Economic and Revenue Forecast Council meeting of 101723

The Revenue Forecast Council today is October 17th and the time is 933 AM.

I'm Teresa Mosqueda.

I'm chair of the Forecast Council, and the Forecast Council meeting will now come to order.

I'm excited to be joined here with my colleagues of the Forecast Council, including Acting City Finance Director Jamie Carnell.

Good morning.

Brendel Swift, Chief of Staff in the Council President's Office, Council President Juarez.

Good morning, Brendel.

And we are joined by deputy mayor, Tiffany Washington, of course, good to see you.

Thank you so much.

Deputy mayor that those 3 along with me make up the voting members of the forecast council, but we are also joined by a number of members from the city budgets office.

I see director Julie Dingley on the line and deputy director of central staff, Ali, along with a number of other staff members, both from the executive at the legislative branch.

Good morning.

Everyone.

We have 2 substantive issues on the agenda for today.

The 1st item is a revised revenue forecast.

We last received the revenue forecast in August because we meet quarterly.

The council is now in the midst of its deliberative review review of the mayor's proposed budget and the revenue forecast that will be presented today helps identify new revenues that may be available for the city council as it considers modifications to the budget.

The 2nd item on the agenda is a proposed policy addressing how the forecast council will share the results of work that it completes at the direction of either the executive or the legislative branches.

In addition to preparing quarterly revenue forecast, the office of revenue forecast work includes programs that allow for it to conduct analysis on other revenue related research.

This research includes confidential requests made either by the mayor's office or members of the city council and recognizing the importance of that.

All the parties have in shared expectations about how results of such confidential requests can, or should be shared.

The revenue forecast office director Ben noble has brought forward a proposed policy for us to consider to help deal with this issue.

Director noble will present it to the forecast council here after we hear the revenue forecast update, and we'll get a chance to talk through the proposal and the forecast council.

If we concur with the proposed policy, we can go ahead and move forward with the vote today to approve the policy on that 2nd item.

I'll just underscore that.

This is a really novel committee that we have here.

We appreciate that.

This has been built on.

The experience that we have at the county and the state legislature, where they have a independent revenue forecast office as well, and really do appreciate the independent analysis of the revenue forecast.

And I can also appreciate that.

It's important to have clarity for the revenue forecast members.

The.

Both the members who are serving as voting members of the council and also the members who serve within the office under director noble to ensure that everybody has a clear sense of what the expectations are.

So that we can get great information that is provided by the analysts within the office of economic and revenue forecast.

So those are 2 items on the agenda for today before we move into agenda item.

Number 1, is there any objection to the agenda in front of us?

It has been circulated and it's available online as well.

Hearing no objection, the agenda is adopted.

All right.

Let's go ahead and move on in.

We don't usually accept public comment in these meetings.

Right?

Director noble.

But, of course, if anybody would like to reach us, they are welcome to email director noble as team.

I think all the information is.

Posted in a timely manner so that we all receive it at the same time and that information is on the office of economic and revenue forecast councils website.

And then you also know, you are welcome to reach out to any of us as individuals who are part of the executive or the legislative branch.

At any point, and we would be happy to share any public comment, of course, with the council members, but this is a.

Sort of a different type of presentation, because this is really about sharing information in real time with members of the press executive and legislative branch and members of the community.

So, with that, let's go ahead and move on into agenda item.

Number 1. Approval of the minutes.

There is a copy of the August 10th, 2023 minutes that have been circulated to members and it is again posted on the office of economic and revenue forecast councils website.

I would entertain a motion to approve the minutes.

2nd, thank you so much.

I will move that.

It's been moved and 2nd to approve the minutes.

Are there any additional comments?

Hearing no comments.

Okay.

Seeing shaking of the head hearing no objection.

The meeting minutes will be approved.

Hearing no objection the meeting minutes are approved moving right along item.

Number 2 is the 1st substantive issue on our agenda today presentation of the October 2023 economic and revenue forecast council.

Um, presentation and recommendation from the office of economic and revenue forecast regarding the 23 and 24 revenue forecast colleagues again, consistent with our regular format.

The presentation of the revenue forecast will be led by the forecast office staff from the budget office will also be welcomed and encouraged to participate.

Thank you again to director Julie Dingley who's here from the city budget office as well as members of her team.

We also encourage participation from the city council central staff.

Again, we have with us today, deputy director, Ali, along with Tom, who is budget lead and analyst for us on all things revenue.

If anybody from the council, or the group would like to comment on different aspects of the presentation at any time, please feel free to this is an opportunity for everybody to engage and participate.

The presentation will include a formal recommendation at the conclusion that is coming from the revenue forecast office regarding the forecast.

And it's the council's role again, the 4 voting voting members of this council to confirm.

Or reject or modify that recommendation after the presentation, we will have an opportunity to discuss the forecast and make a determination, but I do want to encourage folks.

If you have any questions throughout, please just go ahead and jump in.

Feel free to raise your hand, but if I don't see you jump right on in.

Thank you very much and good morning.

I'll turn it over to Director Noble.

Thanks, Director Noble.

Thank you, Council Member.

I'm going to just dive right in myself and put up a PowerPoint and get started here.

One moment, let me execute that.

Okay, so diving in the outline for the presentation follows our, our normal setup.

So we're going to give you an update for the.

Economy what's evolved since last August, which is only a couple of months.

And then we'll dive into the economic forecast.

So that.

Forecast of how the economy is going to evolve at both the national level and at the regional level.

And I'm going to the region.

I'm going to turn it over to.

A primary lead here on the regional modeling.

And then the last section is actually the revenue forecast itself.

And we'll go to the general fund and then also highlight some key non general fund revenues.

Those include the dumpster payroll tax and real estate excise tax.

And we'll also do present revised forecast for a set of transportation revenues.

So, with that diving in, so just again, recent developments in the economy.

The overall message is that since August, the economy has remained generally strong and somewhat stronger than had been anticipated.

So we reported in August that the second quarter gross domestic product grew by 2%, 2.1%.

We don't have final numbers yet for third quarter, but the expectation is that it will be even stronger than that.

So S&P anticipates growth of as much as 4% for the third quarter.

But that said, in the longer run, expectation is still that there will be a slowing of growth certainly in the second half of 2024 and then going into 2025. So the long-run forecast which we had emphasized before in terms of slowing long-term growth remains.

Digging a little bit just to see kind of more detail on what's happened since August.

In terms of employment, our economy is still continuing to add jobs at a steady pace.

We had seen until last month, until September, a slowing of job growth.

But there was surprisingly strong results for September.

We'll have to wait and see whether that was an anomaly or whether that's continued renewed strength.

And unemployment has remained relatively constant at a relatively low, roughly 3.6% now for almost two years.

So again, on the employment front, we continue to look strong.

On the inflation side, we had noted last time in August that inflation was on a clear downward trend.

If you look at the blue line off to the right there, that is national level CPI, Consumer Price Index, the most common measure of inflation.

And you can see it was on a really steady downward trend.

Last couple months, bumped back up a little bit and holding at about 3.7%.

So, much lower than nearly 10% at peak or at the national level, 9% at peak.

But again, the rate of slowing has declined at least temporarily.

In particular, that gas prices, fuel prices have been a key driver for August and September, and as we'll discuss in a minute, probably not coming down again in the near term.

The other measure of inflation that we put on the graph, and just to emphasize to you, is the Federal Reserve's preferred measure of inflation, which is the Personal Consumption Expenditure Index, or the PCE index.

And in particular, they're interested in the core PCE index, which removes food and energy.

So again, it's really the core prices, and is generally seen as a good measure of long-run inflation.

And this is what they've been targeting and are trying to bring down, ideally, closer towards 2%, whether we get all the way to open question.

What you can see there, it's hard to see the trend, but the PCE index has been on a downward trend as well since the beginning of 2022. Flipped up a little bit last quarter, excuse me, last month, but again, it's continuing a downward trend.

So good news on the inflation front as well.

That said, so economy has been strong, but since August, a number of new risks have also emerged and are worth noting.

One is the auto workers strike.

It's now been entering multiple weeks, actually.

Whether there are broad impacts on the economy will depend on how the scope and the duration.

So the scope has been expanding as UAW is trying to have a larger impact on the auto companies.

Um, but to date, the really impacts have been localized to the areas where cars are produced.

So, not been a big overall economic impact.

Um, but, um, if it continues, it will spread again.

Not likely to be a big impact in our region unless it's really prolonged and really widespread.

Another risk that has emerged, and painfully so, is war and military conflict.

So Ukraine has been, and the war in Ukraine, Russia's war on Ukraine, has been an ongoing risk to the economy, has been a source of inflation in terms of driving up energy prices.

Conflict between Israel and Palestine is only going to increase those risks significantly So again, oil prices had peaked over the summer and started to come back down, every likelihood that they will be pushed back up.

Fuel prices, gas prices have two effects.

One is an immediate effect for consumers in that they end up spending more of their income on fuel very directly and have less money to spend elsewhere.

But then there's also kind of a more insidious and generalized effect, which is it increases the cost of transportation, which means cost of goods across the economy feels pressure as well.

So again, the duration and the extent of that will really determine its impacts.

government shutdown and what I've described as congressional chaos.

Originally, this was labeled just government shutdown evermore, perhaps the second title really explains where we are.

At this stage, though, there is, again, a risk of a government shutdown.

The current continuing resolution expires in relatively few weeks, and given where things stand, unclear what the path forward will be.

So that's certainly a risk.

And then probably the most significant risk in terms of long-run issues are increasing interest rates.

So the chart there on the right is actually the chart of mortgage interest rates.

And what you see there is that even though inflation has been declining over the past few months, long-term interest rates have not.

So there's a real sense that there is concern about where prices are going for the long run and what economic risks are for the long run.

Both of those would explain a longer-term higher interest rate.

But if interest rates are really going to be high for the long run, that will have a dampening effect on the economy.

As described here, Anything that requires borrowing money to purchase.

And that could be consumers buying cars or buying houses.

It could be companies investing in new factories or even in IT upgrades and the like.

All of those things become more expensive.

So again, this long-term interest rates being higher is consistent with the overall forecast of long-term growth.

So beyond the next couple of years is going to be subdued.

Looking locally.

Again, no specific concerns about the local economy, but we have received some data that confirms much of the concerns that we had expressed before and that are already, if you will, baked into the forecast.

So, 1 thing is on the employment front, we got revised data from employment securities.

They essentially revised data back to the beginning of the year.

The green dotted line in the upper graph shows you what had been their measure of employment.

And you can see that in general, we're hovering at about one point just below 1.8 million jobs for the region.

The ESD employment securities, they collect survey information from firms and then on a quarterly basis, they benchmark that to the actual data that they're seeing from payrolls.

So this was a correction with those actual data.

And what you see is that there were, instead of having created 40,000 jobs since the beginning of the year, local economy, 42,000, local economy has actually just created about 24,000.

And in particular, and again, this is shown in the second, the bar chart below, we're seeing significant reductions in employment in the information sector and in professional and business services, which is a place where a lot of the tech companies end up being characterized as well.

So we had seen a slowdown in the tech sector.

We had seen some drop in employment, but this really emphasizes that that's a very real thing in the local economy, and it is happening.

In addition, you see there's a decline in construction employment.

Again, that is another area we've identified as one that's gonna lead to slower growth in the economy.

The level of construction activity is going to cool, and we have some additional data on that as well.

That all said, and we'll get there when we start to talk about revenues, Even though employment is worse than we thought and again we're going to show you that construction is remains an issue of concern.

Revenues have kept up with our forecast in general.

So these employment numbers confirm our concerns that they are not under themselves delivering if you will bad news or a sign that the that the forecast needs a significant revision.

And I believe there's a hand up.

So I'm happy to take a question.

Yeah go ahead Director Dingley.

Thanks.

Good morning Director Noble and team.

Thanks for this.

I have a question on this slide about the job creation by sector.

And I see on your third bullet that you're talking about how the technology and construction sector the employment there has been more impacted.

Are those the two primary areas where this downward revision affected from the state or was it across the board or how did that what what of those factors changed from the August forecast that we saw?

I'd have to take a look to confirm, but the biggest drops, the biggest differences are in those in the red, if you will.

So I think there's actually some additional employment in some of the other sectors.

I need to go back and look harder.

But the biggest impacts were, again, in terms of change were on that side.

Yes.

Thank you.

Um, moving on, um, do also want to talk about, um, some additional data as I described.

Um, so construction and permitting, um, so.

We collect data from, well, they collect the data and they transmitted to us.

Um, we particularly focus on permits that are been issued because those are the ones that are going to lead to, um, construction activity in the near term.

Um, and if you look historically back to, um, 2019, sorry, I'm gonna.

Work on getting this there we go.

Sorry, I had a delay here that I need to work through.

One sec.

I apologize.

You got fancy slides.

So that's, that's all.

Yeah, that's my problem.

I tried to be too fancy.

So there you go.

One more.

I'll try it.

So that's 2019, and compared immediately to 2022. So 2019, pre-pandemic, high level of construction activity.

2022, so last year, starting to see a slowdown, not necessarily in every month, but in aggregate, notably less activity.

These data are the values of construction permits as assigned by SDCI.

Adding now 2023, so the current year, And you'll see that for the first part of the year, generally keeping up.

So, January, February, March, even a little bit ahead.

But starting in April, May, June, July, and August, we start to fall below.

And in fact, as of now, we're 16% below last year.

You'll note that in September, there was particularly strong results for 2023. As we know in the text, there was one very large project, nearly $200 million Swedish hospital project that had its permits issued.

If you set that aside, and obviously, that will still contribute revenue, The one reason that can think of it as somewhat different is that it's an institutional project so it's not a purely commercial project it's not an office space.

It's not an industrial production facility.

But if you take that out, then the overall value of permits is actually down 50% from last year so quite notably.

And if you look at large projects, so those that are more than 10 million dollars, and really 10 million dollars, that's a medium-sized construction project at this point, down substantially for both commercial and residential projects.

So we really are seeing a slowing in construction activity.

Again, not a surprise, consistent largely with our forecast, but it is really emerging in the data.

Sorry, just before we move on to rent, um, yeah, I can interrupt you here.

Uh, I think last time we chatted, 1 of the requests I had was to compare.

Issued permits versus requested permits and I think you followed up with some information about that.

Is it possible for us to see the issued versus the requested in the same bar chart format just to see if there's.

Similar demand across the years, but a slowdown in issuance, like, I'm just trying to figure out how to how to how to expedite both the construction that we need so desperately, but then also that yields revenue and that yields greater economic activity and jobs per your previous slide.

So, is that possible to see?

Don't have it available as we speak, but we do we do have all of that data.

So we can again provide you that comparison.

One of the things that.

we struggle with is actually, and John can perhaps speak to this more, is the relationship over time between permits requested and permits issued.

And you might think that a permit requested becomes a permit issued, if you will, six months or 12 months later.

But the relationship isn't that clean, because what happens is folks request permits, and then they sort of sit on them, if you will, looking for financing and looking for optimal time to deploy.

which is why we focus on issued permits.

But you're absolutely right that the permits requested is an important piece of this overall puzzle as well.

And seeing what the trend is there is also useful.

It's one of the things that we pay attention to in presenting because we're just worried about the volume of information.

But we can get you that and provide a little commentary as well and give you a sense of what we're looking for there and what we're seeing.

I think that could be helpful.

So thank you for that question.

Thank you very much.

And then local inflation, just to comment that it is, again, largely matching forecast.

It has come down, and a big reason for that, and we previewed this last time, is that rents are stabilizing.

So the chart on the right there, on the lower side, is monthly rent.

That's data from a subscription service that we buy.

It just gives you a sense that rents had been escalating quite dramatically, and now for the better part of a couple of years, they've been relatively stable.

There's still an upward trend there, to be clear, but not a dramatic spike.

So, and it's such a big, housing is such a big part of inflation measures that that's a really important piece to understand.

So, again, on the local side, sorry, this question.

Oh, please, I didn't mean to interrupt you.

Just to say that on the local side, nothing, again, these might look a little bit dire, but really these data are really more than anything, Confirming and affirming the forecast we've made these are these are the things that we've identified as as drivers and why the local economy was expected to slow some.

And again, we're seeing them actually play out.

That's that was my summary.

So this question happy to take it.

Okay, great.

And I will start raising my hand just so you so I don't interrupt you in the future.

The question that I had here is about.

The type of unit that this is measuring yesterday, we saw some very similar data from the housing development consortium who provided an overview of some of the trends that they were seeing.

and I believe that they were looking at the monthly rate for studio apartments.

Do you know if this is measuring studios here?

This is measuring an aggregate across, so it's probably not the best measure in that sense.

If you pick individual unit sizes, you get slightly different variations.

This is really just meant to capture the general trend of apartment rents.

Okay, thanks.

Thanks for that info.

And I misspoke.

It was the.

It was the folks from downtown emergency services center and 1199 who had compiled that data for us looking at the impact of wage enhancements versus the cost of living in the area.

And so that's where it was really telling to see just over 2000 dollars was the average cost of a studio apartment, let alone what you would need for a family.

And of interest, probably to to all of the members here, they also calculated that it would be to not be rent burdened to not have to pay more than 30% of your income on rent.

You would need to earn more than 81600 dollars in the equivalent for a yearly salary.

So that's pretty telling when you think about how expensive it is to live in the city and to see this, these numbers, you know.

It's pretty, pretty shocking.

Indeed, and I can really just emphasize it's the point that made here as well that it's rent is such a big part of CPI that you really need to understand what's happening with rent to understand what's happening with local inflation.

So it's such a such a key driver.

So, again, local and national economy continuing strong the risk we've identified playing out, but but no, no major developments.

Shifting then out to the forecast, I'm going to start at the national level and give you a sense of how the.

The standard, of course, forecast has changed since August, but again, the basic message is that they, the forecasts have acknowledged.

that things were better than they had expected for the second quarter and third quarter, and they're now expecting similar for the fourth.

So looking at real GDP, so the national output as a whole, that's the August forecast there in essentially orange.

And layered on top now is the October forecast.

And what you can see is that, again, for overall output of the US economy, stronger second quarter than had been projected.

So that's the solid line extending over the dotted orange line.

And then their forecast, which is the dotted red line going forward, they're expecting stronger GDP growth than they had last August near term.

So fourth quarter and first quarter of 2024, and then also into the second quarter.

But in the longer run, so by the middle of 2024, heading back towards the slower growth that they had anticipated before.

And the basic message and the reason why is the same.

And that is that higher interest rates, expectations that they will bind on the economy, And the Fed is essentially going to ensure that growth does slow in an effort to control inflation.

And there is an expectation that the Fed may now keep interest rates higher for longer, given that inflation is continuing to hold on at higher levels.

And that, again, that reinforces the idea of slower growth beyond, say, the middle of next year.

This next chart just shows employment growth and really just trying to emphasize the August forecast and the October forecast that they're largely unchanged.

That again, over the longer run expectation is that high interest rates will have a strong effect in terms of slowing consumer demand for things like cars and houses.

and that also on the commercial side, it'll increase the cost of investment, research and the like, and that will also have the effect of slowing the economy.

So again, on the national side, not really any significant change in the overall forecast, except to acknowledge the somewhat stronger results for this year and an expectation of slightly stronger results for early 24. Uh, on the local level, um, and I'm gonna turn this over to, um.

Uh, again, sort of a similar story, but have you go ahead here.

Thanks.

Um, good morning forecast council members.

My name is with the revenue forecast office.

So focusing first on the regional employment, the chart shows what we believed was the trajectory of the employment and our forecast back in August.

That's the orange line.

The red line, the solid part shows the actual employment.

Shows the effect of the downward revision in the employment figures.

Um, beyond that, the dashed part, the forecast, uh, follows our August forecast, uh, rather closely.

So we see more of an impact on on the level rather than the gross rates, uh, meaning that, um, taking into account that downward revision.

Lowers our forecast for the employment changing the employment for 2023, but going forward for 2425 and beyond, we see similar trajectory for the employment growth rate.

So there is an overall downward shift going from the orange line to the red line, but not.

Not the change in the slope of of those 2 lines, broadly speaking.

Looking at the regional income forecast, there has been a revision in the personal income for Washington state over a period going back to 2013. about 1% revisions up or down, depending on which year we are looking at.

And so we included that updated, those updated estimates for the state income to create our own estimates for original income, because original income for 2022 will not be available until later in November.

So that complicates the forecast, complicates our, Our forecast, because we are not completely sure where we are, but what those state forecast revision seem to be suggesting is slightly less of a cross in 2022, but maybe a little bit stronger cross in 2023, which would be partially offsetting a downward revision in.

employment.

And then going forward, beyond 23, we see similar trajectory, maybe slightly lower gross income than we previously saw, but it's really marginally slower.

So, again, on the regional level, not significant changes in terms of long term forecast, acknowledging that the data have shifted some.

So, not dramatic news there either.

Do you want to talk a little bit about the baseline versus the pessimistic forecasts and the differences that are highlighted there?

So.

S&P is assigning a 30% probability to their pessimistic scenario.

And that's two things that are driving, if you will, the bad news there.

One would be, and the time they wrote this was the escalation of the war between Russia and Ukraine.

The conflict between Israel and Palestine is now added to that, if you will, in terms of potential risks.

But again, what happens there is Higher inflation as energy prices escalate and other commodities also escalate.

So not unlike some of the price escalation we saw during the latter part of the pandemic.

That then also puts pressure on The banking sectors as well, higher interest rates, further slows the economy.

And this expectation here is actually ultimately a recession.

You can see that employment growth drops off significantly in this scenario.

So we'll talk more about our recommendation between the two of them, but just want to give you a sense that that basic scenario remains unchanged in terms of what could go wrong, if you will.

If you carry that forward to the regional level, you get a comparable story.

So we would, again, regional employment could potentially drop off as the national economy were to cool, and inflation would pick up some.

So again, that's consistent.

These different scenarios are consistent with what we have portrayed previously.

The question of whether, which is appropriate, the baseline of the pessimistic forecast is is another key issue.

And this next slide provides some information on that front.

I'm going to turn this over to Sean who's compiled this information.

Thank you, Ben.

Good morning.

Everyone is Sean Thompson with the office economic revenue forecasts.

I quickly want to go over to this slide here, which is the visualization of the Wall Street Journal economic forecasting survey.

The most recent 1 essentially what Wall Street Journal does is that it.

surveys, a national survey on multiple academic forecasters along with some private forecasters to kind of get an idea of how 2023 year-end is going to end up.

You might have seen this slide in previous presentations.

This is the most recent one.

We have S&P Global, which is our primary national economic indicator forecaster in the red, along with Moody Analytics, which is also supplemental in certain areas, too, along with the Wall Street Journal survey average being in blue.

We can see kind of at a quick glance that both S&P Global and Moody Analytics are very close to the average.

Ultimately, we can see that the forecasters as 2023 year-end gets closer and closer have kind of felt a lot different than before about a lot of things like inflation, unemployment.

Alongside that, too, we can see that federal funds rate right now, people are kind of, you know, very closely packed, mostly because the feds have been very clear that they're not going to change directions on economic policy anytime soon.

Overall, though, we can see that the S&P Global is a very strong economic national forecaster to rely on for our regional models and other things, too.

Back to you, Ben.

Yeah, so again, just emphasizing the point that that S&P is well within the mainstream, if you will, of forecasters at the baseline.

So giving us confidence that, you know, they're not, their baseline isn't somehow particularly rosy, nor necessarily particularly pessimistic view.

Before we move on to the revenues, I do want to present our recommendation regarding that because again, we don't want.

Impact on the revenues to influence our decision about this.

I really think this should be sort of a pure choice.

Uh, and, um.

The thing to note here is that the, um.

The baseline forecast is itself not particularly aggressive.

As we have shown you, the expectation here is for pretty moderate growth after the remainder of this year in the first part of 2024. So the baseline is not a particularly rosy forecast.

Our regional projections essentially are matching those national ones, so our regional forecast is not particularly optimistic as well or particularly robust.

Our expectation is for relatively slow growth.

And again, the point I made earlier, and that's why I made it, although we've seen some significant revisions in ESD data and now understand that regional employment is lower than we thought, in terms of revenues, we've actually been largely meeting our previous forecasts.

So it's not like that understanding about employment correlates to some significant drop in revenue.

So we feel like we've managed to factor that in well enough.

And then we've identified a number of emerging risks, but none of them individually are expected to have a significant impact regionally, particularly not near term.

I might make this point by sort of a counterexample.

If we were forecasting revenues in, say, Grand Rapids, Michigan, which is kind of the heart of power production country, if you will, I might be leaning towards a pessimistic forecast, right?

Because the national forecast probably doesn't capture the risks that are pertinent to that kind of a local economy.

But for us, the risks are not specific to Seattle.

And again, even the baseline forecast is relatively conservative.

So, on that basis, we are recommending the use of the baseline scenario and most of the revenue forecast numbers we'll show you from this point on correspond to that baseline.

But we will, in a couple of places, highlight what the potential risk is and what it would look like under our pessimistic scenario for the regional economy.

I don't see any questions, and with that, I'm going to move on to the table with all the numbers and get into this in detail.

So with that, all right.

So on the general fund side, these are the forecast revisions.

Again, it's a pretty dense table, so let me just highlight again the structure here and then get on to describing the differences.

So first column of numbers are the 2022 actuals, really just put there as a reference point.

2023 revised, so these are consistent with the numbers that are underlying the proposed budget, which includes use of some resources for 2023. And then our new forecast, which is the October forecast, and the following column is the difference, and I'll come back and walk through those differences.

The same structure for 2024, so the 2024 proposed, the October forecast, which is the current update, and then those differences.

And then the final column is the sum of the two differences, because in some sense that really, that final column defines the change in resources available for the budget process that the Council is now engaged in, which involves both making final changes to the 2023 budget and then adopting the 2024 budget.

Going back to the left, you're moving down the difference of October versus revised for 2023 small difference.

And I'll 1 more point.

The items that are highlighted in blue are those that are the primary responsibility of the forecast office.

Those are that are not highlighted are the, the, the budget office.

Depending on the nature of the questions, I may turn to them for some of the answers.

So, property tax usually very forecast will that's that's 20,000 dollars with a very small difference retail sales up just over 3 and a half 1Million.

This is largely consistent with.

The strong results we've seen today relative to our forecast and again, the revisions for strong activity in the.

4th quarter of this year, this is an occupation tax similar story, probably different effect.

The public utility taxes down almost 2Million is.

Offsetting factors here 1 is a significant increase again in the 2Million dollar range.

For the solid waste utility, but then on the other side, I'm approximately 3 and a half 3.7Million dollar refund on the city light side.

So city light had overpaid utility taxes in the past.

Um, and have been working with tax accountant team, and there is a refund headed city lights way that will be paid out this year.

So that leads to a negative revision if you will on that side.

Um.

Minor changes elsewhere, the other big change down at the bottom licenses, permits and interest half that.

So approximately a million dollars is reduction in the forecast for interest earnings more driven by lower balances rather than a change in interest rates.

And then payroll tax in there for a significant change.

And you might well ask why their number for payroll tax in the general fund in 2023. As of 2022, payroll tax revenues were directed towards their own fund.

That's true.

What's happened here is that through 2021, The payroll tax revenues, the jumpstart payroll tax revenues were deposited into the general fund.

And what we're seeing here now, and we were continuing to get some late payments for the jumpstart payroll tax from 2021. So in 2023 revised, we actually had expected about $2.3 million, and we actually had received $2.3 million in late jumpstart payroll tax payments for 2021. So two years later, people were still making those payments a year and a half later.

Once again, though, there has been a refund determined and expected not to be issued by the end of the year.

A refund and low 3Million dollar range and that refund.

Again, since is the 2021. Jumpstart payroll tax issue, so therefore relates to the general fund.

So that that's what the swing in that forecast is from.

2.2Million positive to.

forecast now $400,000 of net outflow.

So that's, again, a revision due to a refund.

So if you add that all up, so the difference column, you get to a net addition of $800,000 in general fund resources for 2023. For 2024, again, increases for sales and B&O that are somewhat significant.

And then beyond that, only minor changes, slight reduction in parking meter revenue, slight increase in court fines.

You can see what's listed there.

But again, that significant increase in retail sales leads to an overall increase of $9 million in general fund resources for 2024. And then in the final column, if you sum those across, 9.8, so almost $10 million of net additional revenue for the general fund, but again, the bulk of that coming in 2024. That's a lot and I suspect there may be a question or two and happy to take them on.

Great.

Thank you.

Good morning and welcome Tom Mikesell from central staff.

Thank you, Chair Mosqueda.

Thanks for the presentation, Ben.

The general fund financial plan submitted with the budget on page 497, includes a revenue number for 2023 of $1.704 billion.

Could you explain the difference?

Because it's important for us to understand how we can interpret these numbers in the upcoming council budget deliberations.

Yeah, I'm going to turn this over to Dave to give the details, but I think there's an important distinction between the revenue forecast and the financial plan is that the revenue forecast is the revenues, Financial plan is the resources, which could represent more than just the immediate in your term revenues that are going to be earned if you will.

So that distinction between essentially revenues and resources is an important 1, but I leave Dave to provide more detail.

Dave or Julie.

So, budget office question essentially.

Sure, thanks.

I'll take that.

Dave had us with the city's budget office.

So, The financial plan that you're referring to includes a number of items, not many, but several items that are in late legislation.

So, for example, the year end supplemental has items in it that could change the revenues.

that the city receives, but these have not been voted on yet, right?

There's also an additional piece of standalone legislation that has some revenue implications as well.

And so the revenue forecast that totals the 1.699 billion doesn't include those items yet.

And so the opportunity there is that the council will vote on those items and that revenue would get added in terms of the adopted budget's final numbers.

But the revenue forecast does not yet include those.

Whereas the financial plan, perhaps being slightly more of a policy document, includes those resources for use.

Thanks.

I do have a follow-up question.

Is there some other place in the budget document where a balanced budget is demonstrated?

Because I'm only familiar with the financial plan.

And then further, the $1.704 billion in the financial plan is included as a revenue line, not as a resource line.

And also, there are two year-end pieces of legislation.

There is the year-end supplemental, which is approximately $5 million of new revenue.

And then there's the year-end grants, which is approximately $8.8 million worth of additional revenue.

So in total, that's around $14 or so million.

Just trying to understand how these numbers all hang together, um, in terms of the revenue forecast and the balanced budget.

Yeah, so I don't know about the grants to be honest with you about what, you know, that total and what is included and what is not included.

Um, but the other is the 5Million dollar difference I think.

Is captured.

in the year end in that supplemental.

So I think we can maybe offline, we can work on the numbers to explain what the differences are and why.

If you have a comment, that would be.

The key is to understand how this new October forecast impacts net resources.

And it's a bit unclear given the numbers that we have right now.

And I think, Tom, that is a great time for us to emphasize that this is just one half of the equation.

So this is just the revenue side.

It doesn't capture anything on the expenditure side.

And so what Dave was mentioning is that we have proposals in the year and supplemental as well as a standalone ordinance that include revenues and expenditures.

And those have not yet been voted on from the council.

And that's why they're not included in the revenue forecast, but they are assumed.

to be passed in the mayor's proposed budget.

So that's where you would see the differences here.

So it's just a great reminder that this is just one part of the overall picture.

And we can certainly work together to help you understand where those pieces crosswalk.

Tom?

That would be extremely helpful.

Uh, thank you and before I go to deputy mayor of Washington, um, uh, I want our vice chair of this committee.

Um, I wanted to see if there was anybody in the room.

I thought I saw the box light up for the economic and revenue forecast team.

We're good.

You don't want to weigh in on that.

Okay.

Thank you.

I mean, I appreciate that.

And, uh, thanks for the back and forth and director Dingley for any additional follow up, um, uh, David, I think that, um, we.

Yeah, we, we, we understand, I think, how the different revenue streams come together and the difference between the expenditures and the revenue streams, but love to see more about where the assumptions are built in to the proposed budget versus what is the actual statute currently and then really delineate that out a little bit more as as Tom was saying, but thank you for sharing that additional information and very timely as well to have that this week.

Uh, deputy mayor Washington, our vice chair of the council, please go ahead.

Uh, thank you.

Good morning director noble.

Just 1 question.

Um, are the general fund increases on the slide?

Uh, more 1 time in nature, or will we see this higher level in the out years?

Uh, given the slowdown you're showing.

Overall?

That's a really good question.

Again, the key drivers of the increases are really on the...

Part of the answer is you can see some of that by just looking at the pattern between 23, the differences between 23 and 24, so that some of them really read as one-time changes.

But the big drivers for the increases in 24 are really retail sales and to a significantly lesser extent, B&O.

And that is an increase in our base revenues.

So we're not expecting that to be a one-time increase.

Um, we are in nominal terms, expecting retail sales to continue to grow, um, uh, into 25 and 26 and beyond.

So, um, so that that increment for 2024 is into the base, but.

Um, well, I'll wait the next slide.

It does highlight an issue about overall growth, though, of the general fund.

Thank you.

Go ahead Tom.

Sorry, can I jump in?

Oh, I'm sorry.

I didn't see that.

Yes, the tiles on here are really hard to see.

So please feel free to jump in.

Let's do deputy director and then we'll go back to Tom.

Thank you.

Sorry for interrupting there.

I just wanted to quickly return to the conversation right before deputy mayor Washington asked her question just regarding the difference between these numbers and what is in the proposed budget.

I think moving forward, there has been some inconsistency about how and when stuff like things that are included in supplemental budget ordinances are incorporated into forecasts and the timing of which, like the August forecast, for example.

Included some, but not all of the not yet voted on assumptions in the mid year supplemental budget.

So, moving forward, I think it would be good.

And I'm just saying this.

For the public to from a transparency perspective, if there was more narrative describing some of these differences in the transmittal of budget ordinances, supplemental or the proposed.

So there is clear delineation of what is or isn't assumed.

In in these forecast numbers, and I just want to be really triple check because we're going into balancing discussions this week that from the city budget offices perspective, this 9.8Million sort of 2 year difference is in addition is on top of the1.704 general fund revenues that you balance to.

Is that a direct question for the city budgets office?

Yeah, I'm director Dingley or Dave.

I'm wondering if you can just confirm that that is your, at least your initial understanding that this 9.8 is on top of the 1.704.

Yes.

Okay.

Thank you.

I would just say that I think this is a great example of where the forecast council is extremely helpful.

Thank you.

And very timely as we try to decipher all of the components of either proposed budgets in the year end, like we're currently in or mid year process where the revenue forecast information is also very timely there and happy to have this opportunity to bring together the executive and the legislative branch with the independent office.

So we can really have this information sussed out.

So thank you.

all for engaging in that.

Was there another question or hand, Tom?

Please go ahead.

This might be covered in Director Noble's next slide, but to Deputy Mayor Washington's question about the kind of long-term impact of the revenue forecast, can you tell how much the 2026 number is higher in the October forecast versus the August forecast?

Like, just in general dollar terms, I don't have that in front of me.

So I. It would take me a 2nd to pull up and I would disrupt the presentation to do so.

But let me make.

I can come back to the slide.

Let me, let me make a point on this on this general topic, which is, which is this 1. so.

As we're focusing a lot in 23 and 24, and we, the forecast largely hasn't changed for years beyond.

But it had me again, relative to 1.7B base, right?

What this chart does is like, this looks at the general fund forecast as a, as a.

in total, out for the full six years of the forecast.

I added another measure of the general fund, which is the forecast without grants and transfers.

And you can see that in 23 and 24, grants and transfers are a big part of the total pie as we're working through some of the jumpstart PET revenue transfers are assumed, significant transfers are assumed for 23 and 24. If you take those out and look at the orange, which is really sort of the core revenues of the general fund, what you can see, these are growth rates from the previous year.

And what you can see, there's actually a decline in 23, But the point I really want to emphasize here is the growth afterwards is very modest.

So we're looking at growth of general fund revenues to two and a half, three percent for a while here.

Again, this is, you know, we talked about slow growth going forward.

This is what that looks like in terms of general fund resources.

This is below rates of inflation for at least a couple of years, and we're already behind inflation relative to pre-pandemic levels.

So just this message, and we've delivered it before, that the forecast really does imply very slow growth for the next few years, and that will obviously have an impact on the resources available, at least from existing revenue streams.

And speaking somewhat to the question of you know how much is one term and how much one time and how much is is longer term growth.

Director Daley did I see a hand of yours.

You did but Director Noble covered it in in highlighting that these percentage growth amounts that we see here are much lower than projected inflation over those those time periods which is obviously just a really important piece to think about when we think about the spending side of this equation and buying power for the city.

For sure.

Thank you.

Tom, it looked like maybe we're going to say something.

Yeah, look at that.

I'm reading minds over here.

Okay.

Great.

Thank you.

Thank you.

So, understood the growth rates are fairly consistent though, as as the.

Results improve so as numbers come in higher than what the near term forecasts are, which I believe is what.

These most recent forecasts have have shown us.

that do appear to carry forward.

So even at a slower growth rate, it's almost like the base in 2023 is being adjusted upward.

So I think it will be revealing if we can see the actual revised forecast in the future years to see kind of what the impact of these better near-term results are having on the long-term picture.

So appreciate this additional chart, but I think that additional information would be helpful.

Yes, and we can, we'll transmit these and you can have that, and we can have those further discussions.

And just another point too, in terms of one-time and ongoing.

Actually, I'll go back to highlight this point, and I should have made it previous.

The 23 revisions would have been more positive, if you will, but for these one-time refunds.

So there is in total more than $5 million of refunds coming out of the general fund in 2023 That we hadn't known about in August.

So that's part of why you get to sort of discrepancy where the increment for 23 is relatively small 24 is more significant.

And those are those refunds are one time in nature.

Particularly on the utility side, on the payroll side, the jumpstart payroll expense side, it's whoever it was who requested a refund.

That was a one time one.

I do think it's important to understand that there's, there have been late payments, there will also be refunds, not just in 21, but in 22 and 23 going forward.

That is a normal give and take.

Uh, again, given the concentration of the relatively few payers.

That that could have a significant impact on, or a notable impact on revenues going forward.

Again, that's 1 of these things we're going to live and learn about.

If you will, it is 2023 and we're just now processing a 2021 refund.

so that kind of delay isn't unusual.

And again, it's something that we'll have to watch and learn about as we go as we go forward.

I'm going the wrong way there.

I would also add to that a note of appreciation for the finance and administrative services department.

Um, director Cornell, I know that your team has been really working hard with the payors of the jumpstart progressive.

Um, payroll tax, and that sort of level of detail and working with the.

Entities that are paying is appreciated.

So, sometimes it yields a late payment and sometimes it yields a return.

That's okay.

I think it just shows that your department's working really closely with those who are being assessed under this tax and making sure that we get it right.

So this is all good news.

I know it's a slight dip in the expected revenue, but overall, I think it helps to ensure that there's fairness and transparency and that's that's all good.

So I just wanted to lift that up and thank your team for that.

Thank you Council Member that are doing an excellent job.

But you're right.

This is just the natural ebb and flow of taxes and we're learning a lot as we implement payroll tax and how that our taxpayers are also learning.

So I think it's great that we have this transparency in the forecast.

Thank you.

Since we're in the mode, let me also express my appreciation to the Department of Finance and their tax team.

We have to coordinate closely, learning about things like refunds, understanding their timing, and they've been great partners in this.

So again, much appreciated.

So with that, I'm going to move on to other questions and talk about the non-general fund resources.

One of which is, I'll actually take it back.

I'm getting ahead of myself.

Just do want to highlight the difference between the baseline and the pessimistic forecast.

Looking here at the two primary revenue streams that are most affected by the economy.

So on the left is retail sales, shows 23 and 24. On the right, B&O, again, showing 23 and 24. The baseline in red, pessimistic, and I guess that's peach or pink.

Not much difference between the two forecasts for 2023, because we're nine, almost 10 months of the way through the year.

For 2024, those differences start to emerge, and they're significant.

And if you add them up over the two years in these two sources, the difference would be almost, well, it'd be $27 million.

The full difference in the general fund would be larger, because these are only the two primary revenue streams.

So if we were to shift to the pessimistic scenario, there would be somewhere in the neighborhood of a $30 million plus difference in the overall general fund resources available for 23 and 24. With that, I'm going to shift now to talk about non-general fund resources.

And again, the highlighting works as before.

Those in blue are primary responsibility of the forecast office.

The others, the budget office.

And the format of the table is the same.

So, jumping in for payroll tax, you'll see significant reduction in the 2023 saving almost 6Million dollars.

We have a separate a couple of slides to talk about payroll tax.

So we'll, we'll dig into that more.

largely driven by changes in expectations about stock value, which in turn affect compensation.

That same driver is a key aspect of the nearly $20 million increase for that same revenue stream showed for 2024. Another key driver there, and we'll talk about this in the next slide as well, there's a sun setting of an existing deduction that adds revenue to the forecast as well.

But again, we're going to come back to talk about payroll admissions tax up slightly for both years.

Again, this represents realized revenues and an overall increase in entertainment activity, if you will.

Other notable change here is in REIT, so the real estate excise tax decrease of approximately 1.9 million for 23 and about 1.7 million for 2024. Again, this is the effect of higher interest rates in particular, also just generalized slower demand for both residential and commercial real estate.

And these revisions reflect realized revenues.

So we've been bringing this forecast down a little bit at a time as we see these revenues come in and continue to be below our expectations.

And again, to give you a sense of how quickly this has dropped off, note that the 2022 actuals were more than $90 million, and we're now expecting 2023 to come in at less than $50 million.

So that is quite a swing.

And the 2022 actuals, that started to slow down in the last quarter of 2022. But again, these revenues have dropped off rather precipitously.

Some evidence that, uh, residential markets are showing some life.

Um, but again, uh, we, uh, we think this is a prudent and reasonable forecast update.

Um, small increment to the sales tax for the transportation benefit district that's consistent with the other sales tax increase.

And then, um, decreases to vehicle license fee.

Um, there was a delay in the implementation of the BLF increase.

Um, so that's, uh, that that had been approved.

So that leads to the slight decline in 2023, but isn't an ongoing issue that that that implementation has occurred.

So that's been resolved.

So 2024. Um, remain remain on forecast, let's say forecast unchanged.

Um, commercial parking tax again, I can slightly lower realized revenues, um, budget office may have more to say there.

Um, and then for 2024, significant drop in speed zone enforcement, uh, revenue forecast, and that's related to school construction.

So when schools go under construction, the cameras, it's no longer a school zone.

So cameras get turned off and there is then less revenue to be generated.

So now the city has full information about which schools will be under construction for 24, and that's led to that reduction.

So again, budget office, feel free to weigh in if I mischaracterized any of that.

No, I think that's accurate.

If there are questions for

Um, great, I see a director Dingley.

Did you have something before I on?

Okay.

Um, I see Tom, I just got to ask, though, um, for, like, the city family, it's more than just construction zones.

Right?

I mean, we had a delay in implementation of the school zone cameras.

That significantly reduced revenue coming to the city.

Yeah, that absolutely again, I don't have all the details, but there was an issue in the past 2024 numbers forward looking.

So those past issues resolved for 2024, we brought down the forecast has been reduced because of the information about the specific school construction activity.

Right, but the forecast does not include any new additional cameras.

Other than the 6 that were added, you know, in 2022.

Okay, thanks for that clarification.

Tom, please go ahead.

Thank you.

So, I apologize if I missed it, but what was the, the key variable.

Underlying the reduction in the school zone camera forecast.

Because I've been looking at the history and it kind of goes up and it goes down and it goes up and I'm, I'm just trying to understand what the, what the input is that is changing.

For 2024, it's the, a number of the schools where the cameras are deployed are going to be under construction and will not be operating as schools.

So, um, and that there are 2 schools.

Yeah, Mercer middle school and Montlake elementary, uh, were closed as of the end of the school year in 2023, um, for construction and it'll be, there'll be closed for approximately 2 years according to plan.

And so, um, there's a small change in 23 for that.

from the loss of essentially the fall semester, and then there's a full year's loss captured in 2024.

And so we didn't have that information for the August forecast?

Correct.

Got it.

Thank you.

Tom, did you have another question?

Maybe that's a double click on the hand.

Oh, no problem.

Um.

Read I had a question about read unless I'm missing somebody.

Please jump in.

If there's other folks who are trying to make comments here.

Um.

So the question that I had about REIT here with the decrease in expected revenue from, you know, over $90 million and now projected what of about half of that.

Yeah.

Thank you again to your team for helping provide any additional information that you have about the requested.

Construction, because again, I think if there's policy options that the executive, the legislative branch could consider together to expedite any permits, if that if there's a log jam.

That we can help free up or provide resources in the budget.

This to me, as a, as a revenue generator, it's also good for building and construction and housing and jobs and all the things.

But if it can help us fund some really critical programs.

Through the revenue, that would be good to know.

So, thanks for sharing that.

And just wanted to illustrate that point a little bit more about my interest in seeing requested versus approved permits.

You know, absolutely.

And again, just to emphasize is collected for any real estate transaction, but it's certainly true that new construction, it often new construction leads to a sale.

So, the best ones from a revenue perspective are condominium buildings, condominium goes up and they sell.

Well, there's 200 separate just picking with 200 units or 200 separate real estate transactions, which are subject to this tax.

Similarly, commercial office developers often build a building and then will sell it to someone who's going to operate it.

Construction activity is certainly correlated with real estate excise activity.

The current suppression, if you will, of that activity is also in part due to high interest rates, which is affecting both construction side of things and just also just being able to finance the purchase of even existing buildings.

But we will, again, follow up with the additional information about about permitting.

If there aren't further questions on this slide, I do want to spend a little time, and I'm going to turn it over to Jan again, just to give you some more information about the payroll tax forecast, both to understand what led to the changes, mention some legislation that could affect those revenues, and then also give you a sense of the uncertainty and the potential variance there, which is in the extreme, if you will.

So with that, I'm going to move on.

Come on, slide.

That's weird.

There we go.

All right, so here's some additional information and some context that we believe is important in understanding both how the revisions for 2023 and 2024 look like, what's driving those revisions.

And then I'll talk some more about the uncertainty regarding the jumpstart payroll expense tax in general.

Since this is a new tax revenue in place, we essentially only have two years of tax collection and our understanding of the tax base is evolving.

We are getting more familiar with the source and getting a better understanding of the factors that are behind the tax base and how it evolves over time.

So first, uh, the revision for 2023, the downward revision for 2023 is mainly driven by the lower expectations for stock price values for the rest of 2023. Um, August or summer in general was essentially a beat for stock markets since then stock prices have retreated slightly.

And so the chart on the right shows, um, the expectations, uh, in August, back in August in light blue and the current expectations in darker blue.

The point is the average expected year over year change and the line to the left and to the right that shows how much uncertainty there is involved between the lower low and the high The data here is collected from Wall Street Journal analysts, their ratings of different stock prices and what they believe is a likely future trajectory for different stock prices.

A couple of companies that we are listing here are for illustrative purposes.

They're known to have a significant footprint here here in Seattle, and so they provide good insight of.

Of how the stock price value some for taxpayers in general will be evolving.

In addition to the stock price changes, we incorporated the return to the office, the updated data.

We have several more months of return to the office data available.

That was mostly in line with what we were inspecting in August.

So that downward revision is again.

Primarily driven by lower stock price expectations, which we have come to learn are a major factor, certainly for.

The bigger companies and for the higher tiers stock price changes are driving.

the changes in the compensations as a big part of the salaries in terms of restricting stock units to stock brands that are subject to the jumpstart payroll expense tax.

And so looking at 2024, And the revision that upward significant upward revision in the expected revenue is coming from our revised approach to the forecast.

Since now we are closer to the year end.

We were able to incorporate.

The expected stock price changes for 2023, so looking at the year over year stock price change, the analysts are believing that 23 will be.

Sorry, 24 will be a good year or for stock market and they're expecting on average prices stock prices to go up.

So again, that purple point on those lines shows the average expected stock price change year over year price change and the line shows.

The range from a low to the high estimate, and as you can see, there is significant amount of uncertainty involved there for pretty much all these companies.

They're here as an illustrative example of companies there that have a major footprint here in Seattle.

So we have incorporated those stock price.

projected stock price values in addition to that included what our expectations are for the return to the office.

And the last factor that added some revenue was the sunsetting of a nonprofit healthcare entities exemption which added roughly 4.5 million in that forecast.

And I saw some question, I believe.

Great thanks Director Dingley.

Thank you.

Jan I was wondering about this because I know that this data these data are relatively new in in their use in forecasting for this revenue source and I'm wondering how accurate you have found these predictions to be.

I mean I I do see that in the chart they give themselves quite a widespread to be wrong but I'm wondering if if you have enough if we have enough experience with using this these data points to to get a sense of their relative accuracy.

Um, yeah, so if we can go to the next slide, and that would be the 1 where I wanted to talk a little bit more about in general, how uncertain how much uncertainty there is, and, um, how much we do know and.

How much we don't know, and I'll probably be talking more about the downside risk, but there is certainly an upside risk for the revenue as well.

So, um, if we are 1st, looking at that chart at the bottom, right?

Um, it shows the range.

of outcomes just based on the stock price values for 2024, how big of a range in revenue from jumpstart payroll expense that would be for 2024. You can see that the range is about 100 million, so roughly 50 million less than the baseline in pessimistic scenario, roughly 50 million more in the optimistic scenario.

And that is really just driven by what the model predictions are based on.

based on those ratings from Wall Street Journal analysts and the range of stock price values in the previous chart.

Back to the question, how precise do we think these forecasts for stock prices are and how much value, how much Um, they bring to the forecast again, we only have 2 years of, uh, tax collection.

So it's really hard to assess how much of a factor these stock prices are in 2022. 21 and 22 are certainly.

Um, why, uh.

quite unusual years for the stock market, where these tech companies first saw a large increase in stock prices, and then a significant drop.

We saw the same sort of behavior for the Jumpstart payroll expense tax revenue, and we collected more than $290 in the first year, and then it dropped to $250.

That supports our view that these stock price changes are a significant factor.

Because when it comes to the return to the office, there has been a general trend, upward trend.

We have not seen significant, the effect of layoffs in the tax sector has not been so strong for 2022. We certainly did not drop as much as revenue has dropped.

And that, again, reinforces our view and the model, the statistical model that we have developed support the view that stock prices are an important factor.

Um, that said, we have more work to do looking at, uh, we plan to do some.

Further analysis into the precision of, uh, just how precise those Wall Street journal analysts are looking 12 months into future for stock price that suppresses.

That's quite quite, uh, um, quite a strategy in some cases.

Um.

So, we plan to do that and then when we have a full year for 2023, we will reevaluate the model see how how.

And there are certainly going to be, there is a possibility of further large revisions.

So, in general, that highlights that all that uncertainty, even if we were completely able to forecast stock prices and knew what the stock prices are doing, we still don't know to what extent they are linked.

To the revenue, we believe that there's quite a significant link there, but we're still learning about that condition.

We, there are certain other factors and that what the chart on top is trying to illustrate beyond return to the office in the longer horizon.

We see some, some risk for the revenue coming from.

The higher office rates, it appears that the return to the office has more or less plateau doesn't look like.

In general, it's not believe that we'll be going back to 4 or 5 years back in the office for 5 days a week in the office.

Because of that, the office vacancy rates are expected to continue to climb further.

As the leases expire, the companies will be re-evaluating which of the office space to keep, which of the leases to let expire, and where exactly to relocate the workers.

Right now, to some extent, these companies are kind of tied and And there is potential to lose some of the tax base as some of the workers are relocating possibly outside of the city.

So, if that kind of scenario plays out, there is a part of a tax base that's at risk and that risk is not really incorporated in the forecast.

It's very hard to quantify how much of a tax base might be at risk because of that.

of those rising office vacancy rates more space available for the companies and companies that are seeing those releases to expire relocating and re-evaluating where exactly to be based on their needs.

We're in addition kind of limited in terms of what sort of data we have available and understanding in general the payroll and how the payroll evolves over time which require us to get some additional data.

So one of the things that we have been working on this year and spent quite a significant time and effort together with the IT department that has worked on this.

We were trying to get the access to payroll data and we are close to finalizing the We have signed the data sharing agreement and the database is almost in place so we'll have a chance to further look into the data, look further into the question how much of a factor are these stock prices, how much they are driving the payroll for the companies and the employees whose compensation is subject to the tax.

So, again, just to illustrate a lot of uncertainty here, um.

Some upside some downside, and we're still continuing with our, with our efforts to understand the base better and our improve our modeling.

Just add a couple things.

One, emphasize the uncertainty.

We put this number in those tables like it's like all the other numbers, but it's really very different.

Our level of comfort and certainty is low with respect to this particular revenue stream, and it's a large one.

So 310 million roughly at the base, but that's plus or minus 50. And again, that's consistent with, we saw a $50 million drop from one year to the next.

So that's real in terms of how this revenue stream behaves.

Another point just to emphasize is Jan was describing the return to the office potentially plateauing and office vacancies.

We're talking about it here in terms of its effect on the jumpstart payroll tax, but B&O tax is also very location specific.

And so potential for less folks working in the city will affect B&O revenues as well.

We haven't seen a significant change.

Haven't been growing as fast as they were before, but this is going to be potentially is going to be both that we would that we are not going to experience.

It's going to be sort of, you know, what could have been rather than sort of seen as a big drop from our current base.

But that, but workers in the city do make a difference for our revenues and not just for jumpstart.

They certainly affect, you know, to a lesser extent sales tax as well.

So.

That's what we have for the overall forecast.

The last two slides on Jumpstart were really just to make the point and Director Dingley's question was well-timed about the level of uncertainty around that forecast.

But otherwise, we've given you the full set of numbers here.

Happy to answer questions, happy to page back up to highlight other slides, previous slides as well.

Thank you very much.

Um, thanks for the last part of this conversation.

I think it underscores much of the discussion that we have also been having in the revenue stabilization work group.

You know, it might be tempting to just think there's a simple answer to trying to address the gap between revenue and expenses in the out years, but.

Given the instability of specifically the jumpstart progressive payroll tax, it's a good warning and a good reminder to folks of the newness of the tax, but also the volatility of the specific sector and the relatively few number of payors into this area, which we're seeing from your earlier chart have ebbs and flows in terms of.

The number of employees projected to to remain in our local region, specifically in the tech sector, which is a national trend as well.

So, so, so thankful that we have the pairs of jumpstart helping to buoy our local economy with investments in jumpstart and that we've been able to strike a balance, a temporary balance and compromise for the use of progressive.

Um, payroll tax and thankful that we have a common understanding of how that could be used for 2023 and 2024. but we also recognize that there is many more revenue streams that need to be balanced or enhanced for us to create greater stability in the out years.

So, thank you for illustrating the uniqueness of jumpstart.

I would also note, I think that there is a common commonality between the executive and the legislative branch as it relates to the.

Health science sector payors, which was slated to sunset this later this year, given the ongoing stakeholdering that needs to happen and the, um.

The conversations that we've been engaged in on.

I'm really just trying to create stability for the health sciences sector that is planned to be extended in the legislation that the mayor has transmitted.

And I think that there's understanding that more conversations would need to happen with that sector before implementation of.

Uh, that assessment, so, um, I think that that's just something to note in terms of the available revenue that would be available to the city family to help address the ongoing needs in the near term.

But also we would anticipate that being put into place for at least the next 3 years.

Okay, I'm seeing nods from director Dingley anything else that folks would want to add on this section.

Any questions for director noble on the overall presentation and to the entire team.

Okay, colleagues, we are now at the point where we get the chance to deliberate the question in front of us of whether or not the forecast council should concur with the forecast and the recommendation to use the baseline forecast.

If we can collectively concur with the recommendation, no vote is needed.

Instead.

It would simply be directed that the meeting minutes reflect our concurrence.

On the other hand, and I want to encourage discussion on this, if there is a desire to adopt 1 of the alternate forecast scenarios, the pessimistic, or the optimistic, we would need to vote on such a proposal.

I just want to pause here to see if there's any interest in.

In considering an alternative approach, I, for 1, I'm comfortable with the baseline forecast that's being recommended here today.

Okay.

And I'm seeing some nods here today.

If there is no such interest in considering an alternative approach, I will enlisters objection, direct the forecast office to report our concurrence in the meeting minutes with the baseline forecast.

No objection, let's go ahead and record our concurrence with the baseline forecast in the meeting minutes.

Okay, I'm going to move this.

Oh, excuse me.

Was there a comment on that?

No, I'm just going to say that consider it done.

Considered done perfect.

That's what we like to hear.

Um, and director noble, um, I would love to follow up with you, um, perhaps as well with, uh, director Dingley.

And we know we have a meeting on Friday and seeing some of the longer term scenarios that, uh, specifically, uh, Tom, my soul noted as of interest to us, if possible, we'd love to talk with you about what would be possible to present.

As an addition to this presentation that you have here, we know that it's a truncated version of the presentation, but now we're asking you to add more.

So we'll have to balance that with you and appreciate if if you're able to accommodate such a request on a short timeframe here, that would be very helpful.

So, we'll have more conversation about this and our goal as always is to make sure that the information is presented in public in real time via the Seattle channel.

Thank you very much to members of the press and the community.

And then we also want to underscore some of the takeaways from this presentation and we fold in additional revenue streams that are not within the office of economic remedy forecast.

To provide a fuller picture for council members in our following meetings and finance and housing this time of the year, we are in budget committee.

So our next budget committee is on Friday.

So, again, look forward to chatting with you about what is possible to include in terms of the longer scenario in the presentation on Friday.

And with that.

We will have more follow up conversations, but I would like to move us to item number 4 on the agenda.

Okay, hearing no objection, let's move on to agenda item number 4. This is the proposed policy governing confidential requests made by the office of economic and revenue forecast for discussion and possible vote.

As we dive into this issue again, I want to provide a little bit of context.

As I noted at the beginning of the meeting, when the Seattle City Council moved to establish the independent office of the economic and revenue forecast.

The primary function we had in mind for the office was preparation of the city's quarterly revenue forecast, but we recognize that the forecast office work would be ongoing and cyclical peaking with the presentation of the forecast, but less intense at other times.

And we also recognize that within the office, we have economic and financial expertise that.

Are a valuable asset to the city as we consider possible proposals as we want to flesh out various scenarios for policy deliberations, whether that's in the executive branch or the legislative branch.

So, accordingly, the authorizing legislation explicitly noted that the forecast office would be available for that type of research for both the executive and the legislative branch.

And we really underscored the importance of having the body, the office of revenue forecast available to both branches of government.

These tasks could be jointly requested of the revenue forecast, or could be separately requested by the executive or the legislative branch.

So, recognizing that sometimes confidentiality is important as we think through different scenarios and don't want to alarm either branch of government.

or that there is the possibility of information that's being requested, being assumed to yield a certain outcome, but not necessarily ready for prime time.

Confidentiality is important and something that I respect is needed from both branches of government.

So Director Noble has brought forward a proposal to help clarify our collective expectations about how the forecast office Should conduct and share its work.

I appreciate that director noble has been proactive in making this proposal and I look forward to discussing it with the full council after he provides this overview.

So, again, thank you for.

The foresight to bring this forward for our discussion and deliberation, we are still in our somewhat infancy.

I think we're at the near the end of our 2nd, year of the forecast council.

So it's still relatively new and appreciate the enhanced policy that you're bringing forward here today for discussion.

Thank you very much, Councilmember.

Let me, I'm going to dive into the PowerPoint just to give you all essentially a summary of the proposal.

There's a copy of the actual written policy that was in the materials.

Let me just take a moment.

Oops, did that wrong.

To walk you through in more detail what we're proposing and why.

So just real oops, I picked the wrong one.

Sorry, one sec.

And what I want to flag for folks, just while there's a pause, my Internet is coming in and out.

So, if I come off screen, I'll try to join right back again with my cell phone.

And I'm having some issues at my end 1 sec.

There we go.

Try to share this again.

I don't know why you all cannot see that.

Can you?

Oh, I think I know you can see it pretty good.

It's no problem.

There we go.

Now it's even better.

All right.

So, um, why is such a policy needed?

Um, so, as you described, uh, council member, um.

We, our primary function is to prepare the revenue forecast, but we also have a work program that allows us to do work for either either branch and the expectation is that work could be done in confidence.

So that's the background.

1 of the things I've come to realize is that our effectiveness really depends on the, the trust that we have from both branches and that that we are seen as a neutral and independent party.

So, um.

and that we can't afford to have even a perception that that isn't the case.

And what I came to realize is that there was at least a potential that if we did work for one side or the other, that we might be perceived as being, as supporting one side or the other.

In particular, if our research was, ended up being used in support of some policy proposal that, you know, that the other branch might be surprised to see that, if you will, the forecast office had lined up behind whatever this proposal might be.

And that wouldn't have been the case inherently what we would have done is answered some research question and provided some some estimate, but it might be misinterpreted that way.

And again, given that we depend on the trust and the faith on both branches, that isn't something we would want to even risk at all, even a little bit, if you will.

So I thought it would be helpful for all of us, for everyone to understand, if we are asked to do some work on a confidential basis for either branch, what happens when that work is done?

How is it shared and in what ways?

So work up the draft policy that I provided to you.

Let me just walk through the kind of the key points to it.

So one, just right off the bat, is public disclosure obligation.

So this policy talks about being able to keep information in confidence, but none of this policy does, speaks to or can in any way supersede the State Public Records Act.

So if we, the Forecast Office, get a public disclosure request, this policy doesn't inherently affect that in any way.

There may be a deliberative, Process exemption that's available or not, but this policy isn't designed in any way to get in the way of, if you will, our public disclosure obligations.

We're a relatively small outfit, so I'm effectively the public disclosure officer for the office.

If I get such a, if I got such a request, and it was a request related to confidential work, I would work to consult with either branch that had requested the work and figure out what's the right thing to do.

I did write in the policy that after those consultations, it's the forecast office that would decide what to do ultimately, because somebody had to decide.

But again, I don't expect there to be any issues there.

I just wanted to highlight that point that Public Records Act still applies.

Working materials.

So it could well be that we do some research project and come up with some analysis, even a revenue estimate for one branch or the other.

And given what we've provided, the respective branch says, you know what?

That was a bad idea, or we're not interested in pursuing that, and we're just going to put it down.

In which case, we would put it down too, and that could well be the end of it.

I don't think it's not going anywhere, if you will.

I don't think we have a responsibility or inherent responsibility to need to share it with the other branch.

So that's one thing about working materials.

On the other hand, if things are going to be made, if our work is going to be made public really in any way, One key element of the policy is about transparency.

And it just says that if you're going to use our numbers, if you will, you got to cite us and say that that's where it's from.

Again, that's not my ego.

That is just transparency, again, that whoever is consuming this know where these numbers come from.

And in particular, if they come from this independent office, that they understand that.

So it's not just a transparency thing.

And I think that's straightforward.

Maybe the core of the policy is the next one is this no surprises notion.

So, ideally, if we do good work, and it was about an important policy proposal that you either branch will want to bring something forward and make it public either as part of a presentation of a general proposal that's yet to be get to form actual legislation or something more specific than that.

And what I've outlined and proposed here is if that's.

Going to happen if our work is going to be used to advance in a public way, a proposal, or even just a generalized discussion led by either other by either branch that we are given an opportunity.

Not a long 1, 2 or 3 days to let the other branch know what we worked on and where these numbers come from.

Again, the idea is that I think if if we're given a chance to inform the other branch minimizes any sense or any risk that we might be seen as having.

done work to favor one side or the other, one branch or the other.

It is just a heads up to the other side.

It's meant two or three business days is enough for the other branch to become educated, but also not too long that the requesting branch isn't able to ultimately develop its proposal in confidence in the way that Council Member Muscata has described is desirable potentially for both sides.

Again, before our work goes public, Um, in in a discussion setting or presentation setting, we'd have a chance to brief the other branch about what we had done and the nature of our work.

Um, and that 2 to 3 days is the is what's the guideline there is reference to the fact that if the director thinks that that's not enough time.

For whatever reason is particularly complicated, or I can't anticipate what it would be, but I did want to give some flexibility to myself or subsequent directors about about that notification.

Having states and that's really the meat of this that we've been given a 2 or 3 days to educate the other side about about the work we had done.

There is immediately, though, a flight exemption and that's about fiscal notes.

So, um.

The legislative process, you know, the introduction of legislation, um, and the, and fiscal notes with it.

So, every piece of legislation requires a fiscal note.

But as as those members of the committee, you know, both.

branches operate under a pretty detailed process about the development of legislation.

There's a set of protocols there and timing that you all both understand.

And in particular, developing legislation in confidence is something that both branches value.

So again, as stated here, if the work we are done is really limited to developing a revenue estimate or a fiscal impact estimate that would be part of a fiscal note, we would not be required or not have the same pre notification of the other branch.

So not that two to three days.

That way the legislative process can continue and operate the way that it does in terms of when things are introduced and presented to the clerk.

But that said, we would then, if that happens, if our work is included in a fiscal note and legislation is introduced, we would immediately reach out to the other branch, let them know, hey, this is what we did.

This is where that number comes from.

If you'd like to chat with us some more about it, we'd be happy to do that.

And actually, we just did this with respect to a piece of legislation.

So this is not that unusual, and it's played out in practice.

And the last point, just about, so if we have those conversations, either, because we're in the no surprises scenario, we're given given a couple of days or after the fact on a fiscal note, just to be clear about what we would share.

So, and basically we would share our work.

We would not share to the extent that we then got questions about, well, what do you think the policy interest was of the other branch?

Or did they consider this or that?

We would say, and we might well have been party to conversations where we would know the answer to those questions.

But I don't see that that would be our appropriate for us to answer those questions on behalf of the other branch rather we send folks to the, you know, you should go talk to them.

They're the ones who were doing that work.

This is what we did.

And this is what we contributed.

So, again, I want to respect of the process on for either branch developing proposals related point, we might well come into to knowing.

Legally privileged information and again, we wouldn't share that except if the other party across the table, the other branch was within that privilege as well.

So we're not going to be spilling those legal beans, if you will.

But basically the idea here is that if we do this work in confidence, keep it in confidence for a reasonable period, but also share it with the other before things are made public and before the work is put to work, if you will.

And that's really what's outlined in the policy.

I'll put the slide back up in just a sec.

In terms of next steps, just to give you a sense of where this could go, if you approve the policy, and again, I'm not trying to pressure, but if you do, we'd put it up on the website, and then we would then be working with central staff, the budget office, and the two branches to implement, just going to work out at a practical level what those protocols look like.

Again, we've already sort of done this path to a degree.

Um, but I do really think this is important because again, the just stepping back 1 more time.

Our office depends on the fact that we are considered neutral and trustworthy for both branches.

I wouldn't want us to get sideways of that because of work that we've done in confidence for 1 branch or the other.

But I also think it's really important that we'd be able to do that work in confidence.

We are an asset to the city.

There are times when our work program allows us to do that.

Candidly, we enjoy it, but that's not really the reason to have the policy.

But I do think this will help clarify the expectations and protect the neutrality of the office.

And happy to take questions.

Thank you.

Thank you so much.

Thanks again for the proactive work that you have done on this policy.

Um, I, I really do want to make sure that you hear from us as the forecast council, our appreciation for the confident confidentiality, of course, but also the expertise that's within the office.

And want to make sure that your team feels comfortable in generating materials and generating analysis for future city work.

I would like to ask the body to to have a little bit more time to work through this policy.

And really appreciate that the interest is ensuring that there's no surprises.

1 of the things that I think is important, though, as we think through policy decisions, is sometimes we want to take the fiscal analysis or the revenue analysis and couple it with additional context.

So.

On number 4 there, I'm 1 of the things that comes to mind is the need for us to really ensure that the timing is right the sequencing.

So that the full picture of whatever proposal that's accompanying any proposed policy that affects revenue is really fully understood.

So, to me, that might mean.

We would need to think about, you know, what's the timing of these conversations that are happening between the executive and the legislative branch having additional folks there to provide an initial briefing.

I think is helpful to provide the why a policy is coming forward.

And that's not something that the, that should be incumbent on your office to do.

I absolutely also think, though, that.

Once information is going to be shared, it should absolutely be cited both for the intellectual property of your team, but also to ensure that it has the weight of the office behind it.

So, I'd love for the council members to.

Have a chance to sit with the policy and maybe even think through various scenarios and work through that sort of rubric with central staff and the city's budget office with our, our team from the legislative branch with council president or as myself and deputy mayor.

Um, Washington and the finance director, so that we can really think through how the various scenarios would play out.

But I think the absolute goal is shared between the executive and the legislative branch.

I saw a lot of nodding and a lot of appreciation for the need for this and would suggest that we can either have some of those scenarios shared via email.

And if that's easy to resolve quickly.

That sounds great to have an email correspondence, or we can hold this over for our 1st quarter meeting next year, but would welcome additional thoughts on that.

Because I know that we very much all value your perspective on this and would ask for additional time to think through those scenarios.

So that the data and the analytics are accompanying the policy and the rationale, because those 2 conversations are really important to get right and to sequence any additional comments.

Just real quick in response, I think that that does make sense.

We could certainly add some language that I think ideally if.

If the 1 branch, we're briefing the other about whatever this proposal is that we would be part of a team that was doing a briefing and that we could present and we could, we could allude to that more more specifically that that, you know, that that would be a preferred approach.

I wouldn't want to be clear that if that wasn't going to happen, if the 1 branch wasn't offering the other branch that we would still have this.

This obligation, but excuse me, I think again, our only interest has been to be helpful and to, you know, and to share stuff.

But I think that that that that's that would be a useful addition sort of describing that we would extend possible coordinate with the sponsoring branch if you will about briefing the other.

I think that's that's that's simple enough to do.

And there may be other scenarios.

So I do appreciate the idea of some email exchange about that.

I wasn't.

Not trying to rush this, but I'm glad to see that see you engage and think about some of the implications and some scenarios.

Yeah, no, absolutely.

And we appreciate that.

You brought this forward and have it in this format.

So we can react to a concrete proposal director Dingley.

Please go ahead.

Thanks Chair Mosqueda.

I agree I thank you Director Noble for bringing this forward and for your proactive work on this.

This is really helpful for us to react to.

I think that the tweaks that Chair Mosqueda is referencing really they make a lot of sense and I think we can probably handle those via email relatively quickly because I do think it's relatively minor in scope all all things considered.

So I really appreciate you bringing it forward.

I think we can get this to resolution.

pretty quickly.

So thank you again.

Great.

Deputy Director Panucci.

Thank you.

Yeah I just I also wanted to thank the the forecast office.

We have had some opportunities to work with them this year and sort of test some of these policies out I would say without realizing it.

And so we can offer some of those scenarios of how that has played out.

in some work recently and agree with Director Dingley that I think they're relatively minor tweaks and hopefully we can work it out over email.

So it would be great next year as we launch the new forecast council to have this in place as we continue our work together.

Thank you so much.

Okay, director noble.

I want to thank you again for thinking through this proposed policy and look forward to putting our heads together with the members of the forecast council and our corresponding teams here to think through some various scenarios just to be prepared for what may come in the future.

But we really want to thank you for the collaborative work that you have been able to offer via your an analyst and your.

Your engagement with each branch, I think, has helped to inform existing policy already and it's furthered.

I think a collaborative, a really collaborative relationship between both branches.

So that's the goal to make sure everybody has access to the data they need and that it's well informed and that we can collectively move forward on important policy issues.

So, thanks for helping to flesh out this policy and colleagues, let's just plan to then have some additional conversations and to the degree that we need to work through the process for a vote, whether that's a vote via email or reconvening quickly.

We'll work that out with you all here shortly, but it doesn't sound like there's a huge time crunch, but ideally to have this worked out quarter 1 or prior to quarter 1 is the goal.

So we won't let this hang over too long.

Director noble.

No, all good and for what it's worth, we're going to operate consistent with this in the interim and essentially already are.

So, again, and we'll coordinate.

With sponsoring branches to be sure that we're not getting ahead of anybody, but, but in any case, much appreciated and look forward to those conversations.

Okay, excellent.

So more to come.

We are, though, at the end of our formal agenda.

Did you have anything else you'd like to share with the body director noble or anybody from the forecast office?

I do not so yeah, we're done.

All right and my Internet remained so we are good.

We have.

Reached the end of our agenda, but we've also reached the end of our official meetings this this year.

So I want to thank you all for engaging.

It's been my honor to serve as chair over the last.

2 years now, and I really appreciate the work that this body is doing and it is going to help inform our conversations in the last few months here.

In the last few weeks, as we finalize the budget again, look forward to seeing you on Friday at the at the budget committee meeting, and we'll chat more with the team here about that proposed agenda and topics.

But I really appreciate that.

This information is being shared out to the public via Seattle channel.

Thank you for broadcasting and to all of the technical support staff that make it possible to get this out the door.

Thank you.

Colleagues hearing no additional questions or comments.

We are adjourned.