SEATTLE — Seattle’s budget lift this fall is looking heavier, according to a new economic forecast, as commercial and sales taxes continue to drag down the city’s overall financial picture.
Taken together, the city is likely to add another $7 million to its budget deficit next year, bringing the total to more than $260 million in 2025.
Employment growth in Seattle has lagged the national average as unemployment has crept up more quickly here than in the rest of the country. Over the last 12 months, the region has barely added any jobs, according to a Monday morning presentation from the city’s Economic and Revenue Forecast Council.
At the same time, demand for office space was down in the second quarter of this year from the first. For a city heavily reliant on sales, business and occupation and real estate transaction taxes, the slowing market for commercial space and lackluster employment landscape is enough to squeeze Seattle’s budget.
Keeping the city’s budget from total meltdown is a payroll tax on large businesses, passed in 2020, which the council is now estimating will raise up to $430 million next year, significantly more than in past years and well above its original $250 million forecast. It was passed with the intention of funding housing and homelessness services, but was tapped for budget relief last year.
Kicking can down road
However, Seattle is flirting with danger if officials rely on the payroll tax too heavily in the coming years: Its narrow focus on certain businesses means it’s vulnerable to heavy swings, a possibility driven home Monday by the major sell off on Wall Street.
City Hall officials have known for years that a financial cliff is on the horizon as development slows, labor costs increase and federal pandemic relief falls away. The mayor and council previously opted to kick the can down the road last year, choosing to use the payroll tax to plug the deficit rather than make large cuts, arguing that residents were still working to recover from the pandemic and that reducing services would slow the city’s rebound.
It’s still unclear how this version of City Hall, with a two-thirds majority of the council taking office this year, will address the deficit. Most of the members have previously spoken against using new tax sources — such as on capital gains in the city — and called instead for close scrutiny of the city’s budget.
Many council members pledged a full-scale audit of the budget, but settled for a detailed review earlier this year.
Seattle’s total budget is just shy of $8 billion. Most of that includes the utility departments and is untouchable. The discretionary general fund is $1.7 billion. That fund is fed mostly from sales, business and payroll taxes.
Cuts, caveat
The rosy forecast for the city’s payroll tax likely increases the chances City Hall again uses it to plug the deficit, even as providers of affordable housing urge them to spend it on its originally intended use.
Still, that tax is unlikely to cover the entire deficit, meaning cuts are likely as well.
Mayor Bruce Harrell, who will propose the first draft of a budget this fall, has asked some departments to game out cuts of up to 40 percent, according to emails obtained through a public records request, though budget exercises are common and don’t represent the mayor’s final thinking.
The caveat to Monday’s forecast is it could improve, particularly over the next year if development and employment picks up. The city’s prognosticators expect at least moderate improvement beyond 2025.
But the opposite could also be true. In the council’s presentation Monday, they had not accounted for the stock market plunge that morning.
