for office space.

Seattle is one of the cities with the lowest index, summarizes the demand for office space.

For US as a whole, it's 62 compared to 65% one quarter ago.

SPEAKER_09

Do you have any idea why?

SPEAKER_04

We do have some ideas why.

So essentially the fact that the companies are still re-evaluating their demand for office space, they are trying to figure out what extent they need the office space that they have and where exactly that office space in the region or US as a whole should be.

What matters quite a lot is the industry composition of the job.

Some of them are more for some of them remote work is just easier and seattle happens to be one of the cities where the share of those jobs which can be done remotely is larger compared to some other cities there in general in that sample in that group of cities those with larger share of jobs that can be performed remotely are forming worse compared to the nation as a whole.

San Francisco is very close to Seattle in terms of the current demand and often trade displays for one of the goals at the very bottom of together with Boston.

Again, because of the large share of being done remotely, companies still don't know where exactly they're looking.

Got it.

So that also translates to the outlook for office vacancy rates.

That one is coming from CoStar and CoStar updates their forecast for office vacancy rates regularly and we are using that as an input for our regional forecast and for revenue forecast, where we believe that they are an important factor based on what we have seen best based on those statistical analysis that we perform.

The office vacancy rates, when they are high, they generally imply lower sales tax, business and occupation tax, payroll expense tax, pretty much across the board, all the main economy driven revenue are.

one way or the other and to a smaller or larger extent affected by high office vacancy rate, affected negatively.

And so again, those blue and red lines compare US as a whole and Seattle area.

The dotted line is where we are right now.

And to the right of that is the outlook, which is for office vacancy rates to continue to climb.

continue to climb significantly in the Seattle area.

There is a large amount of leases that will be expiring, and those that are not renewed will add the office vacancy rates, which are then going to come down only very slowly.

Again, very low, significantly lower demand in the office space.

Now, in addition to that, one final point here is the direction in which the red lines changed comparing the paint, the lighter red with the darker red line.

You see an upward revision of anticipated vacancy rate, the exact opposite as what forecast revisions have been for US.

US as a whole, the revision has been down.

The overall outlook is not particularly great, not much better.

than a quarter ago.

Nevertheless, it's likely they're in near-term where it's the athletes and just the opposite.

So that's essentially a couple of things that we are seeing and leave us kind of worried.

Lower employment growth, higher unemployment rates, higher office vacancy rates, slower return to the office, in general, are factors that will be Contributing to the revenue forecast and especially for those.

Unless there are some questions.

I will move to the revenue forecast.

SPEAKER_06

Yeah, post and ask questions.

All right.

SPEAKER_04

So, uh, 1st, looking at the general fund revenues and particular, the baseline scenario forecast, um.

For 2024. The change is for total revenue, the change is 3.3 million to the plus.

Taking out grants and transfers is a small downward revision, 0.2 million.

In general, very small revision to general fund forecast as a whole it's uh less than 0.2 percent um 3.3 million represent less than 0.2 of the april forecast and so not much difference as as a whole the one number that uh is larger compared to the rest of them.

It's the one for the business and occupation tax.

Before I talk about that, I should mention here that those lines which are highlighted blue are the ones that the forecasting office is responsible for.

So sales and use tax, business and occupation tax and private utilities are the ones that are Our responsibility, the blue line for fund balance transfer, that row should not be highlighted blue.

That one should be here where the payroll tax 2021 obligations are.

So that is highlighted and shouldn't be.

So again, sales tax, P&O, private utilities and payroll expense tax are forecasted by the forecast office.

The rest of them are forecasted by the CBO team.

So looking at those that our office is forecasting, the largest change there is for the business and occupation tax.

Minus 5.4 million revision for 2024 is about one and a half percent of the April forecast.

The downward revision is a result of a large refund, a couple of larger than typical refunds that we received in second quarter of 2024. together with the fact that after we look more closely at the year-to-date actual revenue, a larger than expected part were late payments, non-current payments for previous years, rather than current first quarter payments.

So that's adjusted again.

Looking at the total revenue received, it's to a certain degree the result of what has already been done with the obligations.

in previous years rather than the economy performing well in the first quarter.

So slightly lower than expected revenue for current first quarter together with lower outlook for employment for the rest of the year together with a large refund for first and second quarters resulting BNO revenues that are now forecasted to be only slightly higher year over year and they're just being down for between April and August forecast.

Again, 1.5%, 4.5 million, significant amount on its own, smaller share of BNO, 5.4 million.

SPEAKER_06

Just clarify, I think I heard what you.

I'm going to say what I think I heard you saying, tell me if I got it right.

All right.

The 5, the negative downturn of 5.4M business and occupation was administrative issue on our end, not an economic issue.

SPEAKER_04

It's a combination of a few things here.

So, you know, uh.

1st of all, um, those, those late payments are not really, um.

just the fact that some taxpayers might buy it.

We are receiving those late payments.

They're kind of as usual.

The question is to what extent, how large they are.

And what we have seen in the first quarter is larger than typical late payments, which means out of the overall revenue received first quarter rent obligations are smaller than the typical change, which means less economic activity in the first quarter.

So that means less of an economic activity anticipating throughout the rest of the year.

That 5.4 million downward revision would be primarily attributed to the slow process issues.

SPEAKER_06

Thank you.

Other questions before we move on?

All right, so small 0.2% change up for 24.

SPEAKER_04

For 25, again, not particularly large revision for general fund as a whole, but now a downward revision.

5.3 million in total, excluding grants and transfers, it's 6.9 million.

We are seeing a couple of those main revenue streams contributing to downward revision.

Sales and use tax, business and occupational tax, again, are the primary ones here.

Business and occupational tax, same story as before, slower employment growth in 2025, less economic activity and results in European tax is collected.

For sales and use tax, There is an additional factor, S&P Global has revised down their forecast for retail sales and those retail sales in US are additional thing that we are taking into account developing our forecast for retail sales in the region and that kind of revision, 1% less in retail sales in the US translates to lower retail sales, lower sales and use tax in our forecast.

4.4%, which is about 1.2% of the April sales tax forecast.

Now, moving on to 2026, Same story for sales and use tax, business and occupation tax.

The magnitudes are larger as the effect of slower employment grows accumulate over a longer period.

And then result in about 8.5 million each, 8.5 for sales tax, 8.7 for business and occupation tax.

Downward revision.

Um, those are then offset by an increase.

18.4Million in the property tax and as a result of that, the overall change for.

The general fund here is 15.3Million to the plus side, which is, uh.

which is about 0.8%.

So in terms of a large of change, it is as a fraction of general fund forecast, it's less than 1%, but in significant amount.

And the positive side, again, as forecast offsets revisions in.

Sales tax, business and occupation tax, and they can provide some additional information.

SPEAKER_00

Sure, thank you.

Yeah, and it's with the city's budget office and I'd like to take this opportunity to introduce my coworkers here who do also parts of these forecasts.

I have Joe Russell sitting at my left and online we have Alex Zhang.

And so we will be talking through these just to give you some highlights.

So on the property tax, yeah, we want to take a minute here.

So the property tax line includes both the general expense levy that the council approves every year and decides on what rate of increase, et cetera, up to a maximum of 1%.

And then it also includes the Medic One levy, and so the emergency medical services levy.

And that is coming up for renewal at a vote in 2025 for collection in 2026. And most of the changes that you're seeing here in the property tax line are due to the changes in the EMS level.

So in 2025, we have a downward minus $2.1 million revision.

And then in 2026, as Jan said, we have an increase of $18.4 million when it renews.

And so the dynamic that you have to understand about the Medic 1 EMS levy is that it's a countywide tax.

And based on county assessed value, total county assessed value, that's how the rate is determined.

The amount that the city receives in revenue from the EMS levy is based on the city's assessed value times that rate.

And so when the county's assessed value increases, it lowers the rate.

depending on what happens to Seattle's assessed value, we get that rate times our assessed value.

And so when the county's rate goes up faster than the city's assessed value, we end up getting less revenue because of just that mathematics that work out between the difference between the county's assessed value, which sets the rate, and then the city's assessed value, which determines the city's levy proceeds.

So in 2025, what's happened is exactly that.

The county's levied change the rate, our assessed values changed as well, and the result of that is less revenue for the city, $2.1 million less revenue.

In 2026, what we have is maybe to whatever it's going to be, accounting, but through the political process of determining what the rate is for the EMS We have assumed 26.5 cents here.

We don't know what it's going to be, but we've assumed a lower, a lowish range rate for the levy.

And so 26.5 cents times the forecasted assessed value of the county, and I'm sorry, of the city, yields the August forecast amount.

We do not include any forecast in the April forecast for the EMS study.

We've now got more information, more intelligence about how they're talking about it.

uh and their committee work and everything so we thought it was fair to put it in that results in this 18.4 million dollar increase at this time it will change but at this time that's what we're projecting thanks that's very helpful so looking at 26 though removing that property tax bump would that put us back in the red Yeah, because of all the other red items in sales, business and occupation utility tech primarily, but there are some others down the line there.

And so that would mean the vote would fail.

Right.

We would definitely, we have the EMS levy, and that's the vote fails.

SPEAKER_06

And of that 18 million that's in the positive, how much of that would be the EMS levy?

Technically all of it.

SPEAKER_00

The city makes general allocation to the fire department to cover their costs.

Among those costs are EMS levy costs.

So this helps.

It's effectively a general revenue.

We are giving it to the fire department so they can do emergency medical services.

At the end of the day, it increases our general fund of total available resources for general government.

SPEAKER_01

a lot of other costs, that this is a partial down payment in the fire department.

Right.

SPEAKER_06

still hitting the bottom and slow growth is so slow that it's not making an impact on our budget right now yeah and i mean for property tax it's if you're speaking about the property tax alone i was talking about it the whole thing yeah from going back to the whole whole cake rule i think that's effective yeah so going back to the whole amount and how what these all means uh

SPEAKER_04

So yeah, taking out the 18.4 out of 2026 would result in negative three point, around three million down.

So about 0.2% downward revision.

So similar in size as 24, just going in the opposite direction.

So across those three years, it would be adding up, it would be totaling, around minus five and a half million for three years total.

That's including grants and including transfers.

The situation looks slightly different if we exclude those.

How much?

One important thing here is that it's a change between the April forecast and the August forecast.

It's not really saying that the year over year we are seeing and we are forecasting decreases in the overall revenue.

just a change between what we were believing the revenue will be back in April and the current forecast.

When it comes to the annual growth of the revenue, there is a line at the bottom right above Seattle inflation rate forecast.

Those percent amounts are the year over year changes in the general fund excluding the grants and transfers.

So for 2025, Brands forecast expects about 2.3% increase general fund, excluding brands and transfers for 2026. Again, this includes the 18.4 in property tax, but, uh, the gross would be 4.3%.

SPEAKER_08

Yeah, and what I mean, thing that I'm looking at here.

It seems consistent is, you know, and sales going down.

regularly from now until 26. So even though the levy has that at 18.4, it doesn't change the fact that we're having some sales and B&O issues consistently.

SPEAKER_04

Yeah, so throughout those years, the business and occupation and sales forecasts have been revised down and that's why we're seeing all those trend numbers in those three lines.

We're looking at how much they change over time.

For sales tax, it's 339.9.

So let's say 340 million for 23. slightly down for 2024, about 1 million down.

Then the growth is expected to resume just again, not as strong of a growth as we were expecting before, but sales tax increasing to 352.7 and then increasing to 307 in 26. That was our belief back in April.

Right now it's a slightly higher forecast for 24, So year over year, pretty much unchanged at 340 million.

For August, we have already brought down the forecast by 4.4 million, but it still represents a year over year growth for sales tax.

SPEAKER_08

And not as high as it's been, which is why it's leading to the negative.

SPEAKER_04

Not as high as it's been in the past and not as high as we were expecting.

Expecting, yeah.

SPEAKER_08

That's a reality.

SPEAKER_04

So slower growth.

for the main economy .

Yeah.

SPEAKER_08

No, that's my point.

Yeah.

Yeah, which is of concern.

SPEAKER_06

Yeah.

I was just saying, thank you, Jan, for pulling out the annual year-over-year, because I was in a very negative headspace just seeing the April to today, but the year-over-year, while it's not great, it's not bad.

SPEAKER_04

It's not terrible news, but we wouldn't call it good news either.

That's the reason to be concerned.

SPEAKER_06

Concerned, yeah, exactly.

Reason to be concerned with the issues or some reason to hit a recession in the next month or something in the next month before the feds can step in to change interest rates.

If something falls out this month, then this is going to be our best line, not our worst line.

SPEAKER_04

That's a good point.

So if things, if a recession would indeed occur and the employment Roles will continue to deteriorate faster, even with interest rate cuts like that, they might be just too late to cut the interest rates, too late to avoid hard landing or recession, and that would translate to further downward periods.

SPEAKER_08

That would change this, is what you're saying, yeah.

It would, yes.

SPEAKER_00

It would likely take more than one month to determine all of that.

SPEAKER_04

That's true.

So in between this forecast and the one that we are delivering in October, Fed will meet in September.

Markets will closely look at how much the interest rates are coming, what the overall stance of the monetary policy is.

We will receive a few more employment situation reports, which, again, would matter quite a lot for the generals.

Uh, labor market leads help strong the economy is, um.

That that can significantly alter what I'm seeing here.

SPEAKER_08

But the other highlight point on with that is that Seattle's been trending worse than the nation.

It was, yeah, and that.

SPEAKER_04

Is the reverse of where we were, so again, with the employment revisions for employment data, we are going to closely see how.

In which direction the moves their employment grows, uh, estimates.

If there is another download provision that was really push us.

Growth.

Number of jobs.

So if it's an upward revision, it's going to be a little bit early.

SPEAKER_09

But the issues, the things that I always look at this in terms of what do we have most control over?

And that is business activity, economic growth.

And so the indicators that I'm always looking at are the B&O tax and the sales and use, because that is a window into what are people doing out there in our economy and in health and so on.

SPEAKER_08

Yeah, when the policy, yeah, that was the considerations that will that will help.

Right.

Um, prevent.

Yeah, it's the most elastic to correct decisions.

Correct.

That are within our control anyway.

More within our control fully.

SPEAKER_04

Okay, so this is a summary of, uh.

We went over and so moving on to.

Other revenue streams to select major revenue streams outside of the general fund.

And the largest of them, the payroll expense tax.

Table here summarizes payroll expense tax without a 2021 obligation.

So we're included in the previous slide as they are still deposited and in case of refunds is drawn from a general fund.

All the other obligations starting 2022, they are going into payroll expense tax fund reported separately on this slide.

Their forecast has been revised up for 2024 by about 9.7 million.

The other large revision for 2024 is the REIT forecast revision up by 4.9 million.

We have seen a couple of large property sales in the second quarter of 2024 that brought in a couple of million above what we were expecting.

After a long time, larger real estate properties were sold.

That led us to improve the forecast for ETH.

Other than that, very small changes for 2024 in the remaining revenues.

For 25, again, an upward revision for payroll expense tax, minor downward revision for REIT.

And finally for 2026, here, payroll expense tax Revision up by 14.9.

Very small change for REITs.

So essentially REITs 25, 26 offsetting each other and the outlook unchanged, other than the 24 increase.

SPEAKER_09

Was the REIT changed in Olympia this past session?

Has it increased?

SPEAKER_04

I think it was a little...

Their forecast?

SPEAKER_09

No, it was the...

I think the legislation...

The legislation...

Okay, so this is...

Good, thanks.

SPEAKER_01

What it didn't okay.

SPEAKER_09

Got it.

SPEAKER_01

Could you talk a little bit about how the.

I understand the payroll expense tax applies only to select businesses and of those businesses only to the highest paid employee.

High paid employees within eligible businesses tax.

So, it's a subset of the total workforce we saw in previous slides that the Seattle area has.

in increasing unemployment, decreasing employment?

How is this forecast put together that comes up with good news at that subset of total employment?

SPEAKER_04

Right.

So this particular revenue stream is unlike the other economically driven revenue streams of changes in total employment matter less.

That said, there is still the impact of changes in employment if it's within the sector that forms the tax base for these particular revenue streams.

And in general, lower employment in that particular sector would lead to lower forecasts for this particular revenue stream.

Now there's additional things that affect the forecast in terms of...

in terms of how important they are, the stock market output is the one that matters significantly more and can bring out in forecast being revised in the exact opposite way as sales tax, business and occupation tax.

SPEAKER_01

And is that basically that people are getting paid more so that there's more to tax even if maybe there's slightly fewer of them?

SPEAKER_04

That would be basically what's going on.

So if there are, even if there are fewer employees, If the compensation per employee goes up, because a large part of the compensation is tied to stock grants and the stock prices are growing significantly, you can see what we're seeing in that forecast.

Not today.

Well, right, so looking at the change in the stock prices outlook, and again, it's important to note here that What the chart is showing are the outlook from March.

Those are the trade-offs and the July before the events of the last week, before today's stock price movements.

So back in March, the overall outlook for stock market was very, very positive, very, strong growth among some of the main regional employers.

And that has not changed significantly between March and July.

So moving from those anticipated stock price changes back in March to what's currently anticipated for the rest of the year and calculating the overall change in the stock price, 24 over 23, company by company.

The stock price outlook, again, a week ago when this data was compiled, was pretty strong.

The overall growth for SAP 500 in July, the global forecast was 23% for this year, up from 19% forecast in March.

Overall better outlook for the stock market.

These things can change significantly in the October forecast if the current situation in the financial market continues, if stock prices are trending down as they are now, if they are not recovering significantly.

Like we see those two dots move to the left.

How much to the left is hard to forecast.

In general, the data here tries to provide some sense of how much uncertainty there is regarding stock price changes.

The line around each dot goes from the low to the high estimate in data.

This is data that is compiled from Wall Street Journal analysts who are essentially providing their outlook on stock prices company by company.

But occasionally there is large amount of uncertainty and that's represented again by the fact that those lines can be quite long, quite large range from the low to the high estimate.

In general, as we are getting closer towards year, those lines will be shrinking and the point will be where they eventually end up, but we still have more than half a year to go there is no guarantee that the actuals are far away from those blue dots where they are right now, especially if labor market underperforms, financial markets perceive that the economy is heading for a hard landing and there is no way for us to avoid that because it's too late.

SPEAKER_01

Do you end up weighting these?

I mean, I see the companies that you're looking at, some of them have bigger workforces in Seattle than others and are therefore subject to the tax.

How does that end up affecting?

SPEAKER_04

So these couple of companies are here just as a representative example.

It's not exactly the companies that are subject to the tax.

Large taxpayers, the amount of taxes imposed depends on where those employees are located.

There is a primary assigned versus hours method that the companies can use to assess their obligations.

All that said, we are trying to include the information that we have to forecast the revenue, looking at what we have seen in the past.

We only have three years of tax collection, so very limited experience with this particular tax, but we have seen some statistical irregularities, how the tax base and tax obligations change.

At the same time as merit, we have seen some large movements in stock prices for those taxpayers.

So we are bringing that in and trying to do our best with the limited experience with the limited end of it.

SPEAKER_07

Thanks.

Yeah, Tom, Mike, so with the question.

SPEAKER_04

Yeah.

SPEAKER_05

Good morning, everyone.

Thanks for the opportunity to chime in.

So given the limited track record with the PET, What's happening with the stock market right now?

What's the argument for using a baseline forecast for this revenue source as opposed to pessimistic?

SPEAKER_04

So, we are.

Um.

If this question can wait until we get about two slides into further into the comparison of those scenarios, that would be probably better timing.

But can you just hold on with that question?

SPEAKER_99

Sure.

SPEAKER_09

With bated breath.

SPEAKER_04

Yeah.

SPEAKER_09

All right.

I just want to, it sounded like where Director Peter was going with his line of questioning, correct me if I'm wrong, is that with the in the red or the negative, the downward trend in some of our revenue sources and the PET consistently outperforming original expectations or going up, what you're saying when you're looking at this graph here with this list of companies is a lot depends on our tech sector, right?

I will just go ahead and say it.

And so keeping those jobs here, is important.

It seems like, I don't know if all of these companies listed here do have offices in the city of Seattle.

Is that something that we should be taking away from why this information is displayed here?

SPEAKER_04

here to provide some kind of first of all just provide some information where we are what we are basing our forecasts on and then second thing is there are some risks to the forecast this chart is again here to provide some some things that highlight some of those risks tax base that's very narrow, less than around 500 businesses.

A lot of them are in the tech sector, information, professional and business services, trade sectors.

And a large share of the overall revenue is just a handful of taxpayers.

So it's about 70% collected from top 10 taxpayers.

So those are the couple of things to take into account.

The fact that how much we are going to collect will depend on the decision of those companies, decisions where to grow, where to create additional jobs in the region matters for the tech space.

It's something that we don't have in our forecast, we cannot count for because we don't know what their decisions are, but they are certainly subject to, they will be responding to policies.

All right, so before we discuss our recommendations for scenarios, recommendations which scenarios should be adopted as the official forecast, here is a quick comparison for those main revenue streams, the largest revenue streams that are responding to, they're economically driven.

So one thing that this chart excludes is the property tax, because it's small, but go back.

Property tax is roughly in the same ballpark as the other revenues, around 400 million source by 2026. So that compares, it's pretty much same as business and occupation tax, very very similar as business and occupation tax very similar as sales and use tax it's not included here because it does not really forecast do not really vary that much across those scenarios and it's mostly not saying that they do not vary at all but much less than some of these economically driven revenue.

So sales tax, BNO, and in particular payroll expense tax are the ones that are where we see the big differences between scenarios.

A pessimistic scenario and economic downturns would lead to a decline in sales and use tax in nominal terms.

The decline is much less notable in OTEX, but here we have to take into account that when we are talking about recessions, we are talking about real declines in general, not declines in nominal terms, which are not necessarily what we are seeing.

It depends how deep the recession is.

And then for payroll expense tax, again, the amount of uncertainty here is much larger than for any other revenue stream, even how much it depends on the stock market.

And given our relatively limited experience with this tax, there is a larger amount of uncertainty in the forecast area.

And so, looking more closely at what exactly those differences look like in terms of dollar amounts, the table here summarizes first pessimistic relative, pessimistic scenario relative to the baseline and the other side of the table is optimistic scenario relative to the baseline.

Overall, As expected, the impact of a pessimistic scenario would be quite significant.

Would be a much larger change in the forecast than what we have seen in the general fund revenue table.

in general revisions less than a half percent these amounts here for total general fund 25 million 67 86 million those will be significant uh reductions to the general fund um for payroll expense tax again if financial markets underperform and this is not yet taken into account the recent developments in stock market prices uh The lower end scenario, based on the beginning of July or end of July, but before last week events, the data suggests significantly less payroll expense tax revenues collected.

I have talked about the assessment of those individual scenarios by S&P Global.

Just to summarize, S&P Global sees the baseline scenario as the one that's assigned about 55% probability compared to 25% for the pessimistic scenario.

There is some upside, 20% remaining.

That's the optimistic scenario.

But again, risks are spewed towards the downside.

SPEAKER_06

Jan, I just want to jump in and check in with Tom.

Tom, did the answer to your question on that last slide meet your needs?

SPEAKER_04

Probably not, but I'll get to that in two black points.

Yeah, and then let's check this.

So...

The forecast, the baseline forecast from July, basically global forecast from the beginning of July when compared with the Moody's analytics when compared with the rest of the forecasters is not far from the average, not overly pessimistic or optimistic.

That's one point in favor of going with the baseline scenario forecast.

And again, some of those forecasters might have alternative forecast and what they provided for the survey is the most likely future best for the US economy.

And there's a couple of things that happened since then, weaker employment, and increased worries about a possible recession.

We have seen regional employment growth revise down and regional labor market growing slower than the national one.

And then there's rising office vacancy rates and the initiative 137. There are some additional things that pose risks to the job growth and cities' revenues in general.

Taking all of that together and looking at what we are recommending as a scenario to be officially adopted or as the official forecast, we are still considering the baseline scenario to be the one that's going to be most likely closest to the actual outcome.

That said, for individual revenue streams, there might be revenue streams which are going to be more negatively affected in case some of those risks do materialize.

But as overall for general fund, given the current still reasonably solid expectations regarding the US economy's performance.

The baseline scenario would be the one that we are recommending.

The forecast for the payroll expense tax itself The baseline scenario is not as closely linked to the baseline forecast from S&P Global, but it does represent, again, the overall market's outlook and assessment of a situation in the stock market as of the time when the data was available.

So we could wait and if the data was available already to include those changes in last week, we would most likely change the forecast.

What is happening in the financial markets right now with stock prices might be a bit of a panic reaction and things might stabilize a little bit because the economic fundamentals are, again, if you're looking at them, not as bad as things look like.

The increase in unemployment rate, for example, is to an extent the result of a higher supply in the labor market, which is not necessarily a bad thing.

It would be different if the unemployment rate was increasing because jobs are being cut and there is a reduction What we are seeing in the labor market in the US is job growth and at the same time, unemployment rising, which means more people entering the labor force and looking for the jobs.

So some of those, and again, just, Speculation, some of those changes in stock prices might be just the effect of trades that are being triggered automatically once certain thresholds are hit, once some statistical irregularities suggest that there is a recession coming in.

But the overall sense of the fundamentals is that baseline scenario is still the one that imply recession avoided even though there might be some significant slowdown expected and if that becomes uh and if that indeed cuts the interest rate by 50 percent as the financial markets are expecting there would be um the stock prices would likely stabilize and the overall output would not change down dramatically that said there is a lot of uncertainty and now I don't know if that answered the question, Tom, or if you have any follow-up.

SPEAKER_05

Yeah, no, I appreciate the explanation, and you all do fantastic work, and it's evidenced by the forecast variances on those revenue categories with which you have a lot of experience.

We just do not have a lot of experience with this one, and you can see it in that prior graph that you showed where there are the three different lines between the scenarios.

That is a very wide confidence interval, if you will, and so I just tried to get that kind of voice in the public domain in a way to suggest that we're dealing with limited information and a lot is hanging on the stock market in particular on this payroll expense tax category.

So it just seems like it's in a different context as the other sources with regards to the baseline pessimistic and optimistic categorizations, not least of which the underlying dynamics of how those different forecasts are generated seems to be coming from a different place, and that's stock analyst picks as opposed to S&P Global's underlying forecasts, if I understood that correctly.

SPEAKER_04

Yeah, so yes, we do have limited experience.

We have seen years where payroll expense tax significantly outperformed the expectation, the year where it significantly underperformed the initial forecast, and then again, the year where revenue collection was higher than expected.

In general, even with more data available, if...

These compensations are tied to stock price changes.

Given how hard it is to forecast stock prices, this stream will never see forecast errors as small as the one that you're referring to for the other one.

It's going to remain a largely volatile revenue that can change year to year, forecast to forecast significantly.

SPEAKER_06

Calcutta, do you have a question?

SPEAKER_08

Thank you.

I have two questions.

One is on the job growth.

I understand what you're saying.

We have more jobs available.

People are entering probably at a higher rate, but just we have more jobs.

I'm wondering over time, I know there's certain jobs that we're struggling to fill, like, you know, we don't have enough workers.

We don't have enough construction workers.

We don't have, you know, the trades.

over time, you know, these folks need to get, I mean, people need to choose, young people need to choose those jobs to fill those jobs over time.

So how will that impact all of this if we continue to see the, you know, job growth high?

We're still filling, but Do you see what I'm trying to say?

I don't think I'm articulating it properly, but we're going to have a lot of open jobs because we don't have the folks to actually fill those jobs.

How does that impact all of this over time?

That's my question.

SPEAKER_04

Yeah, or does it not?

We have, uh, I've only presented here at the total employment changes.

Uh.

year-over-year changes in total employment.

We do have data for individual industries and we are looking at those closely.

That's data on the total amount of jobs.

When it comes to job openings, there is less data available on that by industry at the regional or local level.

There is a data source for US as a whole where we can track which industries have a large amount of job openings, but it does not allow us to see where exactly in the US they might be on the regional level.

There is state-level data, but for original data, there is always a problem with limited data availability in terms of how exactly are their individual industries performing, where exactly those job openings are.

So what we are trying to do is do the best we can with the data we have, which is mostly the employment data and then job openings as a whole for the industry, not by industry.

SPEAKER_08

Thank you, Jan.

And then the other question I had was when you say that Initiative 137 poses additional risk, can you talk a little bit about that?

SPEAKER_04

So that goes back to those charts that we were presenting on the office vacancy rates and how the office vacancy rates are likely to increase in the future, which means that for Any employer deciding where exactly to create jobs, there is going to be a lot of options available.

And these employers are likely to take all the incentives, all the impacts of policies on their incentives to create jobs in dual account.

whenever there is a policy that increases the business cost substantially, there is something that businesses will have to make decisions where to locate for not just one year, but for a longer time.

That's certainly a factor.

There are a couple of things regarding this initiative that make it a risk.

Unlike sales tax or B&O tax, there is no limit on taxes imposed on payroll.

So the fact that it's 5% now does not guarantee those businesses that it's going to be 5% and there isn't going to be another proposal to increase the cost.

So that's probably something that they will take into account.

In the proposal, there is no adjustment for the inflation, which means that the current threshold of 1 million will stay at 1 million.

There is no sunset for this policy.

And so eventually, over time, there will be more and more employees moving into the bracket.

Again, something that the employers will likely take into account.

extent that these economists believe that employers do respond to incentives particular incentives which uh um policies which are very local in their nature um and affect only a handful of employers or not a large number of employees um those are the kind of policies that uh It's hard to estimate because we don't have any statistical data on those, but we do have some reason to believe, given the past data that we have seen,

SPEAKER_08

And some assumptions based on our, our higher vacancy rates than nationally.

SPEAKER_04

We're making an assumption, but that is something we are taking into account the chart here shows Seattle.

Um, and this is city of Seattle.

Um, we can see rates.

We do have access to data that provides us with office vacancy rates for other.

um parts in in the region and uh allows us essentially to see where exactly there might be a lot of space available or how much space there might be available these companies again we'll we'll take that into account If we do see, going back to the risk for the revenue, if we do see a large number of jobs, which are not created in Seattle, but in other parts of the region, that would mean lower employment growth in the city, which means less BNO taxes, payroll expense tax being negatively affected.

Again, that initiative 137 is something that the city would receive.

It would lower the payroll expense tax revenue that the city gets to receive.

For REIT revenues, for example, lower demand for office space in general lowers the asset values for real estate located in the city.

And whenever there is a transaction that involves a sale of those properties, city collects revenue on top of that with lower values of office towers, lower demands for office space means less revenue.

Sales tax, again, fewer employees present means less revenue in restaurants located around the cities.

Then the other thing that would matter were exactly those people reside, how much they go to the office, depending on the residence of the person, the purchases made by the individual might not be subject to the sales tax.

And that's again, It's something that's harder to take into account, but if a person's job is located outside of a city of Seattle, that person might reside in Seattle and commute if it's easy, in which case the sales tax will not be strongly affected.

and purchases by the person, but if the person decides to locate and reside closer to the office, which is further away from Seattle, we are losing the part of the sales tax revenue where the person making online purchasing, driving outside of Seattle, it's not something for the local sales tax agency, but the sales tax jurisdiction where the person decides to go.

SPEAKER_03

And I see a risk of it increasing again.

I think there's just an inherent uncertainty now about what is this.

And that creates its own incentives.

SPEAKER_09

Didn't it increase twice?

SPEAKER_04

There were proposals to increase it every year.

The payroll expense increased once last year.

And this will be another increase.

So depending how you count the first, when it was introduced as an increase from zero And this will be the surge.

SPEAKER_03

As opposed to being cut up over time, but it has a cap sale.

It is bottom line and it's uncertain.

On the who will fill the jobs thing, a classic way for economies to respond in short term is with immigration, whether that's at a national scale or a local scale.

And I think we see that in terms of the diversity in this region's population as the tech sector has exploded.

Some of that is driven by immigration.

And interestingly, at a national scale, a lot of this general recognition of one of the reasons that we potentially have engineered a soft landing, although all of a sudden there was about that, is that immigration has actually helped keep the job market relatively open and kept creditors down on wages.

So despite all the political rhetoric, it's actually probably been a key driver in making the economy continue to grow in this financially constrained space.

SPEAKER_08

Thanks, Ben.

Yeah, I just wondered long term what that would do to the forecast if that.

SPEAKER_03

Figure just keeps expanding, but I mean, long term growth of us, you know, constrained potentially by the number of people who are there who are eligible for us from for a long time.

But there are kind of before it is and again, um.

Immigration is the classic solution.

Struggles.

SPEAKER_04

Thanks, John.

SPEAKER_06

I believe that this brings you to your conclusion.

SPEAKER_04

That's the final conclusion.

Yes.

So we, after acknowledging all those risks, we do recommend the baseline scenario for both regional economy and revenue forecast.

I'm taking into account the fact that it's likely to move towards downside, but we do believe that the basements are one that would be the closest one to the actual outcomes.

It's most likely closest.

SPEAKER_06

With that, is there any more discussion?

I know that we've just had discussions throughout the entire presentation.

That's great.

It's easier to have it that way.

So if there's no further questions, we can move on.

this forecast so per the ordinance that created the forecast box in the forecast review and approve the forecast in terms of approving the forecast we concur with this recommendation no formal vote is required the goal of the legislation was to move this over forecasting and receiving recommendations from staff from a staff of independent experts independent experts that you all are That said, we are all separately elected.

So I wanted to, I am comfortable recommending based on the scenario.

Are there any, is there any opposition to that?

I'm seeing none.

So no objections.

I'll direct the forecast officer with the recommended forecast of the baseline August 24th.

SPEAKER_08

Anything else just a question about whether this information is already public.

Um, or can we talk about it?

SPEAKER_07

I guess is my TV right now.

SPEAKER_08

Yeah, that's what I thought.

But I, I came a few minutes late and I wanted to make sure I just want to clear it.

SPEAKER_03

It wasn't public until you walked into the thing.

You will.

Okay.

This is great public.

SPEAKER_04

and so simultaneously with the executive and the council this is the initial structure of the forecast office great thank you materials we have presented are available on our website um we will post the forecast tables as spreadsheet files

SPEAKER_03

The plan is to have the meeting structured to the remaining council members as essentially visitors to the meeting so that everybody gets it all at once.

Otherwise, there's a briefing plan later this week for the remainder of the council.

So that way, it's an efficiency thing and an effective thing, but a new approach.

I don't know if that makes sense.

Well, that's raising that idea.

SPEAKER_08

I appreciate it too, especially because it gives us the opportunity to ask questions in a way that we're not able to, if we're just getting reading it online or watching the presentation.

So, thank you for that ability to ask questions, even though I was just here observing.

SPEAKER_06

Yeah, and, uh, kind of just saying, this is our formal agenda.

We are adjourning and I'll remind colleagues in the public.

We will have another forecast council meeting on October 27. Well, and so you all need us down in the Chamber rather than hearing 370 and I know that you'll be presenting a committee this Wednesday.

So we're excited to have you there.

There are no further questions.