Council continues to refine 2018 budget

Yesterday the City Council spent most of the day looking at 59 proposals to further refine the proposed budget for 2018.  And a few of them got heated.

The proposals reviewed yesterday were modifications to Budget chair Lisa Herbold’s initial balancing package. Many were edited resubmissions of ones that had been considered earlier (some accepted into the budget package, several rejected). A few were brand-new, often ideas that hadn’t been ready in time for the first round. Herbold will take the discussion from yesterday and use it as input to a second balancing package that she will release in the coming days.

Two topics dominated the day’s discussions: the proposed employee-hours tax, and the city’s response to the homelessness crisis.

The Council is still deeply split on the employee-hours tax (or “head tax”) with Council members O’Brien, Harris-Talley, Sawant and Herbold in support and Council members Bagshaw, Juarez, and Johnson in clear opposition. Harrell and Gonzalez have both made comments that imply they are leaning to the negative.

O’Brien, the original proposer, continues to talk it up, including plans for how to use the revenues. He circulated a spreadsheet that proposes annual bond issuances between 2018 and 2022 for a total of $219 million to be used for affordable housing, with the debt service paid by the head-tax revenues. By his calculations, in 2023 and forward (for another 25 years) the total debt service would be $17.5 million. The city’s initial estimates would be for $25 million in revenues from the new tax; he rounds this down to $20 million to be conservative, then figures that after debt service there would be an additional $2.6 million in the out-years to spend on emergency shelters. O’Brien specifically touts as a benefit of the tax that it would be a long-term source of funding that could be used for purposes such as debt service on 30-year municipal bonds. His plan also borrows $11.8 million from other city funds, to be paid back over three years from head tax revenues, to get a quick start on a number of projects.

There are a couple of flaws in his logic. The first is that employment is cyclical, which makes a tax on employment levels risky as a source of debt service payments — especially on a 30-year time scale.  Here’s a graph from a year ago looking at Puget Sound employment growth over the past few decades:

Here’s a more detailed (and more recent) look at the Seattle Metro area:

And last month’s projection for the 2017 and beyond:

Contrary to Council member Harris-Talley’s claim yesterday, employment growth in Seattle is already slowing, and it is predicted to slow further. And, of course, it turned negative during the Great Recession and in prior economic downturns. Even construction employment seems to have peaked and is now trending down:

That doesn’t mean none of the revenues from an employee-hours tax should be used for debt service, but $16.5 million is arguably too large to comfortably manage the inherent risk. The city’s policy on REET revenues  explicitly prohibits using it for debt service because of its cyclical nature. The former head tax was instituted in 2006, and was repealed only three years later due to the weak economy. If this new instance is committed to debt service, it can’t easily be repealed for the next three decades (when bonds are offered, the paperwork commits to the source of revenue for paying the debt service). This is bad fiscal policy.

The second flaw in O’Brien’s logic goes back to the premise of the tax in the first place: to make those companies that are thriving from Seattle’s economic boom (most notably Amazon and its surrounding ecosystem) pay for addressing the problems that their explosive growth has caused.  Apart from the problem I’ve discussed before that the threshold test of “revenues over $5 million” doesn’t accurately identify the companies that are thriving today, it squares even less with a 30-year commitment to a tax to pay debt service. Even assuming it did accurately target booming companies, is the plan really to milk for the next thirty years the companies that are booming today, on the assumption that they will continue to boom for three decades? Or can we put high-minded principles aside and admit that this is just a tax on big businesses, regardless of their economic success? A tax on big businesses may make sense — there are certainly critical needs in our community — but it would be refreshing if our elected officials were honest about what their proposal actually does.

Council member Johnson proposed an alternative plan to provide an extra jolt of one-time revenues instead of instituting a head tax.  That plan garnered immediate and fervent attacks, as it diverted funds required to be deposited into the city’s rainy-day fund, and modified restrictions on two other funds (including the Move Seattle Levy, where the city is required to spend a minimum amount of general-fund dollars every year).

Harrell proposed another alternative: having a community-led process in the winter and spring of 2018 to discuss implementing an employee-hours tax, similar to what was done for the $15 minimum wage. Johnson and Juarez co-sponsored that idea, but as expected it drew criticism from O’Brien, Harris-Talley, and especially Sawant who accused her colleagues of being “craven” to the interests of the business community. Both O’Brien and Harris-Talley spoke of their desire to hear from the business community, but suggested implementing the head tax now in the budget process and then in the spring running a process similar to what Harrell proposed to see if there were any better ideas or suggestions for how to tweak the tax to make it easier for businesses.

Juarez continued to voice her opposition to the head tax, and further complained that Herbold’s balancing package already funds several critical needs with the revenues from the tax — deeply entangling them and making it impossible for Council members to oppose the tax without seemingly opposing critical expenditures.

Since Herbold included the tax in her first balancing package without the support of even a simple majority of her colleagues (let alone a consensus), it’s unlikely she will remove it from the next iteration. That will lead to a high-stakes showdown in the coming weeks as the budget changes come up for formal votes.

The other big topic, removals of unsanctioned homeless encampments, continues to center around dueling proposals for restricting how the city can spend money for removal activities. On one hand, Council members Sawant, Harris-Talley and O’Brien have proposed  disallowing funds to be spent on removals other than in a short list of particular areas. Council member Herbold, however, suggests that the problem is not specific areas but instead that the city is not accountable for following its own published rules for prioritizing and implementing removals; her proposal restricts removal funding to only those that are in strict compliance with the city’s rules and requires much more transparency in how removals are prioritized.

Council member Harris-Talley signed on to both proposals; she expressed her frustration that the funds being spent on removals are commingled with other funds so that it is nearly impossible to place restrictions on them. She also complained that the city’s rules for encampment removals, in her view, don’t outline anything that actually helps homeless people. Council member Sawant pushed her colleagues hard on why they would support spending a year studying whether the city’s rules are being followed if they disagree with those rules in the first place (answer: most of them don’t disagree with them).

There were other proposals related to the homeless response. Council member Harris-Talley proposed restricting the city’s use of fencing to keep homeless people off public property other than certain critical areas.  There are also two proposals to fund additional sanctioned encampments: Sawant’s to fund two more in Council districts that currently don’t house one of the existing ones, and Harris-Talley’s to fund four more. It’s possible that they both could make it into the budget, in which case the city would have funding for a total of twelve.

O’Brien also proposed moving the funding and staff coordinating the city’s emergency homeless response out of Finance and Administrative Services (FAS) and into Human Services (HSD). Noting that the state of emergency has now been in place for two years, he argued that the current organization has led to what he believes is an approach of “efficiently doing project management,” rather than a person-centered approach that starts by assessing the people there. He said that he wants people coordinating the effort with social work backgrounds rather than business backgrounds.

Other items up for discussion yesterday:

  • Council member Gonzalez proposed removing some of the funds dedicated to SPD’s new records-management system, which is significantly overbudget. She said that she has serious concerns about the project and SPD’s stewardship of it.
  • Council member Herbold has introduced a slightly modified version of the Mayor’s bill requiring HSD to use a Results-based Accountability framework in its contracting process.
  • Council member Juarez proposed transferring the budget for the successful LEAD project (which looks to be significantly expanded next year) from HSD to SPD. This brought angry objections from Sawant who praised HSD and argued that SPD is not accountable for its budget. Gonzalez and others retorted that HSD is equally opaque with its budget, and noted the ongoing concerns with HSD’s contracting process. They also noted that the LEAD program is actually a collaboration between SPD, public defenders, and criminal justice reform advocates and that HSD’s only role is housing the budget. Bagshaw closed the discussion by reading a text message from HSD director Catherine Lester saying that she too would prefer that the LEAD budget be moved over to SPD.
  • Council member Harris-Talley revised her proposal to divert an additional $2.2 million from the North Precinct planning process. Her stated intent was to leave intact the funds for work on the existing facility (noting that those improvements should last it for several years) and for the Racial Equity Toolkit community engagement process that the Council had previously directed SPD to do, but removed all additional funds — including any to do any (re)planning for a new facility when the community engagement is completed.

The full list of proposals discussed yesterday is here.

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  1. Excellent write-up. Question. I believe that some on the council have stated that they make data driven decisions. Do you feel that is valid?

    1. I think many of them try to. And like most people they are more likely to make data-driven decisions when the data says what they would like it to. They certainly haven’t been bashful about commissioning reports to gather information and to evaluate new programs, so credit to them for that.

      1. Thanks. It does seem like there most likely have a variety within the council. It does seem like they talk first about increasing taxes and revenues before having a good detailed plan on how to spend the money. At least with some council members.

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