Council and Mayor hold public spat over “soda tax” and “AirBnB tax” (UPDATED)

In their second major rift this week, today the City Council and Mayor Durkan fired accusations at each other over how to handle revenues from the Sweetened Beverage Tax (aka the “soda tax”) and the Short-term Rental Tax (aka the “AirBnB tax”).

Here’s my article from last month with the background on the issue on the Sweetened Beverage Tax. In short:

  • There were programs that received funding from both the General Fund and the SBT in the 2018 budget.
  • For the 2019 budget, in which the SBT was projected to have excess revenues, the Mayor’s proposed budget replaced General Fund dollars with the excess SBT dollars in those programs while keeping the programs’ total funding flat, and then spent the freed-up General Fund dollars on other (albeit important) programs.
  • The Council believed that this violated the spirit of the agreement they made with low-income communities when the SBT was originally passed. The tax is regressive and disproportionately impacts low-income communities, so buy-in from the communities on how the money would be spent was critical. But at the same time, the Council had no immediate option to undo the Mayor’s funding sleight-of-hand, so they approved the 2019 budget with minor changes, and endorsed the 2020 budget, leaving the dollar-swap in place.
  • At the same time, the Council also asked the City Budget Office to submit legislation by March that would establish separate funds for the SBT and the AirBnB tax, with specific spending rules attached, so this wouldn’t happen again. Instead, the Budget Office responded, “we agree in principle, but revenues look tight so let’s wait until the fall when we’re sure we can find other revenue sources before we tie our hands.”
  • Council member Mike O’Brien disagreed with that approach, and introduced his own legislation to ringfence the revenues from the two taxes and unwind the Mayor’s dollar-swapping — in effect leaving a hole in the 2020 budget where the SBT funds were swapped in (though leaving the 2019 budget unaffected).

On June 25th, City Budget Director Ben Noble sent a letter to the Council reiterating his (and the Mayor’s) opposition to O’Brien’s legislation. Nevertheless, the Council passed the two bills (one for each tax) out of committee on July 10, and they are headed for final approval on Monday. During committee deliberations, Council member Bagshaw offered amendments that would push out the spending restrictions until the 2021 budget, so as to buy the Mayor and Council time to ensure that they had sufficient other funding sources to cover the gap, but her amendments failed to pass. Council member O’Brien noted that he believed the Mayor would prioritize the programs that are threatened with losing their funding next year and would find a way to fund them; he wanted to make it the Mayor’s problem to decide on that prioritization, and if the Council didn’t like her solution it could change it during the fall budget deliberations.

That brings us to today’s events:

  • Four City Council members (O’Brien, Gonzalez, Mosqueda and Herbold) sent a letter to the Mayor today accusing HSD Interim Director Jason Johnson, DEEL Director Dwayne Chappelle, and the Mayor’s Office of spreading “alarmist and inaccurate rhetoric” to community organizations that receive funding the SBT that they were in danger of losing their funding if O’Brien’s legislation is passed on Monday. (update: see a sample of one of HSD’s emails below) They said that this action “unnecessarily caused shock waves of fear amongst dozens of community-based organizations.” The letter ends with an ultimatum on the upcoming 2020 budget:
    “As Councilmembers, we understand that the Mayor’s Office is currently at work to develop the details of the 2020 budget; it is our hope that you will utilize this opportunity to keep the 2020 SBT funded programs whole, per Ordinance 125324, and use SBT revenues to increase these services before transmitting your proposed 2020 budget to Council for legislative action beginning in September of this year.  If your 2020 budget does not do so, then the City Council, as the sole, Charter-authorized budget appropriation authority, will make every effort to restore funding consistent with Ordnance 125324 and Council Bill 119551, as amended.”

  • This afternoon, Mayor Durkan doubled down, issuing a press release in which she “denounced a proposed plan by City Council that would cut $6.3 million funding they had approved for critical programs that provide nutrition assistance, child care for struggling families, and nursing care for low-income pregnant women.”
  • A spokesperson for the Mayor confirmed to me this afternoon that Mayor Durkan intends to veto O’Brien’s two bills if the Council passes them on Monday.

 

As I pointed out in my earlier post, both the Council and the Mayor have culpability in this. The Council added one-time funding for homeless-related programs in the 2018 with the expectation that they would eventually push through a head tax, and when that fizzled they neither cut the funding nor found an alternative funding source. And Durkan exacerbated the problem with her “Bridge to 500” shelter program last summer, also paid for with one-time funding and a promise that she would identify long-term funding starting with the 2019 budget (provoking her to raid the SBT funds).

But now, with a broad recognition that the prospects of new sustained revenue sources are bleak, both sides are passing the hot potato back and forth, with neither wanting to take responsibility (and pay the political price) for either cutting funding to important programs or identifying new revenues.

The Council is likely to win this round since they probably have a veto-proof supermajority for the bill on Monday — and only three of the nine Council members are running for re-election this year. They can then force the Mayor to be the first to propose a solution to the funding gap.

Keep in mind that the two sides are arguing about a $6.3 million line-item in a $1.3 billion annual General Fund budget — essentially a rounding error. O’Brien is right that the Mayor (or the Council) can find the money to cover this. There’s an argument to be made that this is more about power dynamics in City Hall than about real fiscal issues: the Mayor has stronger support than the Council among the general population in Seattle, but the Council has stronger support with vocal community leaders and advocacy groups. Rather than working together to solve problems, both sides are instead moving to destabilize the other’s base of support (and rally their own). It’s a sad state of affairs, in a very strange, very political, election year in Seattle.

 

UPDATE: here is a sample email sent by HSD to one of their providers (I removed the recipient’s name to protect their identity):

Dear xxxxxxx:

I’m writing all providers contracted by the Seattle Human Service Department (HSD) funded by the Sweetened Beverage Tax (SBT).  Your contract is in jeopardy because of a recent Seattle Council legislative action.

On Wednesday, July 10 the Finance and Neighborhoods Committee passed Council Bill 119551, “AN ORDINANCE related to creating a fund for Sweetened Beverage Tax revenues; adding a new Section 5.53.055 to the Seattle Municipal Code; and providing additional guidelines for expending proceeds.”

Last November, the adopted and endorsed 2019-2020 Biennium Budget, passed by an 8-1 vote and signed by the Mayor, allocated Sweetened Beverage Tax revenues to support food and education related assistance programs. The law currently permits soda tax revenues to be used for food and nutrition programs, education and child-based programs, job retraining and placement programs for workers adversely impacted by the tax. Unfortunately, the Council has now changed its mind and would rather have this $6.3M in revenue support unspecified new programs next year while providing no funding to back-fill the cuts to currently funded programs.

This legislation is scheduled for the vote of Full Council at its Monday, July 22 meeting, which starts at 2:00 p.m. Councilmembers will take public testimony on the legislation before final action.

If the Full Council approves Council Bill 119551 next week, your funding may be cut.

To be prudent, I’m asking all potentially impacted providers to develop a funding contingency plan.  HSD values your agency and the important services you provide the community. I also acknowledge the impact this could have to so many across the community that need this support.   Please contact Audrey Buehring at Audrey.Buehring@seattle.gov if you have questions.

Sincerely,

  Jason Johnson, Acting Director

Human Services Department

Cc:  Audrey Buehring, Deputy Director, HSD

        Tanya Kim, Division Director, HSD Youth and Family Empowerment Division

        Cathy Knight, Division Director, HSD Aging and Disability Services Division

 

 

 

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