By Erica C. Barnett
Over objections from some council members that the proposal was “rushed” or that it funds the wrong things, the Seattle City Council voted to place a tax increase for the city’s highest-grossing businesses on the November ballot. If it passes, the “Seattle Shield” proposal would direct new revenues toward housing, homelessness, food security, and other spending areas that are typically vulnerable during budget deficits and at risk of losing federal funding under the Trump Administration.
The proposal, which Counclmember Alexis Mercedes Rinck and Mayor Bruce Harrell rolled out in June, would raise the business and occupation tax exemption from $100,000 to $2 million in gross revenues, exempting most Seattle businesses from the tax, while increasing the tax rate for revenues above $2 million, netting about $90 million a year.
Amendments passed last week, including two from Councilmember Maritza Rivera exempting Children’s Hospital and Fred Hutchinson Cancer Center from the tax, reduced that total to about $81 million a year. Other amendments expanded the potential uses of the new tax to include substance use treatment, business workforce development and storefront repair, and—the broadest spending category—”transportation.”
An amendment from Bob Kettle would make the tax exemption up to $2 million a year permanent (otherwise, the exemption would revert back to $100,000) and reduce the higher tax on large businesses to make it revenue neutral, meaning it would only pay for the tax break for smaller businesses. The city estimates that in 2026, the tax breaks will cost around $61 million.
Councilmember Bob Kettle, who ultimately joined the unanimous vote to move the proposal to the November ballot, said he would much prefer that the council not stipulate how the increased tax revenues would be spent, instead sending a ballot measure to voters that asked them to approve an all-purpose tax that could be used for any need the mayor or council identifies in the future.
Comparing the ballot measure to the council-approved JumpStart payroll tax, which was originally earmarked for housing, Green New Deal priorities, and small business assistance, Kettle said the council only fixed that “problem” last year, when it formally eliminated all spending restrictions on the tax.
“I’m generally opposed to the use of categories or buckets, as some may say. I believe they were a mistake in the payroll expense tax, since over the years, conditions change, but the legislation remains the same,” Kettle said. “I also believe that categories, or buckets, in this B&O legislation was a mistake, in the sense that buckets begets buckets”—a reference to the expansion of the spending categories. “You know, our focus should be on the deficit. … And I think our focus should be for a clean bill to ensure that we are fiscally responsible, that meets the needs of our city.”
It is, of course, unknown whether voters would support a so-called “clean bill” that did not specify any purpose for a tax increase they were being asked to approve. But in general, every local ballot measure calling for a tax increase has had some purpose, whether it’s the transportation levy, the housing levy, the preschool and Seattle Promise levy, the tax we pay to fund emergency medical services, or any other voter-approved tax increase in local taxes.
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A levy “to fix the general fund deficit” would not only be a hard sell to many voters (who wouldn’t know whether new taxes would fund police hiring bonuses or food banks), it would incorporate the assumption that the city will continue going into each budget year with a deficit for the duration of the levy—not exactly “fiscally responsible” financial planning.
Rivera, too, appeared generally dissatisfied with the proposal, saying the six-week process to approve it was “rushed” and that she would also have preferred to send it to voters as a general tax increase to address the current deficit.
“Rather than single out items, this money should have just gone to the general fund and then when the mayor was putting together the budget that he sends us, he could have then considered this funding along with all the other funding,” Rivera said. “That would have been the good governance way to do this. But that is not how this moved forward.”
As I reported last month, Rivera was the first council member to publicly propose asking voters to approve a tax increase for undefined “general fund” purposes, arguing that the city can’t predict what needs will emerge in the future. Rivera has also suggested the city could take dedicated funds from the city’s housing levy and using them to backfill the general fund in the short term, paying back the loaned dollars later and foregoing some potential housing. Editor’s note: This story originally said Bob Kettle backed Rivera’s idea of using housing levy dollars to backfill the general fund; his office said this isn’t the case, so we’ve corrected the story to reflect that.
