Finance, Native Communities and Tribal Governments Committee 2212024

Music playing Thank you.

Council Member Morales.

Here.

Council President Nelson.

Present.

Vice Chair Rivera.

And Chair Strauss.

Present.

As the Vice Chair joins us, we will make that announcement as well as any other council members.

We have two briefings on the agenda today.

Informational item 2401, a briefing and discussion from central staff on Finance Native Communities and Tribal Governments Committee as a whole and our Select Budget Committee for this year.

We also have informational item 2402, a briefing and discussion on the overview of the city budget.

Generally, since this is the first time I'm gonna set some just kind of ground rules and ground expectations.

We also have council member Kathy Moore joining us today.

In our committee, instead of clapping, we do the hand motions.

This helps us continue the work of our committee.

I am only allowing public comment on items on the agenda today.

I see we have some guests.

I'm guessing you're not here to speak about the budget.

I will make that exception since this is the first committee meeting, and you might not have known that standard.

I'm sorry, we're in committee right now.

And so this is, thank you, sir.

As we continue going through our committee work plan, I'll share more of these small little items, but these are all items to make sure that we are able to accomplish our work in an effective and efficient manner without disruption or harassment.

And we also have Vice Chair Rivera.

My stalling worked.

And so before we begin, if there is no objection, the agenda will be adopted.

Seeing no objection, the agenda is now adopted.

We're going to start with public comment.

As I said, moving forward from this committee, we will only be allowing public comment on items on the agenda.

Today, we will make an exception.

And...

We will now open the hybrid public comment period.

Public comments should relate to items on today's agenda.

Clerk, how many speakers do we have signed up today?

Just one.

Fantastic.

Each speaker will have two minutes.

We will start with the in-person speakers first.

And...

The public comment will be moderated in the following manner.

The public comment period is up to 20 minutes.

Speakers will be called by name in the order in which they registered, and speakers will alternate between sets of in-person.

We'll do in-person first and then remote.

Speakers will hear a chime when 10 seconds are left of their time.

Speakers' microphones will be muted if they do not end their comments within the allotted time so that we are allowed to call on the next speaker and we always accept written comment.

So at this time, the public comment period is now open.

We will begin with the first speaker on the list, Jeff Healy.

Jeff, please.

Good morning.

Please join us at the microphone.

And please provide public comment on items related to today's agenda.

Oh, I wish that you would have said exactly what the items were on today's agenda.

I know you said the items on the agenda, but I think it's the budget.

And yeah, I think you guys fail at letting people even know that this meeting is existing today.

Obviously, people would be here at the meeting, at least a few more people if they even knew the meeting was happening.

And yeah, so it sucks that nobody knows about the meeting because they would come to the meeting if they knew about it, I'm sure.

And it has to the budget.

I have to talk about the budget or am I allowed to talk about other things?

This is a meeting about the budget today.

But didn't you say that I could do make an exception about the topic or something?

Not for, there were certain people that if they'd signed up, but they did not sign up.

But so you said there is an exception about something though?

I'll accept any public comment from you today, and moving forward, we will reserve the time for items on the agenda.

Oh, so it's anything...

I can say anything right now without being offline.

You've got 51 seconds, yes.

Um...

I don't know, there's just like a lot of really important things.

And I almost feel like purposely withholding them just to have one over on you guys is to not tell you the helpful things just so that you guys learn your lesson for not being helpful like you guys could.

Because I think that you guys maybe deserve that.

And what does that mean?

It means they can't talk anymore?

You have one more second.

You have one last thing that you can say.

It just irritates me because I can feel that certain people don't want me to even try to be helpful, and that makes me want to retaliate against them with unhelpfulness, just right, and not even say the helpful things.

And your time has now expired.

I appreciate you coming to the Budget Committee, the Finance Neighborhood, Native Communities, and Tribal Governments.

That is so good.

At this time, we...

Clerk, can you please confirm we have no more public comment registrants remotely or physically present?

No more public comment.

Thank you.

We do not have any additional speakers signed up remotely or physically, and this now concludes our public comment period.

We'll move on to the first item on today's agenda.

We have Julie, sorry, we have Allie Panucci and Eden Cizek from Central Staff.

Clerk, will you please read the short title into the record?

Informational item 2401. Thank you.

2024 Work Plan Briefing and Discussion.

Yes.

We are joined by Deputy Director Ali Panucci and Analyst Eden Cizek from Central Council Central Staff for this presentation.

Ali, Eden, would you please introduce yourselves?

Colleagues, this first presentation is going to be a general overview.

I know we've had a lot of discussion about what is the difference between finance, native communities, and tribal governments versus select budget committee.

This should shed some light on that.

We are still nailing down the dates for which days will be a select committee and which days will be just a Finance and Native Communities and Tribal Governance Committee.

You might hear me slip because many years ago it used to be the Finance and Neighborhoods Committee, FN.

And so if you keep hearing me slip, that's why I'm slipping on that way.

I'm really excited, Allie.

If you'd like to take it away, we'll just dive right on in.

Good morning, council members.

I'm Allie Panucci of your council central staff.

And I'm Ed Cisich.

Microphone, Ed.

Ed Cisich with your constitutional staff as well.

Thank you.

Wonderful.

Okay.

Well, this morning we are going to just do a brief walkthrough of the work plan for the Finance Native Communities and Tribal Governments Committee and the Select Budget, excuse me, the Select Budget Committee for 2024. Moving forward, I will likely just refer to it as the Finance Committee and the Budget Committee for Brevity.

And Allie, I also am noticing on the agenda, we had a misprint with it setting up six zero minutes for you.

I think we're probably gonna run through this in about 10 to 15 minutes.

So colleagues just an awareness there on my part.

Great, I'm happy to talk all day about committees, but in the interest of time, we will move through this relatively quickly.

So this first slide is really just outlining the sort of differences and similarities between the finance committee and the budget.

Director Noble presented some of this information a couple of weeks ago to the council at council briefing.

And we just wanted to revisit that idea and then talk a little bit about some of the items that will be coming to each of the committees this year.

So the finance committee is the only standing committee established by the city charter.

It is not uncommon for the finance committee committee to also include other topics.

So this year, for example, it includes finance as well as native communities and tribal governments.

So this committee will cover issues and policies related to both topics.

Um, the finance committee will receive reports and briefings from city finance, the city budget office, regarding implementation of the city's fiscal policy work or things that impact the city budget.

And also formalizes government to government consultation with tribal governments, and we'll be working with the city's indigenous advisory council on policies, budget program services, and projects that directly affect indigenous populations.

And Ally, could you pause right there?

I just wanna dig into this a little bit more deeply.

So the finance committee, we are gonna be reviewing items such as lease, That's the next slide, isn't it?

It is.

I'm going to wait.

Thank you, Allie.

Thank you.

And so, and then the Select Budget Committee is really, it's established annually and the purpose is establishing council rules.

And the main purpose is related to the city's annual budget adoption process that happens each fall.

It is typically established sometime early spring by the council president, and it includes all members of the council and is chaired by the finance committee chair and typically vice-chaired by the finance committee vice-chair, so Vice Chair Rivera.

But meetings don't need to be limited to the fall budget deliberations.

In some years, the council has decided to convene the Select Budget Committee earlier in the year, particularly around legislation that amends the budget.

The full council adopts the budget.

So in past years, and I think this chair intends, and we'll talk more about that in a minute, to convene it for larger budget discussions.

But briefings related to the budget will occur in both committees.

I'm going to pass it over to Eden for the next slide unless there are questions on this one.

Good morning again.

As the Finance Native Communities and Tribal Governments Committee Coordinator, I will provide a quick overview of the committee process.

This is based on the direction that Chair Strauss has provided so far.

I'll get closer to the mic.

So most legislation will receive at least two hearings before it gets voted out of committee, with some exceptions.

And the Select Budget Committee will make recommendations to the full council for comprehensive budget legislation.

Comprehensive meaning it affects multiple funds and multiple departments, even though some of the initial briefings may be held at the Finance Committee.

And hence the name, tribal governments and native communities will, briefings and related legislation will be held, will be discussed at Finance Committee as well.

And we will officially begin the annual budget process in Select Budget Committee on September 24th.

And it's supposed to run through November 28th, although we hope to...

One week early for the holidays, and September seems like a long ways away, but I feel like it's going to come quickly for most of us.

And just before we move on here, yes, we all hope this budget is done by November 28th.

Colleagues, here you'll see legislation will receive, votes will receive two hearings.

Typically with appointments, I won't do two hearings on appointments.

On small matters such as that, that's where we won't be having those two meetings.

This was a practice I brought over from the Land Use Committee.

It was a very helpful process so that nobody ever felt like they were caught off guard, that they were able to have a briefing, understand the content, have time to go dig into it more before we ask you for a vote.

And so that's the intention behind this practice.

It is a little bit different now that we have a select budget committee, a finance committee, and the subject matter native communities and tribal governments.

So we're going to be implementing somewhat of a hybrid here, where if there is a meeting, a vote in select budget committee, we will have it briefed in finance.

Again, all committee members are invited to finance.

If a council member does not sit on finance, I will be asking central staff or CBO to brief them individually.

And so there's going to be a two-step process there so that we can ensure everyone has the most amount of information.

Again, all colleagues are welcome to join the Finance, Native Communities, and Travel Governments Committee.

I also recognize that adding more committees to your schedule by making it a select committee is not always appreciated.

So the reason that we are engaging in this in a little bit different way this year than we have in previous years is because everyone is very aware of the budget hole that we have, which is structural in nature.

I'm a bit relieved that everyone is chomping at the bit to dive into what is our current budget situation and how do we solve for it?

Because there've been many of us at City Hall who've been talking about this for many years at this point, and it has been hard to gain traction with council members and others that this is something that we need to solve.

We don't mean to get into future presentations, but we were able to delay this impact during the pandemic because of federal funding.

We can't delay these decisions any longer.

So that's one reason that I'm starting the Select Budget Committee a little bit earlier, I would like to, because it's important that we all dig into this together.

The second reason is that I've always found it a bit odd that we do supplemental budgets in a committee that not everyone sits on.

And so mid-year supplemental budgets allow changes to our budget finances.

I think I gave the example at one of our briefings.

If we want the Unified Care Team to work seven days a week before January 1st, 2025, we would need to make that change in a supplemental budget, right?

Otherwise, our next opportunity is at the beginning of the next fiscal year.

Also noting on this slide, during the annual budget adoption process, it is only the select budget committee and all other committees are not allowed to take up their work.

And so it's quite important to recognize this now, because if you are working on legislation in your own committee, it needs to be passed by September, otherwise your next opportunity is in December.

I think I've over-explained for the moment.

Any questions at this time?

Council President.

Could you, either you or central staff, explain, perhaps for our new members, also for me, what is intended to be included in supplemental budgets, or at least the mid-year, the one that we do in August?

And could we wait for the CBO to join us?

Is that all right?

Sure.

So during our second presentation,

Yep, you were just talking about the supplemental budget, so that's why I brought it up.

Fantastic.

We'll get right there.

I'll pass it back to Allie and Eden before I take us off track anymore.

So on this slide, this is the legislation that we're, some of the legislation we're aware of today, and some of this could get changed.

For example, the supplemental could go to the finance committee.

However, the select budget committee provides an opportunity for all the council members to stay informed and to weigh in.

So for all of the budget related items and so approval, for example, some typical things that will go to finance committee are approval or renewal of leases, that issuance and management related legislation and disposition policies for surplus city owned property.

And select budget committee will include more comprehensive budget-related legislation, such as the grant ordinances, supplemental, exceptions, carry-forwards, and any other comprehensive budget-related legislation.

And so with that, I'll pass it back over to Ali.

Oh, and if you could go back, this is just simply...

All of these policies could go through the Finance Native Communities and Tribal Governments Committee, and this is how I foresee us splitting out this work.

So issues that are smaller in nature or just the government doing its basic functioning will come into the finance committee.

For these larger conversations of how are we crafting our budget and how are we adjusting it, that's where I would like the select committee to occur so that everyone is on the same page.

I've always found it odd that, again, supplement because I had a program that I wanted, that I needed a little bit of supplemental funding for, and I had to go ask the finance chair who then ran an amendment for me, I would prefer you to be able to speak for yourself in these moments.

Chair, sorry.

Yeah, Vice Chair.

So we keep bringing up supplemental, so can we just please address, I think it's a quick answer.

Would you indulge Allie explaining what the supplemental is?

Thank you.

Generally speaking, supplemental budgets should be appropriations to address issues that could not have been foreseen when adopting the annual budget, so emergent issues, unknowns, that sort of thing.

Perfect world we adopt an annual budget and you all spend the year providing oversight and tracking it but we all know that sometimes Needs change this year the council changed between the adoption of the annual budget And so there may be emerging needs that come out up come up throughout the year.

But in order for us to Provide good oversight and stay on track with the budget.

We recommend minimizing the number of budget amendments throughout the year and because it's hard to start planning for next year when we're adjusting in-year.

But for example, in 2020, for example, when the pandemic hit, there was a need to do multiple supplemental budgets to address both the revenue challenges and the emerging needs due to the pandemic.

Thank you, Allie.

So the bottom line being, it's just meant to address unforeseen actions, not meant to use it as an opportunity to change something that has already passed in that year's budget?

Correct.

Yes.

Yes, ideally.

I will just say as in practice, there have been other changes that may have been known, but resources were not available at the time the budget was adopted or that sort of thing.

So I also want to be honest that in some cases that is the best practices.

And in some cases there are reasons why council members or the mayor proposed changes for other reasons.

Before, I'm gonna save my other comment.

I guess the last thing I'll say about supplementals, and this is why I was hoping to save this for when we have the CBO up here, is because the executive departments have changes, whether it's underspend or need for overspend, or additional spending, I should say, as well as we council members have an insight into programs or projects that may have underspend or may need additional funding.

Unified Care Team, seven days a week is my example here.

Moving on.

Moving on.

So much of the work of the Finance Committee and Select Budget Committee, particularly this year, will be really a review and examination of the budget.

And so Director Noble discussed some of this, but I wanted to just highlight again some of the work that is underway that I expect some of which will be briefed here at Finance or the Select Budget Committee.

And central staff will also be working with all of you individually in office to brief you and help you understand what is in the base budget for 2024. So what will your starting point be for discussions going into the next biennium?

We're doing an assessment of how spending has increased in recent years.

So in the last five years, so looking at why and how expenditures have grown, what has happened with revenues, and helping unravel how, previous councils have managed to balance the budget with one-time resources or sort of how did we get to this point where we are looking at a 250 plus million dollar annual deficit.

In April, There will be a forecast and economic and revenue forecast update released by the forecast office.

And the city budget office is also working with departments to close out 2023. And so there will be, you know, the year.

How did the year end?

Did we underspend the budget?

Did revenues come in higher or lower than anticipated?

That all has an impact on balancing the 24 budget and what we are looking at going into 2025 and beyond.

So, for example, In April, given recent economic news, if the revenue forecast is more positive than what we assumed in November, we might identify that there are more resources available.

We will be looking at, are those one-time or ongoing resources?

Is that revenue projected in an ongoing basis going to improve?

And does that help us with our structural problem?

Or is it a one-time bump that might be appropriate for a one-time need?

There was also a request in resolution 32116 that the council passed as part of the last budget process to do a deep dive into central rates.

Reviewing how the city's cost allocation plan and changes to central rates impacts the budget.

Those are things like charges that are internal service departments charged to others like IT charges, all departments, some rates.

That money is used to support the city's IT needs.

There's been some changes in that spending over the years.

We've been working with the city budget office to unravel what is going on there and better understand what is driving those costs.

Jumpstart payroll expense tax, looking at both revenues and expenditures and how that has actually played out over the years compared to what was initially and having discussions with all of you about options for moving forward.

And then looking at mapping the budget by source of funds.

Yeah, and before we jump in there, because I think this is gonna take us the next step on our mapping of diving in, reviewing and examining our budget, is first, as Ali said, we need to understand what the base and the current situation is.

That's what CBO is here today to talk about.

We're gonna do that five-year look back.

And the benefit of what we have today is everyone is really aware of this budget crisis.

And so that allows us to look at this budget comprehensively rather than incrementally.

And so now, Ali, if you wanna go onto your next slide, this is some of the thinking on how we are going to review and examine our budget.

And before I move on just on the base budget review that central staff is doing, the presentation director Dingley will provide today, will give a detailed overview of the city budget.

We're gonna go a layer deeper and with help from the city budget office and some information sharing, which we appreciate to better show you the details of what is in each department budget.

So you can all start thinking about what is most important to keep and where there might be opportunities for efficiencies or new revenues or those sorts of things.

So we are, it's kind of a funneling approach.

We're starting at the top and we will be diving in deeper throughout the year with all of you.

And I see Council Member Kettle has a question.

I'll just add to that.

We are also endeavoring to look at the lines of business so that we're not just looking at, I used my arborist example of SDOT's got arborists, parks have arborists, they're doing work on each other's land.

That's not efficient government.

Just, Chair Strauss, just a quick question for potentially both of you.

When we're talking about these reviews and so forth, is it just like the programs and the spending of those programs, but are we also looking at the budget process itself, the structure of the budget reform, so it's all the above, or is it just looking at You know, what programs are we looking to support or not support?

Or are we going to be looking at, like, the structure in terms of, you know, as we talked last year, you know, the silos and the firewalls, if you will.

Is that going to be part of this review?

Because I hear sometimes talking about programs, you know, the five-year increase and so forth.

But are we also looking at the mechanics of the budget, I guess, is another way of saying it.

Fantastic question, Councilmember Kettle.

And so that's where I was going with lines of business, lines of service.

So if we are delivering a type of service that is deployed by two departments and there's bureaucratic overhead, that's something that we need to look at.

Because, and so I guess short answer is yes.

Long answer is the mayor and CBO transmits a budget to the city council.

That's in fall when we take it up

I believe that that's in charter or it's...

The budget process is outlined in state law.

In state law.

The state budget act that the mayor proposes, the council reviews and amends and adopts.

And so we don't have the ability to change that aspect of the budget process.

And what I have commitments from the mayor's team is to work in collaboration on this because it really does take all of us.

Okay, thank you.

And as you say that, I'm reminded that yesterday in the mayor's speech, the State of the City speech, he talked about basically the same topic, reforming the budget, not just looking at different programs, but in terms of how and what we're doing.

And candidly, I think that's how we've fallen into some of this, where we've looked at it by programs and we've looked at it by departments rather than lines of business or what services are we providing.

because sometimes redundancy is helpful so that the power doesn't go out, but sometimes redundancy is not helpful when you have arborists in every department.

Yeah, and I expect that some of this will be a longer conversation than just this year.

So what we're hoping for is that the work we are doing on the base budget and how spending has grown over the year will help you all identify where you're seeing maybe some overlap opportunities for efficiencies to do things differently by combining programs and departments or partnering or those sorts of things.

It's an almost $8 billion budget.

We're not going to have time, frankly, to go into every single line of business and identify every single efficiency this year.

So I expect that there will be some opportunities identified this year and we'll be working with the budget office to understand what those savings or opportunities may be.

And I expect that council will also identify some additional work that needs to carry into next year.

so that we can continue to improve the budget, both the budget, how programs are funded, but also the structure of the budget, because I think I'm a big believer in continuous improvement, especially on budget process.

And so I am very much eager to discuss different ways of approaching how we do this work and build our budget.

It's really well said, Ali.

I'll take one step further and we should move on to the next slide of mapping this budget, which is to say we have structural issues that took many years to create and is going to take a few years to unwind.

And so we are, I use leases as an example.

Changing a lease from a privately, a city-owned lease in a private building increases our expenses in the short term because there's tenant improvements, moving, IT, all of that.

And in the long run, it will save the city money to have that lease executed in a city building.

And so we will have to look at what are these long-term changes that we need to make for that long run.

And at the same time, we're going to need to do some short-run changes just this year.

So this final slide just really outlines the different ways that the budget is funded and what those restrictions are.

And so the first two lines, the funds that are restricted either by the state constitution or state law you all don't have the authority to change.

So those funds, we will provide more details on what and how those funds are used and which parts of the budget it supports.

A lot of our utilities and transportation and permitting sorts of things are restricted in various ways, as well as other state law restrictions.

So you sort of first have to understand that and take that off the table in terms of addressing the general fund deficit.

And then there are local restrictions, voter approved and dedication of new revenue streams.

So things like when the city adopts a new tax that could be a general fund revenue, it could support any general government purpose, but in some cases it is adopted for a specific reason, like the sweetened beverage tax that was at the time adopted to provide investments in food security, as well as early childhood supports and that sort of thing.

council could choose to change those restrictions and use those funds for other general government purposes.

And then of course the general fund is the city's most flexible revenue source and where we have the, and because of that, it is what is used to fund many of your priorities.

And so that is where there is the most demand and where we have the structural deficit.

So we will spend the most time this year looking at the general fund as well as the councilmatic dedicated revenue streams.

Council President?

Thank you very much.

So going to the local restrictions, I'm really glad you're going to be doing a deep dive into that because the other side of looking at how these funds are restricted is also what have we been spending on and to what level have we exerted our oversight function.

And with the exception of the PET, it seems like the other restricted funds, sweetened beverage, short-term rental taxes, Something about ride shares?

What are the other ones?

The TNC, there's the admissions tax.

Yeah, transportation network companies.

It just seems like, to me, and I hope that this is something that you're going to be looking at, those expenses don't have to compete against, you know, for funding at the level that PET expenses do or general fund expenses do.

And that's always seemed a little bit odd.

We don't talk in budget about, okay, so what are we spending the sweetened beverage tax on or whatever.

Is that one component of something that you're going to be looking at or presenting to us?

Is that what do these restricted funds fund and how have they been, what are the outcomes of those investments?

We will for sure be looking at what they fund and what the choices were at the time in terms of prioritizing use of those funds and identifying options in terms of outcomes.

I think some of that will be inviting the individual departments or program managers to report if that's the request of the council to talk about how they're performing.

I will just note that many of those funds are relatively small, the sweet and beverage tax, the admission tax, and that sort of thing, and some of them have had similar issues.

So for example, the jumpstart payroll expense tax has been backfilling for ongoing expenditures that had previously been funded by the sweetened beverage tax in the 23 and 24 biennium.

And so each layer you look at, then we identify different sorts of problems.

So we will be looking at all of those funds and expenditures because in terms of prioritization, you'll wanna decide if the priorities that were established at the time those revenue sources were adopted are the priorities today when put against what would need to be cut otherwise.

And so it's not going to be easy, but we'll be in it together.

And if I could expand on this, this slide is really, if you could go back one.

So this slide really is intended to show what the process of presentations to our committee are.

I call it big R restricted and little R restricted.

Big R restricted is rate payer funds.

state-mandated issues, rates and fees collected by departments.

Little r is restricted in use like a levy or like sweet and beverage tax or any jumpstart tax, these types of revenue sources.

So we are going to be mapping not only how much are we making, but more like what Council President was saying is what are we funding?

What are the outcomes are we achieving?

And then are we having a duplication of other lines of business there?

Council Member Morales.

I think it's also important, I don't know if you want to talk about this now or just throughout this process that we understand some of the other structural problems that we have.

For example, we budget at the BSL level.

There's only so far down in the department's expenses that we have access to, that we have authority to designate.

We also don't have an FTE cost analysis, so it's hard for us to understand sometimes where the department spending is going.

We don't have a full understanding sometimes of why some departments continually have underspend in their FTE cost allocation.

So there are several structural challenges to the kind of information that we have access to that keeps us from being able to make some of the decisions that we need to make.

And my hope is that, you know, that is starting to change and that, you know, it sounds like Chair Strauss is indicating that, you know, the mayor is interested in helping make sure that we have access to better information so that we can really make these hard decisions that we have this year.

And forthcoming subsequently.

Yeah, so the budget analysis we're working on now will break down the department budgets at a deeper level than the BSL, the budget summary level.

We will be looking at budget programs as well as that will be complemented by some additional line of business information that the executive provided that we are still sorting through.

But that will help.

provide a little bit more insight into the departments and we'll help you all identify where you need more information or to understand more.

And we will continue to focus on how we can better understand the staffing in departments, but that is a ongoing longer term project.

And there is also work through the fiscal transparency program that was adopted by the council in November or December of 23, that in is starting up a budget monitoring program that the city budget office is working on and is expected to be launched in early 20 or mid 2025. But just flagging with all of this budget work going on that may end up needing to get pushed out of it as the city budget offices.

getting pulled in multiple directions all at the same time.

And Director Dingley can speak more to that, but I will just acknowledge it's not a small body of work, but they are, it is part of work underway from that office.

And that should help the council better understand throughout the year where the city is overspending or underspending its budgets and be armed with better information to understand if funds could be reallocated for emerging needs, or if in a structural way we are over or under budgeting certain programs or services.

And then I'll just note, because it might be confusing on this slide, because property tax is listed as funds restricted by state constitution, there are restrictions on how much property tax the city can collect.

But property taxes are one of the main sources of funds in the general fund, so it does also provide funding for many general government services that is more flexible on the use.

Vice Chair.

Thank you, Chair.

And I just want to point out also that this does not preclude us.

We each have departments that we work with under our respective committees, and it doesn't preclude us from working with our respective departments to get better insight as to the programs that they're administering and how well those programs are doing.

So it's my hope that we're all engaging in that as part of this, that will help inform part of this budget process as well.

That's exactly right, Vice Chair.

And what I've appreciated, which is a departure from past practice, when the departments have been presenting at everyone's individual committees, they've been talking about their budget, both source and use.

I saw this yesterday just with the transportation levy, where they didn't just talk, SDOT didn't just talk about the levy, they also looked at the rest of their funding sources.

And so I think that it will be absolutely important to start collating that information and doing the deeper dive.

I will say, and I had it in my notes before, when it comes to executive issues, it is my preference that the executive is presenting.

When it comes to city council generated issues or ideas, it's my preference that central staff is presenting.

I know it might seem like a small difference, but it is more difficult to get accurate information to ask Allie to go research every line item in a department as compared to asking the CBO to come and present that information.

And so answer is yes to the investigation.

And that was something that I was gonna say with her before you made your comments as well.

So I just wanted to, as we do some cultural norming in the committee, I just wanted to set that as one.

And just for transparency, I know that the executive has indicated their support of our working with the departments to look at their programs, et cetera.

Amen.

And Vice Chair, I think that's the perfect transition to item number two.

Before we get to item number two, we have spent today talking...

Did you want to say...

No.

We have spent today talking simply about the finance aspects of finance, native communities, and tribal governments.

March 6th, we're going to do this same deep dive into...

Native communities and tribal governments because we have some really incredible work that has been built up over the last number of years with Tim Raynon coming on, Francesca Murnon in Department of Neighborhoods.

We had the Tribal Relations Summit and how we're gonna engage in government to government consultation.

So that'll be March 6th and before we formally transition, Council Member Saka and then Council Member Saka.

I think it was the council president.

Oh, I see.

Yeah, council president.

Thank you.

I was waiting for the questions slide.

But in answer to your question, Vice Chair, part of the intent of the accountability section in my committee is also to dive deep on some of those questions where the executive information runs into council questions on performance or resource tracking or whatever, that is also an option.

Just wanted to put that on the table.

I'm open for those topics to occur in my committee.

And then I had a bigger question about the supplemental, but I don't know if we would call it the supplemental budget or whatever, but when I, it occurs to me that I have heard council members note that some of the funding decisions that are in the current budget, the 2024 adopted budget are priorities that reflect the previous council's priorities.

And so I don't know if changes to the adopted budget are anticipated or if it would require changed inputs, like changed conditions to be entertained in the supplemental.

Could you speak to that?

It's complicated by the fact that some of the expenses are also contracted out so then when we sign a contract, the contract is a contract and so you can't go back on that and so could you speak to that a little bit?

Yeah, and so what I know is budget stability is one of the most important things.

I know when we talk about making, when we're talking about working with business, yes is a fine answer, no is a fine answer, maybe is not, right?

And so we like to create that consistency and stability so that people know how to use their budgets and so on and so forth.

I don't foresee us making drastic changes to the budget during the supplemental.

I do see us making changes that are needed and that have been analyzed to ensure that we're able to address the 2025 budget in the fall.

So the supplemental is just for this year, which is balanced at this time.

We don't have a budget hole yet.

for this year's budget to be addressed in the supplemental.

We do have a structural deficit moving forward, and that's what we have to address during the fall budget season for 2025.

Okay, I thought that the lines on the graph that was shown in Ben's presentation did show a divergence for the general fund.

And this is where having the executive present on executive issues, central staff presenting on central staff issues.

Allie, before you jump in, I'm going to have the clerk read the second item into the record.

And, Allie, if you could stay at the table so we can just continue this conversation.

Item two, informational item 2402, city budget overview briefing and discussion.

Thank you.

Council President, would you like to ask your question?

Yeah, I would like to go ahead and answer.

So the chart that Director Noble presented, that is a chart Central Staff regularly presents, shows the projected annual operating deficit.

So in 2024, the annual projected ongoing revenues and annual projected expenditures, there is a gap, but that is balanced using one-time revenues.

So it is currently balanced, but there's not a solution for the gap projected in 25 and 26 and beyond.

However, I will just flag, because I think this is what you were getting at.

There are also some emerging issues that will come up this year that will likely throw the 24 budget out of balance.

Labor contracts and potentially other things that Director Dingley, I'm sure, could speak to.

So depending on...

a number of factors.

Mid-year, there may need to be some adjustments to rebalance the budget.

The executive does have authority to just not spend money, and so some of this may be done administratively, but I expect that Julie and I will be back here at the table in May-ish, talking about how the 24 budget will remain in balance based on how 23 ended and those outstanding labor contracts that might be better known at that time.

But you are right that we are expecting that there are some issues to address in 24, as well as the longer term issues in 25 and beyond.

And I'd like to welcome Director of the City Budget Office, Julie Dingley, to the committee table.

I see Council Member Saka has a question in just a second.

And we've been joined by Council Member Wu.

Is it all right if I let them kind of open it up and then I'll pass it right to you, Council Member Saka?

Welcome, Director Dingley.

If you'd like to make any introductory remarks, this is the time.

And then I know you've got a slide deck that we will walk through.

Great, good morning, everybody.

Can you hear me okay?

Yes.

Excellent.

Well, hi, I'm Julie Dingley.

I have the pleasure of representing the City Budget Office.

It's a team of about 40 professionals.

We have about 25% of that is the Innovation and Performance Team, and they do what their name suggests.

They work on innovation and improving what we do.

They had several items that were in the State of the City speech yesterday.

CiviForm is a brainchild of the Innovation and Performance Team.

And then we have the budget side where we're broken up.

Our staff are broken up in sort of issue areas.

So we have a team that works on revenue and forecasts.

We have a team that works on transportation and utilities and then on human services and neighborhood development, arts culture.

And so we really run the gamut and I'm just very proud to represent such an incredible team.

So it's great to be with you this morning.

Wonderful.

And I know you've got a presentation and clerks, is this all set up and ready to roll or are we still having some technical difficulties?

Good.

Great.

Council Member Saka, you had a question, and then we'll dive right into Director Dingley's presentation.

Thank you, Mr. Chair.

Two questions, actually.

Hopefully they're fairly straightforward.

So I understand the supplemental budget process is intended to cover items and circumstances that are generally unanticipated or unforeseen.

And so we talked about a few potential scenarios there, one raised by the Council President, you know, aligning, there's six new members here, aligning spending to the priorities of this council.

You know, we also talked about, there's real world stuff potentially coming up with labor contracts.

Although to be honest, I mean, We've known that city workers were due for, those discussions were being negotiated and ongoing and they're due for a raise for a long time.

And same thing with the collective bargaining agreement with our police officers, et cetera.

So I don't know if that's entirely unforeseen, but that said, if there's any discussion The supplemental budget process is intended to cover those quote unquote unforeseen circumstances.

Where does the money come from?

Isn't it already spent mostly like during the regular, like where is the resources coming from?

I'm gonna let Director Dingley take the first crack at that question and I'll add in.

Sure.

And then I'm gonna have us run through the presentation because I think a lot of folks, and we've been joined also by Councilmember Hollingsworth and Mr. Gee.

I'm gonna pass it back to you to answer the question and then I'd say let's jump into this presentation because I think a lot of these questions will get answered.

Yeah, I love it.

So thanks council member for your question and for your curiosity around this.

So there have been a lot of different ways that supplementals have been handled in the past.

And the way that we are handling it now is with a little bit more long-term thinking is our goal.

So in the past, supplementals have been seen as an opportunity to change the budget midstream to address emerging priorities, whether it be up, down or diagonally.

But it was really like you would see sometimes a launch of a brand new program during a supplemental with and you asked where the money came from.

It was often with one time resources.

So let's say we ended the calendar year 2023 with more money than we expected.

We didn't spend as much or we got more in revenue.

Folks, you know, to take votes before might have decided that they wanted to use that one time to start a new pilot program in the mid-year supplemental.

And then we'd have to find ongoing money in the budget to support it.

And then you kind of, you know, you get to the situation we find ourselves in.

I'd say in general, this year, we're looking for supplementals to be very minor, very technical.

If there's technical cleanup needed to remain in balance between different funds.

If we need to accept new grants to the city, you'll see those come through in supplementals as well.

So we're going to limit the use from the executive side because we know that we have the 2025 deficit ahead of us.

And so would encourage also you to consider that most departments, you know, here we are February 21st.

Most departments have gotten their spending underway for 2024 and have our deep into the community conversations on contracting those funds.

And so I think if you had a desire to change course of where the spending is going this year, I think you'd have to make sure that those funds hadn't already been committed.

And so it's definitely a conversation with whatever you had in mind.

I hope that helps clarify.

Well done.

Great.

Director Dingley, take it away.

Great.

Well, I am just pleased to be here with you this morning, as I said, and I see that I have some new council members over here challenging my recollection of their real names.

So it's good to see you.

Oh, you switched name tags.

Great.

Okay.

We're all set.

There you go.

All right.

So I'm going to dive in.

Hopefully I can navigate this on my own.

Is it just...

Allie has the magic touch.

All right, good morning.

So we are gonna drill a layer deeper and begin to level set on some challenges and opportunities that we have in front of us this year for building the 2025 budget.

So I'm gonna spend a little bit of time this morning talking you through the 2025 projected general fund deficit and really building it from what kind of funds do we have?

It builds on Deputy Director Panucci's presentation.

What is the overall budget?

And then what are we talking about that has the deficit?

So we're going to look at that.

We're going to look at how some revenue has changed over time.

And I can answer questions as we go.

And then I'm going to talk you through a little bit of context around transportation funding uncertainty in particular, because that's a pretty big challenge for this year, as well as REIT funding challenges, which is our real estate excise tax.

And so we'll get into more of that in a little bit.

So for a little context setting, So overall, as you've heard in prior presentations, the overall city budget is about 7.9 billion, and that's across all funds.

You just heard in the last presentation, Deputy Director Panucci walk you through how not all funds are created equally in terms of your ability to change how they're used.

So some funds are restricted, whether it's by state law, by voters, or by local ordinance.

And so when you look at this pie chart, You have $7.9 billion overall, but it's not all created equally to use how you want.

You couldn't, for example, use all $7.9 billion towards homelessness, for example.

So you have 50% of the funds going toward utilities, transportation, and environment.

You've got about 10% of the total funds going toward public safety.

And then I won't read the full chart, but I do want to point out in the top right corner We have administration at 1%.

And then in the furthest top right corner, I have listed out the departments that that 1% represents.

So it's a lot of departments for a very small slice of the pie to keep all the city running.

So we've got city auditor, the budget office, my team, civil service commissions, ethics and election, economic and revenue forecasts, the legislative department, of course, mayor's office, and so on.

And then you have a very large chunk, second largest in all funds, which is central service functions at 19%.

So that includes a lot of our big ticket fixed costs that we incur for the city.

So think about that in terms of our city's judgment and claims fund, our workers' compensation and insurance.

You might not know that the city is self-insured.

And so we take on a lot of those, we take on all of those costs.

And so that's a huge part of this.

And then as well, we have our central service departments, FAS who maintains the buildings and the fleets, IT who makes sure we can be connected and all speaking today, and of course, HR.

And then we have a lot of debt service.

So when we've issued bonds, we have to pay those bonds off over time, just like paying your mortgage.

And so those fixed debt service costs are included as part of that central service function.

And Director Dingley, this slide and slide six are a visualization of the table that Ali had on her presentation of these are the buckets that I want to do a deep dive from the top down.

And then Director Dingley will also talk about lines of service as we review and examine the budget from the bottom up as well.

Great, thank you.

This is the same information in a different visual.

So instead of being by types of service provided, we are showing you this by fund.

So this is the full 7.9 billion across the different funds.

So going from the bottom up, just to keep you on your toes, The general fund is there in blue.

That's that 1.7 billion.

And then you've got the utilities, Seattle City Light and Seattle Public Utilities, right above that in orange and gray.

And then you'll notice there's a big jump down in terms of fund size when you get to the rest.

So then you're looking at our healthcare fund, transportation fund, IT, payroll expense tax, of course, FAS fund, and then all other.

And there's something like, don't quote me on this number, between 60 and 70 other funds within that all other category.

Great.

So what do we talk the most about?

I would posit to you that we're going to talk the most about general fund and payroll tax.

And so I have two slides that break down those particular funding sources.

So the first one is general fund.

So general fund makes up, of the total nearly 8 billion of resources, about 1.7 billion comes from general fund.

you'll notice that the largest slice of the pie with general fund went from 10% overall from the all funds down to rather 46% for public safety.

And that might strike you as a lot or a little, and it's important to remember that public safety is a charter responsibility for the city.

There are not many charter responsibilities that we have, fewer than 10, but it is a core.

So you would see this type of dispersion among municipal level resources, wherever that is the case.

And Director Dingley, when you say public safety, can you, I didn't ask this question before, but which departments are included within there?

Within this slice of the pie, we have police, fire, the care department, we have law and the smaller accountability offices like and CPC, I'm trying to think.

Office of Emergency Management.

OEM.

Yep.

Maybe a couple of other small ones can get you the full list if that'd be helpful.

Fantastic, thank you.

Which is also why I want to be doing a deep dive into each of these slices of the pie.

Council Member Kettle.

Yeah, Chair Strauss, I'd be interested in, I would imagine it lines up with the nine entities, the departments, offices, and commission, one commission that falls.

So I would imagine it's nine, but if it's not nine, please tell me.

I think it's the same overlap that you have.

I'll just, no, it is the nine plus the police relief and pension that is not a department, but it's its own separate budget.

Yeah.

I'd say answering that question on the fly, you received 98%, which is an eight plus.

I'll take it.

I'll take it.

This is great.

All right, so other pieces to highlight.

We have education and human services at 15%.

So this is important to keep in mind, is how, as we go through the conversation about the general fund deficit, this is where the largest shares of the general fund are spent.

So this is why I'm showing you this today, so that you have that context.

And then similarly, we have broken out administration and central service functions with greater detail and now it's in the bottom right hand corner.

So if you have further questions about that, happy to discuss those and we can set up separate briefings or other things.

All right, so the next one I wanted to show you in a little bit greater detail.

Wow, this looks really big on that screen.

The next one is how is the payroll expense tax used?

And so the annual budget, the 2024 adopted budget rather, these are the uses that were found in there.

So it's about 330 million total.

And you can see the lion's share going to housing and services as expected.

That's part of the jumpstart spending plan.

And that's about 141 million.

You'll see the next largest share goes to the general fund as a general fund transfer is how we describe that.

So the initial legislation that passed Jumpstart allocated the first year of the resources in its entirety to the general fund.

And that was during the recession induced by the pandemic when our revenues decreased precipitously.

So in order to keep the city operating and keep as many people in their jobs as possible, the full amount, there's some 220, I think, that first year that was transferred.

Then we had, going from that year, we transitioned into having the actual spending plan that governed it, where you have all the different spending categories, housing and services, economic revitalization, equitable development initiative, and Green New Deal, each with a percentage allocation.

What happened in the years after that, after that initial year, was it was clear that the general fund wasn't healthy enough, in quotes, right?

It hadn't recovered to pre-pandemic growth rates.

And so we still needed to transfer in the neighborhood of 100 million.

It was between 75 and 100 million in the years since it was created.

So you see the 2024 transfer at about $86 million.

And then you've got economic revitalization, as I said, EDI, Green New Deal.

The special exemptions category I want to highlight for you, it was increased greatly by your predecessors in the last council.

As part of the adopted budget, the prior council increased the payroll tax rate to generate a targeted $20 million of additional revenue.

They dedicated that new revenue to spending on mental health in schools.

And so that's 20 million of that 21 million special exemption category in that top right.

Chair Strauss, may I ask two questions?

One is in the Housing and Human Services, how much of that is going to the housing levy?

So the housing levy is a separate funding source that, so the funds from the payroll tax support the goals, I think overall of the housing levy.

So there's a breakdown within the legislation on how funds are used between capital, between home ownership, between, do you have the other categories?

There's home ownership, rental production, and then there is also, I think 6% of the housing funds are dedicated to specific communities and smaller organizations trying to address displacement issues.

I'll just note the housing and services category is not inclusive of homeless services or human services.

So of that 141 million, almost all of it is going to the Office of Housing for their programs that they do to provide and support housing.

There's a small portion of that 141 million that I believe is going to either HSD or the Department of Construction and Inspections for tenant assistance or to help people pay rent to avoid eviction.

It's called eviction prevention, is the program.

Thank you.

My understanding is, and correct me if I'm wrong, from the Office of Housing, that the housing levy is not itself going to provide all of the funding for the housing that's been proposed, and that jumpstart money is going to be needed to actually actualize the housing levy.

So my question is, how much of the jumpstart money is going to be needed to actualize the housing levy?

I see.

Thank you for clarifying what you're asking for council member.

Let me get back to you on that number.

It's don't quote me on it, but I think that the initial presentation that we, that the executive did around the levy, it was in the neighborhood of about 45 million.

But don't quote me on that until I can confirm, please.

Okay.

I'll let you know if I was wrong.

All right.

I'll hold off on any quotes.

And then quick question.

So you mentioned this mental health money.

Where is that money housed?

In the Department of Education and Early Learning or DEAL.

Okay, was that the money for the counseling for the schools?

Correct.

Okay, thank you so much.

Yeah, great.

Separate from some other funds.

Vice President Rivera.

Sorry.

And separate from some mental health funds that DEAL already administers, this was an additional.

And actually, we have two council members here who can address why the $20 million was put in.

But my understanding was to address...

Oh, no, that's fine.

I just wanted to know where it was.

So thank you very much.

Thank you.

Gosh darn it.

It is great having all nine council members on the dais.

This is really good.

You invite us, we'll come.

Yeah, no, this is the exact conversation that I was hoping to have.

Because we have to look at this both top down from our revenue sources and bottom up from our lines of business.

Because in the mid-teens, McKinstry did an analysis of the city on how much money did we need to be providing for affordable housing in to meet the affordability crisis.

They benchmarked it at about $200 million a year.

That's just us.

And as being on council, I was lucky enough to be on the first council that met that benchmark under Mayor Durkan.

We have consistently met that benchmark time and time again since then.

And it has become, because of a braid of funding sources, like Council Member Moore mentioned, THE LEVY.

WE ALSO HAVE MHA FEES WHEN PEOPLE ARE NOT PERFORMING ON SITE THE AFFORDABLE HOUSING.

WE RECEIVE FUNDING TO BUILD THAT AFFORDABLE HOUSING AND ALSO HERE WITH THE JUMP START TAX.

Council Member Kettle.

Chair Strauss, thank you.

Just a quick question.

Actually, it's probably more for Chair Strauss.

We talk about the budget review of the programs, the spending, and so forth, but then there's also the review of the structure of the budget, my point about the silos and so forth.

But do we also look at...

WHAT THE COUNTY AND THE STATE ARE DOING AS WELL.

FOR EXAMPLE, LIKE, YOU KNOW, I APPRECIATE WHAT'S GOING ON WITH THIS QUESTION REGARDING THE MENTAL HEALTH, BUT DID THE COUNCIL, DID THE CITY DO ITS DUE DILIGENCE IN TERMS OF ENGAGING WITH THE STATE ON CLEARLY STATE FUNCTIONS, EDUCATION AND MENTAL HEALTH?

AND THIS IS SOMETHING I'M CONSTANTLY SPEAKING TO IN TERMS OF PUBLIC SAFETY BECAUSE IT'S SO IMPORTANT.

AS I SAID, YOU KNOW, WE CAN'T HAVE PUBLIC SAFETY IF WE DON'T ALSO SUCCEED IN PUBLIC HEALTH.

And it strikes me, for example, that is clearly a state function.

Did we go through the process of engaging with the state on that, and then we're told no, and then we're trying to supplement because of our own interests and desires?

Which is one thing, but if we haven't been doing the due diligence with the state on mental health and education spending, then that's a question in terms of, like, this budget review process.

I think it should also include what we've been doing or not doing related to, you know, areas that really fall in other jurisdictions.

Yeah, Councilmember Kettle, that's an excellent question.

I can tell you what you just described is the ideal situation, ideal process in which we would engage in.

I can tell you that the state, just off the top of my head, and as I understand it, the state allocation of mental health counselors in schools woefully underperforms what is needed in those schools and has been asked for by our students.

The city of Seattle is, so there's a gap there.

The city of Seattle is one of the only cities in our state that provides funding directly to schools through the families education and early learning levy.

That is the functional way that we are patching a hole that we don't need to go into McCleary.

I probably won't have a budget committee about the McCleary fix in Olympia.

But that, to be said, is they have also not performed their duties.

And so we have a function in our government that attends to that missing gap, and that's the Families Education and Early Learning Levy.

I've seen a lot of hands...

Well, thank you, Chair Strauss.

I think in terms of good governance and due diligence, we as a city need to be formally going to the state saying, hey, these are our requirements, whether mental health generally or in our schools, which is very important.

I recognize that.

But, you know, if we've not been doing that step, but then just going to part b first i think that's i think that's a problem because we need to lay it for the record and this is really important for public safety as well not just for the schools that's right and that's uh council president is that an old hand or new hand oh well it's about this page great i'm going to pass it to you vice chair rivera and then councilman morales thank you chair i just have

Oh, sorry.

Oh, me and then you.

Okay, all right, got it.

So you did a great job, Director Dingley, of describing the history.

Is it correct that the original spending plan that was codified by law anticipated an annual, or at least it did in that first couple years of 220 million?

or so, and then was it anticipated that the spending plan would just sort of automatically expand proportionally as revenues might have expanded?

What was the plan for if we went over 220 million in PET revenues?

And just to explain, when we say payroll expense tax, that's pretty much synonymous with Jumpstart.

Go ahead.

Thanks for the question council member.

So I will answer part of this and then I'm gonna turn it to Deputy Director Panucci to answer some of the legislative history on it.

So the payroll tax in the first year was in its entirety to support the general fund balancing to make sure that we could keep everything going.

From thereafter, the law envisioned, it established a floor for the general fund that if the revenues for the city did not exceed, I think it was a nominal amount of 1.51 billion, I'm looking at Allie to keep me honest, about 1.51 billion, that was a fixed amount.

So if revenues did not, if general fund revenues did not meet that threshold, payroll tax was going to step in to make up the difference.

I think one of the key problems that we have seen from the executive side is that is a fixed amount, that floor is a fixed amount in the legislation.

And so as we've seen generationally high inflation over the last, since the creation of the payroll tax, that calculation hasn't shifted along with the increases in costs that we have seen.

So I'll let Deputy Director Panucci speak to the legislative or correct anything I just said on the legislative side.

Thank you.

That was, I'd say at a high level that all tracks.

In 2020, when the Jumpstart Payroll Expense Tax was adopted, it was early in the pandemic.

And at that time, it was really being created to address the four priority areas, housing and services, Green New Deal, economic revitalization, and the Equitable Development Initiative.

Did I get them all?

Yeah.

And so as we were working with council members to develop that plan, and then we all found ourselves amidst a global pandemic, national reckoning with racial equity, and all of those things, and a budget crisis.

And so as the discussions developed, the council set out a spending plan for the use of those revenues in 2020. that would go into effect in 21. So the first year it was fully, it was a $214 million estimated revenue in that first year of 21. And all of the funds were allocated to provide continuity of city services and to provide COVID relief.

So that first year it all went into the general fund and the spending plan and the jumpstart fund was not yet created.

In 2021, following some, I would say, Disagreements between the- Professional disagreements.

Professional disagreements between the council and the executive.

And because, you know, in 2020 when it was adopted, no one predicted that the challenges would persist for so long, right?

In July of 2020, we all thought, we'll be back to work, right?

Like in a month, two months, that sort of thing.

So the pandemic persisted, revenue issues continued, the need for COVID relief and continuity of services was created.

There was not full alignment between the council and the executive on the best use of jumpstart funds.

And so the council, in september of 21 adopted or created the jumpstart fund codified the spending plan and set that general fund floor that was really established to say because jumpstart was never meant to be the solution to the structural general fund deficit that was in exit like that was an issue prior to the pandemic it just was not as deep but there was a projected ongoing deficit prior to the pandemic and jumpstart was not created to address that problem But in 2021, the council said, we see that there's still challenges in 21. They wanted to maintain services and so created the fund that allowed about $100 million for the 2022 budget to be transferred to the general fund and then codified the spending plan.

The intent was that in 23, The full allocation of Jumpstart funds would be allocated to the spending categories, housing, equitable development, economic revitalization, and Green New Deal.

Then we get to fall of 2022. we continue to have a general fund issue.

And so the council amended those policies to allow only for the 23 and 24 biennium, about $85 million annually to be transferred to the general fund and the rest was allocated to the spending categories or those special exceptions.

And so where we are today is that if council changes nothing, the full amount of jumpstart revenue, which I think is pushing towards 300 million, next year would be allocated to those four spending categories into the future.

So the council has the option of amending those policies and we'll be sort of detailing out those options with all of you throughout the year, but there are many different ways that could be changed.

So is it correct to say that the PET revenues have been outperforming anticipation by about 100,000, I mean 100 million, if it was originally thought of about 220, now this page says 329 million.

Yeah, I mean we did anticipate that it would increase to some amount, but central staff was doing the estimate, and you'll find that we will be relatively conservative in our estimate.

And we're quite pleased when revenues came in higher than the original estimate and continue to outperform projections.

I will say that there is some volatility in this revenue source.

I mean, some of this is total earnings.

So things like stocks and that sort of thing can impact the amount of revenue.

But yes, it is outperforming.

And so the general line that the previous council has held is they want to allocate jumpstart funds in the amount that were assumed in 2020. So that's about 220 million increased by about two to three percent annually to the spending categories and then allowed anything above that to be transferred to the general fund.

So that 85 million really is that difference in the 2024 adopted budget.

The payroll tax funds were allocated to the spending categories in the amount that was assumed when the council adopted the payroll tax in 2020 and the remainder was used for other general government purposes.

And just a real quick note to add on to what Deputy Director Panucci said on the volatility.

It's important to remember for, or maybe you don't know yet, and we'll find out when we get the first revenue forecast update for you all, that a disproportionate amount of payroll expense tax revenue comes from a disproportionately small number of taxpayers.

So it's in the neighborhood of 75% is coming from fewer than 10 taxpayers.

And so the reliance upon, it doesn't have a lot, you haven't spread out the risk like you would like to with investments.

And so it's quite concentrated.

So if any one of those big players were to make different choices, that would have huge impacts to the revenue.

So just something to keep in mind for future planning for this source that it is somewhat volatile.

Thank you very much.

And have we started spending the $21 million of additional PET revenue?

No, we have not begun spending that this year.

Are we collecting it?

We are collecting it.

But we have not started spending.

We're doing some policy work ahead of just to figure out how that's best programmed.

Thank you.

This is a great example of why it's my preference that the executive presents on executive aspects and the central staff presents on city council aspects.

Just seeing that exchange between Deputy Director Panucci and dingley this is a great example we are seven slides of 21 with 40 minutes to go and i i give everyone the reassurance that each one of these slides we're going to be doing probably a full or half presentation on with that said i still vice chair rivera and then councilman morales

Thank you, Chair.

You answered one of my questions or made a comment about the fact that if there are any changes to the- Excuse me, Council Member Rivera, could you speak into the mic?

Thank you.

Sorry.

Apologies.

Yes.

Just wanted to underscore what Director Dingley said about any changes to who's paying the payroll tax.

will have a significant impact on these projections.

Also, can you please provide us with those four buckets?

What departments are impacted with those four buckets?

Not now, at some later.

That'd be great, thanks.

The original and intended four buckets.

Thank you.

Happy to do that.

Well said.

Council Member Morales.

I will waive my time so we can continue, thank you.

Thank you, and we will be doing a deep dive into this.

Back to you, Director Dingley.

Great, thank you.

All right, so I wanted to provide you a sense of, prior to coming into office, you may have heard public discourse around the revenues that the city brings in.

And so I wanted to just clarify for you, as we take a look at new revenues the city has created recently.

So since 2015, a total of 3.5 billion of new revenue has been created for the city.

That includes, and all of that revenue is outside of the general fund.

Of that 3.5 billion, about 2.7 billion comes from levies.

About 206 million comes from what we've lovingly and very bureaucratically dubbed general fund adjacent.

which is your sweetened beverage taxes, your short-term rental taxes, your transportation network company taxes.

Those all have been created for specific uses, as well as the payroll expense tax at $606 million.

So when we talk about Yes, we absolutely have new revenues into the city, but all of these have been created for new purposes and the vast majority have been created with what we call do not supplant language, meaning that they're intended for new investments that are additive to what we are already supporting with the city's general fund.

So we have not added a new general fund resource in this time.

And we're gonna get into a little bit more of that in the challenges and opportunities.

Any questions on that slide before I move on?

Okay.

All right, so we're digging into the meat now.

So general fund deficit.

So what is the current projected deficit?

As of the 2024 adopted budget, the projected deficit for the general fund is about 230 million for 2025. Now, don't get too tied to that number because that number is going to change in a matter of weeks as we get new and different information.

So we will find out at the end of this month how we closed 2023, for example.

So we'll find out actual revenues that we collected, as well as we'll work out how much we actually because right now we're doing reviews of did we have open contracts that hadn't yet completed that we need to continue into this year and things like that.

So we'll have actual spending and revenue numbers at the end of this month.

That'll impact what that deficit looks like for 2025. How did we get here?

I'm going to deviate a little bit from the slide just because I want to help paint a little bit of a picture for you all to get the context here.

So from the end of the Great Recession through to about 2020, the city enjoyed a remarkably long period of expansion, primarily driven by our tech growth, right?

If you were here, you experienced it.

We all felt it.

And public officials at the time had We're rapidly increasing the scope and depth of the services offered to a growing Seattle population.

So we had both growing revenues and growing expenditures at the same time.

When the COVID pandemic hit, we had a choice to make on whether to adopt how to close the deficit.

And I'm going to get into that in a little bit.

But the choices that we made there were really critical and sort of set us on the path at the magnitude we're looking at.

How did we get here?

Our general fund revenues have not yet recovered to what they were prior, what they would have been and what were projected to be prior to COVID.

There were some permanent changes to where folks physically work, the volume, like how people go about their day, whether they're staying in neighborhoods or whether they're coming into the city.

They haven't come all the way back to where they were.

Inflation has been at a generational high.

I'm going to show you in a few minutes why that constrains the general fund revenues overall.

We got a significant slug of federal COVID relief dollars through the CARES Act and ARPA that came at an absolutely critical time and allowed us, with some of those funds, to actually replace revenue that we had lost, so to keep the city afloat.

And they were a key lifeline for jurisdictions around the nation.

those funds have been used.

They are done and so we now don't have that benefit of them to buoy us.

And as well, something you've heard both of us talk about this morning is there were a lot of prior decisions from both the executive and legislative branches to use one-time fund balance to support budget additions that became ongoing.

So that's something we're gonna have to take a look at.

And then what are our tools, right?

At the highest of high levels, we can cut expenses.

So we can look at staff, we can look at programs, we can look at level of grants, all of that.

We can take a look at self-imposed restrictions on general fund resource or general fund adjacent resources.

We can look at payroll tax, we can look at sweetened beverage, we can look at how we're using other sources of funding and figure out are we using them, have we maximized the use there?

We could raise revenues.

You could turn the dial on a current revenue.

You could create a whole new revenue.

That is an option.

It may not be a policy choice you'd like to pursue, but it is an option.

As well, thinking about some one-time balancing strategies.

We're not going to be able to implement the full meal deal 230 million worth of reductions as of January 1st, just operationally implement that.

And so we're gonna have to think about what are some one-time strategies to help stagger the implementation a little bit.

And we'll get there, but that's just a little preview.

Director Dingley, I've got a couple of questions and I see Council Member Moore has some questions here on this slide.

Under the first column, what is the current projected deficit?

You have estimates.

These are estimates.

Am I correct in understanding these are estimates because we don't understand to date what our revenue collection has been from last year, and we also don't understand our underspend from last year.

Council Member Sacco, one of the questions about how do you fund a thing in the supplemental is by taking underspend from a department or other sources within that last year.

But Director Dingley, are there other factors that are playing into this estimate right now?

Absolutely.

So we will also have the April revenue forecast, which will tell us whether the forecast that this is based on, this deficit estimate is based on, which is from October of last year.

So we'll get updated numbers in April.

We get that year-end data to close out.

And then we get a better sense as we go throughout the year of unanticipated things.

And that's always pressures on fixed costs, that we have in the city, think insurance costs.

Those sometimes come in.

They're sort of a known unknown.

We know they're going to come, but we don't know the magnitude.

So we estimate, but we might be wrong.

So there are pressures on both sides of the ledger and different pieces of information that will feed it.

Thank you.

And then just a bit of commentary riffing off of what you just said about the far right column.

What are our tools?

These are the full tools in our toolbox.

Our choice to pursue any of these is not dictated based upon this committee meeting today.

These are, this is just the the universe in which we have to work within.

And don't forget growing economic activity that can also occur in my committee that was also called out by the revenue stabilization work group report.

Council President.

Council Member Moore.

Thank you.

A couple of questions on this.

So can you specify which outstanding labor contracts for 2023?

I don't believe I can get into that here, but I'd be happy to brief you offline.

You can't tell me the name of the contracts?

Like which departments have outstanding contracts?

I believe that that was briefed in LRPC this last week.

Right, but is that not public information which departments have outstanding contract negotiations?

We know SPOG does.

Yeah, so at a high level.

So the contracts are not necessarily by department.

It is by union that might represent workers in several departments.

And so the big ones is the Police Officers Guild and the Coalition of City Union.

There are some other ones that have contracts.

But that's all information that is publicly available, I believe, on the laborers' website about which contracts are in open or not.

We just can't discuss any of the details of that.

I'm not asking for the details.

Yeah, no, I was just clarifying what we can say publicly and can't.

Thank you.

Thank you, Deputy Director Panucci.

One other one that is the local 77 is another one that's not, that it remains open.

Okay.

Thank you for that.

And then on the second slide, you talked about inflation at a general high and pressure on our labor needs.

Can you explain what that means?

Yes.

Inflation at a generational high and pressure on our labor needs.

So when we're talking about the increased costs of goods and services, it's not just the goods that we buy as a city, but also we are an employer.

And so we have increased costs that come as a potential result of negotiations, depending on how they play out.

I understand the rising cost to provide services.

I don't understand what pressure on our labor needs means.

Which slide are you?

I'm looking at the middle slide here.

How did we get here?

Second bullet point, inflation at a generational high, rising cost to provide services, and pressure on our labor needs.

What exactly does that mean, pressure on our labor needs?

are the primary driver of growth and expenditures for the general fund over the last 10 to 15 years is from labor.

And so what we have seen in the past is when we had significant, as I was describing, we had this remarkably long period of economic expansion for about a decade.

And during that time, this cost of the city's labor increased considerably due to various contracts.

And so we know that we have a lot of open contracts that cause a lot of question marks in our planning process.

So we have estimates of what we think that impact could be, but we don't have answers necessarily.

So it puts pressure on what those needs are.

That uncertainty is what I was trying to get to.

So does that mean that we've, over the period in which we were flushed, that we were hiring more staff and we were also increasing wages at the same time?

That's exactly right.

Okay.

Sorry, last question.

No, these are great questions.

Keep them coming.

And then at the last bullet point here, the prior decisions to use one-time fund balance, will you be able to provide us where the one-time fund balances were...

housed or allocated, I guess is the word I'm looking for.

Yeah, I can't, I have a chart coming up that shows a little bit of that, but happy to get you whatever you need to understand that more fully.

Great.

Thank you very much.

No, thanks for the questions.

Good ones.

Fantastic questions.

Council Member Saka and then Council Member Kettle.

Great.

Thank you, Mr. Chair.

So just curious to better understand, does the city have a rainy day fund?

whatsoever.

Can you talk a little bit about what that looks like?

I'm not seeing that listed as a slice in that slide four, the total city budget, but be curious to learn more about that since it sounds like yes.

And what are those funds generally used for?

Seems to me like that might be a good not only best practice, so I'm glad we're doing it.

It might be a policy decision on whether to expand that and by how much.

But also, in addition to underspend by various city departments and agencies and adjusted additional, unanticipated additional revenue, that might be a good...

which as I understand is how we figure out the funding sources for supplemental asks, like that might be a good one as well for certain things.

And then, so before I forget, so that's question one, we'd love to learn more details around the sort of rainy day fund.

And then the second thing is from your perspective, director, we have $230 million anticipated and we just heard from our own central staff deputy director, it's 250 million and growing, all plus.

And this might be an example of the executive versus, or executive relative to the legislative estimates and prerogatives.

And I also understand that this is something, these are estimates only and they're projections based off of what information we know today.

Director, we also learned that In a few short weeks, we'll have updated estimates, and then over the course of this year, it'll be even more up-to-date.

The information in these estimates will be even more accurate, rather.

Today, what is the worst-case scenario in terms of, So best case scenario is it's a budget deficit of zero.

What is the, which is highly unlikely.

Although my dream scenario.

Yeah, yeah, yeah.

What is the worst case scenario based off of information we know today?

Are we talking 400 million, 500 million deficit?

Worst case scenario is the reason for my insomnia, right?

It's if we get an updated revenue forecast and the general fund resources go down.

That's the real worst case scenario.

Or we have some natural disaster between now and the end of the year that we have to respond to in an unexpected way that causes a huge drain on our resources.

But it's hard to respond to that hypothetical because it but I think that those are the two worst case that I think of when I think of that question.

So worst case scenario in terms of total budget deficit, possible, like, So one scenario, we have two scenarios floating right now, 230 million growing, 250 million.

What is the absolute worst from your perspective?

I mean, I can speak to history.

So when the COVID pandemic hit, we saw our revenues go down close to 300 million within a span of two months.

And so if something like that were to happen, you could see a deficit go as high as 650, 700 in the blink of an eye.

But that's some outside force causing that.

I don't think that, given reasonable assumptions right now, I don't foresee something like that happening.

But now that I've tempted the universe by saying it out loud, I'm very anxious about knocking on whatever this is.

Yeah.

Please don't do that.

Yeah.

But let nothing be unanticipated.

We need to understand the full scope of what's going on here, the full scope of the challenges and opportunities.

Opportunities, I love it.

So I think we need to be very crisp on what we're facing here and the good, the bad, and the ugly.

And I would love to hear, actually, both of your thoughts, if you have any, on the Rainy Day Fund, what that currently looks like and-

I have that.

I think Deputy Director Panucci wanted to mention one quick thing.

Yeah, I just wanted to clarify.

So we are in agreement on the $230 million number based on the adopted budget.

The reason I said 250 is I'm just rounding up because it's going to change.

And so while we need to be crisp, you also need to be comfortable with it's going to be a moving target, and it's going to continue to move throughout the year.

And so that is, again, why central staff typically presents it as the annual gap between estimated revenues and expenditures, because from a structural like the average annual gap.

Because from a structural perspective, that's really what you need to address.

So I just wanted to clarify for the public that we are aligned on what we think the problem was coming out of this year's budget process.

And I think we are also aligned that we expect that number to change.

based on what we know right now, likely to increase, not decrease, but I'm gonna hope for the opposite of the worst case scenario and best case scenario that we get better news and it decreases.

Yeah, and council member to answer your question on, we have two different reserve funds in the general fund.

So we have an emergency fund and that's for certain unanticipated expenses, including costs related to storms or natural disasters.

We also used it during the COVID pandemic.

How much is that?

It's a minimum of about $60 million in 2017 dollars, and that adjusts with CPI.

We do have a limit of how much we can reserve there, which is about 37.5 cents per 1,000 of assessed value.

We have currently...

Is that set by ordinance?

It's set by...

I will get back to you on how it's established.

I think it's in SMC.

I don't think it's a state restriction.

There is a city policy that tagged it to CPI.

I think that there is a different cap set at state law.

And I'll just flag in 2016, the city changed the policy because it used to be tagged to assessed value growth.

And in the boom years, to continue to increase spending, essentially the policy was changed to reduce the contribution to the emergency fund and tag it to CPI rather than CPI.

the assessed value.

And so it's just one of the decisions that were made in the past in the boom years that contributes to where we are now, because we would have had more in reserves.

And so we are actively working to refill those funds because we use them during COVID.

We have a policy that we want to refill that reserves to the maximum allowed within five years.

So we are on a path to do that.

So currently there's about 70 million in the emergency fund, and we are targeting a fund balance of 87 million by 2026. So we have contributions estimated in the financial plan that would get us to that amount.

We also have a revenue stabilization fund, which is also known as a rainy day fund.

That's for sudden unanticipated shortfalls in revenues due to economic downturns or other factors.

So there we have similar, we have limits as well.

It's 0.5% of general fund tax receipts And the top end limit is 5% of general fund tax revenue.

So we do make an annual calculation of whether we need to make a contribution to the rainy day fund as well.

That currently sits at its limit.

So we have fully funded our rainy day fund.

It's at about 68 million.

It will change because we'll also be looking at it for 2024 if we need to make a contribution, but that was last year's amount.

So I hope that answers your question.

Very helpful.

And thank you both.

Deputy Director Panucci, I'll just flag, would love a slightly deeper dive offline about rainy day funding sources and policy options available.

Thank you.

And Council Member, if I can correct something I said, the maximum is a state law restriction.

So that was not set by us.

That is a state law restriction.

All right.

Thank you.

As somebody who has both used these emergency reserves and replenished above what was presented in the transmission and budget work, one of my amendments increased our contributions and then we also used them.

But your question about worst case scenario, in my first term on February 21st, We did not see the pandemic coming.

And what Director Dingley said of that $300 million hole in a period of two months was real.

So that's why you just scared me a little bit there.

But I appreciate it.

Council Member Kettle.

Thank you, Chair Strauss.

Can you go back slide, please?

Sorry.

A statement and a question.

Yes.

First, I smile at the bullet saying inflation at a generational high because I'm sure some of the council members here remember the earlier generational high inflation.

And I also wanted to note, because I remember from the community perspective, the neighborhood council perspective, looking at the city, that oftentimes programs that were being put in place had inflationary aspects to it.

Because we had Seattle inflation before our current national inflation jump.

And that's something that we need to be mindful.

If the economy's hot, and you're looking to put some gas on that fire, expect inflation.

So we already had inflation before the national inflation started its uptick.

So I'll just throw that statement out.

But my question is, going back to the state, not talking about mental health in schools now, on the positive side, I note that State Treasurer Mike Pellicciotti has done a lot of work on the finance side and saved a lot of money for the state in terms of gaining revenue.

Financing is not here in terms of a tool.

Is there any financing options that's been done by the state treasurer that could help in this situation in terms of debt servicing along those lines?

That's a really good question.

We have, we're looking at, we have a lot of what I'm gonna, what I would call good governance policy work underway.

So we're looking at, we annually and well, very regularly, I just yesterday met with the bond team to talk about advantageous strategies for us in terms of taking on debt.

But then we also have use of our cash balance, and are we maximizing use there?

So we're looking at all those elements as well.

I was trying to get to more of the high-level policy conversations.

Those are absolutely tools, though.

It's a great point.

Okay, great.

Thank you.

Love the use of good governance, too, by the way.

Really appreciate that.

That's my middle name.

With 18 minutes remaining in committee, we are halfway through the slide deck.

Director Dingley.

I love that.

Okay.

Some of you prepared an unintentionally excellent transition for me.

As we're talking about the deficit at a high level, when we think about how did other jurisdictions handle the deficit, when our revenues precipitously dropped from the recession caused by the pandemic, We were at a crossroads, and we had a decision to make from a policy perspective whether to turn, well, I'll just say turn left, which is where most folks went, and that's not a political distinction.

That was literally just a directional thing.

What you see here is these are headlines from across the country of decisions that other jurisdictions made during the pandemic.

Every major jurisdiction in the nation had significant layoffs and service reductions in the pandemic to respond to a decrease in revenue.

We were very much alone on an island where we were not only were we able to prevent that, I think we had a handful, but prevent mass layoffs, but we also grew and expanded services at the same time.

So where there was a left turn for everybody else, we turned right and we took on a huge challenge.

And this is a visual representation that I'll explain a little bit how it differs from what you have seen in the past from Council Central staff.

We took on a lot of new spending.

So you can see when the revenue, so what you're looking at on this chart.

So expenses is the green line, and then revenues and or balancing, the balancing side of the ledger are in the stacked bars.

So base revenues are in blue, grants are in orange, One-time revenues, fund balance, reserves, that's in pink.

And then jumpstart payroll expense tax transfer is in yellow.

So you can see when we went to from 2019 to 2020, you can see how precipitously the revenue dropped.

That blue bar went from just over, you know, 1.4 plus to 1.3, you know, quite a bit lower.

But at the same time, you see our expenditures did not.

So we kept up expenditures and we had the benefit of the payroll tax and the federal funding from COVID to buoy us.

So we were able to more or less defy fiscal gravity from the time of that recession until today.

So it bought us a lot of time to exist in this higher service level, higher staffing level environment that we find ourselves in.

The plus side is that we get to plan for this deficit with the benefit of not having a pandemic raging that we have no idea where it's going to take us, how long it's going to last.

So we have a little bit clearer minds as we're trying to solve for this.

And then on the right, all the way to the right, this is showing you, this is a compounded deficit to the right.

So where you see 230 million, that's the amount of an annual operating deficit.

It's shown as 452 here.

This sort of assumes if you only solved 2025 with one-time strategies, that's the amount you'd have to find in 2026. But I know all of you will solve it with ongoing strategies.

And so that will only be 230 to solve.

That's correct.

And before I pass it off, sorry, we had Council Member Morales with a question there.

I just want to clarify, this is simply the slice of the pie that is general fund.

This is just general fund.

So there could be a similar bar chart that looks very different for every single other fund that we have within our city budget.

Thank you.

Council Member Morales.

Thank you.

Director Dingley, I've got two questions here.

One is that the plan for general fund that central staff presented showed 2024 adopted budget at the end of 2024, the unreserved fund balance is zero.

So can you talk about the one-time revenues or the fund balance that's assumed in 2025 and 2026?

That's one question.

And then the other question is about this, just to make sure I'm understanding you.

The difference between the 25 projected deficit and the 26 projected deficit assumes a compounding.

So we will solve the $230 million gap for 2025, which means that in 2026, the gap would really be 200 million-ish, 220. I just want to confirm that.

Yeah, if we had shown, if we had, this is showing based on the financial plan and compounding totals.

I, in hindsight, or perhaps in foresight, going forward, I will endeavor to present you with what the financial plan shows, and then also an annual one that tracks closer to what you have seen from central staff so that you can be assured that we're talking apples to apples.

And Councilmember, you had asked me about the pink section.

So that's representing funds reserved from prior years in our planning reserves being released to support anticipated expenses.

So to ensure we match the revenues and expenses, we show the planning reserve funds as a reserve in the pink to correspond to the planning reserves on the expense side, which is shown in the green line.

So we can certainly follow up with more detail if needed.

Just in the interest of time, though, I'm getting the nod from the chair.

I see Vice Chair has a question, but 12 minutes remaining.

Thank you, Chair.

I just have a clarifying question.

I mean, the 230, we may not actually find a solved form.

We might find a one-time solve.

And if it's only a one-time solve, then the following year we have a greater solution.

Right.

Yeah.

That's right.

So we need to be really mindful when we say the solve for next year, because it may not actually be a solve.

It may be another.

I don't know what it will be, but it could potentially be another one time.

Yep.

That's a great point, Vice Chair.

And it gives me a good opportunity to remind everyone that we build biennial budgets.

And so we are going to be transmitting a 2025-26 budget, which means we have to have both years balanced with what comes to you in September.

Yes.

Twice the fun.

Yes.

And I want to also clarify that I think most of us, including the executive, are really interested in finding a longer term, not just a one-time starting in 2025. Absolutely.

So I also wanted to clarify that.

And for the sake of making sure that Director Dingley can get, because these are ongoing conversations, I know that when we did industrial maritime land changes for the first time in...

13 years last year i had requested that council members go pretty deep in briefings because if you think this is complicated try land use policy um and and it really helped facilitate that conversation at committee uh if we could hold questions until the end just so that director dingley can run through this and then you got it we'll call on everyone

Sounds great.

I've already covered this, so I'm not going to spend too much time here.

These are what I lovingly refer to as known unknowns.

This is just highlighting that what's going to change the deficit calculation year end, how we ended spending and revenue, as well as upcoming revenue forecast overall.

Just a quick note here, the impact of high inflation on city revenues.

So this speaks to the structural challenge that we find ourselves in in a high inflation environment.

So you might assume that city revenues will generally grow as the price of goods and services increase.

It's just not true for all of the city's general fund revenue streams.

So property tax revenues, which are 24%, they're sort of the bottom left slice of that pie, 24% of our general fund, those are restricted by state law to grow at just 1% plus the value of new construction.

Now, during the boom years, when we were building massive skyscrapers every year, not a problem.

When we had historically low inflation at less than 2%, those were the days.

I want to go back.

I want to be budget director then.

That seemed like a good time.

But what we're looking at is in a high inflation environment from 2021 to 2024, these revenues have grown just 8.9% compared to CPI growth during the same time period of 19.5%.

So that's a huge chunk of the revenue that is not gonna keep up when you're talking about that high inflation level.

Further, it's also important to point out that we have significant revenue, some 20% of our revenue comes from fees, charges, or other revenues.

We set policy choices around what levels those are set at.

And so it could be the case that the policy decision is that we don't want to pass on the full cost of inflation to residents of the city as they're looking to get swimming lessons or things like that, where they're paying in, a fee for use on something.

So we might make a policy choice.

We want to spread out over time, the increase of inflation on that, but we wouldn't necessarily capture that all at once.

And then of course, at the same time, the costs of everything we buy, all of our construction projects, contracted labor, all of that, all those costs go up when CPI goes up as well.

And this is some balm for my soul, but unfortunately not relevant anymore for this particular year.

So this is just showing you a historical look at the 1% property tax cap.

Again, this is a state law restriction.

The current use is the gray line at the bottom with the triangles.

And this is demonstrating that there are several other policy choices the state could consider that would benefit cities around the state in terms of having their local revenues be able to keep up with inflation or come closer to keeping up with inflation.

You have probably heard that the county has made this their number one priority because they are also severely limited by the 1% growth.

And unfortunately, this is no longer viable at the state level this year.

So we look for leadership from the state next year to make some changes here so we can try to keep up with inflation over time and population growth.

All right, so just a quick note here on transportation funding challenges.

I won't get into too much detail here, but this is a big year for transportation.

The Move Seattle levy expires at the end of this year.

And as you heard from the mayor yesterday during his State of the City speech, we are going to be proposing a new levy to go on the ballot later this year.

The context for that is that all of, well, not all, Several primary revenue sources in transportation are declining or have declined significantly.

Commercial parking tax, gas tax, permitting and license fees, as well as school zone safety cameras, all of that revenue has gone down.

And so those support core operational work.

So something that you might see as we go to consider the upcoming levy is a greater proportion of operational sort of keeping the lights on work in transportation space than you might have seen in prior levies, because we have to make up for the fact that these revenues are decreasing.

So I just provide this to you as I'm not making any policy statements here.

It's really just that this is context for you as you're considering that in the coming months.

The next one is real estate excise tax.

This is a tax on the transactions of residential and commercial properties.

The revenues for REIT reflect the health of the local real estate market.

And that's, again, based on the volume of those transactions.

So the revenues for REIT have gone down precipitously.

as the Federal Reserve has increased interest rates to try to tame inflation.

So the cost of borrowing has gone up.

Where previously you could get a mortgage for 2.5% or 3% interest, you're now looking at 6%, 7%, sometimes 8%.

And that's not just residential, that's commercial as well.

So just the cost of borrowing has gone up so much that it has depressed a lot of that activity.

So fewer transactions means less revenue.

It's important to note that REIT revenues are fund pay-as-you-go maintenance that we have in the city.

This is core asset management that we have.

We also pay for debt service in parks, Seattle Center, transportation, libraries, as well as FAS.

REIT and the overall health of REIT is a canary in the coal mine for the rest of the city's revenues because the presence of real estate transactions is an indicator of the health and the ability for consumer confidence to be spending, right?

And they're also access to capital.

And so when we see less spending in this space, we're seeing less construction, which means less sales tax revenue.

And that means we're not building new offices for new businesses to come in.

That means less B&O tax revenue.

So it really does cascade through.

So I want to provide you a visual here.

I'm going back quite far to show you how this is an indicator of the overall health of the economy.

So you can see the last time we had a dip of this magnitude was during the Great Recession.

Between 2007 and 2008, the revenue for REIT went down 58% in a single year.

That, of course, was a recession caused by a housing crisis, right?

It was very adjacent to the reason for the decrease.

It took several years until 2015 before on a nominal level those revenues came back.

If you go all the way to the right and you can see between 21 and 23, we saw the revenue for REIT go down 55%.

Those are in real dollar terms.

We haven't inflation adjusted that from 2008. So if I were to inflation adjust the 2023 numbers, you would see even less revenue than we had during a housing crisis.

Overall, so it's not encouraging news on the REIT front.

And so we have a lot of challenges that we're going to have to solve for in the coming year, how to maintain our critical assets, how to make sure we can continue to pay debt service on projects we've already committed to.

So just some additional context.

Last but not least, I wanted to give you a little bit of a highlight, a high level discussion about where we're going in 25. So the goal that we've set is to create a sustainable budget that reflects city priorities, preserves core city services and supports health, safety and economic vitality of Seattle.

We've been talking about the deficit all day.

The situation here is the scale of this deficit is significantly larger than in past years.

At this point, it's about 15% of the general fund.

Again, that's likely to change when we get new information.

What we've decided to do in terms of our initial thinking with 2025 is when we've solved deficits of the past, when we saw a, let's say, 3%, we had a 3% deficit to close, we would say, okay, city departments, we need to see 3% worth of reduction ideas sent to us, and we'll take a look at those reduction ideas, decide what's most palatable, what we can live with, and then that's what will be included in the budget.

But importantly, we're only looking at the increment.

And Councilmember Kettle, this gets to your point during Deputy Director Panucci's presentation.

This year, we're doing something different.

For the first time, we're asking departments to build their budgets from the ground up.

So you might have heard the term zero-based budgeting.

This isn't quite zero-based budgeting.

We don't have the technology in place to be able to support that, but this is as close as we can get with our current tools.

So we're asking departments to talk about what lines of business will their budgets be able to support under different allocation scenarios.

And so they're justifying what's staying, but also what that top line allocation doesn't have room for.

What makes that really important is as you all, as decision makers in this space, when you're looking at a reduction, let's say we're looking at the cost of tissues for the legislative department.

We're picking something totally innocuous so no one can get mad at this example.

The cost of tissues here.

If I tell you that you're gonna cut, you know, we need you to cut $500 from the cost of tissues, you say, oh my gosh, how can we cut the cost of tissues?

But if I at the same time tell you, well, citywide, we actually spend a million dollars on tissues, we can get you some tissues elsewhere.

that context is what you need to feel comfortable and confident in the decisions that you're making.

Absent that context, it's in a silo and you don't have perfect information or full information.

So we're going to do our best this year as we're presenting budget ideas to think through what is the full context for that decision making that you need to make.

There's gonna be a lot of presentations I know that are gonna be stellar from council central staff to talk to you about base budgets.

I know we're gonna work closely with them on that.

So that's really what we've asked departments.

So what will your departments maintain in 2025 and 26, and then what services will need to be adjusted, whether through scaling, efficiencies, elimination, does another jurisdiction provide that service to your point as well, council member.

So that's where we're headed at a very high level.

We're still very early in the process for 25 and 26. And so we have a lot more to come.

Thank you, Director Dingley.

Thank you, Deputy Director Panucci.

Colleagues, each one of these slides is going to be either a full or partial committee meeting.

I also encourage you to receive briefings to the side to dig deeper into some of these questions.

We are at 1130. And as soon as I can quit talking, we'll get out on time.

I just wanna highlight a few things that were said in that last section, which is that we could have made some of these choices during the pandemic under duress.

And I think that we have a better opportunity with a longer runway today to make these long-term structural changes to our budgeting.

This is an opportunity to have a comprehensive review and examination, both from the top down and the bottom up, which is in contrast to most years where it's been incremental change.

And so with that, unless there's anything else for the good of the order, I will conclude us at 1131 for our first meeting, our next meeting of the Finance Native Communities and Tribal Governance.

I'm just calling it FNC for short.

We'll be March 6th.

2024, we will have Tim Raynon and Francesca Murnon join us as well.

Thank you all.

Thank you.