The incredible growth of Seattle’s economy in recent years is going to slow, and so is the growth of City Hall’s tax revenue from existing sources, Mayor Jenny Durkan’s budget managers told City Council members Monday.
Seattle isn’t in trouble at the moment, because the city has been taking in about as much revenue as the experts predicted last November, when Durkan and the council adopted a budget for 2019 and endorsed a plan for 2020.
But the mayor and council likely won’t have much unanticipated money to devote to new projects later this year and next year, and economic indicators are signaling a slowdown, the budget managers reported.
“We’re predicting continued growth of the local economy but at a slower rate,” Budget Office Director Ben Noble told the council’s budget committee.
National job growth dropped in 2017, picked up last year due to tax cuts and is expected to decline over the next two years, analyst David Hennes said. Seattle-area job growth peaked in 2016 and is expected to continue to decline through 2021, Hennes said.
Retail-industry job growth increased sharply in the Seattle area from 2009 through last year but has recently leveled off, he said, attributing about two-thirds of the industry’s decadelong boom to Amazon.
Seattle’s population growth peaked in 2017, netting more than 25,000 residents. The city added closer to 15,000 residents last year.
As Seattle has grown, City Hall has become more dependent on the construction industry. It accounted for 8.6% of the city’s general-fund revenue last year, up from 4.2% in 2010.
The budget experts expect tax revenue from construction to start declining this year, although mega projects such as the Washington State Convention Center expansion and the KeyArena renovation project will help.
The trend “makes us a little nervous,” Hennes said.
Home prices have leveled off after years of dramatic leaps, Hennes noted. But the city’s real-estate excise tax revenue should remain relatively robust, he said.
Seattle’s general-fund revenue growth is expected to drop below 4% this year. It was 8% last year, thanks partly to a new tax on soda pop and other sweetened beverages.
The city collected $22 million in soda-tax revenue in 2018, though the budget managers had initially predicted $15 million. That was a conservative estimate made without solid data on baseline soda consumption, Noble said.
Sales and business taxes are slightly exceeding expectations at the moment, while Seattle’s commercial-parking tax is bringing in less than anticipated.
“That will create some challenges,” Noble said.