The mayor and city council have a spending problem.

By Erica C. Barnett

Buried in Mayor Bruce Harrell’s proposed budget, on page 661, are two numbers that strongly suggest the city is not done pulling money out of the JumpStart payroll tax fund, and will probably rely even more heavily on revenues from the tax in the future. The JumpStart tax, also referred to as the payroll expense or payroll tax, is a tax large employers pay on the compensation of their highest-paid employees; it’s currently earmarked for affordable housing and economic development in marginalized communities,

Those numbers, at the bottom of a chart showing a big-picture view of the city’s general fund, are a projected budget deficit of $78,609,000 in 2027 and $151,238,000 in 2028.

Although out-year budget numbers are always more speculative than projections in the immediate future, the scale of these potential deficits could lead the mayor’s office to propose using even more JumpStart revenues to backfill those shortfalls in the future—just as a projected budget deficit of $229 million in Harrell’s mid-biennial budget raised alarms last year and prompted the mayor to propose a 2025-2026 budget that uses $287 million in payroll tax revenues for general purposes that are not a part of the city’s JumpStart spending plan..

The numbers are cumulative, so the 2028 figure represents an unaddressed 2027 deficit of $78 million, plus an additional shortfall of $73 million in 2028. Both of these projected deficits already account for ongoing increases in the amount of JumpStart payroll tax the city will transfer into the general fund—$469 million in 2027, and half a billion dollars in 2028.

It isn’t unusual for the city to project deficits in future years. But prior to this decade, these projected deficits, when they showed up in the budget, were tens of millions of dollars, not hundreds of millions. Once the projections started showing future shortfalls near or above $200 million, back in 2022, city officials began wringing their hands in public about the “looming budget cliff” and talking about ways to raise more revenue to forestall major cuts. That led to Harrell’s decision, supported by most of the council, to take hundreds of millions of dollars out of JumpStart to close a deficit most recently projected at $260 million. Harrell’s budget shows the deficit immediately bouncing back into the hundreds of millions, indicating this year’s fix—raiding JumpStart—won’t be enough to close the long-term gap.

PubliCola requested an interview with the budget office last week and followed up on Monday. We’ll update this post if we hear back.

The mayor’s budget indicates that this year’s controversial use of JumpStart funds, which are currently earmarked by law to specific spending categories (affordable housing, Green New Deal programs, equitable development, and small businesses), may be the tip of the spear for a wholesale reallocation of payroll tax revenues in the future.

The most obvious alternative, assuming the city does not come up with new revenue sources or expand the payroll tax, would be to cut existing programs and refrain from creating new ones.

Fiscal restraint, needless to say, doesn’t win popularity contests, and Harrell—who’s up for reelection next year—has mostly taken the opposite approach. Although his proposed budget would eliminate 159 positions—mostly in IT (including the Seattle Channel), human resources, and the Department of Construction and Inspections—it also adds $100 million in new spending on “mayoral priorities,” like police, downtown activation, and jails.

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Among other new and expanded programs, the mayor’s budget would add funding for police “emphasis patrols” around downtown Seattle; expand the Unified Care Team, which removes encampments and refers people to shelter; fund dozens of new jail beds for misdemeanor offenders, such as drug users; and create a “real time crime center” where police will monitor new surveillance cameras mounted in neighborhoods across the city.

(The city council, which will approve a final budget in November, includes many new members who ran on the anti-tax premise that the city “doesn’t have a funding problem, it has a spending problem.” That claim is a bit hard to reconcile with spending $100 million on new programs in the face of a $260 million budget deficit.)

We’ve written about the primary way Harrell has proposed paying for all this new spending—by using $287 million in payroll tax revenues next year, and more every year after that. But Harrell’s 2025-2026 budget also depletes the JumpStart fund balance—essentially, a non-renewable reserve of unspent money—taking $140 million from this pot next year and another $90 million in 2026. By 2026, the total amount of funds left over at the end of the year, after all spending is accounted for, will be reduced from $97 million to $179,000.

Harrell’s budget does propose funding a payroll tax “revenue stabilization reserve” of $43 million, established last year to provide a cushion if revenues come in lower than expected—for example, if a large tech company leaves the city and takes its tax base with it. But the budget also dips into this fund in 2026, a year when payroll taxes are projected to continue their skyward trajectory, pulling out $8 million before replenishing the fund over the next two years.

Neither the mayor nor the council have discussed the $158 million deficit projection publicly yet, much less articulated a plan for dealing with it. Using JumpStart to close indefinite budget gaps (while piling on new spending every year) has significant risks: Because the majority of JumpStart revenues come from a tiny number of companies, a decision by even one of those companies to move jobs out of Seattle could tank the fund. The city is basing its projections—an arrow that always goes up, up, up—on less than three years’ worth of data, compared to other taxes whose fluctuations are well understood.

There’s also the question of political risk: Does this council, and this mayor, want to eliminate or severely handicap a source of funding for affordable housing in a city where people who don’t have six-figure incomes are being displaced?

The JumpStart tax, paid by companies that employ highly compensated workers, was designed to offset the impacts that companies like Amazon have had on Seattle’s housing market and economy by providing access to housing, jobs, and small-business development opportunities for people who haven’t benefited from the city’s tech boom. Now, it’s being used as a funding source for programs that arguably run counter to its original purpose, like jails, surveillance of low-income neighborhoods, and police.

Turning JumpStart into an anything-goes revenue stream is an idea that’s sure to get pushback—especially from advocates who remember how hard businesses fought to stop the tax. This year’s budget may be remembered as a proof of concept for repurposing even more, or all, of the revenues from JumpStart, using a tax opposed by businesses and pro-business elected officials to avoid coming up with a stable solution to the city’s budget challenges.