Excess revenue from Seattle JumpStart payroll tax may help absorb increasing budget shortfalls in 2023 and 2024, but the city will still need to find millions in new revenue to sustain current spending.
In each of the next four years, Seattle’s operational budget will likely come up more than $140 million short to maintain current spending, due to a combination of overbudgeting, stalled growth, inflation and a delay by city officials to find new revenue sources.
In 2019, though the city was in its fifth consecutive year of significant revenue growth — about 4.5%-5% — the city’s budget office began to caution against increasing spending, forecasting a $116 million shortfall for 2023.
Last week, the city’s Office of Economic and Budget Forecasts reported that the already bleak outlook for the 2023 budget had gotten worse, with a projected revenue shortfall of $141 million, up from $117 million projected in April. The same report also predicts the city’s operational budget will be short an additional $152 million in 2024 and an average of around $142 million every year through 2026.
While the mayor’s office will not introduce the first version of the 2023 budget until late September, Councilmember Teresa Mosqueda, who oversees the council’s budget committee and process, outlined a potential solution last week in which the city could use excess revenue collected from JumpStart to pad the general fund in 2023 and 2024.
“The revenue forecast got worse on Monday and we continue to see increase in terms of what the deficit will be over the next four to six years. And the pressures are real,” Mosqueda said.
“I wanted to be very clear to the mayor’s office because they take the first crack at drafting the budget … that I did not want a budget to be sent to council that either included an all-cuts austerity approach or a raiding of the JumpStart fund,” she added.
JumpStart, a controversial but lucrative payroll tax passed in 2020, requires employers with at least $7 million in annual payroll to pay between 0.7% and 2.4% on salaries and wages paid to Seattle employees who make at least $150,000 per year.
This year, after collecting for the first time in 2021, JumpStart brought the city $231 million in revenue, exceeding the city’s $200 million estimate.
City Council policies earmark proceeds of the tax for investments into affordable housing, Green New Deal initiatives, local business assistance and equitable development.
Mosqueda, however, said the city could potentially use excess revenue — beyond the amounts projected when the priorities were set in 2020 — to temporarily aid the general fund.
Under that plan, the tax could provide around $71 million to the general fund in 2023 and $84 million in 2024, without shorting any of the intended investments.
In an interview about the plan, Mosqueda repeatedly emphasized that this is not a proposal she or anyone on council is currently introducing, but was rather intended to show the mayor’s office parameters in which council would consider giving JumpStart revenue to the general fund while the city set up a long-term solution for 2025 and beyond.
“For me, a bottom line is protecting JumpStart, and protecting the spend plan as codified,” Mosqueda said, noting that she would only support this idea if it was necessary and if it didn’t impact the projects the tax was intended to support.
But, since she said the council was still “collectively reeling” from former Mayor Jenny Durkan’s efforts to “raid” JumpStart funding in her 2022 proposed budget — which resulted in the council making about $150 million in funding source changes — she thought she would introduce the idea before current Mayor Bruce Harrell’s first budget.
“So instead of receiving a budget that completely unraveled JumpStart or took an austerity approach, I was trying to identify that there may be a [different] scenario,” Mosqueda said.
While the mayor’s office has not shared how much of the revenue gap will be filled through cuts and how much will come from additional revenue sources, Senior Deputy Mayor Monisha Harrell said in June the mayor’s office was asking departments to prepare budgets with 3%-6% cuts and looking for ways to reduce spending in 2022 and access “different colors of money” to meet the needs of the general fund.
A spokesperson for the mayor said Monday that the office is still considering “a number of balancing strategies,” but JumpStart would be among them.
“We’re appreciative of Councilmember Mosqueda’s shared commitment to avoiding an austerity budget and we will be looking to general-fund-adjacent sources, like the JumpStart payroll tax and others, for potential short-term flexibility,” Communications Director Jamie Housen said. “Our top goal is to produce a budget that is both financially sound and responsive to the priorities of the city.”
Supporters of JumpStart — including several local labor unions and housing organizations — wrote a letter to council members Wednesday, supporting the plan “if the full promise and funding commitments of JumpStart as intended in 2020 are adhered to” in the budget.
“Given that JumpStart is projected to raise revenue above what was estimated in 2020, we support the request made by Councilmember Mosqueda today to look at temporarily addressing the Seattle budget shortfall in 2023/2024 with excess JumpStart revenue only to continue equitable core city services,” the letter reads.
Even under the hypothetical JumpStart revenue share, the city will still face about $70 million in shortfalls each of the next two years, and would have to come up with new revenue to be approved next year and collected in 2024 in order to maintain spending in 2025.
“It is only going to be a sustainable budget situation if we have progressive revenue in addition to JumpStart to make sure that we are meeting our community’s needs,” Mosqueda said, noting that she does not want to see the executive rely on JumpStart for general funds beyond 2024.
Housen said the mayor’s office will work with the council on solving the “longstanding revenue stabilization issue.”
The mayor is expected to present the proposed 2023 budget to the council next month.