Progressive Revenue Task Force forwards recommendations to Council

This morning, the Progressive Revenue Task Force held its final meeting and made a handful of minor edits to its final report before voting unanimously to forward it on to the City Council.

Here is the near-final version of the task force’s report, missing just a couple of small changes made in the meeting today.

The Council resolution that created the task force asked it to make recommendations for progressive revenue sources that would yield between $25 million and $75 million. In the end, the task force recommended that the Council raise $150 million of new annual revenues, half from an employee-hours tax (aka a “head tax”) and the other half from a laundry-list of other potential sources.

Their rationale stems from an analysis of the need, in particular what it would take to address the low-income housing gap in Seattle. According to their estimates, the city will need 20,000 more housing units over the next 10-12 years just to fulfill the need for people making 30% of annual median income (AMI) or less. With today’s rates, that alone would cost $340 million a year for the next ten years. The $150 million in new revenues they are proposing is less than half of that — and that’s not even taking into consideration housing needs at other income levels, or funding needs for homelessness facilities and services.

Somewhat ironically, the task force argues that Seattle residents and businesses will be more supportive of new taxes and programs at a level that has a chance of making a meaningful difference, so therefore a $150 million tax program will garner wider support than a program that generates less revenues. They do point out, though, that the city could focus on just the $75 million head tax if the county-wide “One Table” effort proposes alternative means to generate the other $75 million — though in their conversation today they noted that the One Table group had not responded to their letter asking to align their efforts.

They didn’t lay out all the details of a potential implementation, but they did propose four principles for raising the revenues and suggest the issues that each of them raise:

1. 1. Progressivity/equity. The task force takes a page (literally) from the IRS handbook’s definition of “progressive tax” to argue that ability to pay should figure centrally in how the tax is structured. They also worked with city staff to explore what a graduated tax might look like (even though it probably wouldn’t be legal). They also looked at making the tax based on a percentage of payroll instead of a flat rate per employee-hour, with the hope that it would be more palatable for “low margin” businesses that tend to hire more low-wage workers.
   2. Fairness and consistency of exemptions. In other words, who doesn’t have to pay. The City Council’s original proposal exempted all 501c(3) nonprofits, but the task force believes that is too broad, and suggests that the exemption be limited to a smaller set of nonprofits — but definitely those providing housing, shelter, and homeless services. There’s also the question of revenue thresholds: in order to avoid putting extra strain on small businesses, should those with revenues less than $500,000 — or perhaps $100,000? — be exempted?  But as been pointed out before and was discussed again this morning, revenues are different from profits, and are not a good proxy for whether a business is thriving.
   3. Racial equity and social justice. Council member Gonzalez pointed out that the task force’s recommendations had not been analyzed using the city’s Racial Equity Toolkit, so they don’t understand whether there would be any disparate impacts on vulnerable communities.
   4. Everyone should contribute. Because “the housing and homelessness crisis is a matter of concern to the whole community,” the task force felt that all businesses should have “skin in the game” and contribute at least a token amount to the solution — even businesses with only one employee (the owner). That amount could be as low as a flat $400 fee for businesses with revenues less than the threshold amount discussed above.

It’s interesting that at this point in the discussion the new tax becomes less about the need to raise revenues, and more about driving a social philosophy in which everyone is required to be involved in solving the problem.

The task force made several suggestions for sources for the other $75 million, including:

• a local estate tax, layered on top of the existing state estate tax;
• increasing the Real Estate Excise Tax, which would require the state legislature to grant the authority;
• taxes on exceptionally high compensation for top executives, modeled on Portland’s “pay ratio surtax;”
• other progressive property-related taxes, including speculative real estate investment activity, vacant or unoccupied properties, and second homes. This would also require additional authority to be granted by the state legislature;
• a “housing growth fund” to be filled with an increment of property taxes associated with new construction.

With regard to how the funds should be spent, the task force recommended an 80/20 split between housing programs and emergency shelters/services. Unfortunately and as is typical when there is money on the table, this is where the agendas and special interests become apparent. The task force report includes shout-outs to several pet issues, including:

• Criminal justice reform. It suggests that some of the revenues could be raised by transferring money from current criminal justice programs. It also has a lengthy section suggesting that criminal justice reform programs that didn’t get their full funding requests in the 2018 city budget should receive funds from the new tax, including expanding the LEAD program and a felony diversion program.
• Pot. The IRS code section 280(e) asserts that businesses trafficking in illegal controlled substances, including marijuana, are not allowed to take tax credits or deductions. The report suggests that given that extra burden on local cannabis-related businesses, the city should consider exempting them from the new tax (if it can).
• Safe consumption sites. The report recommends that they should be set up citywide once the pilot site is proven to work.
• Wage increases for nonprofit workers. It argues that the city and county underfund human service providers, leading to low pay for their employees, and that some of the new tax revenues should be used to increase wages. The report suggest a wage analysis be completed, and argues for a 15-20% increase in wages for clinical, case management and outreach workers.
• Undoing the HSD RFP. It continues to beat the drum in opposition to HSD’s RFP process last year in which it bid out $34 million of homeless services for the first time in a decade. The human service providers have banded together to complain on behalf of the providers who weren’t re-funded, and those complaints are repeated in the report.
• Critiques of Pathways Home. It also echoes general complaints about some of the principles in the city’s Pathways Home strategy that have led to changes in the way the homeless response is managed by the city. That includes a critique of performance-based contracts and focusing on metrics such as exits to homelessness because of the concern that it will lead to a practice known as “creaming” where providers choose only to work with the portion of the homeless population that is easiest to serve. The report also rehashes (mostly unfounded) complaints that the city is putting too much emphasis on “rapid rehousing” programs to the detriment of “transitional housing” programs.

When you look at the membership of the task force, and the overlap with activist groups who have been pushing back on HSD recently on behalf of providers who didn’t get funding, it’s little surprise that these items all ended up in the report.

The task force’s report and recommendations will be delivered and presented to the Council on March 14th at a meeting of the Finance and Neighborhoods Committee.

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After today’s meeting, I interviewed Council member Lorena Gonzalez, one of the four co-chairs of the task force. She wants to conduct a racial equity toolkit analysis of the task force recommendations immediately, hopefully wrapping that up by the end of March so that they can begin drafting legislation and have a bill in front of the Council by mid-May.  Here’s a transcript of the interview:

 

SCCI: How do you think that went overall?

Gonzalez: I think it went well. I mean it’s sort of the end of many, many weeks of both work here and work in the background, but I think the Council and I now have a clearer sense of the intent, the motivation, and the hopes for how this money could be spent wisely.

SCCI: Are you surprised by the $150 million recommendation?

Gonzalez: I’m not surprised by the $150 million recommendation given what I know about the realities of the need. I think that the task force members did the best that they could trying to evaluate and draw the line in terms of where they think a significant portion of that money can come from, and they’ve also done a good job of identifying other potential revenue sources. But it clearly signaled to us that they understand there are challenges with pursuing that other $75 million. And I appreciate their reasonableness around wanting to give us the space to be able to explore and deliberate what those options are, and come to some conclusions based on what we’re going to hear from our lawyers and others.

SCCI: any guesses as to where the council will end up on this?

Gonzalez: On the $75 million?

SCCI: $75 million vs. $150 million.

Gonzalez: I don’t have a sense of that yet. I think part of what we are looking forward to doing next is putting this through the Council deliberative process, and that’s going to start on March 14th. And hopefully by then I will be able to come up with a negotiated work plan that really makes clear expectations with my colleagues about when they have to identify issues and how they’re going to identify issues. And over the next several weeks my hope is that we’ll be able to have this in front of full Council by no later than middle of May.

SCCI: so you’re not going to make the end of March deadline.

Gonzalez: No. I think the resolution requires to state an <laughs> aspirational goal of introducing some legislation by the end of March. I think that given the fact that he had a bit of delay here in the task force that those days are probably moving a little.

SCCI: so are you and Council member Herbold going to be the co-sponsors of the legislation?

Gonzalez: I haven’t talked to her about that yet, but I suspect so. <laughs>

SCCI: I’m wondering whether Councilmember Bagshaw will be involved in that, since it originally came out of her committee.

Gonzalez: Well it’s in her committee, yeah.

SCCI: So it’ll go to her committee. You said on the 14th?

Gonzalez: On the 14th. March 14th, 2pm.

 

SCCI: Any other concerns coming out of this?

Gonzalez: I think the realities around the $75 million employee hours tax is really going to be dependent on some of the, you know, racial equity, disproportionate impact, concerns that I already flagged during the task force meeting. And really thinking through more clearly where we’re going to set those dials. So I think that we’ve heard from the task force the hope is that we’ll be able to structure something in a way that will garner $75 million with the understanding that, you know, depending on how the Council deliberative process advances we may not be able to get to that full mark.

SCCI: So on that point, after you draft legislation do you plan to run it through a racial equity toolkit analysis?

Gonzalez: No, I plan to run it through before.

 

SCCI: So what’s the timeline look like on that?

Gonzalez: You know, I think we have to consult with the OCR on that, but I think that now we have a sense of what the actual recommendations are, there’s no reason we can’t begin that evaluation now, and we will. So my hope is that we’ll be able to have that done in the next 3 or 4 weeks, in time to be able to introduce some legislation for consideration by full Council in the middle of May.

 

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