Budget rants and raves

After watching three days of budget discussions, I have a list of things that made me happy as well as things that made me very angry. Submitted for your (dis)approval, my 2018 Budget Rants and Raves.

(admittedly, it’s mostly rants)

There is plenty of fodder in here for every individual to agree with me on some points and disagree on others. No one who reads this should expect to come away satisfied. Just sayin’.

1. Rave: the city’s financial condition. Recently the City Auditor’s Office (which deserves its own rave) issued a report on the financial condition of the city. For the most part, it’s very good news. The overall financial condition is strong; the budget is balanced, it has healthy emergency and “rainy day” funds, its credit rating is strong, it has great liquidity, and its revenue sources are diversified. That said, there are a few issues. Expenses are growing faster than revenues (and faster than the population). The city has grown somewhat addicted to voter-approved property tax levies, a “high-stakes poker” approach to funding critical needs. The city’s three defined-benefit retirement plans are underfunded (though there is a plan to fully fund two of them eventually). Several city departments (most notably SDOT) have a major gap in funding for maintenance and repair of capital assets. And of course the city has yet to settle on plans to fully address the affordable housing and homelessness crises. But it’s possible to solve those problems building on top of a solid foundation that provides financial tools. So kudos to the leaders and staff that keep the city’s finances in the black.
2. Rant: the soda tax. In June, the Council passed a tax on sweetened beverages. This was not without controversy, since it’s well understood to be a highly regressive tax. It was rushed through the Council’s legislative process despite disagreements on exactly which beverages should be taxed (trading off additional revenues and spreading the burden to more people against its effectiveness in changing behavior) and what the revenues should be used for. The final bill listed a set of priorities for the revenues, with the top priority being healthy food and nutrition programs. That’s appropriate given that it’s a tax on unhealthy food and intended to decrease consumption of sweetened beverages over time. Nevertheless, Council President Harrell and then-Councilmember Burgess — both champions for education investments — made sure that their favorite programs were on the list.
   But when now-Mayor Burgess delivered his proposed budget to the Council, the largest share of the expected $14.8 million of revenues was dedicated to education programs. Harrell made a feeble attempt to argue that the portion of the revenues left undesignated until the Advisory Board makes its recommendations is likely to go to food programs since a majority of the Advisory Board members are food advocates, but that argument doesn’t stand up to scrutiny since those dollars are much more likely to be one-time allocations that vary from year to year, whereas food programs, like education programs, need ongoing, sustaining financial support. Council member Juarez called out the discrepancy between the stated priorities and the actual appropriations, and noted the dire need for funding for basic food programs in Seattle.
   In making the case back in June that education programs should be on the list, Burgess and Harrell argued that education is an important tool in teaching people to make better nutrition choices. And yet it’s hard to connect the dots between that principle and several of the education programs being funded: addressing post-secondary “Summer Melt,” Our Best Initiative mentoring, the 13th Year Promise scholarships, culturally specific summer learning, and birth-5 child care providers. Those are all valuable programs, but it’s disingenuous to throw them under the umbrella of the soda tax.
3. Rant: The employee head tax.  Council members O’Brien, Harris-Talley, and Sawant have proposed a tax on businesses of just under 5 cents per employee-hour worked (about $100 per year per full-time employee), raising approximately $25 million annually. It would only apply to businesses with annual gross revenues over $5 million. The funds would be used to provide additional affordable housing expand the LEAD program, and to increase services for youth and the homeless.  The argument in favor of the tax, as put forth by O’Brien, is the same as for development impact fees: those benefitting from the city’s economic boom should pay for addressing the negative consequences of that boom.
   There are several problems with this proposal. The first and most obvious is that it targets companies based on revenues, not on profits. So companies with more than $5 million in revenues but are actually losing money (and thanks to Amazon, there are plenty of those) would pay the tax — despite the fact that they are clearly not benefitting from Seattle’s boom. Council member Harris-Talley said the tax was “pennies on the dollar” — that’s likely true for Amazon who would pay about $4 million annually, though it’s unclear what “dollar” that would be when a company paying the tax is losing money. When O’Brien was asked about this, he acknowledged the problem but was perfectly content to move forward with his current proposal while claiming to be open to ideas about “a better way” to tax the companies who are actually benefitting from the boom.
   The second problem, related to the first, is that while the stated problem is growth, the employee hours tax neither targets growing companies nor taxes companies’ growth.
   The third problem is the underlying assumption, voiced by Council member Sawant and others, that companies are not paying their “fair share” in Seattle. Here’s a look at the city’s $2.832 billion in revenues in 2016 for governmental activity (as per this City Auditor report):
   
   Nearly a quarter — over $700 million —  is business taxes alone. Businesses that own property (including 100% of the property in the city’s industrial and commercial zones) also pay a chunk of the “property taxes” slice of that pie. The permits those companies need to run their business — including nearly all construction permits — are a big part of the “charges for services.” Businesses (except nonprofits) also pay sales taxes on nearly everything they purchase.  While “fair share” is obviously a subjective term, it’s clear that businesses are funding a large portion of city government today.
   What’s also clear is that this isn’t a well-thought-out proposal for a tax. It’s poorly aimed at a populist target (businesses) because that was the easy way to construct it, voters are unlikely to complain, and they know from past precedent that it’s legal. But it’s going to hurt many businesses that aren’t benefitting from Seattle’s boom and already paying substantial amounts to the city in taxes, permits, and fees.
   It’s also notable that the proposal’s sponsors didn’t bother gathering input from the businesses that would pay the tax before they proposed it.
4. Rant: the Human Services Department. I’ve ranted about this before, but there’s more rants to go around now. HSD’s proposed 2018 budget is $168 million. I have yet to meet anyone in this city who believes we are getting anywhere near $168 million of value out of HSD. They are maddeningly opaque about their internal operations and where the money is going, and yet are on a “Performance-Based Accountability” kick in which they hold their grantees responsible for meeting specific performance metrics.  This is the height of hypocrisy. Every year HSD makes the gentlest of nods to transparency by publishing a “dashboard” with a few hand-picked metrics, but nothing close to what we would need to truly understand how they are spending all that money. This year they are participating in a pilot program (embedded into their budget plan) to create “budget performance measures,” but the metrics and goals they have chosen only represent $26.5 million of funded programs, out of the $168 million they intend to spend (and their performance goals for homeless shelters are comically unrealistic).
   For their part, the Council seems far more interested in getting HSD to back off its commitment to evaluate and fund service providers based on performance criteria. The stated reason, which has some logic to it, is that if service providers who are trying to serve the most challenging-to-serve people in our community are held to a performance standard they will always come out at the bottom of the stack. But that’s a straw-man argument; it’s always possible to poorly choose and apply metrics without context or nuance and reach the wrong conclusions. The correct response to that issue isn’t to abandon performance measurements; it’s to make sure they are chosen and applied well.
   But the larger issue for the Council should be to provide proper oversight for HSD and ensure it delivers. HSD is not managed well; it has high overhead for an organization that mostly serves as a pass-through for funds destined to other service providers (the exception being its Aging and Disability Services division). Its Director, Catherine Lester, is masterful at feel-good presentations while deflecting questions about the details of her organization.
   The problem for the Council members is that none of them are disinterested parties; they all have favorite service providers (some in their district) that they want to ensure continue to get HSD funding. That’s a big reason why the Council members submitted 35 separate proposals for modifications to HSD’s 2018 budget, many of which are earmarks (or earmarks under a very thin veneer) targeted at specific providers. It is indeed a big pot of money, and the Council members each want their piece.
   HSD is a big, expensive mess, and there is plenty of blame to spread around. It’s time for a closer look, starting with an analysis by the City Auditor to pry open the doors and force some sunlight into the department’s inner workings.
5. Rant: Police Department overtime.  This is one of several Council debates that never manages to resolve itself. For the past several years, SPD has run dramatically over budget in overtime for officers. A City Auditor report found that there were several causes for this, including shoddy recordkeeping and poor visibility and control by supervisors. It’s also partly because SPD doesn’t have enough officers (it is trying to hire 200 more over its 2014 baseline by 2020), and because there is a high reward for officers to work overtime (they get paid at a higher rate). But the single biggest factor is simply that there are no negative consequences for anyone in SPD if they exceed their overtime budget. The fact that they are over budget is reported after the fact, and the Council is asked every year to increase their current-year budget to cover it — which of course the Council always does, because it has no choice. If you were an SPD supervisor, you knew your officers wanted to clock more overtime, and there were no personal repercussions, of course you would approve overtime hours.
   There is a tremendous amount of hand-wringing among the Council members over this issue, and truth be told, there won’t be much progress, simply because to introduce negative consequences would most likely require building it into the collective-bargaining agreement for SPD supervisors. Right now, there is no agreement, and negotiations have broken down.  So there is no mechanism for fixing this.
6. Rant: homeless encampment “sweeps.” This is a budget issue because Council members O’Brien and Sawant, the two most vocal opponents of unsanctioned homeless encampment removals, are trying to tease apart money being spent by several city departments to clean up trash and needles around encampments and for outreach to homeless persons, from the funds being used to remove unsanctioned encampments so that they can de-fund the removals but continue the cleanup and outreach. This is an issue where principles, politics, and sheer stubbornness are impeding the kind of practical compromise we expect from elected officials. O’Brien and Sawant, with a strong nudge from the ACLU and Columbia Legal Services (along with other advocacy groups) have taken a hard-line against encampment removals, and there is some justification to their viewpoint: being pushed around the city destabilizes homeless people and makes it harder to get them into long-term housing or other programs that might help them. And to a point made by Council member Harris-Talley, the city works against its own goals when it pushes people from place to place because that makes it more difficult for outreach workers to find them. Of course, there are hard-liners in the community on the other end of the spectrum who never, ever want to see homeless people and their encampments, and especially not in their neighborhoods. Most people are somewhere in between the two extremes, and with people spread across the spectrum of opinion it’s unlikely that there will ever be a consensus view on when it’s acceptable for city staff to remove encampments. Last year former Mayor Murray worked with Council members and others to write a new set of rules governing encampment removals. For many, those rules were an acceptable compromise; for some they are still unacceptable. A court has declined to stop the city from performing removals (though didn’t opine on the moral implications). Those on the Council who object to those rules continue to relitigate the issue in the court of public opinion, and given there will never be a consensus, we can all expect that to go on indefinitely and distract from more fruitful discussions of how to actually solve the homelessness crisis. Yet there are two important issues with the sweeps that do need to be discussed: whether the city is in fact actually following its own rules, and how it is prioritizing encampments for removal. Right now, the Office of Civil Rights (SOCR) is providing light enforcement of the rules through monitoring and auditing of encampment removals, though they are not adequately staffed to oversee all of them. But the bigger problem is that SOCR is part of the executive branch and reports to the Mayor. As such, it is not immune to political pressures in how it conducts its oversight of encampment removals. That issue looms large for SOCR around much of its work, not just the part related to encampments, and where the department fits into the city government org structure is being looked at. Nevertheless, instead of revisiting the rules once again or stripping funding for encampment removals out of the budget, the Council should be looking at how to empower and resource a truly independent group to provide meaningful oversight of encampment removals, free of political influence.
7. Rant: the Housing Resource Center. King County, United Way, AllHome, and the City of Seattle have been partners in a Landlord Liaison Program to  match willing landlords with homeless people in order to get hard-to-house people sheltered. The program has never really taken off, mostly because it was toothless; it didn’t actually help landlords with any of the risks they would undertake by taking in hard-to-house referrals as tenants. The Poppe Report identified a working version of this kind of program as a best practice in other cities that were more effectively addressing their homelessness crisis. The four partners came up with a new plan based on Poppe’s recommendations, called the Housing Resource Center, but over a year into the process it is still floundering. In the meantime, Mary’s Place, one of the most effective nonprofits in Seattle, decided to stop waiting and just do it themselves. At an event hosted by the Multifamily Housing Association (i.e. landlords trade association) a few weeks ago, Mary’s Place had a booth where it was handing out this flyer (outside inside) recruiting landlord participation in its program. The Council needs to be asking why four public agencies with plenty of resources can’t get their Housing Resource Center off the ground while Mary’s Place is driving ahead.
8. Rave: funding police accountability. The Mayor’s budget underfunded staff for the Office of Inspector General and the Community Police Commission. Council member Gonzalez proposed to add staff and contractor funding to both, so that they will be fully staffed. She clearly understands the importance of providing sufficient resources to the police accountability effort in order to establish its credibility with a skeptical community.
9. Rant: Seattle City Light and the Energy Imbalance Market.  I wrote about this previously. In short: SCL should be allowed to join the western states’ Energy Imbalance Market, even though the utility completely botched their pitch. However, Council member Sawant is proposing stripping all funding from SCL to continue pursuing it. I have some sympathy with her position, since SCL’s ham-fisted communications around the issue doesn’t speak well to their ability to make good decisions once they are in the market. But the risks are low, and the market dynamics are shifting quickly. By delaying or stopping it, Sawant is hurting SCL’s business more than she is helping it — and in the process hurting Seattle.
10. Rant: Municipal Broadband. This is a bad idea (for Seattle) that simply won’t die. Yes, Comcast and CenturyLink are evil. Yes, municipal broadband has been reasonably successful in a few places, most notably in rural areas where the density is so low that the private companies don’t want to make the upfront infrastructure investment. But it doesn’t work in places like Seattle, where the customers are packed densely, and there are entrenched competitors existing profitably who have national economies of scale that allow them to drop prices when necessary and plow profits back into further infrastructure upgrades.
    The most recent feasibility study of municipal broadband in Seattle suggested that a 1 gigabit system might be feasible at a price point of $75 per month, or lower if taxpayers were willing to authorize a $440 million property tax levy to pay for the up-front infrastructure deployment it would require. Of course, two years ago CenturyLink had just begun laying down fiber optic cable, and Comcast hadn’t said anything about gigabit speeds yet. Today, CenturyLink is now offering gigabit speeds for $75 per month in many parts of the city, Wave is offering it in some places for $80 per month, and Comcast has announced that it will offer gigabit speeds over its existing infrastructure. So the 2015 feasibility study is already obsolete.
    The big question that drives the desire for municipal broadband is race and equity. Profitability in the internet and cable businesses is driven by “take rate” — what percentage of customers in a given area will purchase the service for long enough to recover the up-front costs? Comcast and CenturyLink, being evil, tend not to deploy their latest technology into poorer neighborhoods because they expect the take rate to be low. A municipal broadband utility could ensure that gigabit broadband is deployed in all neighborhoods, with discounted rates as an extension of the city’s existing Utility Discount Plan. But the numbers only work if the “take rate” in the rest of the city, where people are paying full rate, remains high as well. And therein lies the problem with the business model. CenturyTel and Comcast already have “sunk expenses” in infrastructure, and CenturyTel is already offering gigabit service at $75 per month (guaranteed for life). Comcast could meet that price, and both might even be able to beat it through packaging telephone and TV service with broadband as they both currently do. That means it’s highly unlikely that the city would be able to maintain a high take rate. Worse, both Comcast and CenturyLink could drop their prices below cost long enough to force the city’s broadband offering to be either undesirable or unprofitable (which technically is illegal predatory behavior but it’s almost impossible to prove that). There is simply no way for the city to compete in broadband services against two entrenched, experienced competitors with so many market advantages, let alone two that have several years’ head start.
    Nevertheless, there are two budget proposals to move the idea forward. Council member Sawant is proposing $5 million to implement a  pilot deployment, while Council member Johnson wants to fund a business plan that can be developed all the way to a voter-approved property tax levy for the $440 million to get the ball rolling.
    Addressing equity issues in broadband access is incredibly important. Unfortunately, rolling out a municipal broadband utility from scratch is not a workable solution. Yes, we all want to stick it to Comcast and CenturyLink (I do too), but this won’t accomplish that either. It will just be an enormous taxpayer-funded money pit.
    What might make more sense is a more surgical approach: the city could invest in building out the fiber optic infrastructure in the neighborhoods where Comcast and CenturyLink don’t want to go, then license it to them to provide broadband (and other) services. The difficult and expensive part for the companies is the upfront infrastructure investment; after that, it’s easy for them to add and manage customers. This would accomplish all the equity goals at a lower cost and risk to the city, without the need to build out an entire business.
11. Rant: remotely operating a drawbridge. SDOT proposed spending $3 million to modify one of the five drawbridges it operates so that it could be remotely operated. They estimate that if they can eventually remotely operate all five, they could consolidate bridge operations and save up to $1 million per year. So: huge upfront costs, maybe a 15 year payback. And don’t even get me started on the cybersecurity risks of remotely operated drawbridges. Fortunately, Council member Johnson threw shade on the idea.
12. Rave: funding for Magnuson Park. In the aftermath of the shooting of Charleena Lyles, it was pointed out that Magnuson Park could use a boost. Council member Johnson is proposing additional staffing for the Community Center, and one-time funding to replace existing lights along the walking paths in the park to increase safety. This is on top of $2.15 million in the Mayor’s proposed budget for improvements to the Community Center, including renovations of 4800 square feet in the existing building for program and office space. A minor but important win for the community, and a win for district-based Council positions.
13. Rave: use your ORCA card to ride the Monorail. It’s in the plan for 2018. It only took 55 years for the Monorail to get integrated into Seattle’s downtown transportation network. But with the Westlake light rail station right there, and a couple of decades before light rail makes it to Seattle Center, it’s great that this is finally happening.