Seattle’s big business tax is bringing in more revenue than expected. Now the city is using the surplus to help close major gaps in its budget.
The city council on Tuesday approved a plan to use the extra money to plug shortfalls in its General Fund for the next two years.
The JumpStart tax, originally passed in 2020, targets payrolls at the city’s largest companies and was designed to pay for affordable housing and homeless services, equitable economic development projects, and Green New Deal investments to help the city meet its environmental goals.
Those projects will continue to be fully funded by JumpStart, which brought in $248.1 million in its first year — $48.1 million more than projected.
The legislation passed Tuesday allows for up to $29.4 million from JumpStart revenue to be reallocated to the General Fund in 2022, up to $71.1 million in 2023, and up to $84 million in 2024, if necessary. The JumpStart funds aren’t earmarked for particular programs but the General Fund pays for a variety of city services.
“In good faith and partnership with us as a community, the budget keeps the full promise of Jumpstart Seattle for affordable housing, while supporting existing programs,” Patience Malaba, executive director of the Housing Development Consortium, said in a statement. “The social and economic benefits of this decision will be felt by families and entire communities in the city.”
Seattle already faced operating deficits of $141 million for 2023 and $152 million for 2024 before the budget planning process began this fall. On top of that, the city released estimates in November that predict a net decreases of $64 million in the Real Estate Excise Tax, $9.4 million from the General Fund, and $4.5 million from the soda tax over the next two years.
When those numbers came out, the mayor and City Council began looking at the surplus revenue from JumpStart to cover some of the gaps. Mayor Bruce Harrell, speaking at the GeekWire Summit last month, expressed concern about tax revenue loss due to remote work.
“The Council embraced our proposed budget’s needed investments in improving public safety, urgent action on the housing and homelessness crises, and recommitment to the essential services that residents demand,” Harrell said in a statement Tuesday.
During Tuesday’s meeting, City Council Budget Chair Teresa Mosqueda stressed the temporary nature of the reallocated funds.
“It was important for us to put a very restrictive use of the funds only for this biennium,” she said, noting that she fought legislation that would’ve allowed JumpStart to go to General Fund needs in perpetuity.
But Councilmember Kshama Sawant said the city was forming a bad habit of using the payroll tax for projects beyond its original scope, a rare point of agreement between the outspoken socialist and Seattle business community.
“Councilmembers have asserted that it is OK to use the ‘Amazon tax’ to prevent further budget cuts instead of using it for housing and the Green New Deal, as originally intended,” she said.
Impact of industry layoffs
The tax applies to salaries over $150,000 annually at companies with yearly payroll expenses of $7 million or higher, which includes industry giants such as Amazon.
The main goal of the tax has always been to address Seattle’s housing and homelessness crisis, though the revenue also helped the city recover from economic distress during the pandemic.
The city expects the payroll tax to raise $290 million in 2023 and $311 million in 2024.
What remains to be seen is whether the tax can meet the revenue projections amid widespread layoffs taking place throughout the tech sector.
Thousands of tech workers have been laid off in the Seattle area this year, according to GeekWire’s layoffs tracker, not including the major cuts Amazon announced earlier this month. The company plans to slash around 10,000 jobs. Amazon, which employs more than 55,000 corporate workers in the Seattle area, did not say whether all of the layoffs will be Seattle-based positions but several of the teams that are being reduced are based in the city.
City officials don’t appear to be bracing for a reduction in JumpStart revenues tied to recent layoffs, though council staff did say during a Nov. 14 meeting that they expect the drop in employment will lead to a decrease of about $9.4 million from the General Fund.
Employment in Washington state’s information industry dropped by 5,900 or more than 3% in mid-October, compared with the prior month, according to data from the state Employment Security Department. ESD told GeekWire it was the biggest overall monthly decline in the history of the state’s information sector.
The layoffs represent just a tiny fraction of the explosive growth Seattle’s tech industry has seen in recent years, but it remains to be seen how much more the sector will contract.
The tax faced opposition from the Seattle Metropolitan Chamber of Commerce and Downtown Seattle Association. Others in the tech community warned it could impact job growth in Seattle.
The Downtown Seattle Association released a report earlier this month on the city’s spending over the past decade. The study by ECONorthwest found Seattle’s tax revenues have grown faster than employment and population since 2013.
“We believe it is critical that the Council adopt a sustainable budget that prioritizes further economic recovery as well as investments in public safety and homelessness,” DSA CEO Jon Scholes said in a letter to the City Council.
“We believe this is possible by using existing City revenues,” he added.
Mosqueda, for her part, disagrees. She said the projected budget shortfall “underscores the need for additional progressive revenue, something that I will continue to support.”