Progressive Revenue Task Force holds second meeting; things were learned

This morning the Progressive Revenue Task Force held its second meeting, the first with substantive discussions of the issues. There were some important insights that help clarify the picture of the need — and the possible ways to address it.

(updated 1/19/18 10:00am — the city provided updated slides with corrections for bad data and incorrect math)

(to refresh your memory, here is my write-up of the first meeting)

The heart of the meeting was an “information dump” from several members of the Council’s central staff, providing some baseline information for the task force members on homelessness, affordable housing programs, current funding, and the current state of business taxes in Seattle and neighboring cities. I found frame big insights that help to frame the conversation.

1. The justification for large, long-term funding is not rocket science.  There are lots of programs that could be funded: scaled-up emergency response, shelters, diversion programs, rapid rehousing, etc. Let’s put all of those aside for the moment, and just focus on one: affordable housing for people making 30% or less of the region’s annual median income (AMI).
   According to 2014 city statistics, of the 156,465 total renter households in Seattle, 39,540 have income less than 30% of AMI.  Of those, 22,800 are “severely cost burdened,” meaning that they spend more than 50% of their income on housing. That figure is projected to grow to 26,000 by 2030.We can have a long, in-depth argument about whether a well-functioning housing market will supply affordable housing for people making 80-100% of AMI, but we can all pretty much agree that the market will not cover the “30% AMI and under” demographic. For that, we will need public housing. If all of the HALA recommendations are adopted, that would create about 6000 additional units for people in the “30% AMI and under” group. That leaves a gap of 20,000 units. Last year, the city produced only 136 units, a 3-year high, with an additional 222 units of “Permanent supportive housing,” at least some of which could also house people in the under-30% group. Still, not even close to closing the gap.
   
   The city is very good at leveraging federal, state, county and private funding sources to supplement its own funding. The cost to create a unit of public housing is about $320,000, of which the city’s contribution has averaged around $93,000 and the rest has come from other source. But as public housing production scales up, all those other sources are unlikely to scale in proportion, so the city figures its average contribution will rise to about $160,000 per unit. Now the scary math: $160,000 times 20,000 units is $3.2 billion dollars. Even spread across ten years, that’s $320 million per year.
   Public housing projects take a lot of criticism for being expensive. That’s fair. It’s worth pointing out, though, that one of the main reasons they are so expensive is because the city demands that the contractors pay a living wage to their employees. They aren’t just housing programs; they’re jobs programs, often for some of the people who will end up living there.
   That aside, this component alone of a plan for addressing homelessness and affordable housing in the city could cost $320 million a year for the next ten years.
2. The progressive revenue source needs to be multi-year, sustainable, and predictable, and that’s harder than it sounds. There isn’t going to be a magic windfall of several billion dollars in Seattle’s near future, but fortunately we can raise the money over a long period of time — if we can count on the money showing up. That means it needs to be reasonably sustainable through the next economic downturn. It turns out it’s challenging to identify sources that are long-term, resilient to economic forces, AND progressive.
   As council staff pointed out, in an economic downturn, employment, revenues, and income all decline. The most stable revenue source is property taxes, but that’s not a progressive source.
   Council staff distributed an estimate of what an employee-hours tax would raise at various levels of taxation and different exemptions for the size of the business.
3. Seattle businesses pay a lot of taxes already. Council staff distributed a spreadsheet comparing business taxes in Seattle versus other cities (click to expand).A word of caution: it’s extremely difficult to do an apples-to-apples comparison of business tax burden. Other states and cities (like California and San Diego)  have income taxes, whereas Seattle doesn’t. Even within Washington state, the property tax and sales tax burden varies by jurisdiction since counties and cities can add their own on top of the state’s, and businesses pay one or both. There was wide recognition in today’s meeting that the table comparing business tax rates is a useful but imperfect look at the tax burden Seattle places on its businesses. The most useful points of comparison are with Seattle’s neighbors, such as Bellevue, where it’s clear that Seattle’s business tax burden is significantly higher.
   Nevertheless, former Council member Kirsten Harris-Talley (and a co-chair of the task force) did her best to spin this as a good thing, delivering the following eyebrow-raising interpretation:“For me when I look at this, this dispels this myth that I have heard over and over again that I think is caught up in a much bigger myth just about whether or not ‘taxes’ are a good idea, that somehow any implementation of dollars that are contributed towards the public good, that people just abandon those places and flock to other places. If that were the case, with the changes that we’re seeing between some very close municipalities to Seattle, quite frankly we would not have the boom and types of businesses that we have in our city. So for me this just dispels this myth that somehow it’s a tax threshold that is the end-all-be-all of how people make decisions about where their businesses are, who they serve, and the structure of their businesses. So this is I think helpful for me to dispel that myth, and I would just invite us to just remove what I think is really just a propaganda harped-up idea that is wrapped up in the same thing as trickle-down economics or these things that are things we say that are not actually how we know economics functions.”This view, however, is belied by the Council members’ own adherence to the old adage that the best way to reduce something is to tax it — a view that they all professed to in passing the sweetened beverage tax last year. Harris-Talley is trying (badly) to disprove a contra-factual statement, that if business taxes were lower we wouldn’t see more business activity in Seattle, by presenting it in extreme form: people wouldn’t “abandon” Seattle and “flock” to other tax-friendlier cities.  It’s not an all-or-nothing  game. Perhaps some would move; others would simply grow their business more slowly, set up additional sites, and/or start new businesses elsewhere. I haven’t heard anyone suggest that there is a magic threshold for tax burden beyond which businesses abandon Seattle en masse, but it does make for a lovely straw-man to knock down. Nevertheless, it’s beyond question that higher tax burdens are a disincentive to business activity, just as higher soda taxes are a disincentive to buying soda.
4. There are multiple dimensions to identifying people most in need of help. Task force member Lisa Daugaard pointed out that in the rush to focus on the most vulnerable people in our community (such as those whose income is less than 30% of AMI), we can overlook those who may not be quite as vulnerable but who have high barriers to successfully navigating through the system to permanent housing. That includes people with substance abuse and/or mental health issues, the chronically homeless, LGBTQ youth, survivors of domestic abuse, veterans, and other people whose experience has left them at a disadvantage. Even if we are wildly successful in creating affordable housing, we will need to do more in order to create successful outcomes for people with other barriers.

Here is the video of today’s meeting, and the presentation slides with lots of other relevant data.

The next task force meeting is scheduled for February 1, from 9-11am, in Seattle Municipal Tower room 4901.

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