Category: Taxes

King County, legislature, Taxes

Could a Sales Tax Hike for Criminal Justice Programs Save the County’s Budget?
King County Councilmember Girmay Zahilay speaks at a recent press conference on state funding cuts.

By Erica C. Barnett

Late last week, King County Council chair Girmay Zahilay and budget chair Rod Dembowski sent a letter urging acting King County Executive Shannon Braddock to send down legislation imposing a new sales tax of 0.1 percent to boost funding for the county’s criminal legal system, including sheriff’s deputies, prosecutors, public defenders, and diversion programs.

State legislators approved a bill giving local jurisdictions the new taxing authority last week; Governor Bob Ferguson hasn’t sign the bill yet, but he expressed support for the proposal earlier in the session, which ended on Sunday.

With the county facing an estimated $160 million shortfall in its general-fund budget over the next two years, Zahilay said the new revenue would be a game-changer. “If we don’t find a solution, we will see deep and painful cuts to services that the community relies on,” like police, prosecutors, and public health clinics, Zahilay said. “It would mean hundreds and hundreds of positions cut out of King County government.”

The new tax could be used on a variety of programs that fall broadly in the “criminal justice” category, explicitly including reentry programs, public defenders, diversion programs, and “Local government programs that have a reasonable relationship to reducing the numbers of people interacting with the criminal justice system including, but not limited to, reducing homelessness or improving behavioral health.”

PubliCola is supported entirely by readers like you.
CLICK BELOW to become a one-time or monthly contributor.

Support PubliCola

 

Last week, county budget director Dwight Dively told the council that the areas most at risk for cuts (some of them due to potential state budget cuts that did not materialize) are public health and the Department of Community and Human Services, which funds services for homeless King County residents.

Because DCHS is funded largely by the state’s document recording fee on real-estate transactions, its funding has declined dramatically as the housing market has slowed. When that happens, Dively said, “either we have to immediately cut funding for homelessness services, and we all understand the consequences of that, or we have to find another revenue source to at least temporarily backfill that, and that’s the general fund.

So what does that have to do with a criminal-justice sales tax? According to Zahilay, because the legislation did not include language banning “supplantation”—which would have barred the county from using the tax to free up general-fund dollars for unrelated purposes—the tax could help address that looming $160 million deficit. (The county’s deficit is smaller than the city’s, in part, because more county services are funded with dedicated funding sources, like levies.)

That “means that we could absolutely use these funds to fund our criminal justice efforts and redirect funds that would otherwise go toward those initiatives … to fund other things,” Zahilay said. “Based on the estimates that I’ve seen, this new tax would be enough to fund our entire general fund shortfall.”

The sales tax remains the primary tool local governments have for raising funds without passing a property tax levy; it’s a regressive tax because people with lower incomes pay a larger percentage of their income on sales taxes than people who make more. “I was hoping we’d have more options [from the legislature], beacuse out of all the types of taxes, I believe the sales tax is the most regressive one of all,” Zahilay said. “But I’m definitely grateful that we have an option to save our general fund and critical services.”

City Council, Taxes

Seattle Nice: Capital Losses

Is the Seattle City Council more progressive than we thought?

By Erica C. Barnett

On the most recent episode of Seattle Nice, we talked about the Seattle City Council’s vote on the capital gains tax, which was still upcoming when we recorded last Wednesday afternoon.

At the time, we knew the tax, proposed by Councilmember Cathy Moore, was doomed to fail; the 2 percent tax on annual investment profits above $262,000 lost on a 5-4 vote in the budget committee, which includes all nine council members. I noted that with progressive Alexis Mercedes Rinck replacing next year, “if they have another vote and it goes the same way, then capital gains will pass.”

But that, it turned out, was a big “if”—a fact that became obvious later on the day we recorded, when Joy Hollingsworth flipped her vote and voted “no” on the tax, giving the anti-tax side a six-vote supermajority. Strauss and Hollingsworth, Sandeep noted, were both “squishy” yes votes—he’d heard the week before that they were both opposed—which means that the loss of Woo’s no vote won’t be enough to flip the council in favor of progressive revenue.

PubliCola is supported entirely by readers like you.
CLICK BELOW to become a one-time or monthly contributor.

Support PubliCola

The council’s five recently elected members, now entering the second year of their terms, have voted largely as a bloc, with some exceptions—Joy Hollingsworth and Rob Saka sometimes vote with Morales, the council’s one consistent progressive, on legislation related to equity, and Moore has been unpredictably idiosyncratic, supporting police surveillance and crackdowns on sex workers and drug users while . The addition of one more progressive council member won’t change that mix, on capital gains or any other issue.

This council majority has made clear that their goal is to reverse many of the policies and spending priorities of the previous council, and their budget certainly accomplishes that—lavishing money on police, jails, encampment removals, and downtown beautification while cutting funding for tenant services, parks, workplace equity, and food assistance.

As someone who has voted with the majority on all of these priorities and more, Moore would seem to be well-placed to talk her centrist-to-conservative colleagues into supporting a popular tax. But this inexperienced new council, though sometimes unpredictable (who could have guessed that Rob Saka would vote against a JumpStart tax amendment he co-sponsored, then turn around and vote for a substantively identical amendment a few minutes later?) got elected with support from the mayor, and have voted mostly in lockstep with Harrell’s agenda. So far, only Moore has shown signs of independence on the revenue issue; for most of the council, it remains an article of faith that the city can fix all its problems, from the housing shortage to the fentanyl crisis, without more money.

City Council, Mayor Harrell, Taxes

Capital Gains Tax, JumpStart Spending Plan Top Council’s Budget Agenda This Week

By Erica C. Barnett

Last week, City Councilmember Cathy Moore proposed a 2 percent local tax on capital gains—earnings from investment income—above $262,000 a year. In a statement, Moore said the tax is necessary to help supplement the JumpStart payroll tax, a marginal tax on high-income workers’ wages paid by large employers. JumpStart was originally earmarked to fund affordable housing, green jobs, and equitable development, but the proposed 2025-2026 budget would use a majority of revenues from the tax to close a gaping budget hole (more on that in a moment).

“After a thorough review of the budget and the mayor’s proposal to utilize Payroll Expense Tax dollars to cover the General Fund deficit, it’s clear that our city is still facing the need for additional revenue to address the unmet needs of thousands of households that are rent and food insecure,” Moore said in a statement. Her proposal would explicitly restrict the use of the tax to “rental assistance for rent burdened households, down payment assistance to low, moderate, and workforce households, and food assistance to food insecure households.” The ordinance doesn’t lay down specific percentages for each category, and notes that the spend plan could be subject to future amendments. 

Even as Moore proposes earmarked progressive revenue, the council is poised to pass a separate budget bill that would gut the adopted spending plan for the JumpStart tax by making it optional instead of mandatory.

Since the first year the city began collecting the tax, in 2021, it’s used a portion of JumpStart revenues to backfill general-fund shortfalls, justifying these transfers with the ongoing impact of the COVID pandemic.

This year, facing a budget shortfall of more than $260 million, Mayor Bruce Harrell avoided “public-facing” cuts (and added another $100 million in spending on his own priorities, like CCTV surveillance and police emphasis patrols) by dipping deeper into JumpStart than in any previous year, with less than half of JumpStart’s higher-than-anticipated revenues going to the purposes it was created to fund. The council (whose new members ran on pledges of fiscal responsibility) piled on their own spending requests, and the result is the city’s largest budget proposal ever.

To pay for it all, elected officials appear committed to using JumpStart—which was supposed to pay for additive programs, not city obligations that would ordinarily be funded through the general fund—as a fungible source of general fund revenues in perpetuity.

Technically speaking, the bill amending JumpStart expresses the council’s “wish to maintain the intent of the original 2020 spending plan,” then Xes out that entire spending plan, replacing it with a section that says it “may be used” to support programs along the same lines as what was in the original proposal. “May,” in legislation, is the legal equivalent of “may not,” and the effect of the change is to release the council from any future legal obligation to fund the priorities laid out in the 2020 bill. It also appears to allow the city to use JumpStart to fund JumpStart-style spending, like funding for housing, equitable development, or Green New Deal-type programs that would ordinarily be paid for out of the general fund, as opposed to new programs made possible by the additive tax.

PubliCola is supported entirely by readers like you.
CLICK BELOW to become a one-time or monthly contributor.

Support PubliCola

This wasn’t unexpected. Since the first JumpStart collections began in 2021, the mayor and council have treated its spending plan like a suggestion, repeatedly adopting short-term bills that provide exceptions that have allowed the city to stave off major budget cuts without raising new taxes or cutting back on any of the city’s biggest cost drivers, like the police department’s budget. This kind of thing used to be controversial—when then-mayor balanced her 2019 budget with $6 million from the soda tax, a widespread backlash led to legislation that imposed a strict spending plan—but has become so routine that merely suggesting the city keep the commitments it made when it passed the tax is treated like an outrage by the same conservative organizations that opposed JumpStart to begin with, but now see it as a useful slush fund.

The council’s legislation (technically sponsored by the budget committee, an indication of majority support) will also eliminate an oversight committee that provides updates on the impact of the tax.

One issue with relying on JumpStart to fund basic, ongoing city services is that the tax is potentially quite volatile, because its revenues are largely based on the payrolls of a handful of large tech companies, primarily Amazon. With only a few years of data, the city is essentially just assuming revenues will continue to go up forever, without much of a visible plan for what to do if they don’t. By tying future general-fund budgets to the fate of JumpStart, the city is making a bet that tech companies won’t cut jobs in Seattle, now or in the future.

The capital gains tax suffers from a similar volatility. An analysis by the city’s Office of Economic and Revenue Forecast, which looked at state capital gains tax revenues, concluded that revenues from the tax “are very likely to fluctuate significantly for year to year and from forecast to forecast.” In 2027, for example, the forecast council concluded that depending on compliance rates, a 2 percent local capital gains tax could pull in as little as $16 million, or as much as $51 million—a huge, and somewhat unsettling, range.

The city council will hold the second of two public budget hearings tomorrow, Tuesday, at 5 pm in council chambers; find out how to attend and comment here.

 

City Council, housing, Mayor Harrell, Taxes

Why Does the Mayor’s Budget Use Outdated, Inaccurate Estimates for JumpStart Spending?

By Erica C. Barnett

Mayor Bruce Harrell’s proposed 2025-2026 budget uses the majority of revenues from the JumpStart payroll tax—about $287 million out of $563 million total—for purposes that have nothing to do with the adopted spending plan for the tax, which is codified in local law.

The council and mayor approved the tax on the city’s biggest companies as a way to fund affordable housing, green jobs, and small business assistance for communities most affected by the rising cost of housing in Seattle. Harrell’s plan leaves just $233 million for the original JumpStart spending categories; another $43 million would go into a reserve fund.

The budget uses a lowball 2020 estimate as the baseline for JumpStart spending for both past and future budgets, then inflates it by an annual 2.5 percent—far lower than the actual rate of inflation, much less the increase in construction and labor costs, which have risen faster than consumer prices. As a result, JumpStart spending into the future isn’t just based on out-of-date projections that the city knew were far too low after the first year the tax was collected, it increases much more slowly than the price of the things it was earmarked to fund, eroding in value every year.

Put another way: Under Harrell’s plan, as long as JumpStart revenues continue to increase, more and more of its revenues will be siphoned off for stuff like police, fire, and transportation, even as the value of the money set aside for the tax’s original spending categories declines.

PubliCola asked the mayor’s office why they used old, inaccurate projections as the baseline for JumpStart spending, given that the city generally updates its budget projections regularly based on real numbers, not fictitious ones.

A spokesperson for Harrell said that using the numbers from the “initial forecasts demonstrates that we are maintaining funding levels for key priorities near the rate that they were expected at the time the tax was passed. The more than doubling of revenues in the last five years makes clear revenues are higher than expected, with additional dollars that can support the general fund as the tax has been used every year since it was passed.”

Although it’s true that the tax has been used this way every year, the law effectively requires the city to adopt new legislation allowing a transfer in any year they want to make such a transfer. For the 2023 and 2024 budgets, the council capped this transfer at $71 and $84 million, respectively—a fraction of the transfer Harrell is proposing this year.

Harrell’s spokesperson said the city needed to have access to the JumpStart funds, also known as the Payroll Expense Tax (PET), because the city’s long-term revenue forecast remains unclear.

“We don’t know what the future of PET or General Fund will look like, which is why it is important that we have this flexibility as well as the reserve created in the Mayor’s proposal to address any future volatility in the funding source,” the spokesperson said.  “That flexibility is important to best match our resources with the current needs of the city as the economy continues to recover from the historically adverse effects of the worldwide pandemic and as our revenue sources adjust to these changing conditions.”

This is different than the way the city approaches other parts of its budget; in fact, Harrell’s budget plan notes right up front that the budget “relies upon solid forecasts incorporating items which are constantly changing,” and every departmental budget includes “Citywide Adjustments for Standard Cost Changes” to reflect the true cost of inflation.

Tapping payroll tax revenues for the indefinite future is also a different approach than what Harrell proposed in his 2023-2024 budget, when he endorsed exploring revenue stabilization options, such as new taxes, to address the city’s structural budget gap.

“The way our state and local governments finance services to support community needs is often structured in a manner that puts a disproportionate financial burden on those least able to afford it,” the mayor’s 2023-2024 budget said. “In the wake of rising inflation and dwindling proceeds from local funding sources like cable television and commercial parking taxes, there is an opportunity to re-envision the way the City funds its service delivery and operations.”

Acting in accordance with Harrell’s previous budget, the city set up a revenue stabilization work group to come up with new sources of revenue to address the problems that budget identified; in mid-2023, the group recommended three options: Increasing the size or scope of the payroll tax; a local capital gains tax; and tax on tax on businesses whose CEOs make significantly more than the average worker.

Business groups immediately trashed all three options, and six months later, Harrell issued what amounted to a no-new-taxes pledge in his state of the city speech.

City Council, homelessness, Mayor Harrell, Mental Health, Police, Taxes

Council Increases Spending on SPD Marketing, Rejects Proposals to Release Youth Mental Health Funding and Block Expansion of Encampment Removal Team
Screenshot from one of SPD’s new recruitment ads, produced under a $2.6 million marketing contract that the city council just voted to expand.

By Erica C. Barnett

The Seattle City Council approved Mayor Bruce Harrell’s midyear budget adds virtually unchanged on Wednesday, despite several efforts by Councilmember Tammy Morales to amend the proposal.

Morales wanted to release all of the the approximately $20 million the city will collect in payroll taxes for youth mental health programs this year, instead of waiting until next year or later to spend all the money. Morales said her amendment would “maintain the commitment” the council made to students, who organized in response to a shooting at Ingraham High School in 2022, during last year’s budget.

The mayor’s office, which recently released its plan to spend $10 million of the money collected this year, has said that because the tax was only proposed, and approved, at the end of last year’s budget process, the city needs more time to come up with a plan to allocate all the funds in the future. Channeling this argument, Councilmember Bob Kettle called Morales’ comments “an injustice to the executive,” then went further, arguing that the proposal to fund student programs “came out of nowhere” and emerged “out of the blue” last year.

Council President Sara Nelson jumped on that one, saying she could tell Kettle exactly why there was suddenly an extra $20 million for youth mental health care: Because former councilmember Kshama Sawant wanted to raise taxes before exiting the stage, essentially creating a budget problem by providing too much money for students without a clear spending plan.

Obviously, it takes time to figure out how to spend a sudden windfall and, having done that, to get the money out the door. A larger concern, for those who want to see the full $20 million go to mental health services for young people in the future, is that once the funding is rolled back into the larger JumpStart fund this year (and used, as it inevitably will be, to help patch the city’s ongoing budget hole), it will be harder to claw back for its intended purpose in future years. Council members have already expressed skepticism about the entire $20 million, suggesting that perhaps the city should reconsider getting into “a whole new line of business” and let the funding lapse back into the larger, easy-to-pilfer JumpStart fund.

PubliCola is supported entirely by readers like you.
CLICK BELOW to become a one-time or monthly contributor.

Support PubliCola

The council also rejected a Morales proposal to redirect funding for 19 new members of the Unified Care Team, which removes encampments, toward the similarly named CARE Team, a group of social workers who are dispatched, along with police, to certain non-emergency 911 calls. Earlier this year, Harrell announced the city would take back funding it had been providing the King County Regional Homelessness Authority for outreach, reallocating it to the UCT.

The 19 new UCT members would include 14 people with the title “counselor,” who would “support outreach-led encampment resolutions, provide referrals to shelter during encampment removals and provide support to individuals to move out of immediate hazard/obstruction locations,” according to a budget memo.

Finally, the council approved adding $800,000 to an existing $2.6 million police marketing contract, with a new provision from Councilmember Cathy Moore stipulating that half the money has to be aimed at recruiting women. Moore’s amendment replaced a proposal from Morales that would have not allowed SPD to spend the same $400,000 until it reported to the council on how it is currently spending the marketing dollars to recruit women and a status update on its goal of a 30-percent female recruit class by 2030.

Public safety committee chair Kettle objected to Morales’ amendment, saying that while he is “110 percent behind” efforts to recruit more women to SPD, I don’t think [the amendment is] needed in the sense that everything I see regarding recruitment, everything I see, is already including women in those recruitment efforts.

In fact, Kettle added, “I haven’t seen anything but women in [SPD’s] recruitment efforts.”

As PubliCola reported earlier this week, the marketing firm SPD hired on a no-bid “piggyback” contract, Copacino Fujikado, produced three video ads that exclusively feature male, apparently white, officers rescuing people from dangerous situations, including one in which a male officer saves a crying woman bound with rope from a man who is holding her and another woman hostage.

City Council, human services, Taxes, Utilities

No Local Capital-Gains Tax This Year; Water Tax Repeal Also On Hold

By Erica C. Barnett

The Seattle City Council won’t take action on a proposed local capital gains tax or a related proposal to repeal the city’s water utility tax until after an effort to repeal the state capital gains tax, which pays for public schools, has run its course. The news of the delay, which will put both tax proposals in the hands of a mostly new council next year, came during a meeting of the council’s budget committee on Thursday.

Opponents of the state tax, which has brought in far more than expected in its first year, have filed an initiative to repeal it, part of a suite of anti-tax proposals backed by Redmond hedge fund CEO and Republican donor Brian Heywood. The campaign will have to gather more than 300,000 valid signatures to get the measure on the ballot.

Councilmember Alex Pedersen proposed repealing the water tax, currently 15.4 percent, and offsetting the lost revenues—around $40 million a year—with a 2 percent tax on capital gains, effectively replacing a regressive tax with a progressive one. The two proposals came as a package, with the capital gains tax proposal explicitly calling the tax “a more progressive method of taxation to replace revenues from regressive taxes no longer collected by The City of Seattle including, but not limited to, the tax on water.”

“People aren’t filling up my inbox complaining to me about the water tax. They’re complaining primarily about crime and homelessness and other issues that Seattle is facing and wondering why aren’t we doing more about these issues.” — City Councilmember Sara Nelson

An analysis by city council staff estimated that the capital gains tax could raise around $38 million a year, based on Seattle’s share of state capital gains tax revenues from the state capital gains tax. However, the staff report cautions, that estimate doesn’t take into account “tax avoidance” by wealthy people who can move their assets around, and is based on “an extremely concentrated tax base,” which could make it an unreliable revenue source from year to year. Just 163 people are responsible for 85 percent of state capital gains tax revenues originating in Seattle.

Councilmember Lisa Herbold proposed amending Pedersen’s proposal to increase the capital gains tax to 3 percent, which would offset the water tax and provide a modest cushion against next year’s estimated $218 million budget deficit.

After the meeting, council budget chair Teresa Mosqueda said the council decided to put off the decision on capital gains “to protect the viability of that [revenue] source,” noting that a new, local capital gains tax might increase support for the campaign to repeal the statewide tax.

Councilmember Sara Nelson said during the meeting that she showed up “prepared to vote against this today. And I just wanted to make sure that I got this on the record if it does come back” in the future, she added.

Enjoying this article? PubliCola is supported entirely by readers like you. Help keep PubliCola sustainable by CLICKING HERE to become a one-time or monthly contributor.

“People aren’t filling up my inbox complaining to me about the water tax,” Nelson said. “They’re complaining primarily about crime and homelessness and other issues that Seattle is facing and wondering why aren’t we doing more about these issues.” 

If the council’s goal was “really to help low -income people,” Nelson continued, the city should be “working harder to enroll them into our utility discount program,” which provides a 50 percent discount to eligible residents. Unlike the proposed utility tax repeal, however, the utility discount program requires a lengthy application process, and is only open to very low-income residents: For single people, the cutoff is a little over $41,000 a year, and a two-person household has to make less than $54,000 to qualify.

Pedersen said his intent in proposing both tax proposals was to make the city’s overall tax system less regressive. “As a centrist who cares about business in the city and worked really hard on public safety issues here in the city, I support a capital gains tax,” he said. “I think it’s fair, and we should do it…. And I think we could also repeal the water tax. We could do both.”

Whether the council will do either is now up to the incoming council, which will no longer include Pedersen, Herbold, or Mosqueda. Nelson, who actively campaigned for several of the council’s new centrist majority, reportedly wants to be council president, a role that would give her authority over how (and whether) legislation moves through the committee process.

The budget committee did pass two proposals imposing new transparency requirements on the budget process on Tuesday, along with an ordinance requiring human services providers that receive funding for worker wage increases to spend that money only on worker pay, not for other purposes.