The city of Seattle is looking down the barrel of a $300 million budget shortfall due to the impact of the coronavirus, and a plan to raise $500 million through taxes on the biggest businesses is receiving short shrift from the mayor.
In an April 21 press conference, Mayor Jenny Durkan and Budget Director Ben Noble told the public that the forecasted drop in revenues as the local economy grinds to a halt means that the city will be facing severe budget shortfalls, and that money spent on the coronavirus response could hit $100 million.
“This probably will be the toughest economic climate our city has faced in multiple generations. What the city will have to do is likely to be very tough,” Durkan said.
The economic picture is bleak.
Modeling for the city suggests that a short but deep recession is coming for Seattle, sparked by the economic stall from the coronavirus. Consultants prepared two scenarios, one optimistic and one pessimistic, but the rapidly changing conditions rendered the more optimistic version obsolete, Noble said.
“What is described here is a true economic crisis,” Noble told councilmembers the next day.
The city is expected to lose 20 percent of its sales taxes and a similar amount of the business taxes paid. Court fines, parking fees and utilities are all projected to be down. Property taxes, another source of revenue, won’t be paid until later, deferring the impact.
Ultimately, it’s hard to say what level of havoc the coronavirus will have on Seattle, Noble told councilmembers.
“We do not have a lot of information about what the impacts will be,” Noble said.
Cities in Washington and the state itself do not have the legal ability to go into debt. That means that every outlay to support people hurt by the economic crisis has to be funded in some way.
Councilmembers Kshama Sawant and Tammy Morales proposed a $300 million tax on large businesses to support housing and other services prior to the coronavirus outbreak. It would directly tax payroll of large businesses such as Amazon, which is a primary target of the legislation.
They’ve now increased that tax to $500 million, with as much as $200 million going to direct assistance to people already on Seattle’s low-income programs, such as the Utilities Discount Program and Fresh Bucks, as well as people who have been impacted by COVID-19.
Durkan did not directly address Sawant’s and Morales’ proposal on April 21, but did say that a payroll tax would not pay dividends fast enough to solve the looming crisis.
“There are no ways, mechanisms or tricks to somehow magically have money appear this year or next year to fix these budget shortfalls,” Durkan said.
The councilmembers disagree.
They identified $200 million in potential interfund transfers that would take money from some city accounts and use them to support households in need that would later be repaid with the proposed payroll tax.
The proposal has garnered opposition from Councilmember Alex Pedersen, who said in Seattle Times op-ed that the tax would “further harm Seattle.”
In the piece, Pedersen argued that a recession was the wrong time to target businesses with additional taxes and tried to rebrand the effort from the “Amazon tax” to the “Sawant tax.”
“Until Seattle’s economy further recovers, the City Council should reject the Sawant Tax — or Mayor Jenny Durkan should veto it,” Pedersen wrote.
Washington relies on sales, business and property taxes, since income taxes are currently illegal. However, there is a way that companies who pay their employees handsomely can contribute, said John Burbank, executive director of the Economic Opportunity Institute, a left-leaning think tank.
A different proposal would tax companies with high-wage employees, Burbank said.
“It’s not an income tax; it’s an excise tax,” Burbank said. “It’s a tax on employers on compensation over a certain threshold.”
Now is the right time to put a tax on compensation over $250,000, Burbank said — a standard created during the Great Depression.
“That puts that person in the top 3 percent of earnings in the country, and at the same time we have unemployment that’s going to be reaching over 20 percent and desperation over food and housing,” Burbank said.
The city tried to impose an employee hours tax to fund homeless services in 2018. This tax would generate 10 times more revenue.
The City Council heard initial proposals at its April 23 Budget Committee meeting. The necessity of the tax in the face of a systemwide failure is huge, Sawant said.
“I urge you to look at the legislation in light of the magnitude of the need in our society and that we pass a tax ... that raises revenues that are commensurate with the need our community members are experiencing,” Sawant said.
Ashley Archibald is a Staff Reporter covering local government, policy and equity. Have a story idea? She can be can reached at ashleya (at) realchangenews (dot) org. Follow Ashley on Twitter @AshleyA_RC.
Read more in the Apr. 29 - May 5, 2020 issue.