Bad News for the City Budget: New Forecast Slashes $241 Million from Last Year's Projection

Thanks, Trump!

By Erica C. Barnett

The city's budget forecast is grim, Office of Economic and Revenue Forecast Council director Jan Duras told the council Thursday morning, as national economic turmoil threatens to lower tax revenues in nearly every economic sector, from construction to tourism. In an unusual move, the council adopted the "pessimistic" (as opposed to "baseline") version of the forecast, which lowers total revenue projections by $241 million over the next two years compared to the budget the city adopted last year.

That total includes a $50 million two-year shortfall in the general fund resulting from lower sales taxes, business and occupation taxes, utility taxes, and many other revenue sources. The payroll tax alone, which depends heavily on just ten companies (nine of those in the tech sector), is now expected to bring in $142.3 million less than the current city budget anticipates.

The revenue forecast council, which was established in 2021, includes two representative each from the city council and mayor's office; prior to 2021, the City Budget Office was in charge of revenue forecasts. Today's vote marked the second time the city has adopted the pessimistic forecast, rather than the "baseline" forecast, since COVID shut down the economy in April 2021.

As you might expect, Trump's tariffs, stock-market volatility, inflation, and the looming recession are having a significant impact on Seattle—and when the economy is uncertain, people spend less money and businesses pay less in local taxes. This year, forecast council staff said, travel to Seattle (including visits from Canadians) is expected to take a hit, along with housing construction, attendance at venues that charge admission tax, and revenue from parking taxes and parking meter fees.

Job data also suggests that in response to rising payroll tax rates (which went up in 2023 and will rise again this year to pay for student mental health and social housing, respectively), large companies subject to the tax have been moving or adding jobs outside Seattle, a trend that could be contributing to lower tax revenues from JumpStart.

This is a problem not only for the programs JumpStart was created to fund, but for the general-fund programs to which it has been steadily repurposed. For years, the city has increasingly relied on the tax to pay for general city purposes, and last year, the council eliminated any requirement that it follow the original JumpStart spending plan, which allocated the funds primarily to affordable housing construction. But as they recently discovered, JumpStart is not an endless money faucet, but a volatile revenue stream that can swing dramatically depending on the decisions of a single company.

[caption id="attachment_44983" align="aligncenter" width="768"]

Wall-o-numbers: The relevant (scary) ones are in red.

Keep in mind that this is just the April forecast; the city will get two more forecasts before adopting a budgetin the fall. But unless the national and local economy suddenly start to trend in a positive direction, the likelihood is that things will get worse, not better, before then.

Simply put, it probably isn't possible—and definitely isn't prudent—for the mayor and council to continue to ignore growing, ongoing budget shortfalls by relying on the JumpStart fund to patch over deep structural issues year after year. As I reported last year, the city's current budget is only balanced (thanks to JumpStart) through 2026; after that, even before Trump's policies threw the global economic order into chaos, the city projected a shortfall of of $78 million in 2027, growing to $158 million in 2028.

Those numbers were already looking shaky, because they assumed JumpStart revenues would continue to rise and rise, bringing in more revenue every year and forestalling difficult budget choices. The city's existing budget assumes the JumpStart tax will bring in $440 million this year, $466 million in 2026, $483 million in 2027, and $505 million in 2028. The new revenue forecast, which covers two years, downgrades the 2025 and 2026 numbers to $359 million and $380 million, respectively, a cumulative drop of $167 million from what the city was assuming.

This means that the mayor and council have a bigger budget problem than they thought they would last year, when they larded the budget with $100 million in brand-new programs, including some (like live CCTV surveillance by SPD's new "real time crime center") that will now require ongoing funds in every budget.

The city could decide to finally new revenues, such as a capital gains tax or tax on excessive compensation for corporate CEOs—unlikely, but possible. There are good arguments for new taxes, but none of the proposals on the table would bring in enough to address shortfalls in the hundreds of millions; the high-end estimate for last year's proposed capital gains tax, probably the most feasible and lucrative option, was $51 million a year.

They could also decide to dip into the city's emergency reserves, but that still won't solve the problem, and would leave the city short on cash in future years, when the budget deficit is expected to grow.

Or they could make cuts. This seems like the least likely option in 2025, since there have been no signs the mayor or council are particularly panicked about the forecasts they've been seeing. Hell, the council just took time out of their busy schedules to pass a resolution decrying the very concept of removing a penny from the police department, so it's hard to imagine they're asking tough questions yet about what happens if they suddenly need to cut $300 million from the budget. In addition, it's an election year for Mayor Bruce Harrell and Council President Sara Nelson, and neither wants to be known as the "austerity" candidate.

If the situation didn't seem dire enough already, remember that Trump's dismantling of the federal social safety net has already hit Seattle, cutting funds for agencies that provide vital services to children, immigrants, people who can't afford health care, and those experiencing homelessness or housing instability, to name just a few. Last week, for instance, the director of the Downtown Emergency Service Center told a council committee that DESC gets about $35 million, or a quarter of its operating budget, from federal sources; if those funds aren't replaced by other sources, many of the 8,000 people the shelter and housing agency serves annually could end up back on the streets.

And they're just one agency. Others, like the Kids In Need of Legal Defense program, which helps immigrant children who would otherwise have to represent themselves in court, are already winding down their work—they lost their federal funding, and they can't function without it. These problems go beyond anything the city can address on its own, but every government in the state has an obligation to do what it can. Will this council and mayor be up for the challenge? We'll know soon enough.