Committee on Finance and Housing, May 17, 2023

Good morning.

Thanks so much for joining the finance and housing committee meeting of the Seattle City Council.

Today is Wednesday, May 17, 2023, and the time is 9.33 a.m.

The meeting will come to order.

I'm Teresa Mosqueda, chair of the committee.

Will the clerk please call the roll?

Councilmember Herbold?

Here.

Councilmember Peterson?

Here.

Councilmember Nelson?

Councilmember Lewis?

Madam Chair, that is three present, two absent.

Colleagues, we do have a full agenda today.

Thank you for joining us both virtually and in person to continue to help reduce any communicable diseases, including the flu, which happens to be at very high rates this year and claiming more lives than usual, and ongoing cases of the COVID-19 virus, though we are very thankful that the rates of infection and hospitalizations continue to go down.

I'm going to turn it over to councilmember lewis.

we have a lot of people who are not able to participate online, especially if they don't feel well.

In today's finance and housing committee, we have an update on the general fund financial plan, an update on the office of the economic and revenue forecast we're going to have the opportunity to hear a report back on the April forecast.

the general fund financial plan and the central staff report out from Tom Mikesell.

we will go ahead and have Director Ben Noble and our team from City Budget's Office up at the beginning.

Okay, we do have at least one person signed up for public comment.

On today's public comment, we will happily hear from anybody who dials in.

Again, you have two minutes to provide your public comment and you will hear a chime when there is...

when there is no, when your time is running out, that's your indication to wrap it up.

At this point, I see Katie Wilson on the line.

Good morning, Katie.

Thanks for joining us this morning.

Do we have Katie?

Oh, yes.

Hey, can you hear me?

Good morning.

Hi, good morning.

Hello, council members Katie Wilson here speaking on behalf of the transit writers union.

We are very concerned about the city budget offices direction to departments to hold back 14Million dollars in jumpstart spending this year.

We understood that the city's commitment was to maintain the 220Million dollar baseline of investments that were estimated to be available in 2023 when the tax was passed back in 2020. We understand their revenues from Jumpstart are still coming in over these budgeted expenditures, so we don't think there's any good reason to deprive vital programs of the funding that they've been counting on.

Requiring departments to make these cuts will have a direct and negative impact on the communities that the City of Seattle committed to serving with these funds.

These cuts would reduce affordable housing development, reduce small business support and workforce development efforts, They'll reduce funding for community-based organizations that are building capacity, acquiring land, and doing major capital projects.

And they'll delay or derail projects to establish climate resilience hubs, indigenous-led sustainability programs, and convert homes to electric heat.

In just a few months, the August revenue forecast will give the city a much fuller revenue picture.

So we urgently ask you to remove the holds on funding for all of the departments funded by Jumpstart Revenues.

and work with the community after the August revenue forecast is known to collectively address any near-term revenue gaps.

Thank you.

Thank you very much, Katie.

And I don't see anybody signed up for public comment in person.

Is there anybody else who is interested in providing public comments on the line that we might not have let in yet?

All right.

Well, thank you so much.

And if you do have additional public comments that you'd like to provide, you can always send those to council at Seattle dot gov. And I. I believe we will.

Oops, sorry, I'm just getting a message from someone that they are trying to dial in and not able to.

So if there's any concern with our public comment options and people want to continue to dial in, let's leave that screen open for a little bit in case there's been a glitch of some sort.

All right.

With that, we're going to go ahead and move on.

Oh, I do see Jesse Simpson.

Jesse Simpson and Katie Garrow.

We'll just give it one minute here.

Okay.

We can come back to anybody who wants to provide public comment.

Maybe we'll move on to agenda item number two.

Madam Clerk, could you please read agenda item number two into the record?

I have a motion and a second.

I have a motion and a second.

I have a motion and a second.

I have a motion and a second.

I have a motion and a second.

I have a motion and a second.

I have a motion and a second.

I have a motion and a second.

I have a motion and a second.

I have a motion and a second.

and we have a chance to hear from folks in the subsequent Finance and Housing Committee meetings.

In last month's Finance and Housing Committee meetings, we have actually put those on hold to have a chance to get into the housing levy, which all of our council members participate in.

So this is the first chance that we've had to hear from our Office of Economic and Revenue Forecast on the April forecast.

And it's also the first chance that we have to hear from the City Budget's Office on any additional revenue streams that are under their purview to provide a fuller picture of the revenue forecast.

Thank you.

Director Noble, before I turn it over to you, I do see one more person that signed up for public comment, so I'll allow them to go for their two minutes.

And Jesse, thanks for dialing in.

Sorry for any technical issues that we're having on our end.

Please go ahead.

You have two minutes.

Hi, Councilmember Teresa Mosqueda.

Thanks for the opportunity to testify here today.

I'm Jesse Simpson, Government Relations and Policy Manager for the Housing Development Consortium.

I'm just about to send in a letter to council and the mayor's team about our concerns regarding the jumpstart spending plan for 2023, specifically the $14 million hold that we hear departments have been, $14 million hold back and spending that departments have been directed.

We think that this violates some of the agreements and all budget process to allow jumpstart to temporarily fill a gap in the 2023 2024 general fund.

I think that we need to retain the commitment to the original jumpstart spend plan maintain the $220 million baseline jumpstart investment that were estimated to be available in 2023 when the taxes originally passed.

and to replenish jumpstart equity investment priority if the general fund revenues are higher than assumed in the operating in the adopted budget.

With the April revenue forecast showing 2023 general fund coming in 74 million higher than anticipated.

We see no reason to direct department understand budgeted jumpstart revenues in 2023. reflecting a anticipated reduction in Jumpstart revenue itself especially when the fuller revenue picture will be known in August just a few months.

These holds have a direct impact on the communities that the City of Seattle has committed to serving with equity and focused investments in the Jumpstart spend plan and it will have tangible negative effects on our community.

I urge you to remove the holds on funding

and we will keep an eye out for that letter you mentioned.

With that, we will go ahead and move it on over to our economic and revenue forecast director, director Ben Noble.

Of course, the team from city budget office is on the line here with us as well.

We will turn it over to you for any additional context to round out the April revenue forecast projections.

Good morning, Chair Mosqueda, and thank you for the introduction.

I'm going to dive right into this.

I am joined by Jan Duress and Sean Thompson from the Office of Economic and Revenue Forecast, and by Dave Hennis and Alex Yang from the Budget Office.

And I'll lead the presentation, turning it over to the Budget Office for a couple of particular areas of their specialization, and then may call upon others in terms of addressing questions.

Next slide.

So this presentation is largely a shortened version of the one that we provided to the Economic and Revenue Forecast Council, which again, if you recall, includes representatives from both the legislative and executive branches.

We presented this April forecast update in April.

I'm going to bring it to you now.

One of the things I wanted to highlight is that the economic conditions that underlie our forecast update are essentially from the middle of March, because we process them for a couple weeks and then deliver the forecast at the beginning of April.

We're now into the middle of May or so, so there's been some time since we made the initial presentation.

Much of what I'm going to present is unchanged and I'm intending to present it so you have the context that was then present when we when we developed April forecast.

That said, I will come back at the end and make a few few comments about what's transpired since we since we developed the forecast.

Just in terms of kind of broader context, recall that the last forecast before April was one that we delivered in November to the city council as you were deliberating and taking final budget actions.

And it was based on information through essentially the middle of October.

So we're basically five months on by the time we did the April forecast.

So there was a significant amount of time that's passed.

So as highlighted here on this page, we're going to start giving kind of just a general economic update, what had transpired since November.

as kind of feeding the April forecast.

Then we'll look at both, just one slide each, the national forecast.

We use a national forecast to develop our regional forecast.

So the national forecast projects jobs, employment, income, inflation, and the like out for several years.

We feed that into a regional model that does the same.

And then we use that regional model for the revenue forecasting itself.

So we'll talk about the national model, the regional model, then we'll dive in to talk about the revenue forecasts themselves.

First, the general fund, and then some key non-general fund revenue sources, in particular JumpStart and REIT, both of which are significant revenue streams and, as you'll see, are significant components of the forecast update.

And then, as I mentioned at the end, come back and just give you a couple highlights on what's happened really since April.

I think there's some pieces there that are relevant.

Next slide.

And one more.

Basically, as we were developing April forecast, relative to November, things were and are better in the sense that we had the forecast that underlied the November estimates had assumed that we'd fall into a slight and a minor recession in the first two quarters of this year, 2023, and that we'd finish somewhat weakly in 2022. And that didn't happen.

The fourth quarter, that late third quarter and the fourth quarter were quite strong.

Excuse me, both nationally and regionally.

So, at a national level, we're adding 300,000 jobs a month.

Inflation had been running as high as 9% locally in June, excuse me, even nationally 9%.

It had fallen to 7.5% in November, but since then it's continued to fall.

February was down to 6.0% and then fell again in the most recent announcements.

So we were getting stronger job growth and we're an inflation was still high but coming down so again things were generally good, there were some significant risks eat that were apparent in the April timeframe, the.

Silicon Valley bank and signature bank had just been just failed.

And in general.

sense that that was going to tighten lending markets, it was going to be harder to borrow money, which was going to have the effect of slowing the economy overall.

We'll talk some more about that.

And in fact, we had seen that starting to happen.

And we'll show you some data to give you a sense of what's happening in the local real estate markets, but similar patterns nationally.

And then, in terms of risk, one of the things that's the strong jobs are both good news and bad news I'm good news because employment growth is always good.

Bad news because it's going to increase pressure on inflation, which in turn is going to lead the Fed to crank up interest rates and they they've taken that action actually since since the April forecast.

So there's some concern that the strong job growth is going to lead to ever more pressure on interest rates.

And then the last risk that was identified in April and is now only ever more present is the debt ceiling and the concerns about whether there will be an agreement on that and what the outcomes might be if there is not.

So overall, things were better than we had been forecasting, and you'll see that in the numbers.

So revenue forecast for many of the revenue streams are up because we did better at the end of last year and are expecting to do somewhat better in near term.

But there are risks out there.

Next slide.

So this slide highlights that a lot of what we're seeing in the economy is being driven at present by the Federal Reserve Bank and the actions that they are taking to try to cool the economy.

So on the left, you have a chart that shows, in orange, the federal funds rate, so the interest rate that the Fed charges to banks is the interest rate you hear about them changing.

You see the 30-year mortgage rate, so that's if you're going to buy a house, that's the interest rate you would pay.

It's also just a general sense of kind of what it costs to borrow, whether you're in private business or trying to buy a home.

And then the last line, the gray line, is inflation.

And we tend to think of the orange line as causal here and is driving change.

Edward Weinberger, Ph.D.: : In the early part, the middle of last year, the Fed started to raise interest rates, because it was concerned was concerned about the top line, but the Gray about inflation and that it had been.

Edward Weinberger, Ph.D.: : Increasing and then starting to increase more sharply so they.

if you will, declared war on inflation, started to raise interest rates at the federal bank level.

That had the intended effect of raising interest rates in private markets.

So the mortgage rates started to go up.

And that had the desired effect of starting to bring down inflation.

Higher interest rates means that it's harder to buy things that require borrowing money.

So less capital investment that has the effect of cooling the economy.

John D Pasquale, Ph.D.: : cooling the amount of demand, which in turn ideally brings down inflation, so this is working if you're from the fed's perspective, perhaps not as directly and as quickly as they had hoped.

John D Pasquale, Ph.D.: : But inflation is coming down on the economy has cooled some and the chart on the right is highlighting some of that notion of the economy more broadly is cooling.

So this is monthly job creation in thousands through March, and I drawn that line and put sort of question mark on it because through the end of last year you could see sort of a trend that the job market was cooling.

There were obviously some spikes in January and February, some of that data has actually since been corrected.

In general, the labor market is very strong, but has been cooling somewhat.

So again, the Fed is having some of the effects that it was hoping to.

And we'll see that again as we go forward.

Next slide.

One of the elements we did want to highlight, however, as strong as things are, that there are particular risks to our regional economy, and they have a lot to do with the tech sector.

So last fall, we were seeing the early signs of slowdown in the tech sector.

That has really, over the past five, six months, really become all the more apparent.

And the chart on the left here highlights why that is a particular concern for us in the Northwest region.

So this compares the US, Washington State, and Seattle.

It's taking the beginning of January 13 as an index.

We're starting there, measuring in percentage terms how much has employment in the tech sector grown, essentially, in the 11 years since January 2013. On the US level, the blue line, it's grown about 25% healthy, but not remarkable.

The state of Washington, it's grown by more than 50% over that time period.

And you can see in the green line, for Seattle, it's essentially 60%.

And we're really the reason the state has had its growth.

You can see that we were pulling the state with us, just in terms of the shapes of the graphs and the rate of growth.

So our economy has had a 60% growth in that one sector over that time.

So a slowdown in that sector would not surprisingly have negative impacts here.

An example of what that could look like on the right is office vacancy rates.

On the blue line is U.S. and this starts with the pandemic.

So the national level vacancy rates were about 10% and they've gone up above 12% over the following three years.

But in Seattle, office market was very tight pre-pandemic.

So we had vacancy rates below 5%.

That's why people were building office buildings.

Now vacancy is in excess of 13%, 14%, and going up as leases expire and people don't renew them.

And that has, I mean, A, as we'll see, work from home has an impact on revenues directly, but also we're not going to see construction in the office and commercial sector anytime soon, in all likelihood.

Because again, per the graph on the right, we just don't have that demand.

So our economy is particularly susceptible to the tech slowdown that we have begun, has really taken hold in the past few months.

Next slide.

Just highlighting that some more, talk about employment growth within the region and just how unequal it's been.

So this is a chart that shows employment growth since June of last year.

This one we've actually updated since we did the April forecast, just because we had some more current numbers, and it's basically the same pattern.

So you can see we've had significant job growth, 3 plus percent just since June of last year.

growing in most sectors.

But what's interesting is not all sectors, and also which sectors.

So leisure and hospitality, largest absolute number of jobs.

Again, that sector continues to be in strong recovery.

We had a good tourist summer last summer, and by all accounts, bookings are strong for the coming summer.

So people are staffing up there.

But immediately below, you can see you can see the tech slowdown very directly, a loss of jobs in that sector.

Other places you can see it indirectly is in the professional and business services.

That's 6,000 jobs.

It's about a fourth bar down.

That's still growth, but that's the sector.

That's another place where the technology firms end up getting listed in these categories.

And that's one that had been leading employment growth, and it is no longer.

So again, we're seeing very uneven effects here.

And in particular, the slowdown in tech is pretty clear here.

You also see slowdown in the financial activities sector, again, likely related to higher interest rates.

People not taking out mortgages and the like mean less work in that industry.

So just give you a sense of that.

Next slide.

We're going to shift now to talk about the forecasts and the change in forecasts.

So next slide.

The first shows the national forecast.

Again, these are the forecasts that underlie our regional model.

Ultimately, the forecast and Revenue Council, we're using the baseline forecasts, but the pessimistic give you some sense and give you some context for what's going on.

So the previous baseline so the two baseline forecasts are essentially pink or whatever color that is.

And so we're using the baseline forecast.

And the previous baseline, that's what we had based our forecast on in November, had assumed an actual recession in the first part of 2023. And this is employment, so we were going to see a significant employment drop through 2023 and then growth afterward.

The new baseline is one that, again, it's informed by the fact that the fourth quarter of last year was quite strong and employment continued to grow beyond what had been forecast.

So the expectation now is really of the soft landing that had been desired.

This is, again, the forecast anyway as of April.

So there was going to be some modest decline in employment, some sectors losing, some sectors gaining.

That was going to plateau out pretty quickly.

So on net, we were going to see almost No job growth over the next few years, so it's really a slow and steady position rather than a drop and then a following increase.

But as you see, that meant that it was going to be better near term, but slower growth affecting the longer term forecasts in a negative way.

And then just for context, excuse me, there is concern about a pessimistic scenario, largely driven by events of the Russian war on Ukraine.

If it continued to escalate, you'd get increasing interest rates and Excuse me, increasing prices and inflation, leading to increased interest rates and in general, a more dramatic cooling of the economy.

So, but the bottom line is that the new forecast was for a slow growth scenario where employment would be steady, but not, but not necessarily declining in significant ways.

Next slide.

We then translate that with our regional model into a regional forecast and the general shapes here are comparable.

Again, for us, employment is somewhat stronger, but still not showing significant growth.

So you can see employment essentially flat lines.

for the next few years.

Again, as one of the key drivers, tech slows down and others compensate, but not enough to drive a great deal of growth.

And again, we also ran a pessimistic scenario, which, again, consistent with the idea of higher inflation being driven by outside forces, leading to an overall cooling.

So these were the generalized economic forecasts that underlie.

And again, what they showed is that things were generally better near term, but in the longer term, expecting slower growth.

As this period of higher inflation lasts longer, because that's what we're seeing is that inflation is more persistent than had been hoped and thought last November.

That will lead for interest rates to be somewhat higher for longer.

And again, not so much a dramatic cooling, but a slow period of growth.

So what does this look like on the revenue side?

That's where we shift next.

So next slide is a shift to the revenues.

And first up is the general fund.

And I see there's a question maybe before we go on.

Oh, thank you.

Let's go ahead Council Member Herbold.

Thank you.

Just a quick question.

You note that there's an assigned 25% probability to a pessimistic forecast.

Is there a probability for the baseline forecast?

I believe the baseline is at 50 or 55%.

I don't have my notes in front of me.

Thank you.

So moving on to revenues, the next slide is. full of numbers, so I'll take some time.

So let me take the time to set the stage for this.

This is really the meat of the general fund revenue forecast.

And you'll note there's, bottom line, there's some good news here.

I do want to highlight that there's more to come that will balance this out.

So just in terms of how to read this slew of numbers, the first column of numbers is the 2022 actuals.

So that's how we finished last year.

It really provided us a point of reference and potentially useful one.

The next is the revenue forecast that underlies the adopted budget.

So that's that first column of, excuse me, that's the first column under 2023. The second column under 2023 is the April forecast.

So that's the change.

So those are the new numbers, excuse me.

And then the third column under 2023 is the change.

So let me, one more time.

The adopted budget, the new forecast, and then the change implied by that forecast.

And then since it's a biennial budget, we're doing the same in the next set of columns for 2024. So the budget for the original budget, which is largely from the November forecast, the April forecast update, and then the change.

And then in the last column, we added the two changes.

You can see the change over the two years.

And what I tend to do here is just kind of move down the column of revenue sources highlighting, particularly for 2023, what the changes are, and then they largely carry forward to 2024. So starting at the top, just the items that are shaded in darker blue here are ones that the Revenue Forecast Office is most directly responsible for.

I'll talk about those.

I can talk about some of the others, and I'll turn it over to Dave and or Alex to talk about a few of them.

So on property tax, we've changed the forecast slightly.

In general, property tax is extremely easy to predict.

We know in advance what it will be because of the rules about how revenue can only increase by 1%.

What's driving a change here is actually the emergency Medic One levy.

The revenues for that are distributed to the city and the rest of the county based on our share of assessed value of the county.

So bottom line, our assessed value didn't go up as much as the rest of the county or in relative to our forecast.

So a little less revenue there because property values in the city didn't quite grow as fast as we thought they would.

effect is relatively small it's the same reason for the for the change in 2024 retail sales.

Again, we finished overall economy was is somewhat better, so the baseline for 2023. So we finished 22 stronger the baseline for 2023 is up some inflation up a little bit as well, so that that leads to a higher revenue forecast.

for 2023 on that side.

Comparable for business and occupation tax, we finished the year stronger than we had anticipated last year.

And then in addition, again, somewhat higher inflation leads to higher nominal revenues.

And then also some change in the shifting here of folks who pay annually, so additional revenues accumulating in 23 versus 22. Private utilities up a little bit, that's to do with the timing of when payments occurred.

Public utilities, largely unchanged.

Dave might want to comment about parking meters and court fines which are down slightly.

So parking meters are down largely because paid occupancy is down.

And the question is, why is that?

And we don't have a complete answer, but it's down about 6.6%.

And so we're taking those actuals that occurred from 2022, looking at the data and assuming a decrease then in 23 and 24. Court fines is an interesting story, but it is also down largely based on actual performance in 2022 being lower than expected.

And there's a variety of reasons for that one being.

I mean this is a combination of number of citations written and the payment compliance on the part of the public.

And both of those are down a bit more than what we had originally forecasted.

Another issue there is the beginning of collections of referring citations that are not that have not been paid to collections that has started up again, but it started up a bit later than was assumed in the original forecast, which leads to a fairly large decrease there.

Then shifting down, another place was obviously significant increases in grants, almost $28 million of additional grant revenue.

This is largely to do with a timing effect.

So there were grants that we had anticipated receiving revenues for in 2022 that are now forecast to actually be paid off in 2023. The way the grants work is the city receives the money usually after the fact, after the work is done.

So this really was just a shifting in time of when we were going to receive the revenues.

And I'll get back to that in just a second.

Just to highlight that we highlight the totals.

The other kind of big increase here was in licenses and permits and that was largely a function of again a timing one.

So, business license revenues, folks can renew their business licenses.

either late the previous year or early this year.

And what happened is more folks renewed early this year than they did last year.

So we lost some revenues relative to what we expected in 2022, but they are now going to arrive in 2023. So that net effect was small.

We did, getting to the bottom here, we've done two totals.

One is the total of all that you see, all of those differences, and it's almost $75 million positive increment.

However, a big piece of that was these grants, and those grant revenues really are not generally available to be spent on general city needs.

So we did a total as well that takes out the grants, so you can really kind of see what's available revenues, if you will.

And that's still in excess of $46.6 million for 2023. for 2024 i'm not going to walk down the whole column again it's largely the same pattern as large what you see is exactly that the forecast is one for growth we're getting really very modest growth into 2024 so we're not seeing big changes.

And in fact.

Overall revenues, if you look, actually declined.

So revenue forecast for 2023 in April is $1.7 billion.

And for 2024, it's actually $1.66.

So slightly less revenue overall.

Again, that's largely to do with the fund balance transfers and grants, but still gives you a sense that we're not getting a great deal of growth.

But increment of about approximately 24-25 million for 2024. So over the two years of the biennium, a net increase of total revenues of just over 100. if you take out the grants, more like 70. So, and again, some of this is revenue that was really shifted out of 2022. When you get the overall, we're really just telling you the revenue story here.

When you see the overall fund balance picture in subsequent briefings, you'll get a better sense of the overall budget implications.

But again, this is consistent with what we were describing.

We finished better than we were, than we thought we were going to finish in 2022. The first part of 23 has been strong.

What you'll see the next couple slides is that the growth in the longer term, though, has also been affected.

So if there aren't questions here, I was going to move to the next slide, which does talk a little bit more about long term.

So this is a point that we probably could have made in November, but wanted to at least emphasize here with the April forecast.

And that has to do with the longer term growth and the effect of the city operating in an environment where inflation is high and growth is relatively slow.

A number of our revenue streams, property tax being the most obvious example, don't keep up with inflation.

Property tax only grows by 1% plus new construction, which at most means 2%.

and in an inflationary, higher inflationary environment, that means our overall growth and revenues aren't going to keep pace.

So what we've done here is create a way to try to make that comparison.

So to find a baseline of core revenues.

So what we did here, we took out, seeing that list of revenues on the previous slide, we took out grants, transfers, and there were some late payments from the, payroll expense tax end up in the general fund.

So we took out things that are really one time which you can't count on in terms of paying for general city revenues and sort of establish that as the core of our, of our general fund.

And then establish that as a baseline.

So the green kind of light green lines are taking the 2022 actuals of that kind of core revenues and growing them with predicted inflation.

So that's how much we expect.

If we were to keep pace with inflation, we need our revenues to grow equivalent to that kind of light green.

The blue is what we expect revenues to grow at based on our revenue forecast, which in turn relies on our regional economic forecast.

And again, what we're expecting is relatively slower growth.

So what you see is an environment where, for the next few years, we don't expect that core general fund revenues will grow at the same pace as inflation.

So the spending power of the city's revenues will be falling behind.

That's an unusual situation for us.

The last 10 years plus, pre-pandemic, we were getting strong growth and our revenues were keeping ahead of inflation.

So partly because inflation was so low.

So this is going to be an environment that's going to be trickier to operate and budget in.

But I just wanted to highlight that's one of the longer term implications of this new forecast.

And again, you'll hear about this more in the subsequent briefings.

So next slide, we're going to shift to the non-general fund resources.

We have kind of, the format of the table is the same in terms of the columns in tracking the differences between the April and the endorsed November, excuse me, the adopted November forecast.

The blue highlighting, highlights the revenue streams that are responsibility of the forecast office.

And we've divided them into two categories of general government revenues.

So these can be used for generalized government purposes, some of which are being determined by policy.

The other ones are transportation revenues.

Some of those are constrained by state law and other by city code.

So starting at the top here, payroll tax.

So just as a reminder for ultimately for 2021 some of the payments were made late, but in terms of the actual the tax obligations so people are obligated to pay tax of almost to both more than 290 million in 2021. That fell significantly and we'll talk about this in just a minute to 250 million in 2022. That in November, we didn't have the year end results we really didn't know what was going to happen there so we actually didn't update the forecast for November, we now have done that and consistent with.

revenues falling back to $253 million for 2022 for forecasting a modest growth to $263 million in 2023. But that represents a very significant decline relative to the forecast for November, and that was the basis for the budget.

And again, I see a question this time from Council Member Lewis.

So I... Council Member Lewis?

Hold that question for now, Director Noble, it's about something else.

I just wanted to get in the queue when you're done on the slide.

Thank you.

Sounds good.

So very significant reduction.

Again, that's and it's driven almost exclusively by the actuals for 2022. And we'll get to talk more about this in just a moment.

comparable effect for 2024. So again, we're expecting relatively modest growth, so you get a similar adjustment in the forecast.

So decline of almost 60 million, excuse me, more than 60 million, almost 63 million over the two years in the payroll expense tax forecast.

Admissions tax forecast is down only slightly and actually it's better news than is apparent here for the general fund.

The way the admissions tax works is a bunch of those revenues are essentially retained at the climate pledge.

But with this increase is actually a relatively higher share that are going back to the city coffers and in particular to arts and culture.

modest increases for sweetened beverage and short-term rental tax, significant decline in REIT.

And again, we have a whole slide on this, and we'll get back to this.

But the interest rates are having a dramatic effect on the volume of real estate activity.

And this is a tax that only is paid on real estate transactions.

So it's obviously very sensitive to those changing dynamics.

In terms of transportation specific revenues, really modest changes overall.

Somewhat notable increase in commercial parking tax, consistent with increased activity overall.

And then school zone enforcement down somewhat.

Dave, you might want to comment there, because it's been a point of interest.

Sure, so the biggest issue there is that the city installed some new cameras and the anticipation about the volume of citations generated by those cameras was not as high as it had been in previous new installation situations.

And so we're just making an adjustment for that.

Primarily.

So again, overall, combining sort of that last column, you can see significant declines in payroll tax, significant declines in REIT, and then modest increases in other revenue sources.

The next two slides are, one deals with payroll tax and another with REIT.

So I don't know if Council Member Lewis, you want to ask your question now or?

My question is going to be regarding the commercial parking tax.

So I'll just wait until it gets down there.

Actually, this would be a perfect time for that.

Okay.

I just wanted to ask what you attribute the fairly significant difference of 3.3 million to in terms of the different forecast on commercial.

Commercial parking tax to a certain extent I've been led to believe can be a little bit of a proxy for downtown recovery and return to work or just people going downtown since that's where a lot of our commercial garages are.

And I'm just curious if that is factoring into how we are forecasting the recovery and, you know, what the tea leaves of that difference might indicate.

Yeah, we definitely look at the commercial parking taxes sort of a leading indicator, if you will, of of downtown activity.

The big cause of this, however, is really, as Ben described earlier in the in the economic and movement of expected recessions that we had built in an assumption about a recession mild, even though it was into the commercial parking tax forecast.

And this essentially removes a lot of the negativity of that recession forecast, potentially spreading it a little deeper into 2023, but largely removing it.

So that's largely the cause.

I think that's all I have to say.

source that is somewhat restricted, but could you remind the committee?

Sure.

It's restricted by state law to be used for transportation purposes, and there's a list of things that go into what transportation purposes include.

But it can be broadly used, road repair, pothole filling, capital, etc.

But it is restricted to transportation purposes.

Great, thank you.

I started to use considerable share of it to back up debt so a lot of his use for debt service on transportation projects, again, transportation uses are eligible and you can use it to pay debt for them as well.

I'm going to go to the next slide, please.

This might be a question for central staff, so if so, we can tee it up for the conversation to come, but given the ebb and flow of some of the revenue streams, general fund being up, jump start being down, the various other streams a little bit up and a little bit

Good morning.

Tamara Scala, Ally Panucci of your council central staff.

Yes, that that is correct.

And the reason why central staff sort of provided that summary number is it's somewhat nuanced because as Director Noble and Dave described, not all of these revenue sources can be used for the same purposes.

But in general, because we have a two year plan for twenty three and twenty 24, what we were looking at is overall across the plan, what is the impact and are there strategies to sort of hold true to the commitments in the 23 adopted in 2024 endorsed budget by sort of shifting certain expenditures around?

And that will be a topic for further discussion when you get the mid-year supplemental budget in June, as well as the year-end supplemental budget in we're going to have a full committee meeting in September alongside the mayor's proposed adjustments to the 2024 endorsed budget.

great.

We can have a conversation about that in a little bit.

While I have the mic, I want to say thank you to Councilmember Nelson who joined us a while back.

Thanks for being here, Councilmember Nelson.

We have a full Okay.

And if you can believe it, this is a truncated version of about a two, two and a half hour presentation that we had in the Revenue Forecast Committee.

So thank you for the summary here.

Obviously, this is complex and appreciate the chance to have presentation in the Revenue Forecast Committee meetings, but also to make sure that we are reporting it out in this council forum.

and to the general public as well.

And as a reminder, all of the Economic and Revenue Forecast Council meetings are also publicized and available on Seattle Channel.

So I'll turn it back over to Director Noble to help summarize the summary.

Thank you.

Yeah, I'll continue to move here.

So, next slide or two deal with the jumpstart so obviously a very significant change in the production in the jumpstart forecast.

So I did want to take some time to explain that.

So again, just highlighting on the first bullet something that I mentioned that revenues fell from Revenue obligations fell from 293 to 253 between 21 and 22. That's a very significant decline, and we hadn't expected that.

We got nervous about it towards the year end, and I'll talk about why.

But the revenue forecast for 2023 had been $294 million.

But given that we took in 253 for 2022, that was not a viable forecast.

And again, we've updated it to approximately 263, so bringing it down about $30 million.

How did such a big change happen sort of so quickly?

One thing that makes this revenue source different really from every other in the city, certainly of this scale, is that it comes from relatively few firms.

And those firms are themselves concentrated in a single sector, tech.

These firms record their activities in different places.

So Amazon is an example of a tech company.

It's actually engaged in a lot of trade.

So sometimes you'll see when we divide it up into different sectors.

But at the end of the day, I'm talking about those large firms and firms like that.

One of the things we figured out in trying to understand what happened between 21 and 2022 was that there are two potential drivers, key drivers.

One is changing stock values.

So in the tech sector in particular, stock re-enumeration is a big part of compensation, or it has been traditionally.

So there was a significant decline in tech stocks ran up in terms of dollar value through really the beginning of 2022 and then fell rather dramatically over 2022. So that's one issue.

And we did empirical work to see that there's a direct correlation.

Companies whose stocks values fell the most were the ones whose payroll tax obligations fell the most on average, if you will, and in general.

A countervailing effect that we saw, though, was work from home.

So the tech firms have been bringing people back into the office, and we're able to track that using aggregated cell phone data.

We can actually track activity into relatively small geographic locations, so we can track what's going on.

in different neighborhoods of the city and see that again, with increased activity in office, there is a marginal increase in payroll tax revenues.

So that's given us a basis for trying to forecast.

We otherwise really had no knowledge of the tax base and what was driving it.

So we've developed a model, and all credit to Jan on the forecast office team.

So we are using predicted stock values and trends in office behavior to develop the forecast, the revised forecast for 2023. And then for 24 and beyond, we're using our regional model and what it shows in terms of the general growth in these sectors.

So that's, again, led to the revision to 263 million and then modest growth in the years that follow.

So next slide.

This slide is designed to highlight the fact that the revenue forecast for jumpstart is reduced for 2023 and 2024. So the gray here, the November forecast, the black is obviously the 22 actuals, and then the April is the new forecast.

So again, we brought the revenue forecast down for 2023 and 2024. We're expecting growth in the years, again, modest growth consistent with the overall modest growth forecast.

But that does imply that for the next few years, and this becomes an issue for longer term planning, notably less revenues, really each and every year of the six year time horizon that are just using some of the financial planning.

So that will become obviously a budget challenge.

I think it would be helpful to I think it's important for us to be very concerned when any revenue forecast comes in lower than anticipated, but in the context of our planning for 2023 and 2024 and a preview of our discussion to come with the central staff memo, it is important, I think, to have another bar on there.

we're looking at this bar, it would be helpful to see what our 2020 projected revenue was, because my understanding is for 2023, for example, we were projecting that there would be about $220 million in jumpstart revenue, and that's what we budgeted for.

So it would be very helpful to see that for the out years, but just looking at 2023, for example, we I think it would be helpful for us to put into context that the $220 million that we projected, that we budgeted for and held ourselves at that amount and used the higher than anticipated revenue, what was over 220, we allocated that to the general fund to help address the ongoing impact of the economic crisis due to COVID.

And so that might give a sense of balance as we think about where the investments for Jump Start were planned for up to 2020, up to $220 million from our calendar year 2020 projections and have that paralleled with each of the years.

So perhaps just a request for central staff I see Ali giving a thumbs up.

Okay.

Anything else on that, Deputy Director Panucci?

Okay.

Thank you for making that possible.

And I know it's probably a relatively easy bar chart to throw together.

Council Member Herbold, please go ahead.

Just a quick clarification.

Sorry, Madam Chair.

I know you said it very clearly, but just the actual budgeted jumpstart payroll tax for the jumpstart eligible investments, if plotted on that 2023 line, you're saying it would be equal to or above the April forecast?

I'm going to turn it over to central staff.

If I had a cursor to show you on the 2023 line, if we plotted, there we go, perfect.

we're still in the middle of the fiscal year.

We're still in the middle of the April forecast numbers.

So we still have surplus jumpstart funding that is currently still going back into the general fund per the agreement that we reached with the city

Chair Mosqueda, that's correct.

The estimate Central Staff made when the Council was adopting the payroll tax in 2020 was about $214 million in the first year of the tax, and then we assumed about 2% growth per year.

So for 2023, that's about $220 million of what was estimated and what was assumed for the spending plan.

conversation.

So the budget that was adopted by the council in November of last year allocated about $220 million to those jumpstart spending categories and then anything above that was allowed to be transferred to the general fund.

Temporary for in 23 and 24, there is what we call the fund flexibility ordinance.

And so with the jumpstart revenue decreasing and the general fund increasing, you can see how that balance could shift, although there are other pressures on the general fund that we'll talk about in the next item and some of those tradeoffs.

Thank you very much.

Council Member Herbold, does that help?

Very much.

Thank you.

Thank you.

And good morning, Council Member Nelson.

Please go ahead.

Thank you very much.

I don't know if this is what Council Member Herbold was asking, but maybe I'll try to rephrase it.

I understand the importance of plotting the 2020 expectations for the performance of Jump Start.

That's fine.

But we did budget according to projected 2023 and 2024 Jump Start revenues.

So why is...

So really that's...

That's what we should be working off of.

What did we expect for jumpstart in these current years and what are we going to be getting?

Is that sort of what you were trying to get at Council Member Herbold?

If I could just jump in.

That's not accurate.

We did not budget for the full jumpstart.

projected revenue to go to only jumpstart.

I understand that.

Yeah.

And you allowed for part of it to be used for general fund.

Right.

So when we say that the importance of looking at the 2020, thank you.

The importance of looking at the 2020 projected expenses is because in the years 2023 and 2024, we've only budgeted to that amount.

The rest of the funding from Jump Start does go into the general fund.

And of course, you know, Council Member Herbold, I think that was a question for you, but I'll ask central staff if you have any technical corrections or anything additional to add to that.

Thank you, Chair Mosqueda.

I think Council Member Nelson, I'm going to take a stab here at I think what you are sort of asking for confirmation on is the full amount of projected jumpstart revenues for 2023 based on the November forecast are budgeted in the adopted budget.

$220 million is appropriated for spending consistent with the jumpstart spending plan and the remainder was budgeted to support general fund expenditures.

Yeah, I was I was just trying.

I was wanting to make sure I understand council member her bolts question properly because yes, I simply want to.

I simply was trying to understand the point that Madam Chair was making and echoing my agreement that we need to have a bar on this chart that not only shows the forecasted amount of Jump Start, both for November and April, but also what we actually budgeted for the Jump Start spend plan expenditures.

and that that is a bar that's missing.

And if we had that bar on this chart, it would show that it's actually below, it's less money than is forecasted in April to bring in.

Thank you.

And I'll just note as well- It's lower than what was anticipated in 2020, I understand that.

And temporarily we allow for money to be used for general fund expenses as needed.

Excellent.

Yeah, thank you so much.

And I also want to make sure I, again, acknowledge that that's a request for central staff and not a missing component of this chart given the independent role that our Economic and Revenue Forecast Office has.

But given that we have the back-to-back presentations we're going to continue to work with the council to make sure that we have a plan in place.

This helps inform the council discussions with the executive about future with expenditures and things like that on a quarterly basis so we can have this very informed discussion.

So thanks again, colleagues, for asking for that additional information and clarification.

And we will follow up, I think, probably in the immediately following presentation here on this conversation.

And just wanted to acknowledge as well that the Independent Office of the Economic and Revenue Forecast, I brought this up, but you are not missing it.

It's just a great idea for us to add to our central staff and council discussions coming up here soon.

Okay.

Well, then we can talk to them about, yeah.

Let's, next slide, move on, conscious of time.

So, so also want to talk about read to the read for read forecast came down significantly as well, and I'm actually talk a lot from a chart here on the right.

It's one of these churches has got left and right axis and is measuring two things.

So, one is in the blue lines, it's showing actual and then forecasted home sales the forecaster in the slightly.

John D Pasquale, Ph.D.: : lighter color the with the dots so and what it shows in terms of volume of home sales is this very dramatic decrease that really kicked in in the second half of last year.

John D Pasquale, Ph.D.: : We went back and we don't need to put the chart that showed interest rates spike in mortgage rates led to a very sharp decline in the volume of home sales.

of home transactions.

And that's forecast to maintain, again, with interest rates expected to be relatively high, it's forecast to remain at a relatively low level for the next few years, actually, as you can see.

The black line is a home price index.

So it's set at 100 for beginning in 2020, and it's measured on the right side.

And what it shows is that prices went up more than 20% and are expected to come down, but only come down slightly.

So the taxes on transactions and the tax base is the price of the transaction times the number of transactions, if you will.

It's a price times quantity thing.

We're seeing in the blue lines, there's a lot less quantity, a lot fewer sales.

In the black line, it suggests that the price part of this hasn't changed as much as you might think.

What appears to be happening in the residential market in particular is that there are relatively few buyers because interest rates are so high.

But they're also relatively few sellers, in part because the interest rates are so high, because if you own a home and you're sitting on an existing mortgage with a low interest rate, you don't really want to sell to get and lose that mortgage.

There's also a lot of uncertainty about employment and the like for some folks.

So there aren't a lot of are a lot of buyers, but they're also aren't a lot of sellers and that's leading to relatively stable prices they're certainly coming down, but they're not falling dramatically what has fallen dramatically is the volume of sales and it.

It dropped off very quickly late in the second half of last year on the commercial side we're seeing.

Also, reduction in the volume of activity.

There, it's a little bit of both, I mean, in terms of prices and quantities.

In terms of quantities, just to give you a sense, we haven't seen an office tower sale, which would be well in excess of 100 million if one were to sell, you know, a significant size one, in going on a year, which is unusual.

There are enough buildings in downtown, a lot of them are owned by real estate investment trusts.

They classically have turned over a certain number of them every year.

But there's just so much uncertainty about the value of those buildings at the moment, because nobody really understands what's going to happen with return to office in particular.

So bottom line, we've seen a very dramatic decline in revenues.

And our revenue forecasts have been taken in more than 100 million, I think, in 2021. Revenue forecast for 2023 is for 55 million, so essentially a 50% reduction in a short time period.

And actually today we're going to revenue stream suggests where revenues received to the first part of this year suggests we're going to struggle to even meet that that that lower forecast will will again provide you an update in August and determine whether that needs to be revised but really dramatic effects on the real estate side and again read is used.

A lot for debt service, large capital funding source, and a lot of that capital is debt financed, which means there's relatively lack of flexibility in terms of on the expenditure side.

But bottom line, that's what's happening to REIT.

And this forecast is reflected in similar numbers at the state and the county level.

So they're seeing the same effect, and their forecast revisions, again, have come down and come down dramatically.

So, I'm sorry, I didn't mean to interrupt you.

I was just going to add 1 more comment.

You know, I was about to wrap up so please go ahead.

Okay, well, I missed my chance when we were having this discussion in the Revenue Forecast Council on the point of building construction slowing down and wanted to make a plug for all of us who have the opportunity to work not only on the legislative branch side, but on the executive side to do everything we can to expedite permitting and make it easier for places where we've already allowed for We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

to figure out ways so that we can expedite the construction of buildings if they're desired to be built by builders in areas that are already permitted.

It seems like that's a good revenue generating option as well.

So just wanted to make that comment because I missed the chance to say it in our revenue forecast meeting.

It's not that we have a stagnant situation that's unchangeable.

If there's levers that we can pull and push to ensure that more construction, if desired, can happen quicker.

That seems like a good way for us to also enhance some revenue that is unfortunately projected to be down.

Any additional comments?

I think Director Noble, you said you're on your last slide here, or do you have more?

Yeah, one or two more.

Okay, let's keep going.

So long term forecast to read again similar story that we're bringing it down the forecast for 2324 but also the longer term forecast.

Again, Rick it's because it's a capital expenditure item it gets programmed out for several years so there are effects beyond just the biennium and that's really the only highlight here.

Next slide.

And this is the last, and just again, this is new information.

So I said, promised that we'd come at the end here and highlight some of the things that have developed since we provided the April update.

So this is really more qualitative than anything.

So we had at the time, I'd mentioned in the earlier presentation, and it was apparent in April, that there was some uncertainty and turmoil in the banking sector.

for the two weeks after we did the April forecast presentation, the initial presentation, that had actually calmed.

It had since picked up some.

So again, there continues to be concern between the regional banks and some of the smaller banks.

So less concerned about sort of a big run on banks, but more that this is going to, the effect of this is going to make bankers nervous and in particular lead to more stringent lending standards, which again means if they're not lending money It's going to be harder for companies, or anyway, it's easily hard for companies to invest in capital and the like.

So that will have a drag on the economy.

Some of that's what the Fed wants, and this is one way to get it.

They don't want the banking sector to be unstable, but they do want, they were trying to slow down lending.

Edward Weinberger, PhD.: : The Fed did follow through with an increase in may expectation is that they are now going to hold at the at the five to five and a quarter that they are at and wait to see what happens persistent inflation would be a reason they might they might increase it further but.

Some had hoped they might not take this step, but they have.

Other big news was in GDP growth.

So the figures for first quarter came in, and they were annualized rate of 1%.

That's actually better than is even in our April forecast.

We weren't expecting even that level of growth in the April forecast.

But it isn't, but we were expecting some growth so it's not wildly off, and it is those that realize GDP growth of 1% is consistent with the general notion that we are slowing and then we are going to enter a phrase I mentioned one of those previous slides I didn't.

the slow session.

So not a recession, but a slow growth period.

So that 1% growth, which is quite low, again, that's an annualized number, that's consistent with, if not slightly ahead of the underlying forecasts.

And then we've continued to add jobs.

So 250,000 added in April.

So again, job growth continues to be strong.

As pointed out here, that's good news at some level.

But again, the Fed is concerned that the job market is going to continue to become a driver of inflation itself as employers are trying to find workers.

So to wrap up, on that, the economy was strong through the first quarter.

So we continued to do well.

But inflation is persistent, somewhat higher than forecast.

And this financial market instability is creating concerns that could tie up and slow down lending markets.

And I guess the last one that I would add that continued to develop since I even drafted this slide a week ago is that we're getting ever more nervous, or I'm getting ever more nervous, And where that what it will take to get action on that and the concern that.

We might need to see some level of distress and financial markets before some folks get motivated to raise the debt ceiling hard to know, obviously there's been.

no details, but some sense that there's been progress made.

So overall, again, big picture, revenue forecast up for the general fund for 2023 and 2024, down significantly for both REIT and payroll tax over that same time period.

And for all the revenue streams, slower growth over the period beyond 2024 than we had previously expected.

And that's the presentation.

Okay, great.

Well, thank you so much.

We have spent an hour on this, but want to see if there's any additional questions before we go to the central staff's analysis and but also just ask if there's any additional context that the city budget's office team would like to provide.

Okay, director, oh, please go ahead, John, Jan.

Oh, this is Dave from the city budget office.

Dave, I'm sorry.

Just to say no, no real, but just to point out that the changes, the increases are relative to previous forecasts, but I'd like to remind you when you look at those two years, 23 and 24, it's actually quite flat in terms of total amount of revenue available.

So just a cautionary moment there, but thank you.

Thank you, thank you, Dave.

Any additional questions?

All right.

I am not seeing any.

I know that this is dense material.

Thank you for both being here to present it through to us.

The slides have a lot of information on them.

So if people have follow-up questions, you know where to find our Office of Economic and Revenue Forecasts.

We're going to now transition to agenda item number one, which will allow for central staff to take the information that we've received from the Office of Economic and Revenue Forecasts and the City Budgets Office and help to provide an analysis of what that means for our existing biannual budget.

and future years to come, and we look forward to continuing to partner with both CBO and the Office of Economic and Revenue Forecasts as we seek to get additional information.

I want to just give a quick heads up that the August forecast, right, the August forecast is traditionally more on target or more accurate than our April forecast.

Director Noble, can you remind us when the August forecast meeting is again, if you have that at the fingertips?

I believe it's the 10th.

Yeah, I'm getting it now.

I don't have my calendar in front of me.

And yeah, just to remind us, this April update provides the basis for the budget office and central staff to begin planning for the budget process.

The forecast in August is the one that underlies the mayor's proposed budget that will be delivered towards the end of September.

And then we'll give you, we're gonna accelerate slightly, we're gonna give you the last update in about the middle of October, and that's to inform council's final deliberations.

We appreciate that for sure, giving us additional time before the final budget is wrapped up for our November deliberations.

And Director Noble was right.

The next Economic and Revenue Forecast Council meeting, again, those are shared out publicly and projected on Seattle Channel.

Information is posted the day of so that everybody receives it in real time between the executive branch, the legislative branch, and the community.

It's almost like a press release of sorts to let everybody know we've gotten the information in real time.

It is going to be August 10th, and that meeting is at 2 p.m.

All right.

Thanks so much.

Much more work to come, right, Dave, with planning for the 2024 calendar year as soon as we get that revenue forecast in August.

So thanks in advance for all your work, and thanks for being here today.

Thank you.

Thank you.

Enjoy the rest of your day and evening.

Madam Clerk, do you mind reading into the record item number one?

agenda item number one, general fund financial plan update for briefing and discussion.

Thank you so much.

We are going to turn it over to our central staff team.

We have with us today Deputy Director Allie Panucci and budget lead Tom Mikesell.

And I want to thank you for the robust central staff memo that you provided to us.

I did circulate that again to our council colleagues, including folks that are not on finance and housing, as we always want to make sure everyone is aware of the financial health of the city.

and invite folks to attend these quarterly meetings where we do the report outs, not only on the revenue forecast, but on the important central staff analysis of what we've heard.

So everyone on council has received that and it is posted to our agenda as well today.

I'm gonna turn it over to central staff to let us, to walk us through this in-depth memo and we'll have a chance to follow up on some of the questions that we started to insert into the discussion in the previous item.

And we'll get into that a little bit more here.

So welcome, and I'll turn it right over to central staff.

Good morning, committee members.

I'm Ali Panucci, your Council Central staff again, and joined by my colleague, Tom Mikesell.

I'm going to turn it over to Tom to walk through the presentation, but we're both available for questions.

I'll just say what you have heard others say today, and you'll hear Tom say again, this is a update to the information that was presented and discussed during Council's budget deliberations this fall.

You'll get two additional updates prior to adopting adjustments to the 2024 We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

We have a lot of work to do.

If we could go to the next slide.

Following on Deputy Director Panucci's comments, this is a regular update.

So it's a process that began in committee last year, where when there are significant changes to assumptions around planning for the budget future, we then come to the committee and update how the outlook has changed for the general fund or any other significant funds of interest.

So the outline for this morning's presentation will really kind of hit on 3 key touchstones as you go through and you'll see following from feedback from committee members in the past that the presentation includes page reference numbers on next to the title for every slide so so you can dig deeper into the mouth is because the presentation is intended to just present the high points of the analysis, but there are sometimes deeper findings within the memo itself.

But the three points that we'll cover this morning are a review of the update of the general financial plan.

That update is going to rely on some updated estimates of how 2022 ended, which impacts the amount of money flowing into this year's budget.

Updated revenue and expenditure projections.

So you just heard a very in-depth presentation from the forecast office and CBO about the changes The beneficial changes to the general fund, some less beneficial changes to re-end Jumpstart Fund through 2026. Also, there are inflation changes that were discussed.

Those have been layered into the model.

And given that the Jumpstart Fund has an intersection with the general fund that we'll discuss this morning, and that the Jumpstart Fund's revenue projections are being downgraded in the most recent forecast.

We'll have a discussion about how that looks and how that impacts the two-year plan that was adopted last fall.

Then as a closing, I'll highlight some equity considerations given, and this builds on the discussion in the last item about how the amount going for those equity programs is now lower than what would have been originally anticipated given the forecast for the new payroll expense tax back in 2020 when the discussions taking place.

So if we can move to the next slide we'll jump into the the details.

Actually this is just that kind of a high level on copy on this is a point in time that the numbers will change.

So we are using the kind of underlying assumptions baseline data and methods that are used by CBO.

I do some calculations that recast some of the numbers to identify what the ongoing operating surplus deficit is.

So that's kind of the operating gap for city government funded by the general fund.

And these elements are not a foregone conclusion.

There, of course, are deliberative discussions at council that can make changes up or down to any of the budget projections.

This is just using the sort of current law approach, applying a set of assumptions from the resources that we have at our hands, and giving a sense of what the future holds for the general fund.

So this slide captures information that's covered on pages two through four of the memo.

It does two things.

It shows you in the circled area, the two-year budget.

So just as a real quick refresher, why we do a two-year budget, passed in 1992 in resolution 2885, was where that council at that time endorsed a two-year modified biennial approach to budgeting.

This essentially says that in even number of years, the budget for the next two years is adopted in a cadence where there's an adopted and then endorsed plan.

That's what happened last fall.

In November of 2022, council passed have passed an adopted 2023 budget and endorsed in Resolution 32072 2020 and 2024 budget.

The parameters of this budget are that, as adopted in November, are that the starting balance for 2022 was $273 million, with an ending unreserved balance of $155 million, or I should say, budgetary balance of $193 million, that then carries forward into 2023 There's financial activity, revenues, and expenditures that lead to an ending budgetary balance of $145 million, which then carries into 2024. And then financial activity planned for next year would bring the ending unreserved balance to $0 at the end.

So this is the kind of snapshot point in time, the adopted and endorsed budget.

and leading to a zero any balance at the end of 2024 indicating a balanced budget.

We also include out your projections so they're less certain, but we use best available data.

At the time when budget was adopted, it was estimated that there was, and this is shown in the blue line in the middle, a operating deficit beginning in 2025 and 2026 of about $212 million on average.

So this is basically saying that the ongoing revenues are $212 million short of the projected ongoing expenditures in those years.

PB, David Ensign — He-Him, He-Him.

He-Him.

The financial plan adopted prior to the COVID recession in the fall of 2019 actually included a $39 million projected deficit in the out years.

It's a pre-existing condition that came into the budget planning that the council was faced with last fall.

Also, the 23 and 24 endorsed budget includes some temporary one-time revenue support from the jumpstart fund.

That's approximately $100 million in 2023 and $85 million in 2024. And then finally, some revenue categories just have not recovered to their pre-pandemic trends.

Notable are court fines and parking fees.

There are some indication that they are starting to recover, but they still are lagging behind.

So given all the projections that we had at that time, the MD non-reserve ballot would have been if this plan was to go to its fruition, be negative $425 million by the end of 2026. So building from this starting point, we can go to the next slide.

I have layered in a number of changes that have occurred because it was a projection at that time, and now we have new projections.

One of the critical things is to reassess how much money is available coming into 2023 based on activity in last year.

And that is actually a good news story because the budgetary fund balance, so the money available to spend in 2023 has improved by $168 million.

It's a combination of revenue and expenditure changes.

as indicated in forecast office projections, revenues were $23.35 million below estimates in 2022, but that's more than due to unreceived grants.

So Director Noble did touch on the concept of grants and how actually they were showing up in the 2023 forecast and he had made an adjustment for those.

So this is essentially the other side of that story where it's the 2022 grants that have been built into the 22 budget, but that were not received.

And then also expenditures last year were $191.6 million below the revised budget.

However, all of that, part of that expenditure budget still, departments still intend to spend it.

So After you make that adjustment for the amount that departments intend to spend, which we, in budget terms, call carry-forward appropriations, there's still a $34 million positive improvement in the unreserved fund balance.

And with regards to the carry-forwards, a large chunk of that is automatic.

So these just are capital or things tied to grants that have been accepted.

That's about $105 million, and that's just automatically done in the financial system Another piece and you'll see this later and this morning's agenda is legislative carry forward so these are amounts that are being requested by departments for the council to approve to carry forward into this year's budget.

But the upshot of this is that the budgetary fund balances is better than expected.

And of that amount there's an extra $34 million coming into this year that's that's on reserve.

So let's go to the next slide.

Okay, so there's a few observations.

about the 22 activities that are important to touch on, particularly with regards to some of the concepts I'll talk about later, including higher cost this year and an interaction with the Jumpstart Fund.

First, when you peel back the onion of the financial activity from last year, you realize that the There was an underspend budget of about $57.5 million, which is 3.4% of the 22 budget after adjusting for carry floors.

So there's a few details about that that are interesting to know and to keep in mind when thinking about budget decisions this year, including the mid-year supplemental and the year-end supplemental and the 2024 budget.

One is that in last year's memo at this time, we identified that there was approximately $50 million underspend in 2021. So this is a fairly consistent with at least that prior year estimate of underspend.

Next, the 2022 budget, so the balanced plan for the biennium, assumed a $20 million underspend for 2022. So this actually outperformed that assumption on the order of $37.5 million.

And then finally, The underspend for the current year is $10 million.

And similarly, for the 2024 endorsed budget, it's $10 million.

So the actual experience of underspend is some measure higher than what has been assumed in the biennial budget plan.

Tom, can you do a summary here?

The unanticipated additional 2022 unreserved ending fund balance was $34 million.

How much more is that than we anticipated again?

$34 million.

We basically have $34 million more coming in to 23 just based on advantageous financial activity in 2022.

Thank you so much.

$34 million.

Thank you.

And thank you for the segue into the point.

That number is interesting for a couple of reasons that we'll touch on later.

One is that ordinance 126719, which is the legislative vehicle that authorizes temporary use of the Jump Start Fund to support general fund revenue shortfalls in 23 and 24, so in the current two-year budget plan, allowed for an adjustment to the current year, so 2023's transfer to the general fund by whatever amount there was of extra money coming from the prior year.

And so that by the read of ordinance 126719, the funds flexibility ordinance, that would indicate that the transfer could be reduced by $34 million.

I will note that in discussions of preparing this information with the budget office that there is, given the shortfalls described in the revenue forecast presentation earlier in the jumpstart fund.

that they to balance the the 23 budget part of their plan is to reduce that transfer by an even higher amount by $38.7 million so that so that is actually for 4.7 million dollars higher than what the funds flexibility ordinance would require.

And there are more points on this cover those later when we talk about the jump start on.

But that is that's just one piece of how of how the to be able to do that.

So that's one of the things that we're trying to do to make sure that the ordinance interacts with the executive and administrative intent.

that we passed requested and directed that any higher than anticipated underspend and additional revenue that came in should go back to actually replenishing jumpstart.

So that's that in addition to the need for us to, well, I would say that the agreement that was made for us to stay true to spending the 220 as the line that was being held from our 2020 spend plan.

So the ordinance that was passed assumed that we would have money back filling Jump Start, but besides that conversation, which I'm sure will happen at the end of the year, we're at the point of worrying about the 2020 dollar amounts that were authorized in the 2023 budget not being potentially adhered to.

I see Allie come on the screen here.

I'm not making sense, please let me know.

And if I'm just trying to draw that point out, because I think that there's two different sort of aspects here that the statutory obligation to pay back jumpstart, and the assumption in the budget bill that we would be adhering to the amounts that were codified in our budget and specified in our 2020 spending plan.

Thank you, Chairman Skinner.

I don't have anything to add, really, just to sort of restate what you said.

Sort of regardless of what is going on with the Jumpstart revenues and the forecast update on that, by the ordinance that Tom just described, that $34 million by-law should be transferred back to the Jumpstart Fund.

And there'll be more on that later in the presentation.

Okay, thank you.

I think we can continue.

So that's the prior slide covered the 2022 adjustment to the plan.

And now with the next slide, we'll start to talk about the changes to 23 and beyond based on new information.

And the key driver of the new information is going to be the CBO or revenue forecast.

And I do see a question from Vice Chair Perbold.

Thank you.

Vice Chair Hummel, please go ahead.

Thanks.

You may have already covered this, but going back to slide six, I'm just trying to understand what guides our underspend assumptions for future years.

It seems like we're assuming $10 million each this year and next, but our underspend has been five times that for the past couple of years.

Yeah.

Which is also problematic.

And we've been trying to get at.

Yeah, I appreciate, Allie, you're kind of boiling it down to what the bottom line is on Jump Start revenues, but I think it would be helpful to understand, again, what our assumptions are moving for future years and whether or not those are the right assumptions.

I cannot please I was going to say I've heard Tom opine on this as well in the past, and I know that this is something that the central staff budget team and CBO to their credit has also acknowledged.

It's not a great way to budget right if we are constantly not hitting the mark in terms of what our expenditures are and we have.

I know Tom has done some comparison with other jurisdictions and would love to hear if you have immediate reactions to Councilmember Herbold's thoughts either from Tom or Deputy Director Panucci.

The comparisons with other jurisdictions are perhaps less helpful in this regard because every city operates in a different way.

I do know that the assumptions that were included for the adopted budget plan for the two-year budget were what CBO was comfortable with at the time.

and defer to their understanding of how the city's finances work.

I do know that they have stood up more enhanced fiscal monitoring program, which may bear fruit in this regard to understanding what the real-time read is on the underspend.

All I'm doing is identifying the experience to help compare with the assumption What the actual amount that both the executive and the city council would be comfortable with is a policy choice in terms of balancing the plan.

Because if you budget too high of an underspend, then you sometimes will make it impossible to meet that target.

But perhaps a better approach would be to adjust your actual spending based on that information in the budget.

One thing that occurs to me is that given that we have a couple years of a fairly robust underspend and given that there are challenges with regards to higher costs that we'll talk about in fact on this slide or the next slide, but there might be some intersection between the two where underspend experience in the prior year that can translate into higher than Anticipate understand this year can help balance out some of those cost pressures that are that are real but that that will need to be met so it's it's an ongoing discussion I again the work is being done and one hopes that it has a feedback into this year's pocket.

and I take from the comments as well, Vice Chair, that it's a good flag for us that even this dollar amount, even though it is a significant amount, it is maybe a conservative estimate of how much is available.

So at least, you know, $34 million in unreserved ending fund balance can be anticipated.

I think it's important for us to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the information we need to make sure that we have the

So this morning, we started with an updated revenue forecast from the Forecast Office's CBO.

And it was a detailed discussion, so I won't belabor it too much.

But in kind of summary, near-term revenue improvement, however, not much change in the out years as was covered.

Last fall, folks were expecting a recession.

And that, unfortunately, has not happened.

Though it seems that national forecasters keep pushing out the bad news, perhaps softening it some into the future.

So all we know is what's happening today and what's happening today is that general fund revenues are higher than originally projected.

And unfortunately, the offsetting portion of that is that inflation also is is being brought up, but somewhat in the forecast with the most acute bump happening in the current year.

Looking at if you look at the memo on this is covered on pages seven through nine there's a discussion that compares the forecasts from the budget adoption time period with those that we're seeing now.

And in 2020, so the current year, inflation is about 1%, 1.1% higher than originally anticipated.

And it's slightly higher in 2024, projected to be about half a percent higher.

I will note that there was higher inflation expected.

So there was some measure of that in the budget plan for the two years and for the long term.

So this is just a slight taking up of those assumptions.

But again, it has an impact in terms of how to accommodate that in the financial model, given that we're already in 2023 and that the financial plan builds off of a 2024 endorsed budget that was contemplated when inflation was lower.

I've added an amount to the 2024 base To account for that and that is really the most significant cost driver in the model is higher inflation.

And I guess to to echo some some commentary earlier these numbers will be adjusted in the future and next iterations of the forecast most most recent will be in August and.

There was some reference to the improvement over time in the forecast, meaning that as we get closer to the actual year where we'll receive the money, the estimates get more accurate.

There is actually a good report that was done by the forecast office about their forecast accuracy and those trends that is linked to their November 22 agenda.

It's available on the web.

It's it's a useful read to show how the accuracy doesn't prove.

The good news is is over time the numbers get better on average unless we go into a recession so so that's I guess it if there's a note of positivity that that's what I would add to the presentation is that in past experience the numbers have gotten better though that we're always you know in the business of predicting the future there's always an element of risk.

So So that covers the kind of inflation and forecast adjustments.

There are just a few other ad hoc items that were either legislation that's been passed.

So council bill 126791 was the first quarter grants acceptance ordinance.

There was about $7 million of revenue and expenditure that was accepted in that bill.

So that's kind of a neutral adjustment.

Also a few technical adjustments that are covered in the memo.

They're fairly minor.

One is $600,000 of a revenue decrease that is just essentially paying back some city funds, city light fund, utility funds for costs for the revenue that they pay to the general fund for kind of central services.

So like things like CBO and the mayor's office and council that those actual costs We're lower than what they were charged so it's a it's called a 6 fund rebate.

And then also there's a technical adjustment there was essentially in the year and supplemental last year there was an item that they asked that should have been quoted to a capital project wasn't and because it was not that was that was a miss on it wasn't automatically carry forward and it should have been under standard practice so that would like to be in the middle of the year supplemental it was about 1.4.

$7 million and I would just know that in kind of the technical review of the memo that that was a typo so that the memo says 1.6 and that number actually should be 1.4 7 million dollars.

And then finally there is a $4 million ad in 2023 that is just based on information from the budget office about some contingent cost factors that they are trying to account for.

And there may be other items as well, but these are the ones that were available to us at the time of providing this plan.

Okay.

So this covers information on pages 9 through 10 of the memo.

This just updates what the operating gap looks like.

And as you can see, the operating gap in the out years has gotten worse.

And this is because the Even though near-term revenues are better, forecasters do not feel necessarily confident that there's going to be much improvement over the long-term.

And then also, because of inflation, the long-term costs are increasing.

So that's the reason why the operating deficit goes up from $212 million to $224 million.

But again, this is just a point in time, and we'll reassess this number in August.

And then the final wrap for this is really the point of how much money is available and when.

So if you look at the blue line in this graph is the ending unreserved fund balance, so how much money is there to spend in each one of these years.

And then comparison is the numbers that are coming out of the May update.

And as you can see, in all years, the number is higher.

In 2023, so the revised estimates that we have put together for today, there's about $31.8 million more.

Interestingly, in 2024, that number increases to $53 million.

So if you look at the 2024 projected time period, the original forecast was for a zero, so basically a zero balanced zero budget.

Now there's actually $53 million positive.

Again the numbers under development, but it kind of offers a little bit of extra buffer in that second year for any sort of contingent expenditure categories some cost increases that might have been missed in this update and that are that would be revealed during the executives process of developing changes for the 24 endorsed budget.

And and I will note that the the ending balance at the end of 2026 has improved from 314 from 420. $4.7 million to $394.9, but in order to actually have that come to pass.

And it wouldn't come to pass anyway, because the budget must be balanced in each year.

But that would require that the money available in 2023 remains unspent, which, given cost pressures, is probably less likely.

Thanks, Tom.

I would just add here, channeling a little bit, Director Dingley from the Budget Office, that while this is indicating some additional resources in the short term, the City Budget Office is seeing sort of certain lines of business that there'll be increased costs that they're estimating for 2024. So while in the short term, it does look like some resources are available, it may be needed to support the expenditures already programmed in the 2024 endorsed budget.

I would also echo that specific to the general fund.

The general fund is not being solved by the slight uptick in general fund expenses coming in, but that's a fair point for us all to remember.

And I think it also underscores the need for us to continue to have successful conversations at the revenue stabilization table given the out years that are being shown.

we've seen in the last couple of years, we've seen a lot of growth in the charts that we've seen for 2025 and beyond.

But it also is a good reminder for us that we have many revenue streams that need to be reevaluated.

We talked a little bit about the parking revenue, for example, today, and ways for us to create more stable revenue sources is to be the backfill to general fund.

Jumpstart has a specific spend plan that's codified in statute.

And in good faith and through negotiations with the executive team, we offered flexibility for the higher than anticipated revenue.

specifically 2023, any revenue that was over about $220 million could be allowed to temporarily go into the general fund to address for general fund dollars being down.

Now, general fund dollars are starting to come back up.

And if you can imagine swapping out the color of money where jumpstart declined by about $60 million, the general fund was up about $62 million and general fund was up about $68 million, swapping in general fund for where jump start had supplemented for general fund expenses.

Makes a lot of sense, but there is still this ongoing need for us to continue to look at and we're going to have some conversations here, I think, about the 2023 current calendar year budget and our 2024 second part of our biennial approach in just a moment.

But none of these years was it ever intended that Jumpstart would backfill and be the holding place for dollars to be used for future general fund investments either.

Do you have additional slides, Tom?

I do.

Okay.

And I just want to remind our colleagues, Deputy Director Panucci sent the slides to members of the committee yesterday at 5.22 p.m.

We will go ahead and recirculate that email to all members of the Council now as a reply all to the email that included Tom's memo that we sent around yesterday.

So I'll wrap up the general fund here.

I covered most of these in the last slide with regards to the key takeaways.

But with regards to how much money is available in 2023 compared to the adopted budget plan, there's about $31.8 million of additional money available in the general fund.

And just one key point, since we will be talking about the jumpstart fund given revenue pressures and the payroll expense tax, that this $31.8 million is net of the administrative reduction to the transfer from the jumpstart fund to the general fund.

So a portion has already been accounted for.

So this is net of that transfer.

But again, just to kind of wrap up the projected annual deficit in the GF based on the projections that we know now, has worsened.

But those projections will change as we receive new data in August.

And that the executive continues their typical and standard work on compiling what the revisions are planned for proposing in the mayor's changes to the 24 endorsed budget.

And now let's look at- Tom, can I ask you a question?

Just because we spent a little bit of time talking about the 2022 under spend and fund balance.

Can you talk a little bit about the $34 million number compared to this $31.8 million number in the two years?

Which number should we be looking at as we think about what might be available for this year and next year?

Thank you for the question, Madam Chair.

So the $31.8 million number is the number that we could use because it includes the impact of all of the various changes.

The $34 million is just what starts.

It's the first change from 2022. But as I covered, there are other changes affecting both revenues and expenditures in all years of the biennial plan.

So the best way to look at it is to see how much the unreserved ending fund balance at the end of 2023 changes, which is $31.8 million.

So that is the number that's a number to target at this point in time.

For for extra extra money about 23 the general fund after County for some some elements including the administrative transfer reduction.

$4 million in contingent elements identified by CEO and and a few technical technical just so.

So that's how the numbers all hang together.

But really, the key number to look at in this analysis is the change in the ending unreserved fund balance, which is, again, $31.8 million.

Thank you.

OK, so given a couple of unique characteristics in the biannual plan, and that there is a balanced biannual plan that was adopted and endorsed last fall, it's incumbent to look at at the Jumpstart Fund, given that that is one of the funds with an intersection with the General Fund on a temporary basis, wherein the Jumpstart Fund provides revenue support.

This is the adopted Jumpstart Fund budget that was adopted last fall.

It shows the starting balances coming in.

So there was zero starting at the beginning of 2022. And then a number of revenue and expenditure projections.

kind of all bottom line going to an end in budgetary balance of $19 million.

I will note that there were also additional reserves that are layered in there.

Those are not necessarily policy reserves.

There's no policy stipulation on those, but those are kind of built based off guidance in conversation with the budget office about what reserves might help for this size of a fund.

If you look at the broader financial plan in the city budget, you'll see that beginning in 2025, The ending and reserve balance goes is positive in the out years but really the key metric for this analysis is the ending budgetary fund balance which is positive because both years.

Unfortunately, these are the revenue projections from last fall and as we know that those we can look at the next slide those projections have changed.

So on average, the change from 2020 through 2024 is about $28 million, so lower revenues.

The actual activity, so there was actual spending that was lower than budgeted in 2022 of about $107 million.

100 1 million of it it's for carry forward so again there's automatic carry forward so items that are from conferences or or things that have some legal reason that they automatically carry forward to the next year and then the bill that will you'll hear later this morning.

Well have a request for $55.1 million to carry forward on the jump start on monies into 2023.

to the next slide, please.

Is the $55.1 million in carry forward requested in the upcoming carry forward ordinance a good example of what the vice chair was referencing in terms of the underspend in actuality, our practice is much higher than 10, even $20 million a year.

I think the question madam chair so they're so they know they kind of are from the same place they're kind of 2 different things so they carried forward is it's going to be money that was not spent but that shall be spent and it needs to either be automatically carried forward to meet some invoice payment that is expected or to just to fill some program purpose.

So in this context the $55.1 million is the latter so there's that amount in the jumpstart fund that is for a thing, for a purpose in the budget that just has not yet been spent, but it does intend to be spent in the current year.

Underspend kind of also deals with expenditures.

However, that is money that is just strictly was budgeted and is just not spent for the purpose.

So a really great example of this is salary savings.

You have money in the budget to pay for a salary, and the incumbent of that position leaves 3 quarters of the way through the year.

And so you have 1 quarter's worth of salary that has not been spent.

And that money just drops to the balance of the fund.

So that's kind of the difference between the two, though they both deal with monies that were not spent in the prior year.

The key difference between them is that in one case of carry-forwards, the money will be spent.

In the case of underspend, the money will not be spent, and it drops to balance.

So in this regard, the $55 million not related to the underspend in the general fund.

Two different funds, two different size of expenditures.

Plus this is for a carry forward as opposed to just strictly money that will not be spent.

I see a question.

The 31.8 is the more accurate number to look at to make that point that was described earlier.

Actually, Madam Chair, the general fund underspend was $57 million.

That would be the amount of money that was not spent That was partially offset by revenues that came in lower than expected.

And so that's how you get to the $34 million.

But I do see a question from Council Member Nelson.

And before we go to that, I just want to flag for folks, we do have two additional agenda items that include a possible vote.

So is it possible to keep you all till noon?

Noon.

Okay, seeing nods, Council Member Nelson.

All right, we'll turn it to Council Member Nelson.

Please go ahead, Council Member.

I think that's okay, but I need to check my bosses here.

But anyway, I'm stuck on the 107Million dollar underspend because when I look at page 11 of your memo, central staff's memo, it says that the revenue forecast for, you know, based on the April 2023 projection, the 2022 actual jumpstart revenue will be 253. And so if we've got an underspend of 107Million, that leaves We've only spent about 146M and you just mentioned salary savings for positions that are funded by the jumpstart fund.

I'm assuming not all the other salaries.

What else is driving that underspend?

I mean, I, I, I'm just.

And maybe we can have this, this offline, but that's just seems like a lot of understand.

Thank you for the question.

Catherine Nelson.

So.

This is it this is perfect because it relates to the prior question of the difference between money that hasn't been spent that will not be spent and money that hasn't been spent but will be and so in this an actual bullet under 2022 actuals of that a 107 million dollars from last year that hasn't been spent a 101 million is going is intended to be spent either to an automatic carry for process or to the upcoming carry forward bill that will be discussed this morning.

So with that in mind, the difference between 107 million and 101 is the actual money that goes to balance in the fund.

So that is the unspent appropriation that just drops the cash balance in the fund.

Well, I get that.

It's just that that was last year.

So we didn't spend almost half of the revenue.

So are we being overambitious in what we think we can get out the door with these dollars?

That's kind of where I'm coming from.

Council Member Nelson, we can look more specifically at exactly what makes up that $107 million.

I don't have all the information in front of me right now, and I'm sharing my screen.

But what I will say in general is that the Jumpstart Fund and the expenditures that it is supporting, the programs and services, are relatively new.

So some departments will be a little bit slower in the first few years in getting money out the door, as the Office of Economic Development establishes new programs, and staffs up and gets those dollars out the door.

So I wouldn't expect in the long-term, like if we continue to see this level of underspend from the Jumpstart and carry forward on the Jumpstart fund, I think that would be worth revisiting.

In the first couple of years, I don't think it is that unusual to see sort of money carried forward.

And particularly because some of the, a big portion of the Jumpstart funds is for things like capital investments in affordable housing, and the equitable development initiative that often take a little time to develop those projects and start spending down the fund.

So we'll follow up with more details on what's made up, but in the first few years of a new fund and new programs and services, I don't think it's that unusual.

But if we see this two years from now, three years from now, I think that we would want to revisit what can reasonably be spent in a given year.

I appreciate that question.

I would love to work with you as well on that because I know that one of the categories where we've seen kind of a hold pattern for wanting to have more input from the department and community has been in Office of Economic Development.

And thanks to Markham and the department over there, they have a blueprint, right, a blueprint now for how to spend those dollars going forward.

So a lot of the early investments in economic resilience category had been temporary investments as the department worked on what that overall blueprint would look like.

So I'm really excited about the future work to come on economic resilience through the department that you have purview over, and would love to talk a little bit more about, you know, how we make sure that those dollars really are going in and out the door quickly.

that's a great example of making sure that we had a blueprint for deploying those dollars that was really informed by conversations with small businesses and community members, which they've done a great job of doing.

So looking forward to talking more with you about that and with Director McIntyre as well.

I think that's all I have to say.

Thank you.

Thank you.

Okay.

And thanks to my colleagues for your willingness to stay another 30 minutes.

We will endeavor to wrap this up with additional questions and get to the other two items.

And I would just also say if it's accurate, Tom, this is, there's no action today.

This is an overview that allows for us to have more conversations, especially in June and July.

This is just this isn't just information to help as many bills come to me the remainder of the year.

So to kind of wrap up from the prior slide.

The negative revenue forecast resulted in a negative and in budgetary fund balance so the biannual plan and the jumpstart fund was no longer balanced.

There are a couple of administrative measures based on These are intentions of the executive.

One, as I covered earlier, is to reduce the jumpstart fund transfer to the general fund by $38.7 million this year.

And then also, there is a directive to underspend a few departmental appropriations in the 23 budget, totaling about $14 million.

OED, the Office of Economic Development, $2.2 million reduction, Office of Housing, $9 million reduction, Office of Climate and Community Development, a $1.3 million reduction, and Office of Sustainability and Environment, a $1.3 million reduction.

All of these would be administrative measures.

The council sets the amount of the appropriation, though the executive can understand.

So each one of these can be done administratively.

If, if they are done.

Oh, and one final measure.

This is kind of gets to like a change on the spreadsheet, which would be to reduce the 2024 reserves to zero.

So they were building up to.

Fairly sizable amount in the financial plan and so given the revenue pressures, they would make the reserve zero in in 2024 and then finally.

For 2024 i'm given that there are still a negative on reserve balance their CBO budget restructure instructions given to departments to reduce.

jumpstart appropriations to prepare proposals to reduce appropriations for 24 by 15%, which would generate about a $46.4 million reduction if they were all done at that level.

However, it's not known which of any one of those would actually make it into the mayor's proposed adjustments to the 24 endorsed budget.

One point about these, I did say that they are administrative measures, though council could choose to legislate one or all of them in the current budget at the discretion of council.

So I just wanted to make that point.

They do not need to be, though they can be, to express the legislative intent and also to help track the interaction between the Jumpstart Fund and the General Fund, perhaps.

Question from Council Member Peterson.

Thank you, Chair Mosqueda.

This slide seems really important to me, especially since we heard from some speakers today, public speakers concerned about what appears to be a unilateral hold on money that the City Council authorized in this calendar year when we have only seven months left in the calendar year.

So it seems like there could be other ways to find $14 million than I just want to make sure that we are not following through with what the majority of the City Council authorized just a few months ago.

I'm concerned about the fact that the northeast branch of the library does not have a cooling center.

There were heat waves last year and there will be this summer.

Because of a hold, it actually missed two summers of trying to get that investment completed for the community.

we are hearing from constituents who are concerned about this as well.

So, is there a way to, you talked about legislating to adopt these holds, but is there a way to legislate to Seems like you already did that.

Yeah, I'll take a shot at that.

Ultimately, as as Tom described previously, the council's authority is to set the level of appropriation.

One option the council could consider is legislating a bigger reduction to the jumpstart fund transfer so that there would be you know, you basically reduce the start fund transfer to the general fund by an additional $14 million because there are general fund resources available.

And then there could be funds available to support that $14 million, although I will say that the executive still has the administrative authority to require these underspends.

The other option available, and, you know, also requires agreement with the executive is that there is $14 million sitting in the jumpstart planning reserves, the council could request.

the executive to use that $14 million to support the 2023 expenditures, knowing that as you go into the 2024 budget adjustments, you may need to reduce some jumpstart funding or general fund spending.

to fully balance just because these numbers will continue to change.

But I do think there are options available to hold to the 2023 commitments.

And this fall, you all will be engaged in a conversation about what adjustments you want to make to what you endorse for 2024.

Thank you for answering.

Thank you for answering that.

I look forward to working with my colleagues here on the second floor on this.

I'm going to turn it over to you, Councilmember Garcia.

I'm very concerned that a hold has been indicated to the departments to the tune of what you're seeing on the screen.

$9 million in affordable housing means $9 million less for the spring NOFA for rental housing production.

$2.2 million in economic development when we're trying to open up small businesses and help small businesses stay open, not only in the downtown core, but in pockets around our city.

It also includes workforce development and investments.

And whether or not those dollars have been promised and already almost out the door, or we were about to plan for how to get those out, that is a reduction in funding that could directly go to small business and economic resilience.

And the same is true of the $1.3 million reduction that goes to our equitable development initiative and sustainability in the environment.

Council Member Peterson just gave a great example of when projects that are not yet underway get placed on hold.

The implication could be years later, we're still waiting for cooling centers and our environmental justice strategies to be deployed.

And we know that the Green New Deal investments was a key component of why and how the community came together.

to create such a robust coalition that asked for the spending categories.

And I would also say the spending categories were not controversial.

Unanimous agreement amongst council and signed into statute to make sure that these four categories really stayed true and were held harmless.

And I would love to continue to have conversations about how to make sure that both the executive and the legislative branch are able to continue to fulfill these commitments that we made to community.

especially not responding to an April forecast that has traditionally been off compared to our August forecast.

So as we continue to see even the April forecast, even with the reductions in general and in jumpstart being slightly lower, we are still projecting to be in the surplus, having more revenue from Jump Start than the expenditures planned.

And to me, putting on hold $14 million in the Jump Start's expenditure plan for 2023, well, we have $14 million in Jump Start reserves and $31.8 million in possible funds available for us in 2023, given the underspend.

we have sufficient funding to cover a $14 million hold in this year.

And I think broad commitment to want to work collectively once we see those August forecast numbers to more accurately project how we need to address any 2024 reductions.

But to me, this is about maintaining our commitments, staying true to our promise, and keeping our word when there's been a good faith negotiation between the branches on how we would use higher than anticipated Jump Start revenue to support the general fund, maintain our commitments to investing in Jump Start as codified in 2020, and then helping to find those solutions.

I don't think anybody's saying we want to be rigid and say, no, if we offer flexibility for the Jump Start we're going to be able to find common ground to meet in the middle of this.

We're going to be able to find common ground to meet in the middle of this.

We're going to be able to find common ground to meet in the middle of this.

We're going to be able to find common ground to meet in the middle of this.

We're going to be able to find common ground to meet in the middle of this.

We're going to be able to find common ground to meet in the middle of this.

We're going to be able to find common ground to meet in the middle of this.

We're going to be able to find common ground to meet in the middle of this.

We're going to be able to find common ground to meet in the middle of this.

We're going to be able to find common ground to meet in the middle of this.

We're going to be able to find common ground to meet in the middle of this.

We're going to be able to find common ground to meet in the middle of this.

We're going to be able to find we're going to continue to work collaboratively with the executive and the mayor and the CBO team to find that approach to make sure that $14 million is not withheld this year given, as Councilmember Peterson said, these were just decisions made a few months ago.

And we have other pockets to lean into, whether it's jumpstart reserves or whether it's the underspend for 2023 that we're projecting.

There's a way for us to move forward this year and also collectively plan after we see the August forecast.

Councilmember Herbold, Vice Chair, please go ahead.

I don't want to be repetitive, but I do agree with Madam Chair and Councilmember Peterson that there are many levers that we have available.

Jumpstart Reserve greater than anticipated general fund revenue for 2023. The understand from 2022, the assumptions around future understand.

There are a lot of levers here that we can work with to address this with an understanding that these are all questions that we should and will revisit.

with the August revenue update.

Right.

Thank you, colleagues.

Please go ahead, Tom, if there's additional material you'd like to cover.

Thank you, Madam Chair.

So this just wraps up what, you know, if the executive's administrative measures were the only plan applied, how the budget would look.

Just to touch on a few of the points that were in the discussion, There are alternative ways to tackle this, including making the reserve a 23-0 and making the underspends, the administrative underspends zero would solve it, or increasing the administrative transfer reduction to the general fund by $14 million and reducing the administrative underspend.

So those are clearly options that are on the table.

particularly given the higher than expected amount of money in the general fund this year.

That actually is a good key to the next slide.

A lot of these items have been the core of the discussion this morning.

But given that council and the mayor recently passed ordinance 126799 which which actually codifies the city's commitment to racial and social justice.

It's incumbent on this type of analysis to look at the equity trade-off.

The Jumpstart Fund, when it was passed in 2020, or the payroll expense tax and the spending plan that accompanied were passed back in 2020, it essentially levies a payroll expense tax on some of the largest businesses in the city for some of the largest tiers of compensation expense.

Then it reallocates that money for a series of equity expenditures, including affordable housing, environmental improvements, equitable development, and economic revitalization.

That is one of the most progressive funds in the city treasury.

I would note that after buying the 2023 administrative reductions in the executive's proposal, that the actual 23 revised budget would be below the amount that was envisioned for that year in the original spend plan.

And the original spend plan, as you noted, Madam Chair, was based off of a lower revenue estimate that still holds even to this day in terms of expected revenue.

So it's kind of putting the pressure all on the jumpstart fund with less pressure on the general fund particularly acute given that the general fund appears to have additional resources to deploy in the current year.

And I believe there might be a final slide.

No, there isn't.

But that's the key point is that there may be other ways to tackle this challenge to keep the integrity of the biannual plan without having that come at the detriment of the equity investments in the Jumpstart Fund, particularly within the framework as proposed when the tax was originally passed back in 2020.

Thank you.

And thanks for bringing up the equity framework and the need for us to continue to look at how those organizations and communities that have had less investment historically have maybe less capacity to quickly respond and deploy the dollars, how we can ensure that we're still following through with our commitment to make those investments when needed.

Ali, I just, Deputy Director, I was wondering if you had the chance to work any magic on the question of the bar chart or if that's still in development.

I'm seeing some nodding.

Tom, thank you so much for your presentation and thanks for the slides to correspond with the 16 page memo that you sent around.

That's very helpful.

We will again get those posted to the final agenda that goes up online.

Okay, I do have it ready.

I will just admit it's not the prettiest of graphs, but I will Just go ahead and do this in real time, just the same.

So this chart is showing, I think, what the committee was requesting.

Do I need to zoom in more?

You do need to zoom in more.

Thank you for doing this, though.

We love to see an Excel chart in raw form on Seattle Channel, so thank you.

It just needs to be centered a little bit more and zoomed in.

A little bit more.

That's looking pretty good.

Okay, and I will, I will share this around and we can add it to the committee materials, but the blue line starting in 2022 show what the jumpstart fund revenue estimates were.

In 2020, the orange lines, the orange bars are what the November forecast was, and the gray is the April revised forecast.

And this lighter blue line going across is just sort of showing how the November forecast and April forecast both show projected jumpstart revenues coming in higher than what was anticipated in 2020 when the budget was adopted.

Thank you so much for working and in the letter that's been circulated, it says, we clearly understood the agreement in the fall budget process to allow Jump Start to temporarily fill a gap in the 2023-2024 general fund as predicated on two commitments.

One, that we maintain the $220 million investment in the baseline Jump Start categories estimated to be available when the council passed the ordinance in 2020. in the last year, we have seen a significant increase in revenue from the general fund.

Council passed a spending plan with moderate growth projections of 2% per year.

So at least for 2023 and 2024, we have held ourself at that blue bar there and put any higher than anticipated and beyond, that the full received investments from Jump Start will go back into fully funding the spend plan.

But we had temporarily allowed for that flexibility.

And the second component was that, according to the letter, we replenished Jump Start's equity investments if general fund revenues are higher than assumed in the budget.

I think that's an important visual

So the letter you just read from, Madam Chair, gives a, I think, a clear articulation of the understanding of the agreement with the executive and the principals.

I recognize, of course, that Madam, I'm sorry, the Budget Director Dingley is not with us here today, but is there anybody who can characterize the executive's interpretation of the agreements that we made during budget.

And I'm not seeing anybody jump in and to.

I've heard there's a difference and I would just be helpful to understand that difference.

And if there's a difference, that's that's very frustrating, right?

At least from the chair's perspective, because I definitely said multiple times in community and out here on the dais on Seattle channel that we had an agreement to continue to maintain the 2020. we're going to hold those lines and only use higher than anticipated revenues for the general fund.

So my hope and vice I think it's important for us to revisit what that discussion was and how we will continue to move forward, especially, as you noted, given the reserve and I still see central staff on the line, too, so not to put you on the spot, but in lieu of having an opportunity to have that discussion with CBO today, is there anything else you'd offer from a nonpartisan technical perspective on what we discussed during budget?

Yeah, thank you, Chair Mosqueda.

I can't speak for the executive or what their understanding of the agreement was.

What I can say is that this has been a consistent challenge each year since the jumpstart tax was adopted.

And so I would just point to the legislation that was transmitted with the 2023 proposed budget related from the executive for the jumpstart fund, which would have ensured first that the general fund transfer was protected.

before jumpstart spending was protected.

And ultimately what the council adopted was ensuring that the jumpstart spending at the 2020 estimated numbers were protected.

And then anything above that goes to the general fund.

So I would say, well, I can't speak for their understanding of the agreement.

I would say that since July of 2020, each year we have received legislation that Sort of is in that spirit, which is prioritizing ensuring that the general fund is balanced and for reasons you know related to maintaining those core services and that sort of thing.

And the Council has consistently passed legislation that has protected or held true to the commitments.

in 2020. I'll also just note that the city budget office, as I said earlier in the presentation, is facing increased costs.

I think to be fair to what they are trying to balance here is that they are seeing that to avoid cuts in the future to services and programs, they are trying to reserve some resources.

There's some flexibility for your decisions in 2024. And these are just, you know, hard policy choices in a resource constrained environment.

Thank you.

You know, um, I think that to be fair to us, too, and I don't want to speak on behalf of the council, but I think that we've also been willing to show flexibility in how we solve for the revenue gap.

And I think the request continues to be to allow for the 2023 expenses to move forward, given that we have $14 million in reserves for Jump Start alone, not to mention the $90 million combined total for the two other emergency reserves that we have.

We have 31.8 million in additional general fund that could be available given the projected underspend.

And I think that there's an opportunity for us to allow for 2023 expenses to move forward and then revisit this conversation in August when we see the full revenue forecast and identify where we collectively can offer additional flexibility.

Whether that's with repayment to Jump Start or using the Jump Start emergency funds, I think there's an opportunity for us to have more deliberations with community as well as with the executive about how to address any shortfall that we are seeing for 2024. Given that we all know that there's increase in costs, but want to stay true to the expenditure plan as noted, you know, $9 million in holding back and affordable housing means that we're going to be able to do that in August.

We're going to be able to do that in August.

We're seeing a lot of dollars that are coming in from the federal government that are either reducing investments or delaying timelines, and that also equals additional costs for EDI.

And in Green New Deal investments, again, these are mostly dollars that are helping to spur local responses I'm committed to identifying ways that we can close gaps that are I am hopeful, colleagues, that we can come back and follow through on what I hope were good faith negotiations.

At this point, it feels like a walk back on those conversations and agreements that we have.

It feels like a betrayal of the conversation that we committed to community, that we would hold true to the that we need to address any revenue gaps that continue to persist in the August revenue forecast, but given the revenue streams that are potentially even available at this point with underspend and our jumpstart reserves, I'm very concerned about this.

So looking forward to having those additional discussions with CBO, with the mayor's team, and with the community at large.

that we are still seeing jump start revenues come in higher Colleagues, I promise you this will be fast.

Central staff is with us.

They have indicated these are short presentations on items three and four.

So for the sake of time, let's go ahead and read items three and four into the record.

And we have Eden with us to walk us through it.

Agenda item number three, an ordinance amending ordinance 126490. And agenda item number four, Council Bill 120573, an ordinance amending ordinance 126725 for briefing, discussion and possible vote.

Thank you.

And Ed and thank you for being with us here today.

Thank you very much.

I will, like you said, keep this up.

I'll move very swiftly.

So good morning, council members and chair.

I guess it's morning, one more minute.

I'm Ed Encisage with council central staff and I'll provide a quick, so if you move to the next slide, yeah.

I'll provide a quick overview of how the city's budget gets adjusted throughout the year, starting with the adopted budget, including automatic carry forwards, which I'll explain shortly as well.

And then supplementals, which occurred throughout the year, and the exceptions bill, which gets submitted after the year is complete, then we'll get into some specific details and highlights of the carry forward and exceptions bills before next steps in terms of upcoming budget adjustment processes.

So I'll cover all of these slides much quicker than I was expecting for the sake of time.

But so by state law, we're required to adopt a budget 30 days prior to the beginning of the ensuing fiscal year.

which we did on November 29th last year for the 2023 fiscal year.

And that adopted budget across all sources was $7.4 billion.

And also while the budget adoption document includes a reference to multi-year CIP program, only the first year of capital investments are appropriated in the budget adoption itself.

So next slide, moving into the operating phase of the 2023. budget year automatic carry forward takes place.

And that's sort of a technical adjustment which accounts for all automatic carry forwards.

And from this slide, the biggest takeaway here is that there's a $1.9 billion automatic carry forward into 2023 across all city funds.

Two-thirds of which is in capital budget, which is just about the same as it was last year from 21, it's 2022. Slide four, thank you.

So the next piece, which is most relevant to our conversation today is regarding supplementals.

State law allows supplementals to take place, and I'll provide a bit more detail on this in the memo on page two, but we categorize them as standalone, which are more specific and single subject.

or comprehensive, which is what we're talking about today.

Those are more of a package of adjustments that affect multiple funds across multiple departments.

So we can move on to slide five, please.

So this table summarizes at a high level the city's 2023 revised budget.

starting from the adopted budget and accounting for all of the changes to date.

So our 2023 budget again is $7.4 billion with an automatic carry forward from the prior years of $1.9 billion.

And the bulk of which is in CIP ongoing programs.

And then we've had four standalone bills and one comprehensive bill as of April 20th for a total of $33 million.

And most of this is from the recent grant acceptance and appropriation ordinance.

So these three pieces together make up the revised budget of 9.3 billion, which is 25% higher than the adopted budget.

And you can find additional detail in the memo, and this information is shown at the department level in attachment one to the memo.

So with that more general budget adjustment background and context, The next couple of slides will focus on the bills that are before you this morning.

Council Bill 120573, the carry forward legislation requests approval for a total 2023 budget increase of $154 million from several city funds.

And summary attachments submitted by the executive with the legislation show the details of all the items.

And central staff has reviewed that list to ensure they meet the nature of a carry forward, which essentially is continuing work that began in 2022 and is anticipated to continue to 2023. So it just needs the resources to do so.

And so what I've done here is highlight some of the big ticket items and items that may be of interest to council.

And I can go through these or I can skip over these, but they are covered on page, starting on page five of the memo.

And all of them are detailed there as well in the summary attachments.

So would you guys like me to just skip over or go through each of these?

I think you can skip it.

The summary on the slides is good.

And if others have questions at the end, we can come back to those.

Thanks, Chairman Skinner.

I would just note here to a question Council Member Nelson asked in the previous presentation, you can see here about, you know, 76-ish million of the jumpstart carried forward is captured in the Office of Planning and Community Development and Office of Housing.

So just flagging that as a follow-up to that question from earlier in the day.

Thank you.

Similarly, I'll do the same thing for the exceptions.

The exceptions, Council Bill 120572, which is the 2022 exceptions, the total requested increase of $4.9 million is actually the lowest in recent five-year history and longer.

The average was up $18 million, so significantly lower.

And there are two notable items.

One is an FAS, and the other one is the is in SDOT for higher than budgeted overhead labor costs for the parking enforcement officers at SDOT.

And this is a one-time exception request as parking enforcement officers were transferred back to Seattle Police Department in the 2023-2024 budget.

Next slide, please.

And so, in closing, I'd just like to provide a reminder of the known upcoming budget adjustment legislation, which includes the soon-to-be-transmitted mid-year supplemental and mid-year grant acceptance and appropriation.

We'll also likely have a year-end grant acceptance appropriation, as well as the year-end supplemental, which gets transmitted with the budget in the fall.

And this is in addition to any standalone budget adjustments that occur throughout the year.

And in closing, if the council votes to make a recommendation on these two council bills today, they will be considered at the city council meeting next week on May 23rd.

Thank you so much.

Thanks for your patience today, too, as we got through two meaty presentations.

Any additional questions for central staff?

Seeing none, I'm going to go ahead and move these items here.

I move the committee recommends passage of Council Bill 120574. Is there a second?

Thank you so much.

It's been moved and seconded that the exceptions bill for 2022, which requests approval for the 2022 budget increase intended to resolve instances where department overspent is included in the 2022 revised budget allocations.

Are there any additional comments?

Hearing none, Madam Clerk, will you please call the roll and note that Council Member Lewis and Council Member Nelson are excused.

Yes.

Yes.

Excused.

Aye.

Thank you so much.

The motion carries, and the recommendation that the bill pass will be sent to the May 23rd full council meeting for a final vote.

There is another item in front of us.

That's Council Bill 120573, which is the 2022 carry forward bill.

I move that the committee recommend that the record and the passage of Council Bill 120573. Is there a second?

Second.

It's been moved and seconded.

Is there any additional comments?

Hearing none, Madam Clerk, will you please call the roll on the passage of the bill?

Yes.

Yes.

Aye.

Thank you so much.

The motion carries and the committee recommendation that the bill pass will be sent to the May 23rd City Council meeting for a final vote.

Thanks again to central staff for all of your presentations and your work today.

If there's nothing else for the good of the order, our next Finance and Housing Committee meeting will be when I am one year older on July 5th, the day after my birthday.

We will reconvene at 930 in the morning.

Until then, please continue to join us at the Select Housing Levy Committee meeting, which will be held in two weeks on May 31st at 930 in the morning.

We will have a briefing and discussion on the chair's proposed introduction of the mayor's housing levy renewal legislation, and then we'll have a public hearing that evening at 4.30 p.m.

Invite members of the public to dial in or to come in person.

Thanks, colleagues, for your time today, your generous time today.

And with that, our meeting is adjourned.

Thank you all.