Council Digs In on Harrell’s “IOU” Budget

Source: City Council central staff budget presentation

By Erica C. Barnett

The city council started breaking down Mayor Bruce Harrell’s budget in earnest on Tuesday, zeroing in on the mayor’s high-level plans to balance the budget by using revenues the city previously allocated to other purposes, including the JumpStart payroll tax, to help resolve a $141 million budget gap that is expected to grow every year through at least 2026.

Overall, the mayor’s budget would add about $32 million in net ongoing new expenditures (total expenditures minus cuts) next year, and about $52 million in 2024. Over two years, those proposed new expenditures include $8.8 million to make the Seattle Community Safety Initiative, a youth gun violence prevention program run by the nonprofit Community Passageways, permanent;  $3 million for the Regional Peacekeepers Collective, another program run by Community Passageways; $1.2 million a year to keep the Public Defender Association’s Co-LEAD shelter program going; $11 million over two years for police hiring bonuses at SPD; and at least $13 million to expand the city’s Unified Care Team, which does outreach and encampment removals, and the Clean Cities Initiative, which clears trash and removes graffiti from buildings.

Every year, the mayor proposes a budget and the council amends and approves it. The process can be highly contentious, especially in lean years. Starting in 2021, the city has used the new JumpStart payroll tax—a payroll tax on the city’s largest employers—to fill revenue shortfalls caused by the COVID pandemic and the resulting economic downturn. Harrell’s budget would continue to use the JumpStart tax to fill the ongoing budget gap, using $86 million in JumpStart revenues to backfill the general fund in 2021, and $84 million in 2024.

Last year, anticipating that future mayors would continue trying to use JumpStart revenues for non-JumpStart purposes, the council passed a law codifying the existing, but never fully realized, JumpStart spending plan. The ordinance restricts JumpStart spending to four specific categories: Housing (primarily affordable rental housing for people making less than 30 percent of median income); local businesses and economic recovery; equitable development projects that increase opportunity and prevent displacement; and investments that support the city’s adopted Green New Deal priorities.

On Tuesday, Harrell and Mosqueda announced the beginning of a process that could lead to new progressive taxes or fees to pay for some of the programs his current budget relies on JumpStart to fund. The new Revenue Stabilization Work Group includes representatives from business, labor, and nonprofits, including the progressive Washington Budget and Policy Center and the Transit Riders Union.

The new law does allow the city to use the tax for other purposes in one circumstance: If general fund revenues fall below about $1.5 billion, the city can siphon off JumpStart funds equal to the gap between actual revenues and $1.5 billion. If general fund revenues were $1.4 billion, for example, the mayor and council could take up to $100 million from the JumpStart fund to address the shortfall.

Harrell’s budget would require the council to amend this newly adopted law so that the general fund “floor” would rise every year according to the rate of inflation (currently 7.6 percent), which would also increase the differential between revenue projections and the new floor. The change would set up JumpStart to permanently solve a structural budget gap that exists because general-fund revenues aren’t rising nearly as fast as inflation, including property taxes, which by law can only increase 1 percent a year.

As a memo from the council’s budget staff puts it, “the proposed policy change … could result in permanently backfilling revenue losses that are due to noninflationary factors in other funds. Put another way, the JumpStart Fund transfer would be permanently solving stability issues inherent with the existing [general fund] financing structure.”

The change would enable the city to rely on the JumpStart tax to provide a huge, permanent cushion for the overall budget by diverting more and more of the tax from its original purpose. Next year, for example, the general fund actually is close to $1.5 billion, the current floor, meaning that under current law, the city can’t use JumpStart revenues to pay for anything above that amount. If the council adopts Harrell’s proposal, the change would allow the mayor to remove $105 million from the JumpStart fund in 2023, $176 million in 2024, and $189 million in 2025.

Council budget Teresa Mosqueda said she was disappointed that Harrell proposed permanently changing the law governing how the payroll tax can be used, since the council agreed in principle back in August that the city could use JumpStart revenues in excess of previous projections, as long as those funds went to prevent budget cuts and “austerity.” At the time, those excess revenues amounted to $84 million in 2023 and $71 million in 2024—not much less than the amounts Harrell has proposed allocating.

“I think making these changes in perpetuity is very problematic to the sustainability of JumpStart and… concerning for this for the budget overall,” Mosqueda said. “To rely more and more on JumpStart creates greater instability for our overall budget going forward.”

Harrell’s proposal would also repurpose revenues from two other sources: The short-term rental tax on Airbnbs, which is earmarked for the Equitable Development Initiative (EDI); and state taxes on car services like Uber and Lyft, a fairly small revenue source that’s supposed to go to affordable housing.

District 2 (southeast Seattle) Councilmember Tammy Morales, who heads the committee that oversees EDI, said the program “is not just about affordable housing. It’s not just about senior housing. It really is about intentionally building space or the essential services that any healthy neighborhood needs and [providing] the opportunity to do it in a culturally appropriate way.” Although the Office of Housing funds housing projects, Morales continued, they often don’t pay for ground-floor services, like health clinics and day care centers, which is one reaseon the city started the Equitable Development Initiative in the first place.

“In asking departments to really tighten their belts, to look at where we can save money, we came up with the increase [for human service workers] of 4 percent, which would create anywhere between, I believe, $7 million to 12 million or so in savings, which allows us to do other things to help the same communities that they serve. And so we think that what we propose is consistent with the values that we set forth.”—Mayor Bruce Harrell

Harrell’s budget also includes an assumption that the city will spend $10 million less than what’s in the budget for the next two years, without identifying where those future savings will come from—a policy a council staffer referred to as an “IOU to come in under budget.” In 2022, the mayor achieved about $20 million in savings by placing “holds” on dozens of items the council added to its 2022 budget last year, including a new pre-filing diversion program for people over 25; money for a new health clinic for Asian Pacific Islander seniors; funding for the Mobile Crisis Team; and the expansion of an Office of Housing program that provides case management and housing stabilization to people who are homeless or at risk of homelessness.

Mosqueda also flagged her disapproval of Harrell’s proposal to limit mandatory increases in human service providers’ wages at 4 percent a year—about half what they would receive under legislation the council, then led by Harrell, passed unanimously in 2019. As we reported, Harrell even added an amendment to the 2019 bill clarifying that it was important to provide inflationary wage increases during times of economic hardship, not just prosperity.

When PubliCola asked Harrell about this apparent about-face, the mayor said he saw no contradiction between his position three years ago and his proposal to effectively overturn that legislation now.

“What I said in 2019 [was], we have to recognize that social workers and mental health counselors and those providing some of these essential services are underpaid… through good times and bad times,” Harrell said. “In asking departments to really tighten their belts, to look at where we can save money, we came up with the increase of 4 percent, which would create anywhere between, I believe, $7 million to 12 million or so in savings, which allows us to do other things to help the same communities that they serve. And so we think that what we propose is consistent with the values that we set forth.”

On Tuesday, Harrell and Mosqueda announced the beginning of a process that could lead to new progressive taxes or fees to pay for some of the programs his current budget relies on JumpStart to fund. The new Revenue Stabilization Work Group includes representatives from business, labor, and nonprofits, including the progressive Washington Budget and Policy Center and the Transit Riders Union.

6 thoughts on “Council Digs In on Harrell’s “IOU” Budget”

  1. feistybrain… let me break amending the Washington State Constitution down for you. The State Constitution has already been amended over 100 times. All it takes is both houses in Olympia to vote to put the change on the ballot. Currently the State government is run by the Democratic Party. It’s not rocket science here.

    As far as voters signing off on a State income tax, who really knows? If the Democrats actually simplified the tax system, made it more progressive and revenue neutral, I’d guess voters would likely sign on.

    But the trouble is Democratic pols are addicted to tax money. Adding an income tax would just look like free money to them. There’s no appetite for cutting the sales tax or getting rid of the B&O tax, so why on earth would voters support yet another tax?

    Back to Seattle politics… I suspect Harrell and City Council to look for yet more regressive taxes on the working class to balance their budget. I guess the soda tax wasn’t enough for them. Booze, weed, permits, God only knows what taxes they’ll boost, but it’s coming.

    If you want to know how Washington got into this mess, look at the history of the B&O tax. The B&O tax was supposed to be a temporary tax in the Great Depression (1935) but it’s never been taken off the books and over the years other value added taxes have been just piled on top of that. Until the Washington State tax system is progressive, there will be no real headway to making anything else in the State progressive either.

    1. Yes, Tacomee, a Constitutional change has to go on the ballot. And such a change for an income tax HAS gone to the ballot many, many times, all slaughtered by voters, the last several by a 2 – 1 margin. The last time, the campaign for an income tax on the highest earners was led by Bill Gates Sr. (may he be resting in peace), and largely funded by the very people who would be taxed. But the voters still resoundingly said no. Former Governor Booth Gardner (also resting in peace) twice pushed for an income tax to go before voters, and those also were trounced. And even though I detest the “advisory votes” that appear on our ballots following tax increases by the legislature (these advisory votes are due to a Tim Eyman initiative), one can again see that voters consistently “advise” opposition. Because those advisory votes are meaningless, the taxes are not overturned. But it certainly shows that voters are no on board with all the tax increases.

  2. It will only be permanent if companies with high paid executives choose to come to Seattle or stay in Seattle.

    1. The future of the Jumpstart tax is a good question. I believe the projected revue falls over time as companies figure out ways to avoid paying.

      I feel bad for Seattle because Washington State law really ties their hands on what sort of taxes the City can raise. Washington State is one of the most regressive States in the Union tax wise.

      Where the Democrats have totally failed is to simplify State taxes with a graduated income tax and do away with most the endless regressive value-added taxes and goods, services and even housing, (i.e. sales taxes, B&O tax).

      Harrell and the Council will do a lot of finger pointing at each other over the budget, but the real trouble is the State mandated ways the City raises revenue. As bad as the budget projections are for next 5 years, they’re not taking into account that the US economy is headed into recession.

      1. Tacomee, you may not realize it, but Democrats cannot just implement “a graduated income tax” – or any kind of income tax. Such a change would require an amendment to the State Constitution – something voters have said “NO” and “HELL NO” to 9 times in the past 90 years or so. The State Supreme Court ruled repeatedly that certain taxes are considered income tax, and tossed them out, including some of the taxes the Seattle City Council passed. And, in case you missed it, when the Washington State Legislature passed a capital gains tax, it was challenged in Court. “In March of 2022, the Douglas County Superior Court ruled in Quinn v. State of Washington that the capital gains excise tax (ESSB 5096) does not meet state constitutional requirements and, therefore, is unconstitutional and invalid.” The case is on the way to the State Supreme Court. You can read more here: https://clarknuber.com/articles/douglas-county-superior-court-rules-washingtons-capital-gains-tax-unconstitutional/#:~:text=On%20Monday%2C%20March%201%2C%202022%2C%20the%20Douglas%20County,Washington%20State%20Constitution%20and%20is%20therefore%20invalid.%20Background

      2. Actually it would require two separate amendments to the State Constitution. The first would have to say that income is not property, as in this state it is considered such. Therefore, property taxes are income taxes. The second would have to permit a graduated income tax system, as currently only a flat income tax is permitted.

        Even with the amendments though, enacting them would be suspended pending Washington State Supreme Court review, as they ruled on this decades ago. Realistically a graduated income tax will never happen in the lifetime of anybody currently living in the state. The last proposed one on the ballot was awful, allowing rich property owners to pay less in taxes if they owned even a small amount of property. Which is why people like Bill Gates’ father supported it in the first place.

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