Finance, Native Communities and Tribal Governments Committee 5/7/2025

Vice Chair Rivera.

Present.

Council President Nelson.

Chair Strauss.

Present.

We have four present, one excused.

Thank you, Council Member, Council President.

Nelson is excused until she arrives.

We have two items on the agenda today, a briefing, discussion, and vote on the quarter one grant acceptance ordinance and briefing on the financial update from Council Central staff on our general fund balancing analysis.

Before we begin, if there's no objection, the agenda is adopted.

Hearing no objection, the agenda is adopted.

Let the record reflect.

Council President has arrived.

Just before we get into today's briefings, last time we had an extensive conversation about the revenue forecast.

Council Member Saka, you gave me some feedback that I wasn't managing time well.

So I'm gonna be going through this balancing analysis a little bit differently since I've seen and gone through the data with Tom and Ben.

As we move through, colleagues, I ask you hold your questions to the end of the presentation.

And along the way, if there is something that I've heard from Ben or Tom in the past, but I didn't hear in the committee hearing today, I'll ask as we're moving along.

So we're gonna facilitate in a slightly different manner.

So colleagues, you could hold your questions to the end.

I'm gonna ask follow-up questions if they do not share something that they have shared before.

We'll now move into the open hybrid public comment.

Public comments should relate to the items on today's agenda and within the purview of this select committee.

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

Currently, we have zero speakers signed up in person and one remote speaker.

Thank you.

Each speaker will have two minutes.

We'll start with the only speaker present.

Public comment period is moderated up to 20 minutes.

Speakers will be called in the order in which they registered.

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

Speakers microphones will be muted if they do not end their comments within the allotted time to allow us to call on the next speaker.

The public comment period is now open.

We will begin with Mr. David Haynes.

David, you are here, star six to unmute and take it away.

Welcome.

Hi, thank you, council.

Since this is the Finance Committee, when are we going to have legislation that protects the workers from the abusive non-working shareholder middlemen from the immoral financial system?

It seems that the Finance Committee would create a law that would require that the workers get a share of the unforeseen capital gains.

It's the only way to rescue the workers kept paycheck to paycheck by the slave master misinterpretation of neoliberal conservative debt service police state economy.

justifying a revolt and a boycott and a renegotiation on the pay plans and the rents people have to pay to middlemen.

There's really an evil, immoral misinterpretation of our financial system where the workers do all the work and the non-working shareholder middlemen get most of the money, draining the lifeblood of the Main Street economy every three-month quarterly report, stealing all of the unforeseen capital gains, acting like it has nothing to do with the workers that generated all the revenue with all the small businesses that get pitted against one another so that they can make ends meet, debt servicing, a police state economy of non-working shareholder middlemen.

We really need politicians to write laws to protect the workers, like a three-and-a-half-day work week, seven-day pay, double the shifts, boost morale, and simply take it from the non-working shareholder middlemen.

To sum it up, and to simplify it, let's say I go up in the Bering Sea and harvest a million pounds of king crab.

When I come back to Seattle, that comes to the department to have me arrested for holding a sign that says, back pay still owed, investigate the Bering Sea fleet, running for Wall Street hedge funds, stealing up to 70% of all the pounds, causing homelessness in Seattle.

Thank you.

Thank you, Mr. Haynes.

That does conclude our public comment period as we have no additional speakers remotely or physically present.

Public comment period is now closed.

We'll move on to the first item of a business.

Will the clerk please read the short title into the record?

Council Bill 120970, an ordinance relating to acceptance of funding from non-city sources, authorizing the heads of various departments to accept and authorize the expenditure of specific grants, private funding, and subsidized loans, and to execute, deliver, and perform corresponding agreements.

This item is for briefing, discussion, and possible vote.

And presenters will be Tom Mikesell from Council Central Staff.

Thank you, Tom.

Coming in for Eden, who is on well-deserved pre-planned leave.

Thank you for having the presentation up.

If you could tick through the slides, colleagues, feel free to ask questions as we go on this presentation.

I think the meat of today's agenda is the next item.

So I do want you to be completely comfortable voting on this piece of legislation.

Over to you, Tom.

Thank you, Chair Strauss.

Good morning, members of the committee.

Tom Mikesell with your central staff.

So as Chair Strauss mentioned, this is the second briefing for the first quarter grant acceptance and appropriations bill, Council Bill 120970. So given that the next presentation is fairly lengthy, I've even streamlined this presentation, which was previously three slides into a single slide, just to recap what was covered last time.

So just diving right into that slide, as I said, this is the first comprehensive grant acceptance and appropriation.

So here in Seattle, we have a two-step process, one by which council accepts the source of the grants that are coming from an external partner, and then puts an appropriation bill in place to actually enable the executive to spend the money.

This bill, in particular, would accept $47.4 million, and it would provide appropriations for $34.3 million of those monies.

A really large chunk of that is grants for CIP projects in SDOT, which were covered in more detail in the last briefing.

There's also $14.8 million of grant acceptances for the operating budget.

So all of these appropriations are non-lapsing in nature, meaning that they will continue until they are spent or they're abandoned by city council through legislation.

And just with that, unless there are further questions, the next step, assuming this passes out of committee, is a vote at the City Council at the May 13th meeting.

Thank you, Tom.

Colleagues, questions on the grant acceptance and appropriation bill?

As Council Member Kettle says, this is straightforward.

Colleagues, we will remain, again, appropriate grants throughout the year.

So this is not the last time that we will see grant appropriation legislation as we discussed earlier this year.

Colleagues, if I'm not seeing any other questions, I will move that the committee recommends passage of Council Bill 120970. Is there a second?

Second.

It has been moved and seconded to recommend passage of the bill.

Council central staff has presented.

Are there any final comments?

Will the clerk please call the roll on the committee recommendation to pass the bill.

Council Member Kettle.

Aye.

Council Member Sacca.

Aye.

Council President Nelson.

Aye.

Aye.

Chair Strauss.

Yes.

Five in favor, zero opposed.

Thank you.

The committee recommends passage of Council Bill 120970, and we will have it on the full council meeting on May 13th.

We'll now move on to our second item of business.

We've got just under two hours.

I do endeavor to adjourn by 1130 or earlier.

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

Financial update general fund balance analysis for briefing discussion.

Presenters include Ben Noble, director and Tom Mikesell of council central staff.

Thank you gentlemen.

If you'd like to introduce yourself again, colleagues, if you could hold your questions to the end and if there's anything that missed from previous conversations, I might ask some further questions as we go.

Ben Noble, Central Staff Director.

I'm Tom Mikesell Analyst.

Okay, so I'll just jump in with this general fund balancing analysis.

So this is a regular update on the balancing status of the general fund, which is actually put in statute by the Fiscal Transparency Ordinance, Municipal Code 3.14 And this year, we're actually including the Jumpstart Fund in the analysis for a few reasons.

One is because there's a very explicit linkage in the budget by way of a transfer from the Jumpstart Fund to the general fund that's budgeted for revenue backfill support.

On secondary, but equally as important, there was a change to the policies around the Jumpstart Fund last budget session that formally stated that when payroll expense tax proceeds fall short of the amounts necessary to support appropriations, that there will be some look back at the general fund to see if there's relief that can be provided in the other direction.

Currently, at this point, the Jump Start Fund provides support to the general fund.

This piece of the policy would indicate that that is kind of a two-way street, if you will.

And then I'll touch on, given some of the observations and the balancing analysis, some of the balancing considerations that the committee and full council can review as the year emerges towards budget season.

And then in that perspective as well, look at the status of our fiscal reserves, our emergency fund, and our revenue stabilization fund.

So this is a familiar, should be a familiar table for you all.

It's a bit of detail, but it's not really necessary that you get too much into detail.

I'm happy to answer questions about it and follow up later as needed.

But the key point of this slide, which shows you the where we were, so what the financial status of the general fund was in 25 and 26 at the time that the budget was adopted last year, shows that the starting balance at the beginning of 2024 was $408 million.

And then through this three-year financial plan, the balance spends to basically essentially $0 at the end of 2026. And so that indicates for purposes of our Seattle process and for purposes of the state budget act, a balanced budget, which is a good thing and a state requirement.

One thing I will note, which kind of emerges from the page is that this three year plan spends $408 million of one time balance.

And there's a reason for that.

And quite specifically in 2024, there was a significant appropriation made for for a for annual wage adjustments so settled contracts um that had that had recently been signed there were some prior years that needed to be accounted for in in that balance and were held in reserve and then now made their way into 2024 appropriations so that's why that number is so high um there there's always some starting balance for the year but this one particularly stands out that needed to be paid.

Again, just to emphasize before we leave the slide, and you'll see we're going to do this presentation offering you a – this is the picture of where we were in the fall.

We're going to do this for the general fund and for the payroll expense tax, and then we're going to give you the comparable picture of where we are now given the new revenue forecast.

But again, it was a plan and a purposeful one to balance the budget over the 25, 26 biennium.

So we started 24 with a certain amount of money, and it was purposely allocated, if you will, to be spent down, if you read the right bottom corner, to $400,000, which in the context of several billion a year is effectively zero.

And again, that was a recognition of the demand for services that you all saw from constituents and the resources that we had.

So it made sense.

It didn't leave a whole lot of margin.

Although, again, we'll talk about there are reserves outside of this sheet that are essentially some level of financial margin.

But that's where we were.

It's where we intended to be.

And as you'll see, circumstances have evolved since.

Just to jump in, colleagues, thank you for this ability.

To highlight what you just said, we have reserve funds that are not included in this analysis.

I will share context that in fall of last year, all market predictions were showing that we were starting slow growth out of a slowed economy from the pandemic.

What we have found in the first quarter of this year is a very different situation, which is why the April forecast was such a bombshell, if I could use that word.

Ben or Tom, this chart here, I don't wanna use the word normal, but is this a standard approach year over year, even in a tough budget year?

Exactly.

And that's some of what I was just trying to explain, is that, yes, we spent this down to zero, but that would have been the normal process in terms of building a biennial budget, meeting the needs that you all see for your constituents and the residents that were financial.

And we're actually going to discuss those towards the end of the presentation.

There are a set of financial reserves that were backing us up.

As we will see, they may or may not need to be invoked, if you will, to get us through the situation we are now in.

Thank you.

Just before we move to the next slide, I would point out the footnote at the bottom.

So the adopted budget plan did include underspends, so essentially commitments from the executive to spend lower than the appropriate amount.

Those underspends were $24 million, $24.3 million, and $10 million in each of 2025 and 26. So this slide covers what happened, what has happened since the budget was adopted.

And so in one extent, and again, this is a normal occurrence.

The ending balance for 2024 was $134 million higher that was projected, increasing from $58 million to $192 million.

That was for a couple of reasons.

One, general fund spending was lower than budgeted, even after accounting for the underspends that I mentioned in the last slide.

The total underspend was $173 million, or 8% below the revised budget.

Also, revenues, as noted in the April forecast update, were $38 million below forecast.

But that's mainly because of delays in grant acceptances.

So that's kind of a technicality.

Those grants are added back to the 2025 forecast.

So the $173 million is a lot of extra cash balance, but there's kind of an offset to that, and that it comes in the form of carry forward appropriations, which may sound familiar because it's also similarly a common occurrence in our budget process.

These take two different forms.

So basically, these are appropriations from the prior year, so in this case 2024, that were not fully spent for their purpose.

And either due to some legal or policy reason, they will continue into 2025. And so we need to make sure that we reserve the cash to fund those appropriations.

And then this year, they take two different forms.

There's what's called encumbrances.

So that's kind of an accounting term, but it's basically once you, kind of send out your invoice.

You've said you've committed to an external agency that you are buying something, but you haven't sent the cash out the door.

So we have the appropriation.

We need that appropriation to still be in the system for when we cut the check and we send the money out the door.

And so those encumbrances are very technical.

That's kind of what's termed automatic automatic carry forward.

There's about $113 million in the general fund that's automatically carried into 2025, and automatic by way of there's no further legislative action required.

There's another $20 million of carry forward that's under review right now with the executive.

And it's under review given that there are financial challenges that have been identified.

The carry forward kind of review process with departments started before the April forecast was received.

We've now received the April forecast based on the pessimistic scenario.

And given those downgrades to the numbers, the extent of the carry forward that can be funded in 2025 is under review.

For now, we're working with $20 million as an estimate for what that amount is.

So that's assumed in this.

So after you account for those automatic and legislative kind of carry forwards, there's about $44 million of additional one-time money that carries from 24 into 2025. And that's really the key takeaway of all the technical background that I've just provided is that there's $44 million of one-time money coming into 2025 after completing the books on 2024.

I just want to add, there's one bit of good news in this presentation.

This is it.

There was and is available $44 million more of general fund resource in 2025. If we didn't spend it, it could be carried into 2026. But there's 44 million more general fund than we thought we were going to have available, even as you'll see, even with some adjustments in the general fund revenue forecast.

Again, just to preview and to set some level of expectation, the news on the payroll expense tax side is not as good.

Well, with the last bit of good news for this morning's presentation, I'll also share colleagues as part of our budget reform in both process and content on the committee schedule that we created in January for this committee.

Today would have been the day that we would have started briefing and started the beginning, the work to pass the carry forward legislation.

We've at this time, instead, we're having this presentation and we're taking a deeper review of that carry forward to make sure that we're set up for fall.

Back to you guys.

Chair, so that kind of covers closing the books on 2024. Now I'm gonna talk a bit about the changes to revenues that were included in the April forecast adjustment.

Unfortunately, the changes were negative.

There was a $10 million decrease in 2025, a higher $40 million increase in 2026, And then the increased growth, the decrease, I should say, decrease grew to $57 million in 27 and 65 and 28. It's not really great news, but using the pessimistic scenario, inflation estimates are lower.

So that means the growth of an expenditures is slightly lower as well in the plan.

Other adjustments that were made, this is with regards to CBO, they adjusted how much they are holding in planning reserves for labor costs in 2025 and 26 by about $8 million.

And then one kind of caveat to all this is this doesn't include any of the expenditure pressures that could impact the general fund from the loss of direct or indirect external funding, so federal grants, or any impacts of any other cost increases or any kind of affirmative measures in the general fund to backfill revenue losses, other revenue losses to other funds outside the general fund as a result of the April forecast.

So things like sweetened beverage tax, short-term rental tax fund, commercial parking tax, those all received revenue downgrades as well.

They're not in the general fund, they're within their own separate funds.

But since the general fund is the most flexible source of resources in the city, sometimes those monies have been used to balance out issues and other funds.

So none of that is included in these estimates.

It's really just the forecast adjustment and then an adjustment to labor reserve costs by CBO.

Tom, just to put a finer point on that, your key takeaway of $50 million general fund revenue decrease in the current biennium, that does not include any federal funding losses.

It does not include any of us backfilling other revenue sources within our budget.

And it does not include any new spending from the mayor or from council members.

Is that correct?

Correct.

So that means no new spending gets us to a $50 million problem.

Over to you.

Correct.

And so the next slide is the where are we now?

And this is with regards to balancing at 25 and 26. So really the key takeaway is probably the most important summarization of where we are because we had a $44 million higher starting balance of one-time money.

plus a decrease of $8 million in planning reserves by CBO.

That gives $52 million worth of resource.

And that $52 million of one-time resource can balance out the $50 million loss of forecasted revenues in 25 and 26. So as you can see in the bottom row of this table, The ending unreserved balance at the end of 26 is actually $2 million.

So it's actually higher than it was in the adopted budget slightly.

So this is a balanced budget with regards to the State Budget Act.

However, we'll get to some additional pressures outside the general fund that kind of

working the other direction.

To summarize again, and this is a point that we're making, that there was an underspend in 2024, which is the good news, and then that has been offset by the revenue forecast reduction for 25 and 26, and they offset effectively.

So we're going to talk about a significant budget problem for the biennium.

And in some sense, in a very real sense, it's not the general fund that is the source of this challenge.

It'll be very much on the payroll expense tax side.

and on some of the other revenue streams as well.

But as we're going to see on the next slide, and I do want to emphasize this point, we're fine on the general fund side for 25 and 26, because if you will, we got lucky.

The underspend is matching the revenue drop.

But for 27 and beyond, the longer-term gap is growing again, or has grown again, because the general fund forecast didn't just drop for 25 and 26. It dropped for those out years as well.

And again, it is, as Chair Strassen indicated, the forecast had been for a period of slow growth.

It is now for a period of slower growth and in a widening gap.

And that's illustrated here, and Tom's going to explain it more.

Yeah, so thanks, Ben.

So this is the switch between just short-term balance and longer-term structural balance.

So in a longer-term structural balance situation, your growth in revenue is keeping up with your growth and expense, and you're not relying on one-time funding.

And as you can see in the graph, starting in 2027, the structural deficit has grown to $147 million in the general fund.

So that's compared to $89 million structural deficit in those two years in the adopted budget.

And the bulk of that is because of the loss of revenues in the April forecast.

And just to clarify something that I heard you say, but just to put a finer point on it, that when we received the downgraded forecast, this gap widened.

We had, at the end of the budget session last year, set ourselves up in a pretty fine, okay situation.

This made it worse.

And can you correct me if I'm wrong here?

The three times a year that we receive the forecast, the blue line will will alter each time we do that because the forecast is not just for this year, it's for the out years.

Very high likelihood that it will alter.

It could stay the same from one forecast to the next, but I haven't seen it yet.

Great.

Thank you.

So just to sum up the key takeaways on the general fund, After accounting for actual spending and revenues and automatic and proposed carry forward spending, the unobligated GF balance at the end of 2024 was $44 million.

There was a forecasted $50 million general fund revenue loss in the current biennium, and those losses grow in the future.

They're marginally offset by lower projected expenditures.

However, this forecast doesn't include any additional spending pressures.

or revenue losses in GF adjacent funds.

In terms of how that impacts the balance in the current biennium, the $44 million of one-time beginning balance, plus $8 million increase to planning reserves, offsets the forecasted revenue loss in 25 and 26, so the budget is still balanced.

However, due to ongoing revenue decreases in the April forecast, the average projected deficit in 27 to 28 grows to $147 million on average, which is higher than the $89 million in the adopted budget last fall.

So now I'm gonna go to the Jumpstart Fund, the largest of the GF adjacent funds, and kind of go through the same cadence with the where we were, what happened in the forecast, and then where we are now.

So as you can see in this chart, the Jumpstart Fund started from a $279 million beginning balance at the start of 2024 and then balanced to zero in both years, again, reflecting a balanced budget at the end of 2026. similar to the general fund for the kind of similar reasons, the ending 24 balance was higher than was expected.

It was actually $261 million higher because revenues were $35 million below forecast.

So that's going in the negative direction.

due to a combination of payroll expense tax revenues being $46 million below forecast, but also there was no forecast for interest earnings in 2024, and they came in at about $11 million.

So that kind of offsets a little bit of that revenue bite.

In terms of revenues or expenditures, they were $296 million below budget, so significant underspend of a department appropriations.

Going back to the nature of that underspend, $157 million of that is automatically carried forward, so it's got a legal obligation attached to it.

And then similar to the general fund, how much additional carry forward is gonna be ultimately requested is under analysis with the executive, but the initial perspective was about $104 million, so that would use up the rest of the cash for those carry forward obligations.

However, that was all, determined prior to receiving the forecast.

And so given the downgrade to jumpstart revenues in particular, that carry forward amount is being reviewed.

MR. Just to emphasize that again, the executive prepared a carry forward ordinance before the forecast had been developed under normal expectations.

And again, that carry forward no longer makes sense.

the executive is revisiting it.

So we're using some of the figures here just because they help frame out the magnitude of the challenge.

But again, and we'll talk some more about some additional steps the executive is taking as well.

But just to give you a framework for that, we've pulled back on the carry forward as we consider where we are and what's feasible going forward.

Okay.

And so this just covers the adjustments that have been made to 25 through 28. So in essence, the revenue decrease that was cited by the forecast office in April was an $81 million decrease to revenues in 2025. $86 million decrease in 26, and similar magnitude of decreases in the out years as well.

So it's kind of a sustained decrease to the forecast.

Similarly, slightly lower inflation estimates, so a bit lower expenditure projections.

And then no other adjustments by CBO to planning reserves or anything of that nature.

So the key takeaway is that they're essentially about $85 million or so of lower revenues each year in the forecast.

And so this is what happens to the original plan given these new numbers.

Um, and again, the, the key takeaway is the, is the main, the main point of this slide.

Um, 24 ended with a higher balance.

Um, but, but look, because, um, wholly because of, of lower revenue forecasts, the, uh, the jumpstart fund in total is out of balance in the current biennium, um, by a $73 million in, um, in 2025 and then, um, $152 million in 2026. And then you can see those numbers in the bottom row of this table.

Tom, before we move on there, just want to clarify for you.

This shows that in 2025, it's a $73 million problem.

In 26, it's a $152 million problem.

And that is simply because from this analysis, you are looking to double that.

So if we make changes, If we make changes, that number will change.

So if we found $73 million of underspend savings or backfilling with general fund, then that 152 zeros out.

Hypothetically, I'm speaking just to understand this table a little bit better.

Yes, I would add the qualifier that it depends on the nature of the either new revenue or expenditure.

So if it's an ongoing cut of $73 million to how much is spent out of the general fund, then you would get the benefit in 2025, and you would get the benefit in 2026, and then that number would be a one-time plug of money from the general fund of $73 million in 2025. you still have 76 or odd number million dollars of solution for 2026. So it's a matter of if it's a one-time solution or an ongoing solution.

Just another way of saying it, it's essentially an annual roughly $75 million shortfall.

So after the end of the second year, that would be $150 million shortfall.

But again, if you find structural solutions in year one to eliminate the $75 million shortfall, those same structural solutions would solve that problem the following year, and you'd get rid of all of this.

But it is each year, you're $75 million off.

If you find a permanent solution in year one, then you're done.

If you find a temporary solution, you're going to have to find another temporary solution in year two.

This is how we got into a budget that does not have structural sustainability because for a decade we spent one time funds to resource ongoing programs.

These are all important things, but that is also why when I took this chairship at the beginning of last year, I said that this budget reform process was not going to be a one year process.

Again, the April forecast made everything worse.

Back to you.

Yeah, another version of that, sorry.

We had made some progress on that problem, and then it got worse again, so the challenge has been renewed.

And so this projects that challenge out into the future, so it's the same story.

It's in terms of the structural operating deficit.

It's about an $85 million average deficit in the future, and similar to the discussion on the last slide, if there is a structural change to 2025 that occurs, that helps in 26, helps in 27, helps in 28. So it's a matter of how the solutions are arrived at in the budget as to what the impacts longer term are.

And again, just another way of saying this is actually a new problem.

The last time we would have put up this picture, there wouldn't really have been a significant out-year gap.

But the revenue forecast, in the sense that it's a structural change in the revenue stream, has opened.

So we have a gap in the general fund, again, in terms of our planned expenditures.

And we now have a similar gap, smaller, but a similar gap on the jumpstart side.

So now I'm going to combine the two, given the first slide that denoted the kind of two-way backward, the compatibility of the GF and the JSF, to just show the kind of the balancing situation for 25 and 26 if you kind of include all the resources together.

And essentially 25 would remain balanced.

However, 2026 would be the $150 million out of balance.

So that's essentially the challenge as of now without adding any other expenditure or other pressures.

Before I move on, I'm going to riff a little bit here.

Since we developed this proposal, we've got communication with executives providing communication about the steps it's taking initially to try to start addressing this issue.

Because again, as we show here, it's all a 2026 problem, but it's $150 million in 26. If you start to take on some of this problem in 2025, you reduce the challenge for 2026. And clearly, that's of a scale that you want to get on this sooner than later, sort of in an obvious way.

So with that, the executive provided direction to departments on Friday, giving them targets to underspend the general fund and the payroll expense tax this year.

So they're going to be bringing plans back to the executive on the 23rd, so a couple weeks from now.

Again, just a broad principle here that I know I've talked to you about individually, but just to say for everybody's sake, unlike the federal system, or unlike how we thought the federal system worked, the mayor can just choose to underspend appropriations.

That is a singular authority that the executive has.

So as they're looking at giving, So underspend targets, those are decisions they can make to not fund things.

And that is going to happen in 2025. So in addition to giving them underspend targets and are asking for a specific plan on that, they have had a hiring freeze in place.

It requires an exception process to get approval from the mayor's office.

That will remain in place.

and continue their freezing discretionary spending from the PET and the general fund on travel and training and non-essential equipment, so things that aren't necessary.

So the next piece, new consultant contracts and new grants are also subject to review.

So to the extent that there were dollars in the budget that are us granting dollars to citizens groups or others, those are under review to determine whether or not there is sufficient resource to sustain them.

And then in addition to the extent that the budget established funding for new projects and new programs, If those have not been initiated, the executive is going to review those as well on the theory that we shouldn't be starting something new in a programmatic or project sense if we're not sure that we can sustain it.

And so they are working to determine which of those they see as priorities to sustain, again, given the resources we have.

So that is an ongoing process on their part.

more to come, but working hard to address and reduce spending in 25 in order to provide more options for 26. But again, there will be reductions for 26 by necessity as well.

So I'm going to now project the JSF combination into the future.

And you can see, I mean, basically, it's just adding the deficits of the two funds, you get to a $233 million ongoing average deficit.

So now to move to some of the kind of emerging balancing considerations that some things out of the state legislature, some things from council's budget session last year, and then finalizing with a look at the fiscal reserves.

Recently passed state legislation, so engrossed Senate substitute House Bill 2015, actually authorizes a councilmanic 0.1% sales tax that can be used for public safety purposes.

The latest estimate from the forecast offices is that that That bill, if authorized in Seattle, could generate $37 million.

So this is new authority for the city to levy this tax.

And so it's something of note, given resource challenges.

Another bill is engrossed substitute Senate Bill 5814, which adds services, largely tech-type services, to the sales tax base.

Also makes some changes of a similar nature to the business and occupations tax base.

The fiscal note for that bill, cites that there's $116 million of local revenue impact in 2026 and another $208 million in 2027. The forecast office is looking at the source data behind those estimates to determine how much of that is due to Seattle.

But given the size, it's probably a reasonable consideration that we'll get a fairly large chunk of that additional revenue from that state change.

As I also noted, there were some changes, some proposals that were adopted by council last year in the form of statements of legislative intent that request information that can be beneficial when dealing with the budget challenge.

One is a request that CBO collaborates with the Seattle Department of Human Resources to report on developing and enhancing programs for city employees subject to layoff.

There's a slide that requests CBO reports on past budget underspends and develops a grant database, so a database of all the granting programs to external providers.

And there's a request that CBO and the Seattle City Employee Retirement System staff analyze an early retirement incentive for city employees.

And then finally, I've put together some information on the status of our fiscal reserves, given it's always good to know how much is in reserve, but particularly when you're facing a budget challenge.

And we have two types of reserves, as seen on this graph.

First, we have the Revenue Stabilization Fund, which is available to backfill unexpected revenue losses.

It's funded each year by a contribution from the general fund equal to half a percent of general fund tax revenues.

However, the total balance in that fund, in the revenue stabilization fund, can exceed 5% of those tax revenues.

Another funding source that is kind of intermittent is 50% of any unobligated balances at the end of a fiscal year can then be dedicated to the fund to top up the balance.

And I'll show you in the next few slides how this looks in terms of funding.

But before doing so, there's also the emergency fund, which is available for a different purpose, and that is unanticipated needs.

So anything that was not envisioned at the time when the budget was adopted.

The expenditures from that fund are subject to a three-quarter vote of city council to use the money from those funds.

So similarly, the emergency fund is funded by annual contributions from the general fund with the stipulation in normal circumstances that the balance does not exceed $60 million in 2016 dollars increased annually by CPI.

One policy change that was made during the COVID pandemic, given a very substantial use of the fund, was that council and the executive are authorized to do a payment plan to repay it gradually and not all at once.

Previously, it required that if you use it in one year, you have to replenish it to the full measure the next year.

So the policy change...

provides in resolution 32024 provides for a slower repayment.

And that's actually, I'll show you in a graph in the next couple slides that we did just that.

Thanks, Tom.

Before we move on to that, I want to dig into this a little bit more.

We also have a jumpstart reserve fund.

Is that correct?

There is a provision in policy that we have a Jumpstart Reserve Fund.

It's similar in nature to the Revenue Stabilization Fund.

In the current budget, it's in the end of 2016, it doesn't, at the end of 2026, it is zero balance, but it is under the kind of same replenishment, gradual replenishment as the emergency fund.

So it's kind of a mixture of the two in terms of policy, but that is, That is correct.

There is a reserve within the Jumpstart Fund for the similar purpose as the Revenue Stabilization Fund.

And this fund was only created last year for the first time by the executive.

They put money in the Jumpstart Reserve Fund.

The council used some of it to provide for things like food banks, et cetera.

In my chair's package, we did have some money left in the Jumpstart Reserve Fund and then through the council budget amendment process, we used the remainder of that funding on rental assistance, just for context, colleagues.

A couple questions here about the Revenue Stabilization Fund and the Emergency Fund.

Both of these funds are fully funded at this time.

Is that correct?

Yeah.

Yes, that's correct.

That's the good news.

Let's get into how are these used a little bit more.

So the revenue stabilization fund, in the situation that we're in right now with the revenue forecast being changed midstream, that is an indicator for us to...

I am not suggesting that we use this money.

I am, in fact, suggesting that we leave this money in these reserve funds, but I just want to tease into this.

The revenue downgrade midstream is what...

gives us the ability to use the revenue stabilization fund.

Is that correct?

Are there any other situations where the revenue stabilization fund could be used?

By policy, it's unexpected revenue losses, as such as the forecast.

And then for the emergency fund, I think of this as it's not an earthquake fund because those are billions of dollars.

This is more like a West Seattle bridge fund.

This is an emergency that was unforeseen that is likely one time or a short duration of time rather than a long-term change in the economy.

Is that a correct understanding?

Yeah.

Something happens, of course, you know, we build the budget with a set of expected expenditures and something unusual happens of a significant scale.

I mean, obviously there are surprises every year, but we would have as much as $60 million.

I think your characterization, I used to think of it as the earthquake fund, but then I started to realize it's $60 million.

wouldn't get you far in sort of earthquake restoration, but a major piece of traffic infrastructure, a bridge or something failing, a big enough weather event that could cause significant damage to some assets or something like that, but yes.

And or some set of new expenditure needs that emerge because of some other social or political circumstances as well could potentially be eligible as well.

So an emergency in this situation could be the economic instability we saw in the forecast.

The volatility index is at a record high since 2008, maybe some in 2020. That is more of an emergency in this.

It could be characterized as an emergency.

Yeah, I would think of this, just to clarify, I would think of it as the emergency fund is spending on something you didn't expect to be spending money on rather than this was something we knew we were going to want to spend money on and we don't have enough money now.

So it's an event that happens that you weren't expecting that forces you to spend more money.

I'll be direct here rather than answer on this.

Whether or not a significant reduction in federal spending in certain areas constitutes such an emergency I think is going to be up to your interpretation, because that's not something we were going to spend money on, but the Feds were providing money to support services that we were assuming were going to be there and are potentially now not going to be there.

Does that constitute this kind of emergency?

Again, we would be stepping in to spend on something that we weren't planning to spend on, but nor is it a natural disaster.

I think there's greatness about that, at least in my mind.

Fantastic.

Council President, I see your hand.

We've got a couple more slides.

Okay, because you told us to hold our questions, and you've been asking questions and clarification, so I didn't know if that rule still held.

It did, as I shared at the beginning of the conversation today, Council Member Saka provided me feedback that I didn't manage time well last time.

And so we're walking through this with the additional information that I've heard in other briefings, but not here today.

And we'll have about an hour for all other colleagues to ask questions.

So Tom, last bit on our revenue options here, you glossed over it on, I believe slide 16. The sales tax for both the base as well as the Councilmatic sales tax increase.

Can you just remind me what Seattle sales tax is right now?

I believe it's 10.8, is that correct?

Sorry, didn't prep you for that one.

It's already high and sales tax is regressive.

The most regressive option we have.

And then for the certain services to be added to the sales tax base, does this include what Council Member Morales had proposed last year for the digital ads?

Are those already contained within this?

I believe digital advertising is a piece of the state.

The state has expanded the set of activities or goods that the sales tax applies to.

And our sales tax piggybacks on theirs, if you will.

So this is happening to our sales tax as well.

And digital advertising is on that list.

Whether that's exactly the same set of activities that were targeted before, I'm not sure that I can, well, I know that I can't tell you right now.

Thank you.

I just wanted to, from last year's options, fewer are on the table.

Back to you, gentlemen.

Thank you.

Just real quick, the state also made some changes as part of the sales tax change to the B&O base as well.

It may have some effects on us, too, just to highlight that.

We're waiting to hear, again, more from the forecast office about the net effect of those changes in state law.

So this slide, as promised, shows the balances of the revenue stabilization fund.

It actually shows the balances over the last 20 years.

and also sketched in orange the policy level.

So as you can see, there was a significant drawdown during the COVID pandemic.

However, the good news was that that was replenished fully in 2022 because of significant balances at the end of 2021 that were unobligated that could be used to replenish the fund.

And so we've been making, Council's been making maintenance appropriations to the Revenue Stabilization Fund since 2022, and the balance now stands at $67.9 million at the end of 2026, or at the end of 2025, I should say.

And that reflects fully funded.

The emergency fund had a somewhat similar path.

During COVID, there were drawdowns of the emergency fund.

Again, I've sketched in the policy level in orange.

And as you can see that given gradual repayments in budget since the last drawdown in 2021, that the balance is now fully replenished as of 2025 at $85.2 million.

And as we leave this, I can let you know, thanks to Director Eder, the local sales tax rate is 10.35% currently.

Thank you.

So that concludes the presentation.

Just in the next steps with regards to GF balancing, we'll get the second forecast office CBO revenue presentation in August ahead of the mayor's proposed budget.

We'll receive the mayor's proposed budget in September, and then we'll get the final and third forecast update of the year in October, which will then set the stage for resources available for council amendments to the mayor's proposal.

And using the similar framework, we'll cover how that impacts the balancing and long-term sustainability of the general fund.

Thank you, gentlemen.

I will just say here, and then I'll pass it to Vice Chair Rivera and then Council President Nelson.

Council President, I have requested a number of times to have select budget committees in June and July, making that request again.

The situation that we found ourselves in at the beginning of the year is worse today than we expected.

We have a lot of work to do with budget reform, both on process and how we create the budget and then content with what's in the budget.

With that, I look forward to having those meetings in June and July.

I sent out the memo yesterday.

for the fall, is that correct?

Wonderful.

Thank you for approving that.

We'll move forward with questions at this time.

Council Member Rivera.

Thank you, Chair.

And thank you, Tom and Director Noble for being here.

I have a lot of questions and I don't wanna take up all the time.

So just the jumpstart reserve is at zero because council used it last year to backfill.

It didn't go to any particular item because that's not how these revenues and reserves go.

It just goes to backfill for whatever balance at the end.

So it doesn't go to particular items.

So I wanted to state that for the record.

Also, what was the, do you remember what the revenue, the jumpstart reserve balance was that we used to backfill?

It was approximately $40 million.

I think it was closer to 35. It was going to be 40 at the end of 25, but actually more like 35 at the end of 26. But it was order of magnitude.

So we used the full 35 to backfill for the budget.

And I will actually state for the record that I voted not to use the reserves because we had gotten a revenue forecast last year that showed how volatile the Jumpstart Fund was.

So I do also want to state that for the record because it's part of this picture.

Then I want to say I know we have some slides out, and thank you for reviewing those, Tom, because I'd be interested in still knowing because we still don't know what percentage of yearly unencumbered underspend we have, how much carry forward we have every year just on average.

And then to this particular underspend that we're looking at now, what programs are being funded by that underspend that we're encumbering, because it is important to this conversation, I believe.

And I don't think you probably have that, Tom, so it's fine.

I just want to say that it's important to look at that, and I look forward chatting with you offline to get that information.

Sounds great.

I would note there is a slide that we're expecting a response from CBO July 1st on past underspend.

So that'll help inform some of this question as well.

And Tom, I'll say on slide 10, I noted there was this significant underspend and, you know, we need to know what these things are.

that are not moving forward now or why such high underspend carry forward.

And the list of items would be important.

And then I also wanted to note that as of today, this is the balance and in this slide, you actually answered one of my questions, but I'll just note it because I think it's really important is all of this can change with the second forecast.

in August for the worse, given what's happening.

And then in terms of the reserves, we have reserves for things like a global pandemic, for instance.

And so it is important though, while tempting to utilize the reserves for things today, there's always to keep in mind that we're expecting the big one as they call it in Seattle, a big earthquake.

And if that should happen, There is nowhere to pull money from if we don't preserve a reserve.

So I do want to note that.

Unless you're aware of something, I'm not.

And then I have some other questions.

But, Chair, out of respect for other committee members, I'll just ask.

I'll meet with Tom offline.

Thank you.

Sure.

We can also come back to you as well, Council President.

Thank you for this presentation.

I'm trying to find my pages.

Just so I can be clear.

We started the mayor's proposed budget that was sent down last fall had used about 100 million in jumpstart revenue for general fund purposes.

Is that correct?

Council President, thank you for the question.

I believe that the total use of Jumpstart in 2025 was about $280 million or so.

Was that in the proposed budget?

In the proposed budget.

Okay.

And then there was about, my recollection is that there was about 49 million extra Jumpstart funds that was sort of just sitting there that was looking sort of like the revenue stabilization for Jumpstart, but it hadn't been

I don't know, put in a box.

So we get a financial plan from the budget office, and that financial plan showed unspent reserve jumpstart funds of around $40 million in 2025. And as Director Noble noted, it declined to like $35 million in 2026.

So basically, we...

And then the...

Council went ahead and spent, and this is one of the things that I was upset about with the balancing package, was that we spent a lot of that down, leaving about, I don't know, five or six or three million, I can't remember, but it was in the single digits.

And I remember that 30 million was added to the 2025 deficit projected, no, 2027 deficit, I believe.

So where did we get the 89?

Because if 30 of that is the added deficit that council added for the out year, the first out year, which is 2027, do you understand where most of the additional 89 million is, comes from?

So just to clarify, are we referring to the projected Jumpstart Fund deficit in 27 and 28?

Yes.

Yeah, so in the adopted budget, the Jumpstart Fund out-year projection was balanced to zero.

So that did not leave any excess in terms of a reserve.

I'm talking about what you say at the bottom of page seven, just so you know.

Right.

So what happened?

Seven is a general fund.

Page seven.

That looks like general fund.

Oh, I'm sorry.

I'm going from the where we were to the where we are now.

So the general fund was just essentially a matter of ongoing spending was lagging ongoing revenues.

The additional use of the 40 million or $35 million in the jumpstart fund didn't impact the general fund balance situation at all.

That was merely using up that one-time resource for jumpstart fund purposes.

To go a bit deeper into some balancing that happened post the mayor's proposed budget, And so this is the kind of October forecast.

In the October forecast, we actually received an upgrade in the Jumpstart Fund forecast and a downgrade in the General Fund forecast.

And so there was a council budget action that increased the support from the Jumpstart to the General Fund.

and then downgraded general fund revenues that were available.

And so the end result of all of those changes in the chairs package ended with the $89 million projected deficit.

That makes sense.

Thank you for that.

When we talk about, the reason why I'm asking is because it's really, it's difficult for me to understand where some of these, we are, and some of those numbers that you put together, our numbers shop is, you know, uses certain assumptions.

And throughout this presentation, we have used the word underspend quite a bit.

And the presentation or the slide that you're referring to is my slide.

And it says this slide would request that the city budget office provide a report on historical underspend from 2018 through 2023 organized by fund and department the report should analyze and identify the specific reasons for the underspend and what appropriate and when appropriate, identify reforms and process improvements to expend appropriations more expeditiously.

And with that, I was referring to, um, I was looking at the office of housing where there is a $0.5 billion, almost half a billion, um, underspend more like 480, I think it was, but, uh, in just sitting in a cash reserve because those projects take a really long time to get out the door.

The fact that there is, I believe that industry standard, if you want to talk about municipalities, is around 5% underspend.

Seattle has been consistently above that percent of underspend in the recent past.

And when we are able to sort of pull a rabbit out of the hat by reducing a deficit from, you know, by the millions of dollars because of underspend, that either means that the executive departments are asking for more than they need, and then banking on having that money just sort of laying around, or we're giving the proper amount of money, but that work is not getting done.

And so that is why I am concerned about why do we have underspends?

And why do we have words like projected underspend?

If it's an underspend...

Right?

And so unencumbered underspend, that is also, that makes me question why would something be unencumbered?

I mean, basically, we say that we're going to pay for things, and then if we decide not to do that, that's a policy choice.

But that is a policy choice that...

that also should, that the council needs to be participating in making.

I mean, we are supposed to be appropriating money and it seems as though with these very large numbers, it's hard to get concerned about a future deficit number in out years or emergencies.

And believe me, I'm the kind of person that I don't like to have any big numbers in the out years, any kind of red on the ledger.

But it is really important for us to understand what are the assumptions on both sides, executive and legislative, when we're going into a budget process.

And that's so...

And if there are hard times that force that conversation, that's good.

But I think that this does erode public trust when we end up able to find money that wasn't there and then balance our budget or get closer to what balancing looks like than we thought going in or with the last forecast.

Am I wrong in all that mumbling and jumbling?

Was that rant or am I misunderstanding?

No, I get it.

From a financial planning perspective, you raised some very good points.

So there's the assumptions that are made.

And so the entire budget is kind of based on a set of assumptions.

And we have all the department finance managers and department heads concerned with not exceeding the budget.

So that's the main thing.

You don't want to overspend your budget.

But it's a balancing act of not exceeding the budget, but then meeting the obligations and spending the money that you have.

So you're rarely going to get a 0% underspend.

You're going to have vacancies.

You're going to have things that don't get complete in the year that need to be completed the next year.

What the reasonable amount is is going to differ by the organization.

It's going to differ by the hiring cadences at the different executive departments and things like that.

What is useful from a financial planning perspective is to do the work of looking at the past underspend and see if there's anything structural there that you can then use to change appropriations for the future so that they more accurately represent what you plan to spend.

Again, it's never gonna, it's rare, I've never seen it be perfectly zero.

And so when you're cautious and you're trying to not overspend your budget, you're implicitly gonna have some level of underspend.

And then with regards to looking at the future, the future is going to be wrong.

We are making projections.

It's an order of magnitude sort of exercise.

I think I've said in past practices or in past presentations, the key is balancing the current budget.

That is what the State Budget Act requires.

The sustainability exercise is more of a, as decisions are being made this year, given assumptions that we can make transparent and disclose, this is how the future looks.

And so you can kind of weigh that future with the understanding that, again, it's not going to be a perfect estimate, but it's going to be a general indicator of whether or not you are in good shape structurally or in less good shape structurally.

So hopefully that helps.

I mean, again, it's not a science.

It's very much art. but an underspend is a normal thing.

Whether or not an underspend is too much or too little is sort of a policy assessment.

And I would say that, if I may, if it's an art, I belong to that school of art because I would much rather underspend, spend less than what one thinks, and I would rather be conservative and end up having extra money instead of a deficit.

So that is the better of two approaches.

Just to emphasize that point and expand a little bit, again, I think this is worth talking about because this underspend issue is a significant piece trying to understand in this.

As Thomas described, Every department will underspend by a little bit every year.

And we set up the system.

If they go over, it's an exception.

And they get a good finger wag.

You actually will have an exceptions ordinance coming through at some point here to acknowledge some folks who overspent slightly.

So the systems are built at some level that's the maximum.

Everyone's going to come in just under.

So it's not a surprise that there is some level of underspend.

And in fact, that's why, from a staff perspective, we were comfortable and suggested you should be comfortable in this assumption that we built into the budget that there'd be $20 million of general fund underspend.

We didn't know where it was going to be, but we weren't worried from your perspective that that would affect the programs and services that you expected constituents to receive.

It's what I would call frictional underspend.

It's inherent.

But then there are other things that happen where, for particularly good reasons, projects or programs that you and or the mayor, the collective wanting to get off the ground in any given year don't.

So you meant to get some independent entity funded and getting going.

And the contract doesn't get signed by the end of the year for whatever set of circumstances.

And everybody wants that thing to be funded.

Everybody meant it to be funded.

And so that's going to be a carry forward.

That is an underspend.

And they're going to come and say, hey, we didn't get the contract signed, but you guys wanted this.

We wanted this.

And understanding which bucket we're in and to what degree is what the slide is trying to get at.

In my experience in the budget office, and I'm looking forward to the data, to be clear, it tends not to be consistent.

It's one department, one year, and another another.

But understanding who and how, I think, could in fact be helpful for the reasons that you have described.

But I also, just part of it, I don't think it's a panacea in this.

I guess I'll take this chance to say this as well.

We've been very calm in this, and I am very calm in presenting this, but we are facing a very significant budget problem.

I don't want you to leave without a sense of that.

I get to play this line.

Having been budget director, I would not want to be looking at this problem at all.

The level of reductions that are likely needed will affect services, and in the context of what's happening on the federal side, it's going to be even more complicated.

So this is a very real challenge that does not describe how it should be met, but I don't want misunderstanding about that.

Yes, it's a billion-dollar budget, but The services we provide inevitably have folks who are relying upon them and counting on them in one way or another.

So just to convey that sense of real concern about where we sit.

Council President, anything further?

No.

Thank you.

Councilmember Kettle.

Thank you, Chair Strauss.

Thank you, Director Noble and Mr. Mike Self for being here today.

It's an interesting dynamic to walk through these pieces, and there's a lot of various pieces at play, and there's going to be a lot of pressures from different angles on this.

And I think it's important to, you know, this is where having a North Star really comes into play.

I just want to start first by supporting Chair Strauss, and I think this is really something that we should be doing, is the structural fixes.

Like, I'm not an expert in this area, but I believe that we should be looking for these structural fixes.

Even if we're entering, you know, turbulent times, I think that we really need to do this now because there will always be turbulent times.

And I think about things in other areas like infrastructure where previous councils, and I'm talking like a decade, decade and a half, weren't doing the infrastructure work that they needed to do.

And guess what?

It's landing in our lamps right now.

So the rate payers are gonna be finding out about this.

And that's because we didn't take action before.

We didn't take that structural kind of reform pieces.

And we shouldn't have a budget version of that hitting us in the near term, middle, or long term.

And so I believe that we should take those kinds of actions to ensure that we're in good stead long term.

understanding that we are in turbulent times.

Instability.

I recognize that Ford Motor Company has just halted its financial guidance over the years because of the volatility of global trade policies, which are due to the administration.

And obviously, the administration is going to be hitting us up in different areas that are going to put pressures on what we're doing with respect to the budget over the course of this year or next.

And I think still that we should, you know, press forward on these structural fixes.

And, you know, another North Star for me, and this is something that came up last year, is ensuring that both the The Revenue Stabilization Fund and the Emergency Fund are where they are, because in the public, to your point, we never know.

The earthquake, tsunami, all these different pieces or other type of disasters may be there, and we need to be able to flex to that.

And I do support having a Jumpstart Reserve Fund, too, by the way.

So I think that's important.

Along those lines, I understand your point regarding underspend.

Generally, in the public safety area that I have responsibility for, we are spending, The underspend that I see usually falls in like a billet that has not been filled because of the moratorium, you know, in terms of the hiring freezes.

So I don't think, you know, we have that.

We may have one of those exceptions that Director Noble was talking about too, but that's another topic.

And I think that we should be, you know, being smart on the underspend.

I agree with Council President that it's like an engine, motor oil.

You have to have that give and take.

The question is, is it flooding or is it just enough to ensure the smooth movement of the budget process.

And so my concern is when it becomes too much.

But I think with the idea that we want to get ahead of these budget challenges that, you know, this is where.

So if it's counted to that, then I'm okay with it.

If it's just happening kind of for interesting unrelated issues, then that becomes an issue for me in terms of our oversight and responsibilities related to that.

I just have two questions, and I recognize the numbers.

I recognize the different pieces.

I recognize this is pessimistic.

I recognize all these different factors, and it's going to flex.

One kind of pointed question, just out of curiosity more than anything else, I'm just trying to understand why, like with the jumpstart, how can we have 11 million in interest not budgeted on page 10, slide 10?

How does that happen?

Two potential.

The most obvious way, actually, that there was some projection of interest earnings, but that it was an underestimate because interest rates have been going up as part of all that has been going on.

So the money we were going to earn was higher than we thought.

But it also may just have been an oversight in not really considering how much that fund balance was going to contribute in terms of its earning potential of its own.

Hopefully your first answer is correct and not the second one.

We have to work with the budget office to get to the bottom of that.

My next question is like bigger picture, more strategic, is recognizing all these points that are in the budget, We, for every action, there's a reaction.

And part of our reaction has been pressing on things like suspending design review, you know, promoting commercial to residential, public safety, creating an environment for, to increase our B&O and the like, you know, those base pieces of revenue.

We've been doing a lot in these different areas, you know, and I believe that goes to structural points, you know, North Star is that we should be looking to support those base pieces, whether it's B&O, REIT, the port and the like to ensure that our traditional contributors that have been there year in, year out, decade and decade out are there for us and to make sure that they're strong because as noted, Jumpstart and the others are flexible.

But what's been the result?

I mean, all these different actions the council has taken, I know there's a time delay, but is there anything?

And then separately, We as a city, we supported the social housing.

So that's gonna be coming online and how do we account for that, which has direct impact with Jumpstart in terms of the mix of housing.

How does that play?

Have you seen anything from the actions that we've taken as a council having any positive or even hinting at some positive impacts on our budget?

It's hard to see it in the numbers, but it is very much a but-for exercise, and I don't mean this in a trivial way.

We don't know what the state of the local economy would have been if steps hadn't been taken to, for instance, make downtown more attractive for daily activity and if businesses hadn't been bringing workers back.

Because at the end of the day, and just to emphasize the point that you're making, The city's revenues come from the economic activity that occurs in the city in one form or another.

Whether it's sales tax, P&O tax, property tax, those all relate to the economic activity of the city.

And anything that is helping promote and grow that activity is ultimately helping the city's financial picture.

And that cuts the other way, too.

There are things that we may or may not be doing that could be deterring some of that as well.

So you need to consider both of those on balance.

I'll just close by saying what I said last year.

I think it should be stabilizing, to use that term, our traditional forms of revenue, ensuring that they're as strong as they can be.

Second, looking at where we can cut.

My primary focus is public safety.

I will admit I'm also looking more now into the OH and HSD because of the overlap, public safety, public health, and homelessness.

You know, we're in year two, and so extending into that world, and I think that's important.

And so I think we should be doing those pieces, and then also looking at things that maybe we shouldn't be spending on.

we can look at other opportunities or options, not opportunities, but options in terms of working these deficits that we have.

So thank you, Chair Strauss.

Thank you, Council Member Kettle.

To your point, I guess to Ben's point, it is difficult to see each year the incremental change that either the council or the mayor has on the long range picture of our budget and that's one of the reasons why as chair last year, we began with only because of the good work of central staff, the five year look back.

So we were able to see these trends in a little bit longer periods.

Quick follow up please.

structural changes.

We still need the five-year look back.

So my point to the executive upstairs is I know it may be hard, but we still need that five-year.

That's a very helpful tool.

And it's not just a helpful tool.

It's a necessary tool.

Because I know people upstairs watch this, so I just wanted to make that point.

Thank you.

to the point that Director Eder was able to provide us an accurate report on the sales tax number.

Thank you, Director Eder.

And that over the last decade we had, to the economic situation, we can have increased sales tax if we have increased construction.

We had a lot of construction over the last decade that has slowed.

I will also point out that we are today relying on one third of our sales and use tax coming from port activity.

We know that this is in a period of fluctuation because of the tariffs.

Just this morning hearing the report out of Long Beach that they're already seeing less cargo coming from China.

So we're definitely in the thick of these woods right now.

I see, Council President, your hand up, but want to first check in with Council Member Saka.

Council Member Saka, do you have any questions today?

Thank you, Chair.

No, I just want to thank Director Noble and Mr. Micell for joining us today.

This presentation, not at all good news, but I appreciate the insight shared.

I, too, have more questions and we'll be following in the interest of time, especially we'll be following up offline and also be meeting with the Mayor's Office, Budget Director Eder and others.

Thank you for sharing the bearer of bad news.

Thank you, council member Saka.

We do have about 40 more minutes.

If there's anything you'd like to ask at this time.

No, thank you.

Thank you.

Council President.

Thank you.

I'm wondering if...

I want to make sure I understand what is meant by structural fixes.

Council Member Kettle, you mentioned that several times.

I think that we should have structural fixes, too.

I'm wondering what is meant by that.

You were, I think, reiterating something that Chair Strauss said.

So are we talking about things like the revenue stabilization fund that we established for the...

The jumpstart revenue, I think that we had, the mayor sent down a pretty much a 10% cushion, let's just call it that, or underspend of that.

And so that was about, it was around 40 million of 400 million jumpstart revenue.

So that's about 10% are the one that we decided on, I believe.

was supposed to get to 10% at the end of three years, with the 2% the first year.

I can't remember exactly, or maybe it was 5%, but there were some goals.

It wasn't in one lump sum every year.

So is that what we're talking about, or are we talking about establishing a ceiling to an underspend?

Could you please?

I'm just- Councilman Kettle, did you want to respond to that?

Or central staff or somebody, I'm just wondering, am I missing something?

I can chime in.

I'll defer to Mr. and my Excel chair.

Everybody needs to know their role.

So the structural changes.

could take a few different forms.

So changes to policies, like you referred to with the Jumpstart Fund reserve policy, that's kind of a change to the structure of how we put together budgets.

From a more kind of how to deal with the gap in the lines in the future, the structural changes would be changes to spending that are recurring and occur in future years as well.

a reduction in a program or something of that like that persists and isn't just one time in nature, or from the other direction, a revenue change that is persistent, that occurs in not just 2025, but occurs in every year.

So in the budget balancing consideration slide, which it happens to be advantageously up right now, the gain from engrossed substitute Senate bill 5814 would be a structural revenue change.

So that would be a change to the sales tax base that will give us revenue in 25 and it'll give us revenue in 26 and future years.

So that type of thing will help the structural deficit.

So things that are not structural changes are one time balances that are used to support ongoing spending.

and things like that, or one time prior year balance that carries.

That type of thing is helpful to just balance the current year, but it's not helpful to deal with future challenges.

Okay, so spend less tax more, or policy changes on underspends, et cetera.

Right.

And when I think of structural, I think of permanent.

So this is a change that you expect to persist, either on the revenue side or the expenditure side, rather than one time or even short term.

Because it's permanent changes in spending patterns or in revenue that will close a gap in those graphs that we're showing you that show the out years.

You've got to raise one and or bring down the other.

Okay, just to follow up, if I may, the Council Member Kettle noted, how can we have an underspend of 11 million of interest earnings for Jumpstart?

I was looking at the next bullet point.

How can we have an underspend of 296 million in Jumpstart when it was anticipated that we were going to spend or that we had 400 million plus Jumpstart revenue?

That's on page 10.

Right.

And that's the question.

I'm going to follow up with the why.

But again, a lot of that is legally obligated.

So a lot of Jumpstart goes for housing, which is capital dollars that take time to get out the door.

It's going to be things of that, but again, there's detail behind it.

I do worry some about that point, that we use the phrase underspend, and to generically describe money that didn't get spent, hence the word, but there can be very different reasons, and the housing one is a persistent one, and when we start looking at the jumpstart, it becomes a structural component, if you will, of the way we spend the jumpstart money in just the way that, Council President, you described, and that is that we give Office of Housing appropriations for projects, right?

And once they know they have that money, they start looking for those projects.

But they don't actually legally obligate the money and encumber it until they sign a development agreement of some kind.

And that won't happen within the first year of that appropriation.

So there is already an expectation at some level that they're gonna carry this money forward.

So some of this may be a naming problem that we're calling this underspend or unexpected underspend, and really, it was entirely expected.

We understood structurally that they don't spend this money that quickly, and again, we can talk about how quickly, you know, getting them to be able to move faster.

They, again, I worry this, I won't be able to explain this well enough in the time frame, but they developed that straightforward pattern of getting the money, looking for the options, awarding them, and then having spent out, which happens over several years, in the context of the housing levy, where they don't really know that they have ongoing money, because it could end in a few years if it isn't renewed.

So they can't really be making commitments, except with the money they have in hand, because one day it may go away.

as we're changing the funding about structures for housing that maybe that we can change the way we allocate some of that money across time, being able to count on future appropriations from the PET, the payroll expense tax.

Some of that's an accounting issue is really what I'm trying to describe.

So, but again, I think that is why we want to better understand, right?

And if it's not really an underspend in the, in the sense of like, oh, we're surprised by this outcome, then we should probably be labeling it something else and thinking about it differently.

And I think, again, that's something that we can work with CBO in response to that slide, get to some of that.

Okay.

Just one final comment.

I want to make sure that whatever executive department heads are listening, I am not picking on individual department heads.

What's motivating me is our oversight role.

And when we appropriate money for something, we are sort of assuming that it's going to be spent on that.

And these underspends indicate that it's maybe not happening.

For example, I allocated about $400,000 for a new mobile medication van for Evergreen Treatment Services last year.

That's just like a one-time, you could just write the check here, go buy your van, but it hasn't gotten out the door yet.

I'm concerned about that getting somehow swept up in a carry forward that is used for a general fund backfill of a deficit, et cetera, et cetera.

So that's the sort of thing that I'm That's an example of why I'm asking these questions.

Thank you.

Thank you.

Vice Chair Rivera.

Thank you.

Ben, you hit on something that is of concern to me.

Having helped, assisted and overseeing departments in the past and actually working at a department is if departments are not able to get that money out the door, for whatever reason, then we're just holding onto money no one can use.

And so there's gotta be, and you gave the example of OH.

So there's gotta be a better way that we can do this where we're not just sitting on a lot of money, actually, in some cases.

because we don't have the ability to get it out the door that year.

So I would love to see whether it's CBO and whomever is working with CBO proffer some kind of policy where we don't have to just hold on to a pile of money so that we can use it where it's needed at that moment.

Because I also am mindful that there are other needs at the moment we're not able to meet because we're sitting on some underspend and we don't actually know when that money will be needed in some cases.

And I'm not thinking about just O.H.

This is across the city in many departments this happens.

And of course we have practices from departments where they wanna hold on to the money because they're afraid to not use it.

And I mean, I was in a situation where the department was worried about not giving back some money in case they needed it, but they weren't gonna use it.

So it's like, if you're not gonna use it, you have to give it up so someone else can use it that needs it.

I want to get away from that situation that we are caught in this cycle of constantly holding on to funds that we're not able to utilize that year, which then really throws off our accounting really because we're constantly having to carry forward this money.

without the when are we gonna use it, we just need to be available if we've encumbered it or promised it to someone for when they actually need it, but do we need to continue to carry it, you know, hold on to it, sorry, year after year when we know we can't use it, and then we have these deficits?

Question's understood, and I think it's a nuanced answer.

Ultimately, it'll depend on individual circumstances, but just to say that the key concern is that if you, you know, you made a commitment to somebody, they can't spend the money now, if you use that money for something else, you want to be darned, I'm just going to use a different word and I won't, ensure that, say, two years later, when they are ready for that, that you actually have the money and that you're not in a financial situation that is yet again even worse.

So there's a balance there to be had about those things.

But the general point is taken, again, I do think that there's it's part of the solution.

I don't think it's necessarily a big part of the solution, but that does not mean it doesn't need to get chased down.

So just to say that.

Well, if I may, Chair, I mean, I think we've just identified something that is there a possible solution?

Because if there were, I think, I don't want to minimize the amount of money we're talking about.

It is substantial in some cases.

So if we can find a solution for that, I think it would be advantageous in the long term.

Yeah, I just, it would be, again, I just, but just to say it in a different way, that in itself won't change the spending, right, that at the end of it.

I understand that.

Yes, yes, yes.

I guess that's really my point, is like, what we talk about, we have a permanent gap here, and like, you know, we, again, and the gap may be slightly overstated, because in the way that we've described, there's 10, 20, 30 million dollars of underspend every year, my notion of frictional underspend, right, In that sense, that gap is perhaps slightly overstated, but I don't think it's more than that in a significant way.

But you're asking the question, how do you know that, Ben?

And I think that I do, but we want to get to the data.

So point is taken.

If I could just add, so I think I mentioned earlier there are different flavors of how the underspend is treated, or three different, really.

There's one that's just cash balance that can be used for anything the next year.

There's a second, which is automatic carry forward, so things where there's a legal obligation.

And in fact, our capital budget is the largest place where there's underspending, because that's money that's designated for capital.

It's automatically carried forward every year.

And then there's the kind of the middle ground stuff that doesn't have a legal obligation, but it has some commitment that's been made, but it hasn't been given that kind of same automatic flavor through legislation.

And that actually gets requested.

And so that's kind of where we are right now with the 25 carry forwards, is given that there's a budget challenge, it's assessing how much of those kind of gray area commitments can actually be met because we don't have enough resources to do 25 commitments and, and those carry forward commitments.

So, so if something's not automatically given the approval to carry from one year to the next, it gets, it has to get reappropriated.

It has, you know, the question has to be asked, do we want to continue doing this work or should we be doing something, something different with that money?

So that's kind of the oversight for that piece of the carry forward.

It's not automatic in nature.

Or do we pause the program until it catches up?

I mean, that's yet another way to do it.

Correct.

And for what it's worth, the executive, with respect to this year and last year into this year, the executive is asking those very questions right now because the carry forward that was originally developed is no longer financially feasible.

Like, we don't have that much money.

So that's part of this.

Thank you, Chair.

Thank you, Vice Chair.

Council Member Sockham.

Thank you, Chair.

And just appreciate some of the conversation going on right now by my colleagues.

Appreciate the experts central staff guidance being shared.

One thing that has been swirling in my mind throughout this is like, so this is obviously illuminating a huge challenge, structural challenge that we face, a series of I think cascading structural challenges that we face in our budget.

But ultimately these issues and challenges in my mind raise a question of, well, okay, well, what's the solve?

And there's been a lot of talk has been pointed out about addressing like, how do we address some of these structural challenges?

What are some of the structural solutions that we could potentially employ?

What are the various policy levers and options?

And what does that mean relative to other investments?

I think we've done a good job initially.

under Chair Strauss last year, addressing some of those budget challenges with respect to those issues that were kind of directly within our span of control.

A number of other issues worsened, or factors worsened, the broader picture, including the macroeconomic situation, the federal change in administration, what that looks like, among other factors.

And so here we are, huge challenge, and now we need to to solve it and that that's actually going to be the focus of of my you know future questions uh i would love to chat further with about offline with our own central staff and also the mayor's office who will be proposing any number of things uh including so from my perspective in terms of addressing what's the solve what's the solution addressing the underspin Prioritizing, aligning, and being clear about what our priorities are.

In my mind, that starts with our highest charter responsibility to keep people safe.

So community and public safety.

Tier is those type of investments that taxpayers expect local governments like ours to fund.

So infrastructure and parks, the like.

A mixture of consolidations and cuts.

And then new revenue options as well.

Everything is on the table.

And I know that the state legislature is noted in one of the earlier slides, granted us new authority in that capacity this year as well.

But in any event, this raises more questions than answers.

Look forward to engaging with you all and you all colleagues individually offline as well as we tackle this together.

So thank you.

Thank you, Councilmember Saka.

Colleagues, any other questions at this time?

Ben, Tom, any final thoughts you'd like to share?

Hey, I'll share my final thought, which is that we need to save money today and need to find ways to do that.

Colleagues, I had originally asked for the updated five-year look back to be presented during the select budget committees in June and July.

We're having difficulty with that because we've had a number of departures in central staff and staffing capacity has changed.

And Council President, apologies for not seeing the June-July dates in your memo.

I was focused on reading the fall section, and you haven't spoken to me directly about this, and I'm not sure the last time you spoke to me directly.

I feel like these actions, choosing not to speak to me directly, undermines my agency as a council member and as our budget chair.

Colleagues, is there any further business to come before the committee?

Seeing none, this concludes the Wednesday, May 7th, 2025 Finance and Native Communities and Tribal Governance Committee meeting.

Our next Finance Native Community and Tribal Governance meeting is on Wednesday, May 21st, 2025. Any further business?

Hearing no further business to come before the committee, we are adjourned.