Seattle City Council Select Budget Committee 111523 Session II

We are recording.

Good afternoon, everybody.

Thank you so much for coming back to the Seattle City Council Select Budget Committee meeting.

I'm Teresa Mosqueda, chair of the committee.

The time is 2.04 PM, and the committee will come back to order from its recess.

Madam Clerk, could you please call the roll?

Council Member Herbold?

Here.

Council Member Juarez?

Just sorry.

Council Member- Here, here.

Thank you.

Council Member Lewis?

Present.

Council Member Morales?

Here.

Council Member Nelson.

Council Member Peterson.

Here.

Council Member Sawant.

Oh, I'm sorry.

Sawant is excused the rest of the day.

Council Member Strauss.

Chair Mosqueda.

Present.

Six present.

Thank you so much, colleagues.

We are on agenda item number 28. We began a discussion about this in the first session of today's meeting.

We already provided an overview of the revenue stabilization work group updates and the report out from central staff on the work that they've done subsequent to our discussion earlier this fall.

Thank you very much to Esther Handy and Ali Panucci for all of their work in that regard.

We still have with us a number of other agenda items that we are going to cover as part of this afternoon's briefing, and we're going to start with the fiscal transparency legislation.

Thanks again to Esther Handy, our Director of Central Staff, for her work on this.

There's two pieces of legislation that this topic corresponds with, and I will turn it over to Director Handy, who will provide us an overview and a reminder of the work that they accomplished with the city budgets office through the fiscal transparency work group that they participated in and the subsequent legislation that's in front of us that will potentially be up for vote on November 30th.

Again, my hope is that these two pieces of legislation offer greater opportunity for both colleagues and members of the public, as well as the interaction and transparency between the executive and the legislative branch to be more codified in a streamlined way for future flow of information between branches of government in a proactive way.

And we'll talk a little bit more about that afterwards.

But Councilmember Peterson, I'm actually looking at you.

Speaking of our earlier conversation about the importance of the independence of each branch of government, my hope is that this is a useful tool for future discussions as well.

With that, I'll turn it over to Director Handy to walk us through the legislation.

Thank you, Tara Mosqueda, and good afternoon, committee members, Esther Handy, director of your council central staff.

As the chair said, I'm gonna brief the committee on two pieces of legislation, a fiscal transparency ordinance and a budget process resolution.

These bills are the result of several years of work and recognize that managing a $7.8 billion budget for local government with 13,000 employees is a large and complex task.

And it takes coordination up and down the organization from frontline supervisors that are managing a team budget, finance directors and accountants that are managing a department budget, analysts at the city budget office and at central staff that are looking citywide, and you all as elected decision makers in both branches of government who are responsible for meeting the demand for public services within a balanced budget.

And these bills are developed to put additional tools in the city's toolbox to support that management both within city government and to provide transparency about that fiscal information to the public.

So Patty, next slide, please.

To develop these specific bills, a 2023 statement of legislative intent expressed the council's intent to update resolution 28885 related to the annual budget process through new legislation and ask central staff to work together with the city budget office to prepare recommendations.

In June, our work group issued eight recommendations to increase transparency and city budgeting, create sustainable budgets, and shift those second year budget process goals in our biennial process towards financial monitoring and planning.

The goal of that being with more time on planning and monitoring, we'd be able to provide better information to decision makers when they set those biennial budgets.

In addition, Chair Biscuit had asked central staff to do a review of fiscal note best practices from around the country, which were compiled and presented to the Finance and Housing Committee.

I want to thank our fiscal policy team, Tom Mikesell, Eden Sisich, and our Deputy Director, Allie Panucci, for her work on both the work group and the development of these bills.

All right, so next slide.

First, I'm going to walk through what the Fiscal Transparency Ordinance does.

THIS ORDINANCE ESTABLISHES IN CODE A FISCAL TRANSPARENCY PROGRAM AS A FORMAL PROGRAM AND POLICY OF THE CITY.

IN DOING SO, IT CONSOLIDATES THE EXISTING FINANCIAL REPORTING INFORMATION ON PAST ACTIVITIES, CURRENT ACTIVITIES AND FUTURE FINANCIAL PROJECTIONS INTO A SINGLE SECTION OF THE CODE SECTION 3.14.

SO IT'S EASIER TO FIND AND TRACK WHAT THOSE REPORTING REQUIREMENTS ARE INSIDE THIS FISCAL TRANSPARENCY PROGRAM.

Next slide.

I'll go through these three of what the ordinance does and then maybe take questions.

Second, it establishes requirements for summary and fiscal notes.

From a process perspective, it requires that fiscal notes be prepared and transmitted with legislation, as is our current practice.

And newly, that fiscal notes would be updated after committee action before city council vote.

and after final action by the city council.

So that the fiscal note in the record reflects the final bill.

This will be new work for central staff beginning in 2024 to update these fiscal notes throughout the council's legislative process.

And in terms of the content, the bill requires a template be maintained and developed by the city budget office and central staff.

IT WOULD INCLUDE A BILL SUMMARY AS IS CURRENTLY REQUIRED, FISCAL IMPACT FOR THE CURRENT YEAR AND FOR FUTURE YEARS.

THAT FOR FUTURE YEARS PART IS NEW.

AND IT WOULD REQUIRE THE INFORMATION CURRENTLY REQUIRED ABOUT CAPITAL AND CLIMATE IMPACTS THROUGH OTHER LEGISLATION BE INCLUDED IN FISCAL NOTES.

AND THEN NEXT SLIDE, THE ORDINANCE FINALLY UPDATES THE DUTIES OF THE CITY BUDGET OFFICE IN CODE TO ADD FINANCIAL REPORTING AS RESPONSIBILITY, REFLECTING THE VARIETY OF REPORTING RESPONSIBILITIES THAT THEY HAVE.

AND THEN IT UPDATES THE CITY BUDGET OFFICES AUTHORITY TO MAKE MID-YEAR TRANSFERS BETWEEN BCLs.

THIS UPDATE WOULD ALLOW A TRANSFER BETWEEN BCLs UP TO A TOTAL VALUE OF 10% of the receiving bill BCL were $250,000.

This will allow transfers in and out of small BCLs while retaining the cap that transfers may never result in a cumulative annual net transfer of more than half a million dollars into a single budget control level without council approval.

SO THE EXISTING CODE OFFERS SOME FLEXIBILITY FOR THE BUDGET DIRECTOR TO ADMINISTRATIVELY MOVE SMALL AMOUNTS OF MONEY MIDYEAR.

THIS IS SORT OF A SMALL UPDATE TO THAT AUTHORITY.

I THINK I'LL PAUSE THERE TO SEE IF THERE ARE ANY QUESTIONS ABOUT THE SUBSTANCE OF THE ORDINANCE.

AND IF NOT, I'LL MOVE ON TO DESCRIBING THE RESOLUTION.

I SEE COUNCILMEMBER MORALES'S HAND.

I will ask a question.

Thank you, Esther.

I wonder if just on this last point, if you can talk a little bit more about the rationale for either the percentage or the amount included here and how it differs from what is already allowed.

Yeah.

FISCAL ANALYSTS IN THE WORK GROUP AT CBO AND CENTRAL STAFF LOOKED BACK ON SEVERAL YEARS OF TRANSFERS AND WHAT THEY NOTICED WAS PARTICULARLY WHEN A SMALL BCL HAD NO RESOURCES IN IT.

you couldn't transfer into it mid-year because 10% of zero was always zero.

And so this was, I don't have a great sort of policy example of what this looks like in practice, but they found a few cases where it made sense to sort of move small amounts of funding around still underneath that half a million dollar cap, but the percent was sort of the barrier.

to making it happen.

So this keeps the overall cap and just makes it a little bit easier for some of those smaller dollars to move amongst small budgets.

Okay, thank you.

Yeah.

Not seeing questions, I'm happy to move to, oh, I see another hand before I move to the resolution.

I don't know if this question is better now or after the resolution, but Is this the product of conversations with both the City Budget Office and the Office of Economic Forecasting and Revenue?

I think I heard in one of those meetings in the past that there was a lot of alignment between Chair Mosqueda and Ben Noble on some of these things, but I just want to make sure that I'm not conflating conversations.

this work group was largely between the city budget office and central staff and there are not new requirements for the office of economic and revenue forecast it does update it moves some of the requirements about their forecasting into this single section of the code about fiscal transparency so you can see it alongside past and current activities um but otherwise largely does not touch their work okay thank you yeah Great.

So Patti, let's go to the next slide.

And happy to take more questions about all of it once we get through the resolution.

SO THE BUDGET PROCESS RESOLUTION REPLACES AND SUPERCEDES OUR CURRENT RESOLUTION ABOUT BIENNIAL BUDGETING.

THAT'S RESOLUTION 28885 THAT WAS ESTABLISHED AND ADOPTED IN 1994. THIS DEFINES THE CITY'S MODIFIED BIENNIAL BUDGET PROCESS AND CONTINUES THE PRACTICE OF HAVING THE COUNCIL CONSIDER TWO BUDGET YEARS TOGETHER.

adopting a first year budget in ordinance and endorsing a year two budget by resolution and encourages us to continue practices that were adopted this year where the executive department really focused on changes self-balanced within departments and Keltzel focused our review on changes against the endorsed budget rather than a sort of top to bottom start from the beginning in the second year of a OF A BIANNUAL PROCESS.

THE RESOLUTION ALSO DEFINES THE TYPES OF ALLOWABLE MID-YEAR BUDGET CHANGES AND DEFINES THEIR EXPECTED CADENCE.

SO THAT INCLUDES AN ANNUAL CARRY FORWARD ORDINANCE TO BE DELIVERED TO THE COUNCIL BY APRIL 1. MID-YEAR AND YEAR-END SUPPLEMENTAL BILLS CONTINUING THE PRACTICE THAT YEAR-END SUPPLEMENTAL BILLS COME WITH THE PROPOSED BUDGET FOR THE NEXT YEAR.

and then supplemental grant appropriation bills up to three times a year that accept and appropriate grants in a single ordinance.

This is a cadence that we have been sort of piloting over the last year or two, and this establishes that cadence and policy to make it more predictable.

Retaining flexibility, of course, should there be an emergency or significant change in economic conditions that require looking at midyear changes differently.

Next slide.

The resolution also charts a path to explore, oh, I see a hand go up.

Chair Mesquite, do you want me to pause here?

Go ahead, Council Member Herbal, if you want to go back to the previous slide.

All right, yeah.

The items one, two, and three here, are those all consistent with the existing resolution?

I thought I heard you say for number three we were we had been trying this approach, which led me to believe that maybe it's not the approach that the resolution currently recommends.

The 1, 2, and 3 here get more specific than the current resolution does.

So the current resolution is quite specific about the basics of the biennial process, but having the timing of bid year and year-old and supplementals, having them coming with the budget, that is new in policy.

This was the first year we did grant appropriation bills that accepted and appropriated grants together.

So this is more prescriptive on timing.

Very helpful.

Thank you.

Great.

The resolution charts a path to explore new practices for the city planning reserves.

Those practices being explored would be too brief.

The Select Labor Committee on the Labor Reserves prior to the transmittal of the budget and to create an appropriate risk reserve for any resources with confidentiality considerations like labor reserves or reserves for the judgment and claims fund.

was currently set in a unreserved fund balance, we call planning reserves.

And this resolution asks for report to the Select Budget Committee by June 30 about those options, so that there is a policy conversation about how those will be addressed in the 2526 budget prior to transmittal the budget.

AND THEN FINALLY THE RESOLUTION IN CARRYING FORWARD CONTENT FROM RESOLUTION 2885 MAINTAINS THE POSITION LIST REQUIREMENTS IN THAT RESOLUTION.

Thank you, Chair Mosqueda.

And Director Handy, on this slide, when it talks about the planning reserves and select labor committee, one of the issues that came up yesterday was when we were trying to get more information from the executive on the central service costs, um i think most of us you know are familiar with this planning reserves issue but then there was this new wrinkle yesterday where they're saying oh and There might be some labor stuff in this central service cost.

And so it was very opaque.

And I think that I'd be interested in just what we've learned in the last couple of weeks, whether there needs to be an amendment to this, just beefing up this, maybe there's another item that can be added to the resolution to get at the central service costs information, since that's something that we've become more aware of just in the past couple weeks after this resolution was probably drafted.

So I just want to signal my interest, I guess.

I appreciate that and happy to talk offline with you about what that might look like.

I think it is likely something slightly distinct from what is being addressed here in the planning reserves, but something about explorer intention or sort of what we want to get to about further transparency and information about those internal service costs could be explored in this resolution.

But perhaps it could be part of the ordinance instead like more directive we'll talk about that in a minute but um i'll just put a placeholder to say councilman peterson i uh hear your concern on that and uh the thing that was obviously concerning to me in yesterday's discussion was the potential impact on labor i think what i heard from central staff was it's unknown how these um uh changes that were being proposed with that specific amendment would be implemented, but that the executive had the ability to make the changes however they wanted.

And so then we're sort of flagging that their intent would be to have it come out of labor.

I think your comment right now, if there was a way to get more information about the transactions there, then it's less like subjective to what one individual's priority reduction potentially would be or how they would apply the potential reduction.

And so I think having greater transparency on that front would have been helpful for everyone.

So I appreciate, I think, where you're coming from.

And I just would be interested in working with you and central staff on something that's a little bit more directive than explore.

Thank you.

Let's continue.

All right, and the next slide includes the last significant section of the resolution, which is to define a current year financial reporting program.

The City Budget Office and the Office of City Finance have been working, I think, since the day Director Julie Dingley stepped into her role to develop a financial monitoring program that launched this spring.

THIS RESOLUTION WOULD FORMALIZE THIS PROGRAM INTO POLICY AND REQUIRE CITYWIDE REPORTING TO THE COUNCIL TWICE A YEAR BEGINNING IN THE THIRD QUARTER OF 2025 WHEN THE PROGRAM IS FULLY BUILT OUT ON BUDGET TO ACTUAL SPENDING MID-YEAR AND YEAR END.

THE PILOT PROGRAM THAT LAUNCHED THIS SPRING REVIEWS SPENDING VARIANCES AT THE DEPARTMENT AND BCL LEVEL GREATER THAN 5% OR $100,000.

This resolution asks CBO to define the appropriate thresholds for this monitoring as the program develops by the first half of 2025. And the intent here is that this reporting will provide budget decision makers at both the department level, the mayor's office and the council an additional set of information about your, your today's spending to help you all understand what really are the cost of delivering city, city services?

When is their mid year spending that is freeing up resources?

When is there not to inform budget decisions so that you can make sort of the best choices and most sustainable decisions.

And that ends the sort of summary on the resolution.

Happy to take questions on either bills.

Thank you, Council Member Herbold.

Thank you.

I'm just wondering whether or not there has been any progress made sufficient enough to create an expectation moving forward on the issue of having the executive departments report out on funded vacant positions.

Yeah, I'll ask Deputy Director Panucci to assist here if I don't get this right.

I think that the budget to actual reporting is going to provide us significant more information about what is the impact of those vacancies on a budget mid year and year end.

This is not as far as sort of a position based budgeting exercise where dollars would be tied directly to positions.

So I think this moves the ball forward.

IN THE CONVERSATION.

ELLIE, DO YOU HAVE ANYTHING YOU WANT TO ADD TO THAT?

I THINK I WOULD JUST ADD THIS STILL WILL NOT CONNECT THE BUDGET TO POSITIONS.

AND SO WE ARE CONTINUING TO HAVE CONVERSATIONS WITH DIRECTOR DINGLEY IN COMMITTEE BEFORE HAS TALKED ABOUT THE NEW WEVOLVE program the sort of personnel management program that may offer some connections but today what we found is that it will continue to be a disconnect between the budget and funded or not funded positions but we are in conversation with how we can make those connections but right now i'm not clear that this is going that this or the weevil system is going to solve that issue follow-up please

yeah um as i'm not quite um understanding the difference between connecting positions to budget and the concept of just simply knowing how many well the concept that director handy described as the ball moving forward

So what this this budget monitoring program should show us is by budget control level where they are over, under or in line with their proposed budget in different budget control levels.

That includes a personnel budget.

And so we might know where there will be some vacancy savings, but we won't actually know which positions.

And so oftentimes during budget, right, you're trying to understand which positions are fully funded next year, what are already assumed to be halfway funded, that sort of thing.

I'm not sure that we are going to have that level of information, but throughout the year, we should be able to get better information about where there's Salary savings within the department.

It just won't be tied to specific positions.

Okay, super.

Thank you.

Appreciate that.

And I didn't step forward.

Yeah.

Purple.

You're speaking to an area that I was very interested in receiving.

I think it's also a matter of like the lack of just technology at this point.

I think that there was interest from.

the city budgets office that aligns with our interests to have that kind of real-time data.

But please correct me if I'm wrong, central staff, it seemed like the capacity or the technology tools to measure or monitor that in actual real-time, whether that's quarterly or even mid-year, aren't totally up to par at this point.

Am I misremembering?

Yeah, I think it's a combination of our systems, but also how the city approaches budgeting.

We don't use a position-based budgeting approach.

We budget at the budget control level.

And so there is just sort of a disconnect between the level of detail and information the council has been requesting for, I don't know, as many years as Council Member Herbold and I have been working together, which is more than eight.

Um, and, and how we approach budgeting.

So it is somewhat of a, we don't do position based budgeting, we're looking for strategies where we could get that information without entirely changing how the city approaches building and amending their budgets.

Yeah.

Yes, sir.

Yeah, I'll just add sort of an overall comment while kind of the issue of capacity has come up that much of what is outlined in this resolution and ordinance is an implementation of existing work that is being done with current capacity at the Budget Office, City Finance, in departments and at central staff.

This current year of financial programming, while the pilot has launched, is a new body of work.

that CBO expects to be able to do over the long run with existing resources.

That said, we all recognize and the fiscal note for these bills recognize that 2024 is going to be a big budget year in developing the 25-26 budget.

addressing the deficit, having the council and mayor work together on that and rolling out some of these new pieces.

And so we expect city budget office may reach some limit in their own capacity in standing up some of these programs next year.

Great.

Keep going.

Let's keep going.

That is the end of my presentation.

I'm so happy to pass it to my team for the next unless there are any further comments on the fiscal transparency bills.

Thank you so much.

I think if you go back to the last slide, please.

Well, actually, it's the whole presentation, so you can take it down, Patty.

Thank you so much.

Just as a summary, colleagues, this is something I feel really excited about and passionate about.

I think that you can probably tell there's much more that we wanted to have accomplished here via statute and resolution.

Interested, Council Member Peterson, following up on the idea that you had.

If other people do have ideas that you would like to see incorporated, whether it's in the resolution or the ordinance, please let me know.

Again, tomorrow, 5 o'clock is the deadline for central staff so that they can work and get some items accomplished given the holiday that we have coming up next.

Can you believe that?

There's already a holiday next week.

So things are moving fast.

And then we'd like to have those amendments circulated for members to review before any vote on the 30th.

So I think our goal is to try to get those published early the week following next so that you have plenty of time to review those as part of the published agenda.

And again, there's a lot that I wanted to do in this suite of legislation that we are not doing, but we are trying to find some areas where there's common ground with the city budgets office and the executive in their desire as well to move forward some of these things.

Some of these things per our conversation we've been having all day are things that I think are just important to do from a legislative perspective.

As a sole legislative branch, it is important for us to be able to have access to this information.

And that's not for me, that's the budget chair, that's not for any one individual, that's not for anybody who's currently in our seats.

I think these are gonna be important policy directives for future electives to be able to adhere to in any of the branches of government and creates much uh anticipated transparency i think for those who are working to craft the budget uh for councilmatic action and it is helpful i think for the public as well so as a summary here the two pieces of legislation that relate to fiscal transparency is the resolution that reflects current practices for the city's annual budget process and mid-year budget changes and creates a new fiscal transparency program that i'm hoping to put through statute in the Seattle Municipal Code to codify certain financial transparency reporting requirements.

The intent of the legislative package is to memorialize in policy these practices and processes to enhance the fiscal transparency.

I also want to thank, again, the members of the city budgets office and central staff budget team who worked on the fiscal transparency work group recommendations throughout the earlier part of this year.

Those were, again, reported out to the finance committee mid-year this year.

And because of that work, that's why we have these components in front of us, resolution and the ordinance.

I'm excited that they helped move forward a handful of the recommendations that were included in the report that we received.

If you look back at that report, you'll see recommendation number one, which is the biennial budget direction, including the new approach to the mid-biennial review process that we're currently in the midst of.

That is in here.

You'll see recommendations number two and three, which set the cadence for mid-year budget changes, including the first quarter grant acceptance ordinance in the spring, the mid-year supplemental grant ordinance mid-year, And the end of the year supplemental and grant acceptance ordinance that happens in September.

And finally, we define the next steps for planning reserves, including the desire to create the appropriated risk reserve that is operationalized in the future biennium recommendation numbers.

So thanks again for all of the work, and please do let us know.

Happy to work in partnership with you.

If you have some transparency ideas that you have to enhance the legislation, very open to those.

If you do feel like you need to go directly to central staff without us, of course, you're welcome to do that as well.

And central staff, again, will be working on updating the legislation to try to accommodate any additional amendments that you may have as soon as you can flag it for them.

So that's why we have a deadline of 5 p.m.

tomorrow.

Thank you, colleagues, for your ongoing work throughout the last four years to try to advance some of these concepts, and my hope is that this will be a good framework for future use.

Okay, let's keep going.

Patty, if you want to pull up the slides for the next, I think we are talking provider pay legislation, so I'm going to hand it to my colleague, Jen Labreck, for our next presentation.

Good afternoon.

And I'm having a bit of a camera issue.

So please give me one second.

Okay, there we go.

It's a low tech issue.

Thank goodness.

All right.

Good afternoon.

I'm Jennifer Labrack from City Council Central Staff.

And I'm here this afternoon to present on the proposed provider pay legislation.

Next slide.

As a reminder, the Executive's 2024 proposed budget adjustments contain $4.3 million for a 2% increase to human services contracts for the purposes of human service provider pay.

The majority of those funds, about $4.2 million, will go to about 200 contracts administered by the Human Services Department.

The remaining $100,000 We'll go to eight contracts administered by the Department of Neighborhoods.

I'm sorry, eight contracts administered by the Department of Education and Early Learning and one contract administered by the Department of Neighborhoods.

Yesterday, the Budget Committee also approved three amendments to increase the amount of provider pay funding in the 2024 budget.

With those three approved amendments, there is now a total proposed amount of $5.1 million for provider pay in the 2024 budget.

Next slide.

The proposed provider pay legislation requires that any human services contract that includes appropriated money expressly reserved for the purpose of human services provider pay must be used only for wage increases for human services workers.

It also requires that such wage increases be in addition to inflationary adjustments.

The legislation also establishes contracting and reporting requirements, which we will go into more detail about in the next slide.

And finally, it adds a new chapter to Title 20 of the Seattle Municipal Code.

And just to note, because this legislation impacts contracts across multiple departments, not just the Human Services Department, It made sense to add this new chapter to Title 20, which contains general citywide contracting provisions rather than in a department-specific section of the code.

I will talk for a moment about the reporting requirements.

The legislation requests an annual report by June 30 from HSD regarding the prior year's contracts that were subject to the legislation.

For example, the report would be due, if this legislation passed, the report would be due June 30th, 2025. HSD is responsible for aggregating this information for their contracts, plus information from the small number of other contracts being administered by the Department of Neighborhoods and the Department of Education and Early Learning.

The report must include the following items.

It must list all the organizations who accepted funding for human services pay and the amount of funding in the contract for that purpose.

It must list any organization who declined the funding and their rationale on why it was declined.

It must provide a narrative on how providers use the funding, including which positions had wage increases due in part or in whole to the funding.

It must describe other fund sources contributing to provider pay increases during the same time period.

and provide a description of any inflationary adjustments that were also given to staff, including, if applicable, the extent to which the inflationary adjustments provided under SMC 3.20.060 were used to pay for those inflationary adjustments.

And again, that code reference there is the part of the municipal code that requires inflationary adjustments for contracts administered by the Human Services Department.

Next slide.

One important thing to note here is that this legislation, you can think of it as being latent or dormant, and it will always need to be activated by a proviso.

The proviso is the step that is needed to expressly reserve the budget funds for purposes of provider pay, which then essentially triggers or activates the requirements found in this legislation.

Consequently, HSD 809, HSD 1, and HSD 2, which were all approved by the Budget Committee yesterday, contain provisos that in total restrict $5.1 million in HSD's budget solely for the purposes of provider pay increases.

If there is funding for human services provider pay in future years' budgets, whether that is added by the Executive or by City Council, additional provisos would be necessary to debate the requirements of this legislation.

Finally, HSD 12 SA, which again was approved by the Budget Committee yesterday, is a companion piece to this proposed legislation.

It requests that by June 2024, HSD submit a report on how they intend to implement this legislation.

including how they intend to implement these requirements throughout the contract negotiation, reporting, and contract monitoring process.

It also requests that HSD provide strategies for integrating wage equity into competitive funding, recommendations for other strategies to evaluate the impact of provider pay funding that creates or minimizes administrative burden, and provide recommendations for other departments that administer contracts with provider pay funding on how best to implement this legislation and integrate wage equity into their funding processes.

And I will stop there for any questions.

Thank you.

Council Member Herbold, I believe you are the prime sponsor on this legislation.

Would you like to speak to it?

Sure.

I want to first thank Jan Lebrecht for all of her work.

She's really dug into this issue and really think this is a thorough piece of policy that gets to, I think, our desired intent to confirm that funds provided for provider pay in the goal of addressing the provider pay penalty, as we've described it, which is a multi-year effort that will inevitably be taken up again next year it'll be important to see how this year's provider pay uh was was implemented in a way that was consistent with um the paul the policy and the objectives uh appreciate the the work that um the Human Services Coalition has done reviewing this policy and appreciate the input that we've received from HSD with the understanding that there will be much more input with the uh report for this legislative intent this is just sort of a framework for hsd to come back to us and tell us how they intend to um implement the intent of the of the ordinance um i think the other thing i would want to flag is this this notion of a proviso acting as a trigger um you know that i think that's certainly the case um as it relates to this year's funding, and it may need to be the case in future years, but it's also possible that the Human Services Department will just begin to implement this as practice and report out on this without having that sort of discipline of the proviso being included.

Is that correct, Jen?

I would say that sort of the linchpin of the legislation is that the budget, in order to trigger this legislation, the funds need to be expressly reserved.

That's sort of that, those expressly reserved term is the linchpin.

And a proviso is a means to expressly reserve.

And in our conversations with law, really like the best mechanism currently available to be able to do that.

That's what I, that's what we know.

It's less about the proviso, like,

telling HSD, we're really serious about this.

We really want you to give us a report.

It's more about the sum of dollars that we're asking for there to be a report on.

That has to be a defined and known number of dollars.

And the way to do that is the expressly preserved with a proviso.

Got it.

And it has to be, I would say, just appropriated for that specific purpose in order to then activate or trigger the centralization.

Yeah, super helpful.

Thank you.

Are there any additional questions on this?

Council Member Nelson, please go ahead.

So just to make sure that I'm speaking to the right item, this is statement of legislative intent, but we are addressing the ordinance as well.

Yes, the council voted yesterday or approved the statement of legislative intent.

So this slide is just here for context to say there's the legislation.

And then there's this companion slide that has asked for a report from HSD on how they plan to implement the legislation.

But council already made a decision on this lie yesterday.

Okay, so I just wanted to make sure that I was not so when would be a good time to speak to the the content of the ordinance?

We go ahead.

i would just simply uh trying to mime that now is is the right time to talk about the ordinance

Okay, well, I'm wondering if there was any consideration of including any section or any language on contract adjustments being based in part or influenced by, in part, performance metrics or reporting or any outcomes measurement.

And I ask that because I believe that we do have to address we have to address the fact that we need to be accountable to what uh these uh contracts are are producing and you know we had several different polls over the course of the summer uh over the course of last year you know the most recent one west meet reported on saying that council's approval rating is around 20 people don't trust that uh the city is spending their tax dollars wisely the times had a Commissioned a poll that basically said that only 50% of people really approve of city council.

So to me, we've got a trust problem and part of that has to do, and we heard this mentioned a lot over the course of last year, people wanna make sure that we are being accountable for public resources.

And that's something that I came into office thinking as well.

Like, why aren't adjustments based on an analysis of whether or not they met their requirements the previous year?

So was that at all contemplated when we're talking about provider pay, these automatic adjustments that are on top of or in addition to the new wage equity?

If I could, as a sponsor, just take a quick swing at that.

But there may be more to say, and I would defer to Jen about whether or not there is room to kind of refine the concept.

But my recollection is that we decided to include this ordinance in the code um section that actually result that um relates to results-based accountability i um so hsd is is is a department that uses results-based accountability by law um i just happen to remember that because i was the sponsor of the legislation um it would it was a a early version that was uh proposed by then mayor burgess um and um worked with uh the administration at the time and uh brought forward um uh a bill that is now part of the municipal code relating to results-based accountability uh in contracting um again i i probably should defer jen because she's been working with this part of the code um more uh in depth than than i have that was several years ago

A couple of things to add to that.

I will say that this particular ordinance would not go in the HSD section of the code that is related to accounts.

I'm sorry, I'm losing the term here.

The results based accountability.

There was a decision to put this ordinance in Title 20 of the code, which has general citywide contracting provisions because it impacts more than just HSD.

It impacts the deal and the Department of Neighborhoods.

That said, there is a section of HSD's, there is a section of the SMC that deals specifically with HSD contracts that does use a results-based accountability framework.

And HSD does, under that code, is required to sort of re-procure contracts every four years, you know, in part to be able to assess performance and be able to make adjustments as needed.

So I will answer that and then say just specifically to your question, Council Member Nelson, no, there was no specific contemplation for this particular ordinance around adding in something around accountability.

Okay.

Thank you for that term of art, Council Member Herbold, because the results based on the accountability I'm sorry if I'm butchering that but the legislation I think that you referred to um says uh and adding a new section to the Seattle Municipal code to exempt contracts for human services executed by the director from provisions of chapter 20.50.

so are you saying so this legislation I think that you referred to says that those contracts are exempted

I don't think that's the case, but we can look more into that maybe offline.

I think maybe mixing parts of the code, and I'm also happy to send you a copy of the ordinance or the link to the municipal code that I was referring to earlier.

Okay, thank you.

Anything else on this item?

Okay.

I will just add in my appreciation for the legislation in front of us and the ongoing broader picture that this helps to accomplish.

I will say there is a huge disconnect between this conversation and what we had yesterday.

If we want results, we need to fund people.

If we want there to be consistent delivery of services, there needs to be people to do that.

If we want there to be improved outcomes for the residents and the community that is served, we need to have workers who are constantly available, have trust, have the ability, have the skills to do that.

That is why it is important to invest in wages.

That is why it's important to invest in inflationary adjustments.

And that's why it's important to do both of those things in an effort to reduce vacancies, increase sustainability of the workforce, and then improve delivery of services.

Thus, it could be measured if there is additional people doing this work.

Number two, I think that while the statistics were rattled off about where city council is at and how we're measuring things, if we want to measure things, we need to invest in the workers to do that work, number one.

So I'm glad that we passed the amendments that we did yesterday.

I'm glad that the council supported the base investments in FAS and Human Services Department to actually carry out the work that we're talking about doing long term in terms of improving communication and and outreach and engagement with workers.

I'm also reminded that Congress, for example, constantly has polling rates that are remarkably low.

And yet every year, congressional members continue to win their races.

So one great example as highlighted by the Washington Post is that even though congressional approval continues to be at some of the lowest approval rates in decades, according to the Gallup poll, 90% of House members and 91% of senators who sought reelection continue to win.

I think it's a good reminder that even though there's polls that broadly look at bodies when it comes to individual people, it's important to note that those broad polls on where people perceive an entire institution don't actually have bearing as it relates to how people then listen and see what their electives do.

Here we are trying to invest in our most vulnerable community members, and in order to do so, We've got to invest in wages.

We've got to invest in sustainability.

We have to ensure people can have a cost of living that keeps up with the actual cost of what is necessary to put a roof over their head and food on the table in this expensive city.

And if we don't do so, more of the very people that continue to serve our most vulnerable will they themselves be unhoused, living in cars, living paycheck to paycheck, and that's not how we create sustainability.

I'm proud to have been part of the cohort of colleagues over the years who've helped to advance this issue.

And I think this legislation, in addition to the statement of legislative intent that we approved yesterday, is critical to helping to fulfill the vision of greater sustainability for this critical workforce.

And if we do that, then we can measure.

Then we can show people what is being done.

And we've already been able to accomplish much of that proof in the investment from that October 13th hearing that we had.

So again, I encourage people to look for additional data coming from that October 13th meeting, initial preliminary results coming from HSD yesterday, and ongoing need to invest in the base wages of workers that this policy outlines.

Okay.

Thank you for that.

I do have to say that- That was not for you.

That was just a closing statement.

Did you have something more you'd like to say?

Oh, well, I was just going to say it is not that I do not value the work that people are doing.

I am simply saying that at some point we have to establish that we are making sure that the contractors are doing what we thought they're doing.

And unlike Congress, Seattle has to pass a balanced budget every year.

And so we can't just...

raise our debt ceiling.

So the point is that, yes, approval ratings for Congress are also low.

We have to mind our expenses perhaps more diligently than the federal government.

Thank you so much.

Council Member Herbal.

And I just want to, you know, I mentioned that this legislation is intended to produce information that is useful to the long-term effort uh to raise wages um a multi-year campaign that the seattle human services coalition is is working on both with seattle and other jurisdictions but i also want to just say that um i've heard my colleagues ask for confirmation that the wage equity increases are being used for the purpose that we're passing budget legislation to enact.

So again, I have heard council members say that there there there's concern or doubts that the funds for uh for raises it might not be being used for that and so that this is also part of that accountability that I've been hearing people call for and I really appreciate that thank you I see that responsive to that issue I I just want to say I'm grateful for you for doing that thank you

On that high note, I think we can go ahead and move on.

All right.

Thank you.

Good afternoon, Brian.

Good afternoon, Chair Muscata, council members.

For the record, Brian, good night, council, central staff.

So the next bill that we'll be talking about today is Council Bill 120602, a bill that would repeal the city's water utility tax.

And thank you in advance to Patty for driving the presentation.

So during the presentation, I'll first cover some background on city utility taxes generally.

We'll then shift to some information on the water rate structure, and that's just to help describe the types of customers that are impacted by the utility tax.

Next, I'll describe the proposed bill and its potential impacts, and then I'll finish by describing one proposed amendment to the legislation.

So next slide, please.

Thanks.

So the city's ability to impose utility taxes derived from its general authority to impose excise taxes on businesses operating within the city's boundaries.

The city imposes a variety of utility taxes.

They're listed on the slide there, but some of them are electricity, water, drainage and wastewater and solid waste.

The taxes are applied to both public and private service providers.

And importantly, the taxes are applied upon the utility business itself, not upon individual utility customers.

Next slide, please.

So one important detail of the utility taxes is that they're only levied on revenues from retail sales.

Wholesale revenues are not subject to the utility tax.

In a few slides, we'll get to some more detail on what the retail portion of the business looks like for the water utility.

Another important detail for electricity and water is that the taxes apply to business performed both inside and outside of the city.

So for example, Seattle Public Utilities, or SPU, provides retail water service to certain customers in Burien.

So the revenue that SPU generates from this service is taxed at the same rate as the revenue generated from customers within Seattle.

Next slide, please.

Revenues from the utility taxes flow into the city's general fund.

The chart on this slide shows the revenue sources for the general fund in the 2023 adopted budget.

As you can see in the upper left-hand corner, utility taxes for both public and private service providers are expected to generate approximately $232 million to the general fund this year, and that is about 14% of all revenues in the general fund.

Next slide, please.

And then this slide shows the rates for the various utility taxes as they're applied on city lines of business.

So as you can see, the utility tax on electricity is the lowest at 6%, and the highest rate is on water at 15.54%.

State law limits the tax rate that can be imposed on certain types of utilities unless the voters in a jurisdiction approve a higher rate.

And electricity in this instance is one of the types that has a cap, and that cap is 6%.

The utilities that SPU operates, on the other hand, don't have specified caps in state law.

Next slide, please.

So turning to the rate structure for the water utility for a few slides, and this is just to provide some context for you all on how water revenues are generated.

So the first step in rate setting for SPU is to determine the revenue requirement for the water system.

And the revenue requirement is the amount of operating revenue necessary to fund the operating budget and to meet financial targets.

In the most basic sense, when expenses increase, the revenue requirement will also increase.

And then the opposite relationship is also true.

So if expenses were to decrease, then the revenue requirement would shrink.

Taxes, including the city's utility tax, are considered an operating expense for the water system, and therefore they do impact the revenue requirement.

Next slide, please.

So SPU derives water system revenue from three main categories, retail water rates, wholesale contracts, and then there's some other non-rate revenue.

Retail water makes up the majority of the pie chart on the right that you can see.

It includes residential customers, general service customers, private fire, and public fire.

And those make up approximately 76% of the water system revenues.

Revenues from wholesale contracts, and those are with nearby cities and water districts, those account for about 20% of revenues.

That's the gray slice of the pie.

And then that other category, which is about 4%, that has some elements such as late fees that are subject to the tax, but it also includes some elements that are not, and those would be things like interest income.

Next slide, please.

so again since utility taxes are only applied to the retail portions i thought i'd spend just a couple more slides uh talking about those four slices or that 76 percent um of the pie chart from the previous slide um so the four groups are considered are their their named customer classes uh spu creates these classes by grouping customers that are similar in terms of their demand patterns and also the cost that it for spu to provide them with services SPU then uses an allocation process to distribute the costs of the water system across those groups.

So the first retail customer class in the kind of retail category is residential.

Residential customers are those living in single family homes and duplexes.

They account for about 88% of all of SPU's retail accounts, and that's about 173,000 customers.

But they only make up about 38% of retail water usage.

The next customer class, general service, has kind of the opposite profile.

So these are governmental, industrial, and commercial customers.

And commercial customers does include multifamily residential structures.

Those customers represent about 11% of retail water accounts, but use about 61% of the water.

Next slide, please.

um the other two customer classes in the retail segment are private fire and public fire private fire customers are those with separately metered connections for fire protection sprinkler systems and those are built for those services in addition to whatever residential or general service charges that they may incur and then the public fire class is made up of governmental agencies responsible for providing public fire protection and those would include fire hydrants And then combined, so these classes are very small, the two classes make up less than 1% of the retail water accounts.

Next slide, please.

So the last few slides are about the proposed bill.

So Council Bill 120602 would amend Section 5.48 of Seattle Municipal Code to eliminate the water utility tax.

As the bill is currently drafted, it would make this repeal effective beginning on January 1 of 2025. Next slide, please.

So in an earlier slide, you saw how much all of the various utility taxes generated in terms of revenue for the general fund, and that was about $232 million.

So this slide shows the amount of revenue raised for the general fund specifically from the water utility tax.

As you can see, it's a pretty stable source of revenue over time.

It typically grows by a small amount each year, with the exception of a small drop that you'll see in the first year of the pandemic.

In the 2023 adopted budget, the water utility tax is estimated to generate approximately $37.2 million, and the 2024 proposed budget assumes revenue of $37.6 million.

If we're just looking at the impact of this bill by itself, separate from all other potential legislation, approval of the bill would reduce the general fund revenues by approximately $37 million.

And in the absence of new revenue, the city would need to reduce expenditures by an equal amount.

Next slide, please.

The table on this slide is attempting to show the potential impact of the water utility tax repeal on various types of customers.

The amounts in this chart are estimates provided by SPU, and they do assume that the full benefit of the tax repeal is passed along to rate payers.

So as you can see in that very first top row of the table, a median residential customer who has a water bill of approximately $49 per month would see a benefit of about $91 per year.

And then the potential savings, of course, increase for customers who have higher monthly bills.

And then next slide, please.

This is the final one.

um so lastly there is a proposed amendment for the bill a couple of months ago in september council passed ordinance 126909 that established retail water rates for a three-year period from 2024 through 2026. so if council were to pass this bill to repeal the water tax spu's water customers would only benefit from the repeal if the water rates were adjusted to account for that repeal So Councilmember Peterson has an amendment that would request that SPU transmit legislation to the Council proposing revised retail water rates for 2025 and 2026 in recognition of the elimination of the tax.

And with that, I'm happy to turn it back to the Chair and answer any questions.

Councilmember Peterson has sponsored this legislation.

Would you like to speak to it?

Yes, thank you, Chair.

I'm very excited to speak to this.

Colleagues, Council Bill 120602, which we just heard about, and 120601 were crafted and announced together on June 7th.

And I want to thank our Council Central staff, Hannah Thorson on my team, our Council Communications team, and our City Attorney's Office for their work on this legislation.

The proposal has been endorsed by several nonprofit leaders in our city.

Derek Belgrade of Chief Seattle Club said, quote, Seattle's water utility tax places a disproportionate burden on low-income communities and our members.

Repealing this regressive tax will allow more of our members' income to be focused on their healing and recovery as they move forward on a journey to being healthy and housed in supportive environments.

We must break down all barriers that create homelessness and housing instability without limiting our resources to address these crises in our urban native communities.

john burbank founder of the economic opportunity institute think tank said of this proposal quote introducing a progressive tax to sunset a regressive tax on everyone is a welcome and elegant step toward forward in addressing economic inequalities in seattle lower income households that pay a greater proportion of their income for the utility bills including many seniors on fixed incomes will benefit from eliminating the water tax My colleagues' proposal is also wholeheartedly endorsed by the customer review panel of Seattle Public Utilities.

As we discussed earlier, the Institute for Taxation Economic Policy consistently ranks Washington State as the most unfair regressive taxation system in the country, where lower income residents pay a much higher percentage of their household earnings for taxes and fees than wealthier residents, including city halls tax on everyone's drinking water.

City Hall, we haven't talked a lot about this tax, I think because there is a acceptance that our current policy is not as fair as it could be.

Every household and business is not only charged for the cost of the water from Seattle Public Utilities, but also taxed on that same water by City Hall at an arbitrary rate of 15.5%.

In a recent survey, nearly 60% of Seattle voters said their taxes are too high.

tax reform is overdue and we can do it here now if we adopt council 120602 this tax reform to repeal the regressive tax on drinking water would for the first time proactively eliminate a regressive tax and that action would not only reduce the percentage burden the most that burdens the most lower income households but also foster trust of local government for all of our constituents At the same time, I realize many of us policymakers don't want to leave a $38 million revenue gap in our city's general fund.

So this proposal to eliminate the tax on drinking water for everyone can be paired with the proposed local 2% capital gains excise tax that mirrors the state policy already upheld by the Washington State Supreme Court.

a policy that exempts real estate transactions and retirement accounts.

And then we're going to talk about this soon.

This is a fiscally responsible and reasonable rebalancing of the system to make it more fair and more progressive.

I don't think we can truly make the system more progressive unless we fully eliminate this unfair, aggressive tax on everyone's drinking water.

So I'm hoping on November 30th, we can vote yes on Council Bill 120602 and If there's support for that, I can support Council Bill 120601, which we're about to talk about.

Thank you.

Thank you, Council Member Peterson.

So if I heard you correctly, you're saying if there's support for the water tax repeal, then you would be supportive of your bill on the capital gains.

Okay.

And then before I turn it to Council Members who have questions here, is the repeal of this tax contingent on the passage of Is it tied legally together in that way?

Chair, only in the recitals is it tied, but there was various advice we got and it was safe for Harbor to keep them separate.

That's why we're talking about them at the same time, but you're right that it's not technically tied.

Okay.

So I think the order on the agenda here is probably your preference then to see them listed water and then cap gains.

Okay.

All right, great.

Council Member Herbal.

Thank you.

I just wanna say as a council member who in the past shared the committee with oversight of Seattle Public Utilities, I am very excited about this proposal.

In working to create the SPU strategic plan, and to smooth the very high rate increases.

Burning the utility tax is an area where I thought we should be able to reduce it, but the fact that the funds were going into the general fund created this hole that made it impossible to reduce the utility taxes.

I'm really, really pleased that Council Member Peterson is bringing this forward.

One thing I was able to accomplish as the chair of the committee with oversight of SPU is some transparency around the utility tax.

It was very frustrating to me, again, that this large tax that was making up a significant portion of people's bills was just buried in the entire bill.

And Seattle Public Utilities agreed to begin creating a separate line on the bill itself so people could at least see what they were paying in the utility tax.

And so I just sort of hope in some small way that the awareness of the significance of that portion of the bill is supporting this this sort of next stage in in the efforts to uh rein in uh these taxes and um just wanna uh again thank councilmember peterson for bringing this bringing this forward uh appreciate um the sort of uh community validators that that he mentioned a couple others uh uh molly moon nitzel molly moon's ice cream uh said as a small business owner who sees her employees struggling with a regressive expenses i support extending the progressive capital gains excise tax to seattle to eliminate the city's tax on everyone's water bill water bills um sharon lee um similarly uh referred to um the fact that uh the tiny homes and apartments in their buildings are currently burdened by the city's water tax.

And they also are supportive as well as Mercy Housing Northwest.

So I just really encourage folks to take a look at this proposal and very excited to begin some tax reform here.

Thank you.

Thank you so much, Council Member Nelson.

Thanks.

I have two questions.

First, I'm just trying to wrap my mind around the characterization of the utility tax as regressive.

Is that because everybody has to pay it?

Because in my mind, it's based on the usage.

And so if you live in a bigger house and you're using more water, then you're paying more.

Because it's not like the sales tax, which is a fixed amount no matter what.

It's the utility taxes based on usage.

Just help me understand the language here because I understand that the regressivity or the attributed regressivity is an attractant for support for this bill.

And then I have the other question has to do with a bullet point on page six of the slide, Pat, which you can, if somebody can help me understand that first one, that'd be great.

Thank you, Council Member Nelson.

Other responses from either the sponsor or central staff sponsor?

Please go ahead.

I'll try.

So, yeah, if two different households are using the same amount of water, but one of the households is lower income, I mean, it's a greater proportion of their household income that they're contributing toward that bill, which would then make it regressive.

That's why.

Okay.

So it has to do with its...

Right.

Okay.

So it's basically everybody has to pay it.

And so it's regressive because it burdens people who are less able to pay.

Okay.

Got it.

Because I'll think about that one.

I just like the fact that people who use more pay more.

And then on this slide, You went through this page pretty fast.

So why are taxes and operating expense for the water system?

Seems like they would be a revenue generator.

Thank you, Councilmember Nelson.

So taxes in this instance, the utility tax is applied.

It's a tax on the operation of the business.

So with regard to the water system, expense of the system, and then the general fund receives that revenue.

Does that help answer?

So a business that's paying a utility tax that counts as one of their operating expenses?

But the operating expense in this slide, I mean, SPUs operating expenses.

So when SPU goes to set rates and recommend rates for the council to adopt, they take a look and they say, how much is it gonna cost us to fund our employees, all of the work we wanna do to actually operate the system, all of our state taxes, city taxes, all those things.

And so they come up with how much money do they need to collect from rate payers?

And one of the things that is an expense for the utility is paying taxes both state taxes and city taxes so that's why it's listed as an operating expense for the utility yeah okay thank you thank you council member nelson council member morales

Thank you.

Brian, I think I'm trying to wrap my head around this question of regressivity as well, although I might be coming at it from a different angle.

So I'm looking at slide 13 and really trying to understand who benefits here.

Can we go to slide 13?

Patty has pulled up slide 13. Are you speaking maybe of the revenue one?

Sorry.

I'm looking.

Oh, maybe it's slide 12. My apologies.

There we go.

Yeah.

Okay.

So what I...

So first of all, thank you, Councilmember Peterson, for bringing this.

I do think that where there is opportunity for us to address the regressivity of our tax structure, we should dive in and really try to make sure that we are supporting...

working families and working people in the city that is getting more and more expensive and look for opportunities to provide relief as long as it doesn't jeopardize our ability to actually deliver services.

What I'm trying to understand here on this slide, though, is in terms of the savings I'm looking at residential, I'm looking at apartments, and it seems to me that renters don't benefit as much from the repeal of this tax as, for example, large industrial or larger sized businesses might benefit.

And so it still feels to me like it is regressive in that sense, because we don't know, for example, that the owners of these apartment buildings would pass on any savings to the tenants.

We don't know that the owners of large industrial or office buildings would pass on the savings to their commercial tenants.

And so I'm still struggling with, in principle, I like the idea, but it doesn't quite pass the sniff test for me, maybe, in terms of actually addressing the question of regressivity.

So I'm wondering if you have any comments on that.

Thank You councilmember so I guess I think it is a true statement that we don't know so if you were an apartment resident we don't know if the owner of the building receiving a lower water bill would pass that savings on to the residents I think that is true and I don't know that that's something that we can we can know I'll say a couple things about regressivity, and I think it's something that you all have to evaluate for yourselves, so I won't say too much other than to say that I think, typically speaking, consumption taxes are seen as more regressive than income-based taxes.

The water utility tax is a little odd in the sense that it is a flat tax, which is something that's typically seen as regressive, right?

but with utility taxes it has to just be one rate because it's a tax on the utility not a tax on individual rate payers so the water rate structure that the city has has things in it that make it more progressive so for instance um we have the udp system the utility discount program so if you meet income qualifications right we provide a discount of 50 percent um so that's that's one way that we try to make the system um cheaper for lower income individuals Another one is that in the peak season for residential customers, we have tiered rates.

So we have the kind of first block of water is less expensive than the second block of water, than the second tier and the third tier.

So the idea being, right, as you increase in terms of your usage, you're going to be charged a relatively higher rate for each unit of water.

So I think the system, our rate structure has some of those things in it.

But yeah, so I think that's as far as I can go in terms of that.

Okay.

Yeah.

I appreciate it.

Thank you.

I think, though, it's important to note when it comes to UDP, the utility discount program, at least when I was chair of City Light, that was an opt-in program.

And there was a lot of conversations about how to make it opt-out.

And so I don't know that they've moved fully to that, but had made some strides with trying to get more people in.

It's been a while since I've tracked down that number, but it was something along the lines of, two thirds or half of the people who are eligible were not enrolled and trying to work towards more auto enrollment for that system is still something that I think is is is a policy goal.

Brian, do you have any other info on the utility discount program enrollment status?

Yeah, I don't have numbers in front of me right now, but I think you're about right.

I think when they've done past looks at it, it's about a third of the people that they think are eligible are enrolled.

The utilities, both City Light and SPU, have done work.

to, as you said, auto enroll folks for, I believe the Seattle Housing Authority and some other programs, but it is difficult because we need to have people actually submit income verification.

And so I think you're right that there's a lot to be desired still in terms of the enrollment numbers.

Okay, Council President.

Thank you.

I know everybody likes to talk about the regressive in Washington.

I've been hearing this for a couple decades, but in regressive taxes.

So I want to get past that.

And I kind of, it's along the lines of what Council Member Morales was saying.

Can you square for me pages 8 and 12?

So on page 8, you list residential.

So you basically have more accounts Therefore, um, so, but they use less, but they pay more, but that's because they have more accounts.

And then on the general service, you have less accounts, but they use more and pay less.

So, so there's not really a good comparison because there's only 22,000 accounts Whereas on the residential, there's 173. That's why there's a big discrepancy in the accounts, I'm guessing in the annual retail water usage, right?

I'm sorry, Council President.

I'm struggling to understand what your question is.

You've characterized it correctly.

So in residential, there's a lot of customers that use a small amount of water.

And for the commercial in general, industrial, it's a small amount of customers that use a large amount of water.

You've characterized that correctly.

Yes.

Okay, so let me ask you this.

I'll have some more refined questions.

I apologize.

I'm trying to just, again, wrap my head around this.

So when I go to page 12, and then you list the general service, you don't have governmental on here.

You have convenience, small office, apartment, medium hotel, large industrial, but you list on page eight, governmental service or general service, you have governmental.

So that would include all city, public schools, city structures, you know, city hall.

So that's not on here.

Sure.

Thank you.

We could ask for more information.

This is the table that SPU staff generated earlier this summer for a conversation for the customer review panel.

So they were trying to just give some kind of illustrative examples of different categories of customers.

And I mean, truly what it ends up being, it's a pretty rough estimate.

It's just the bill amount times that 15.54% rate.

So it's just as people's bills go up, they would theoretically save more if if the whole savings of the repeal was passed along to them.

So that's the, it's a pretty rough estimate.

Right.

So not having governmental, and I get that now.

The reason why is it's along the same lines as Councilor Morales regarding, I mean, wouldn't cost be like with tenants, if you had 90 apartment units of low income, and also if you're not listing governmental, wouldn't those costs just be passed on to the tenants or the taxpayers?

I'm sorry.

It's okay.

What costs are you referring to?

Sorry, Council President.

Okay.

So let's just peel off government for a minute.

And that's all governmental buildings, even though it's not on this chart.

We don't know what the savings would be because it's not on here.

We don't have an estimate.

We don't know.

So let's just say this gets passed and it falls into the category of, well, that you put it in, convenience, small office, apartment, medium, large industrial.

Someone's gonna pay the difference, like large industrial, their bill would go from 20,000 to 38,000.

No, sorry, that's saying, if you just look at the large industrial row, so if the average bill was $20,500 a month, um they would if you took off that 15 and a half percent they'd save about 3 200 a month and then um if you just multiply 3 200 by 12 you get to an annual savings for that uh customer yeah okay okay i'm seeing this now okay i'm still i guess i'm still i i i apologize i need some more time with this because i'm not really seeing a

I get the premise and I think council member Peterson, he's going to give me a hard time for this.

I think his instincts are correct, but I don't know if the math is correct for me on who absorbs and who benefits and whether or not costs get passed on to low income people, governmental buildings, nonprofits.

I mean, that's kind of where I'm at.

I apologize for not being articulate.

This is the first time I've seen it.

So probably have some more thinking to do about this.

Doesn't make sense.

Yeah, that makes sense, Council President.

That's no problem.

And again, I think it's good timing to have these questions and discussion gives us plenty of time before November 30th when we potentially will vote on it.

And I appreciate Council Member Peterson, you identifying your interest in if one than the other, though there is not a legislative tie.

I think that we are ready to potentially to move on to the other, which is the capital gains ordinance.

But I want to double check.

Brian, do you have more you want to talk about?

I do not.

Thank you, Chair Moschino.

Thanks for walking us through this, and I appreciate the questions that have been asked.

Thank you, Council Members Morales and Council President Juarez, and thank you, Council Member Peterson, for the explanation on the base and interest, and Council Member Herbal for the historical context as well.

Okay, we shall move on.

Let's have Tom Mikesell summarize the capital gains component of this discussion, and we will then turn it back over to Council Member Peterson to summarize the interest again here, and we'll open it up for more questions.

Thanks, Tom.

Thank you, Madam Chair.

Good afternoon, members of the Select Budget Committee.

Tom Mikesell with your central staff.

I'm going to just give you a briefing on Council Bill 120601, which would impose a city capital gains tax.

Let's look at the next slide.

So by way of background, as you are likely familiar in In the Washington State legislative session for 2021, they passed statewide capital gains excise tax through chapter 196 of laws of 2021. That was effective in July of 21. It imposed a 7% tax on the gains from sales of long-term assets above a $250,000 standard deduction.

There were also a number of other exemptions and deductions included within that tax legislation.

The proceeds from that tax were supposed to be deposited into the state education legacy trust account and the common school construction account, so not the state's general fund.

The legality of that tax was challenged.

And ultimately, the state Supreme Court upheld the legality of the tax in its decision on Quinn v. State of Washington.

And then to round out the background on the state's tax, in their first year of the tax collection over this year, the state collected $840 million, which was over three times the amount that they estimated, which was in the order of $250 million.

So if we could look at the next slide, Patty, we can dive into the structure of the proposed city tax.

So right off the top, the city's tax is modeled.

It basically mirrors the structure of the state's tax, the exception being that it's a different rate.

The rate as proposed in Council Bill 120601 is a 2% tax on the gain from non-exempt capital assets.

There is, right off the top, a $250,000 standard deduction for each taxpayer.

So that is the same Senate deduction, whether or not it's a single or a joint filer.

Anything that's prohibited from being taxed by the state or federal constitution is also not taxed in the city's tax.

Gains from the sale of certain defined small businesses owned by families are exempt, are deducted from the measure of the tax.

And then up to $100,000 of charitable donations above $250,000 minimum qualifying deduction are also deducted.

And then all of these different parameters are inflated by CPI each year.

Go to the next slide.

There are also a variety of exemptions.

Two of the key exemptions are real estate.

So our real estate transactions, gains from those transactions are exempt from the tax.

As our retirement accounts, the 401Ks and IRAs, all of the activity within those accounts would be exempt from this tax.

Proceeds from condemnation proceedings, gains from livestock, commercial fishing, timber industry are exempt.

And then goodwill from the sale of another dealership is similarly exempt from the tax.

So this tax would be administered by the city's Office of Finance.

And ultimately, what that cost would entail would be subject to a future budget request if the tax is approved.

And this is a typo in this memo.

The estimates from recent taxes that have been imposed, including the food and beverage tax and the payroll expense tax, those administrative costs have ranged from $800,000 to $1.6 million.

But then again, the true the final measure of how much would need to be added to the budget for administration be subject to a budget request.

And then finally, the tax would be effective January 1 of 2024. The first dollars from the tax would be received in April of the following year 2025. So let's And so this is just a quick example to show how the tax would be calculated.

This is a very simple example.

So let's say that in 2024, a taxpayer sold a million dollars of stock, and they held that stock for longer than one year, which is the minimum threshold for how long the stock has to be held, or the asset has to be held to be considered long term.

And then they originally bought the stock for $700,000, so the net capital gain is $300,000.

And so you can see the various calculations here of how the million dollars of stock, after deducting the original purchase price, gets you a net capital gain of $300,000.

You take out the standard deduction of $250,000 for a taxable capital gain of $50,000, which then builds to a $1,000 tax at the 2% rate.

Okay, and then the Office of Economic and Revenue Forecasts for the city provided some revenue estimates for this tax as proposed.

They based their calculations off information from the state's collection, essentially doing some fairly straightforward comparisons of how much the state collected and where they collected it from.

So as I indicated earlier, the state received about $840 million in 23 from its first year of its tax.

Of that amount, 15.84% was filed from Seattle addresses.

So using that same 15.84% and applying it towards the state's forecast for next year, which would be our first year of tax, equates to about $19 million of revenue from each 1% of the tax.

Given that this is a 2% tax, that would equate to about $38 million.

However, if we look at the next slide, I do need to point out some of the details behind those collection statistics.

First, there were only 816 Seattle taxpayers that paid the state tax.

That is a very, very, very small pool of taxpayers.

And then furthermore, of that 816, 85% of the total pay of Seattle tax paid by Seattle taxpayers was from 160 Greek taxpayers, which makes it a very highly concentrated tax.

concentrated around a very small pool of taxpayers.

Also, given all the exemptions that I mentioned earlier, the tax base largely is going to consist of the sale of equities, which are essentially subject to stock market volatility, so the ups and downs of the market.

Also, the tax is based on where the taxpayer is domiciled, so where they call their permanent home.

Residents who paid the Seattle tax, Seattle residents who paid the Washington state tax may have various addresses throughout the state, which they would consider their domicile for tax purposes, which would mean they would not have a Seattle tax liability.

It's impossible to say if any of those 816 taxpayers would meet those criteria, though that is certainly something that should be considered in evaluating the revenue from this tax.

And I would point out that in the information from the forecast office, they highlight a very high degree of uncertainty in the estimates.

There's no better way to put it, but given the highly concentrated tax base and the volatile and the stale stocks, which is essentially the the base for the tax, and the issue of potential avoidability of the tax given to multiple addresses in Washington state, the annual revenue from the tax could vary widely above the $38 million revenue estimate.

And if we could look at the next slide, bring that into context for budgeting revenue from this tax.

So assuming a January 1 24 effective date.

The first money from the tax would come in April 2025. Next year City Council will be adopting and endorsing a 25-26 budget in the fall.

However, there will be no additional clarity to the reliability of the $38 million revenue estimate that we have at hand now.

So I'm just pointing out that the budget decisions that are made next fall are going to be made in the context of the high level of uncertainty about the revenues from this tax.

And that's essentially the bill as proposed.

I would note that there is one amendment on the next slide, which is an amendment sponsored by Vice Chair Herbold, which would increase the tax rate from 2% to 3%, with the additional 1% intended to generate revenue off that portion of the general fund deficit in 25 and beyond.

And that is my presentation.

I'm happy to answer any questions you may have.

Thanks, as always, Tom.

I know you've been working on this for a while since the sponsor flagged this earlier this fall.

So thank you for the presentation and all of the analysis that you put into crafting this ordinance.

I think there will be some questions, but before that, I'd like to turn it to Council Member Peterson as sponsor of the ordinance to see if you would like to add anything else on the chair.

Thank you, nothing to add at this time.

Okay, great, thanks.

Council Member Morales, please go ahead with question.

Thank you, I just wanna make sure I understand how this works with the previous discussion.

I think what I, well, let me make sure I understand.

What I see on slide four of the previous, presentation is that the utility tax, the water, maybe I'm misunderstanding.

I see the water tax generating 232 million a year and this potential revenue at 38 million.

Am I doing that right?

It's about 38 million for each.

Brett KenCairn, 38 million for each.

Brett KenCairn, I don't it doesn't look like we're able to hopefully to pull up that slide but it's $38 million a year for that the city that city hall receives from the SP water tax.

Brett KenCairn, And a 2% capital gain structure exactly the way the state does it we're estimating would generate about 39 million.

Um, let me turn it to Tom real quick.

Please go ahead.

So it's equivalent.

I would just offer that this is the totality of all public and private utility taxes in the pie chart that we were looking at.

There probably is a slide in Brian's other presentation that shows only the piece from the water utility tax.

I don't know which one that is.

There you go.

Here we go.

Okay.

Yeah.

Thank you for the clarification.

Appreciate it.

Any additional questions, Council Member?

Okay.

I see Council Member Juarez.

I think you had your hand up earlier and then you took it down and you put it back up.

No, it was back up.

I think I get to pull the elder card on her.

I'm going to call on you because you're the Council President.

And I saw your hand earlier and then we'll go to Council Member Nelson and then we'll go to Council Member Herbold.

So, Council President, please.

Mine is along the same lines as Council Member Morales.

So, I think you kind of answered, but I just wanna make sure I'm gonna reframe it, because I almost had the same question.

So you're telling me that if we pass the water utility tax repeal at 2%, and then we go to the capital gains, whether a elimination of the water tax at a $38 million loss, and that the capital gains tax can plug that hole, that $38 million loss at 2%?

That's a good question, Council President.

That is a proposal, though I would note that the water tax is a fairly stable tax generated about that approximate amount per year.

The capital gains tax is a more volatile tax.

So I would just highlight that there is a level of uncertainty about that $38 million.

So that $38 million is the estimate that we have available for now.

So when you see highly volatile on the capital gains at 2% and Councilmember Herbold may be anticipating a 3% to maybe hedge our bets there that we raise more to plug a $38 million hole because The utility is pretty stable.

From your chart and what we can see, that's solid on that, pretty solid as we can get.

So there could be an opportunity to ask for a bigger capital gains tax beyond two or three or four or two or three if somebody wanted to do an amendment and do the numbers, the math.

Is there a way to hedge?

That's what I'm getting at.

I don't think 2% is going to get it, quite frankly.

There's always opportunity to add additional tax rate, though, as the tax rate builds, the potential for the avoidable avoiding the tax shall increase.

I don't know what the trade-off is, at what tax rate you diminish your base, but there will certainly be some response.

As the tax rate gets higher, your base may decrease.

As long as we don't go over 7%, as long as we don't exceed the state cap.

Well, Council President, the state's tax and the city's tax rate are separate factors.

The city is not limited to the level of tax rate that it can apply.

The tax rate that the city applies is purely a city decision.

I am just pointing out that the state and the city's taxes are additive.

So the total tax for a resident in Seattle that they would pay would be 9% under the original bill.

would be 10% with Vice Chair Herbold's amendment.

And so every additional percent that Seattle add is going to increase the total tax rate of capital gain.

Got it.

So it's added to the seven.

OK, now I'm understanding.

OK, I got it now.

Council President, if I might just also add a different way to hedge that there is, as Tom indicated, there isn't technically a limit on the percentage, although at some point people will start avoiding the tax.

A different way of thinking about it is right now, as introduced, the water tax repeal would happen in 2025, which at the beginning of 25 which is before we would see the dollars coming in the door for the capital gains tax another option would be to delay to further delay the repeal of the water tax so we had a full year or two of collections of the capital gains tax to understand whether or not it was sufficient to fill that that hole so it would be changing the effective date of the the water tax repeal would be a different way of sort of hedging or making sure that this new revenue was adequate to replace that revenue.

Can I ask another question, Madam Chair?

Yeah, of course.

So and this may be more of a policy of Councilmember Peterson.

So does it make sense to do them both together?

Wouldn't it?

I mean, I'm just trying to do some conventional thinking here, conventional wisdom to be more certainty.

If you did the capital gains first, and then do the water?

Or is there a reasoning to doing them both?

Or is it just because it's an answer to say, oh, how are we gonna plug that $38 million hole?

Oh, by the way, we can do capital gains.

If that's it, that's okay too.

I just need to understand if there's a rhyme or reason to do them in tandem.

Council Member Peterson.

Thank you, Chair.

Thanks for the question, Council President.

The idea is to do them together for several reasons.

One is, as John Burbank, the founder of that think tank, pointed out, it's an elegant solution to this regressive system that we have.

To take away a regressive tax, that's an improvement.

And then to impose this progressive capital gains tax is another improvement to balancing the system.

what we were talking about earlier about people feeling burdened by taxes, people wanting to see City Hall make a good faith effort here.

So by eliminating the tax, we're helping foster that trust that we're actually capable of getting rid of a regressive tax in addition to imposing new ones.

And fortunately, in this case, we have this option now that it's been through the state process of doing the capital gains option.

So you do them together and it's an equivalent amount and it solves the problem.

Well, I don't know if I would say elegant, but OK.

Council President, any additional comments?

No, no.

Thank you.

you are welcome council member oh boy what did i say i was gonna do um yes go ahead count vice chair help me out nelson first nelson first and then herbal and morales some for some reason the tiles got all jumbled but i can't remember nelson please go ahead thanks i'm wondering um uh

about the definition of a qualifying family-owned small business deduction.

Appreciate that that's deducted, but that seems like a term.

I don't know how that definition relates to other definitions and how businesses are defined, like an LLC or an S-Corp and those things.

So, and I'm reading the text of the legislation and it is, you know, assets is defined, family is defined, materially participated is defined, but what is...

How is a family owned small business defined?

I mean, is it the same as an LLC or what if a family business has investors?

I mean, can you just help me understand what is what qualifies as that?

Sure.

And how the how their specific tax designations might how those designations relate to this definition in this legislation.

Thank you for the question, Council Member Nelson.

The tax designations from the sense of the Internal Revenue Code, I have to get back to you on.

The definitions within this bill before us are essentially defined in the legislation, which call a family-owned small business as one that has less than $10 million of gross worldwide revenue.

It has a member of an owner who is an owner operator of the business who has owner who's owned and operated that business for five years consecutively.

And those are the prime primary kind of characteristic of what what defines a small family-owned business to the size of the revenue and the actual owner-operator characteristic of it.

But again, in terms of how that relates to S-Corp and things like that, I'd have to get back to you on those.

I just want to make sure.

So if a business meets all the criteria that you just mentioned, that's a deduction.

It doesn't matter if they're IRS designation then is what I'm kind of hearing, but I would like more information about that.

And then so thanks for that.

And follow up on the question about additive on the state income capital gains tax with this is the application of the potential city capital gains tax.

Would it apply to the same?

Is it just basically does it overlay completely and it would apply to the exact same individuals or businesses or are there are there differences in the two?

Like, is it possible that people would be subject to one and not the other?

No, the bill is written identical to the state statute.

So the intent is to have them have the base and structure be the exact same with this whole difference being the weight.

Okay, so they're identical?

Yes.

Okay, thanks.

All right, Councilmember Her.

I just wanted to make an inquiry about the volatility as you've described it, Tom.

I know that the state wealth tax is different than the state in this proposed capital gains tax, but I believe they both rely on, in the case of the wealth tax, ownership of stocks and bonds, whereas this is based on the sale.

Given that the state wealth tax has generated much more than anticipated, would that be a lesson about the concerns about volatility as related to the the resource being sold.

I understand that there's tax avoidance and that's a whole other thing, but I'm just trying to narrow down.

Is it what the tax is based on that is making it volatile or is it really primarily this concern about tax avoidance?

Because I just feel like what we've learned about the state wealth tax is informative to this capital gains tax, but I might not be understanding.

Thank you for the question, Vice Chair Herbold.

So when you refer to the state wealth tax, are you referring to the state capital gains tax?

No.

I understand it to be a different tax.

Okay.

I'd have to- It's a property tax on homes and real estate.

It was established by Senate Bill 2486 and House Bill 1473. and it generated its drive from the ownership of stocks, bonds, and other financial assets with a lot of exemptions.

It sounded like very similar exemptions as we discussed for the capital gains tax.

And it has raised in the state many more times than was anticipated.

I think there were some articles, we have way more billionaires than we thought we had in the state kind of thing.

And so I'm just wondering if the lessons about that might be instructive to the concerns around volatility on the capital gain side.

I would have to do more research into the state's wealth tax, though it does sound very, the reporting that you described is similar to the experience with the states.

capital gains tax, which is kind of the mirror of this tax, where the original forecast was in the order of $250 million and they outperformed it by three times.

Just in general, a wealth tax is going to be more stable because you're not going to be subject to a transactional component.

It's just a tax on property that, unless it's sold, it goes from one year to the next versus something that requires requires a sale, which is kind of the fundamental nature of an estate tax.

The volatility for both the state capital gains tax, well, kind of starting from that high level point, it's very concentrated in a small number of individuals.

So any one of those individuals could constitute a large portion of the tax.

PB, Harmon Zuckerman, So though the kind of decision that those individuals make with regards to tax planning where they live and things of that order matter for the total revenue collection.

PB, Harmon Zuckerman, And and and so then you take it down to the city of Seattle level where you have a person who has multiple properties in the state of Washington.

They can say that they live in some other city, and if they can demonstrate that within the definitions in the city tax, they would not have a Seattle tax liability.

So it's impossible to know what those individual decisions are going to be.

And then you have against the backdrop of just the stock market, which is volatile, which is subject to steep rises and sudden drops, and so that's That's just kind of in the background of the whole structure of the tax because it's based on the sale of these assets that rise and fall, that you'll have a level of volatility there.

So it's kind of a double whammy.

There's multiple forces that lead to the volatility of this tax, the concentration, the potential for avoidability, and just the underlying volatility in the basis.

Council Member Perville, I just want to also offer thanks for asking the question about the wealth tax.

It's something that we've been following as well.

Unfortunately, sometimes the capital gains tax is sometimes referred to as the capital gains wealth tax, but the wealth tax is a separate piece of policy that Senator Noel Frame has been leading on.

Unfortunately, that has not yet passed.

So Senate Bill 5846 and House Bill 1473, those are the bills for the recession, and there's a lot of hope that they will still be working on them.

but they're not in statute.

Okay.

All right.

Thank you for the correction.

So then the articles that I'm referring to were actually about the capital gains tax.

That's correct.

Okay.

All right.

Thank you.

Three years, you know, near three plus times more than they anticipated, thinking it was going to come in at around $250 million and coming in now over $800 million.

I appreciate the correction.

And so, I mean, I think, again, It seems to me like the volatility is less about what is being taxed and it's more about tax avoidance because, I mean, I guess volatility can also include raising more money than you anticipated.

But I think it's less about it being based on stocks and bonds because we have the example of the state sales tax and it's more about the fact that people can say they live somewhere else in the state for the city tax and they can't do that for the state tax.

If I could, I do think the Forecast Office did look at about 15 years of historic capital gains at the federal level, and they are pretty volatile.

So I think it is both.

And I think without multiple years of the state's collection, we don't yet know if that higher than anticipated.

So I think that is what we're we're signaling is like locally, we don't have enough data points to know how volatile it is and whether or not there will be tax avoidance, you know, as Tom has described.

But I also do think this particular tax is more subject to economic conditions and fluctuations in the stock market and that sort of thing.

So I think it's both.

So I think we're just signaling it's hard to know exactly when or, you know, when it will fluctuate, but it might.

And when we're replacing a revenue source that makes it a little more, you know, risky in the short term.

Sorry, Tom, something that we move on.

And I would just add that that The uncertainty in the estimate is should also be considered.

So it's not just volatility.

It's that we are building that the forecast office has built a number off of reliable information for very limited data, and particularly with regards to Seattle residents and whether or not they would be considered Seattle residents in the next year of attack.

So it's kind of a broader uncertainty.

with due to volatility.

Thank you.

Council Member Herbold, anything else?

All right.

Council Member Morales, please go ahead.

I have two ideas that may be competing and I would like to understand a little bit better.

uh so given the gap or potential gap due to the volatility or whatever that x factor is between um what is generated and what we are trying to exempt um i am wondering about maybe only exempting OSBT-Karen Hollweg- Those who qualify for the udp and small businesses as defined by some criteria we decide on so that we shrink the revenue that we are exempting and maybe can make up the difference with the 2%.

So I'm trying to figure out how we can still present this as the package that Councilmember Peterson is intending.

But I think that is almost a separate discussion from the broader budget discussion that we are having right now about the fact that we still have a hole to fill in our budget.

And this is an afternoon spent on conversations about the need to generate more revenue for our existing budget, not exempt something and then fill that hole.

And so I am still interested in the general conversation about a capital gains tax and what we might be able to support with that outside of the question of you know, whether we want to exempt existing stable source of revenue at all and just have the conversation about how we can find another tool for filling the hole that we are anticipating for the next few years.

So just leave it at that.

Thank you.

Points well said.

Thank you so much, Council Member Morales.

Council Member Nelson.

well i'll just put a plug in for letting the uh letting the council next year figure out how they're going to fill the gap in 2025 going forward because this is a really complicated discussion and i think we need more time to really understand the intricacies of of both pieces of legislation but um be that as it may um tom you said something that raised a question and it's an easy answer you said that what this is we're calling it a capital gains tax but it's actually a capital gains excise tax so it is we're taxing a transaction, the gains from a transaction that accrued to an individual living in Seattle, right?

Okay, so the follow-up is it doesn't matter where the transaction takes place.

So an individual living in Seattle can sell a piece of property or some stock or whatever, any place.

although they pay taxes.

So a piece of property, it doesn't matter where the sale of that property that generates a gain takes place, right?

The key criterion is the domiciled status.

So it's where the resident calls their home.

If the property is not actually physically in the state of Washington, I do believe that it would not be subject to the tax.

If it's intangible property, like stocks and bonds, then it defaults to the domicile status of the resident and whether or not they are a resident of Seattle, regardless of where they physically are when they sell the asset.

Yeah.

Okay.

So a resident of Seattle who owns a business in Oregon that makes $11 million would be paying it and sells that business would be paying the tax then?

I believe that that business sale would be in Oregon, but I would have to follow up.

I think that would be an Oregon transaction.

Right.

That's what I'm getting at.

So is it where the transit?

I want to know if it matters where the transaction is.

For a person whose domicile is in Seattle for a property sale, I'll have to follow up and to be sure my hunch is that it is it's actually in that it's not part of the Seattle tax base, but But I want to be sure, so I'll follow up.

Thank you.

Chair, if I may add to that.

Please go ahead.

Thank you.

And mirroring the state policy, real estate transactions are exempt from this.

So there you go.

Is that for a primary?

When you say real estate, you mean a home?

No, I mean all real estate transactions.

And again, it's just the state policy, folks.

We are not making up some new law here.

We're simply taking the state policy that has been in place for a couple of years, upheld by the Washington Supreme Court, and we're adding 2% to it.

That's it.

Yeah, I just don't know that much about the state one.

So I'm just trying to figure out, because we're about to maybe do it here.

So I'm just trying to understand the nuances.

Okay.

The real estate would be exempt, though Councilmember Nelson's question was more to the business sale.

So and actually selling a business that is wholly located in the state of Oregon and not in the state of Washington altogether, and whether or not that sale will be subject if the actual person selling the business lived in Seattle.

And that's at this point, I don't have a specific answer to that.

So I have to follow up.

But with regards to real estate, yes, it is exempt from the measure at this time.

Okay.

Other comments?

Okay.

Council Member Peterson, any final comments on this that you'd like to offer?

Thank you, Chair Mosqueda.

No, I don't have any further comments.

Okay.

Thank you.

well this is a helpful overview tom i'm assuming that there's going to be a handful more questions that folks might want to ask i think that um i will just flag the concerns around volatility are um important for me to have a better understanding of you know ali and and tom you both have spoken to that is there anything else that you would want to underscore uh on those points before we close today

No, nothing to add other than prior testimony.

Okay.

Yeah, I think the only thing I would add is either looking at the effective date or next year in council, the next council's budget deliberations, I'll advise caution on programming this new revenue until like if the 3% does pass, for example, the higher revenue until we're certain what comes in the door.

And Tom, did you have something?

I'm going to turn it back to Council Member Peterson in a second here.

Okay.

Council Member Peterson, and then I'll go back to Council President.

And then Council Member Herbal.

Just to encourage us to look at both sides of the equation.

I mean, the water tax has been in place.

It is regressive.

It does harm now.

The harm we are doing is not volatile.

We are doing it consistently by having the water tax.

So I would just encourage us to repeal the water tax and happy to tweak the capital gains dates and percentages and things so that we can repeal the water tax.

Thank you.

Thank you, Council Member, Council President Juarez, did you have something?

Just two quick things.

And I can talk to Council Member Peterson offline.

I know that there's some conventional wisdom for government, industrial, and big business to have a lower rate from my time on the Seattle Public Utilities Committee in Seattle City Light.

Whether I agree with it or not, there is some reason why.

And I'm glad you put the dates in there from the last time we revisited the taxing, I think water was 2011. I don't have the PowerPoint in front of me right now.

So there's room for discussion there.

I'm not trying to discourage you, Council Member Peterson.

I didn't mean to be sarcastic about eloquent.

I was sorry about that.

It's just getting late and getting cranky, but that's it.

That's all I gotta say on that.

But let me, I have a question for you, Madam Chair.

And again, or Council Member Herbold, this may be a dumb question, but it's driving me crazy on, or Allie, on the, PowerPoint presentations you gave us on one of the PowerPoint charts.

Is provider pay legislation wage equity policy?

Are they the same thing?

Okay, good.

Because on one slide you have power.

wage equity policy, and then another one, you have provider pay legislation.

So I yeah, I think that the terminology has evolved.

And I was a little behind.

And I made one slide.

And I think Jen made another little things that Yeah, little things.

Okay, well, you know, we're producing this many slides.

I know, sometimes happen.

We're human.

I just want to make sure it's not me.

It's not you, it's us in this instance.

Okay, thank you.

Fair enough.

Slides are mentioned by council president.

I almost just turned my screen off.

Council member Herbold, please go ahead.

Sorry.

So I just wanted to say, you know, the intent of the 1% amendment is intended to, that I have forward is intended to address the revenue gap that we're looking at for 2025. I, you know, out of support and interest for Council Member Peterson's package, I just want to flag that, you know, I am willing to be flexible, and I think another way of thinking of the projected growth in the general fund expenses could also be not fully making up the the whole from from the water tax so um just throwing that out there um you know as as you've heard me say many many times um we know that general fund expenses are projected to increase by uh 544 million from 2022 to 2026 and 85 of that growth is due to anticipated labor agreements so we're we're not going to be able to make it up just making cuts or a future council isn't going to be able to make it up just by making cuts um and so again my intent was to start making sort of a down payment on a on new revenue um to address that growth, but I'm open to thinking about that amendment differently to allow it just kind of serve both purposes.

So I'm just wanting to put that out there.

I appreciate that.

Thank you, Council Member Herbal.

And I will turn it back to central staff to remind us of the process for possible amendments.

In that vein, there is a lot more work to come.

As I noted at the beginning of our conversation here today, I'm very disappointed about the potential returns from a CEO pay ratio tax using jumpstart payroll tax as a vehicle and applying basically a surcharge to that.

The small returns on that were so low that it seems like there's a much bigger conversation to have around how that model policy from San Francisco or Portland could be approached, but not just adding it to Jumpstart.

So I think that there is an opportunity there for the future council to do that research and to advance that concept.

Again, I think as central staff have reminded us a number of times, The fastest way to close that gap could potentially be an increase to the jumpstart progressive payroll tax.

In part, we did that yesterday with $20 million, but it is specifically going to mental health services.

So that is not part of the overall solution.

It is a vehicle.

There is still substantial unknowns when it relates to the tech sector as well, though.

So any sort of attempt to try to just close that gap using one revenue stream, especially a revenue stream that has volatility, and that one has some volatility as well, given the unknowns in the tech sector, that is also not the sole solution.

So I really want to underscore that I think that there's going to have to be a compilation of various revenue streams that help close this gap.

It cannot be accomplished through custody.

And it cannot be one revenue source potentially alone either, given some of the volatility and other revenue streams.

and i am um again heartbroken that i'm not able to offer something that's larger in scale here today or this month that helps to close that in a more significant way but i do appreciate my colleagues continuing to bring forward legislation this is one item that councilman peterson has underscored today, Council Member Sawant, as we noted yesterday, has been bringing forth the increase to the Jumpstart Progressive Payroll Tax from 2020 every year.

And yesterday, we used that to identify a opportunity to expand mental health services for youth Had that not passed then, it would have been advanced to today's conversation for the purposes of identifying additional ways to scale that proposal to help to close the gap.

But I'm very thankful, colleagues, that you have coalesced and rallied around additional support for health services for youth.

And I would just continue to underscore the macro need for us to close this gap using multiple revenue streams in the very near future.

I'm going to turn it to Ali to close us out maybe with some next steps as we think about our November 30th meeting.

Great.

Thank you, Chair Mosqueda.

So just as a reminder for the five pieces of legislation that you received a briefing on today, is that right?

One, two, three, four, yeah, five.

If you have any amendment ideas, the deadline is 5 p.m.

tomorrow.

I know that's not a lot of time.

It doesn't need to be a fully formed thought.

If you have some questions that are thinking about a potential amendment, Please let us know.

Some of us turn into pumpkins after the budget vote on the 21st.

And so we just want to make sure that we have reallocated assignments and we are ready to staff you so we can have those amendments prepared and distributed in advance of the November 30th committee discussion.

So please, even if you are just thinking about a potential amendment, please let us know by 5 p.m.

tomorrow and we will work with you and you can always withdraw the request.

and we can help refine your proposals over the next few days and the beginning of the week before committee on the 30th.

Any final comments?

Councilman Peters, I don't think I offered you last comments on this legislation before we close out.

Anything else you wanted to say?

No.

Okay.

You're welcome.

And thanks again for initiating the conversation.

Thanks to Tom again for the work they did and Allie.

participating in that revenue stabilization work group.

And thank you, colleagues.

It is well before 5 tonight, at least.

4.15.

So we have an opportunity to celebrate here today.

And we will see you on Monday, though, right?

Monday.

I think that that meeting starts at 9.30, not 10. Just double checking with central staff.

Oh, sorry.

Next steps, yes.

9 a.m.

on Monday.

Okay, I will see you at 9 a.m.

on Monday so we get through all of the technical aspects necessary to finalize the budget.

And that will be our last opportunity to make final votes on the budget.

There's no edits.

is really like the technical final vote and then council president we are going to get it out of our budget committee and we will hand it over to you for the 21st for the full council vote um so thank you very much for the work that you've done over the last three days and especially for the work on the 121 amendments we will see those one more time on monday for a final final vote with all technical changes necessary as well thanks essential staff for making sure that that all squares or adds up so we have a truly balanced budget and then we will continue this conversation for the track two items again on november 30th and um with that i think we'll see you at 9 00 a.m on monday the 20th okay yes