The novel coronavirus pandemic that’s wreaking medical and social havoc in Seattle also could punch a hole of $100 million or more in the city’s budget, forcing leaders to make tough decisions about cuts and emergency funds, a top official said Monday.
Seattle budget director Ben Noble’s team last week estimated the city could collect $110 million less than expected in general-fund tax revenue this year due to an economic breakdown caused by the virus and by efforts to slow its spread, said Noble.
At the same time, some City Council members are adjusting their push to tax large corporations like Amazon, now arguing the money could initially be used to help people slammed by the virus crisis.
The $110 million revenue hole would be a 7% reduction, Noble said, and that estimate already is growing stale. Noble’s team didn’t know last week that Gov. Jay Inslee would take more drastic action Monday by ordering all bars, restaurants and places of entertainment and recreation to close.
“I think that’s the best-case scenario,” Noble said in an interview. “Economists are now predicting a recession across the country.”
The Seattle budget team assumed for the purposes of the estimate that the worst impacts of the outbreak would last for about three months and that the local economy would then ramp back up over time.
The budget could be hit hard because the city is heavily dependent on sales tax, business-and-occupation tax and utility tax revenue. Those sources account for about 60% of Seattle’s general fund, Noble said.
For years, Seattle’s tax revenues have been climbing, thanks to the city’s tech, real estate and construction booms and to tax increases as the city has sought to combat a housing crisis, close educational gaps, improve transit options, maintain parks and modernize libraries.
“We’re highly dependent on local economic activity,” Noble said. “What’s happening in the local economy now is simply unprecedented. This isn’t a recessionary slowdown.” It’s an imposed shutdown for many businesses, the budget director said, “so the depth is not like something we’ve seen before.” Because Noble’s team doesn’t actually know how long the outbreak will last, “it’s very hard to get a handle” on the potential fallout, he added.
Some revenue sources outside Seattle’s general fund could see even more dramatic reductions, Noble said. For example, the city’s taxes on short-term rentals and sugary beverages could bring in 20% to 50% less money than expected, because tourism has plunged and because people are no longer buying beverages at restaurants, he said.
Then there are the unexpected expenses that Seattle may incur as City Hall responds to the pandemic. Mayor Jenny Durkan already has deferred business-and-occupation tax payments for some small businesses and reallocated millions of dollars to help some small business owners.
The mayor Monday announced a new plan to spend $5 million on supermarket vouchers for more than 6,000 families. And more money may be needed in the weeks and months ahead.
In a phone call Monday, Noble directed the finance managers for Seattle’s various departments and offices to spend only on personnel, essential public services and the city’s coronavirus response, he said.
He warned them to stop spending on travel, training and consulting contracts and to justify design work for new projects, and he asked them to report back by March 27 with options for saving money, he said.
Durkan administration officials are “trying to determine whether we might look for opportunities” to have some city workers pivot from their normal duties and “become more directly involved” in Seattle’s coronavirus response, Noble said. Such changes would need to be discussed with city-worker unions, he added.
The city began this year with about $65 million in an emergency fund (designated for surprise expenses) and about $58 million in a revenue stabilization account sometimes referred to as the “rainy day fund” (kept for shortfalls in revenues), Noble said.
“We will hit both of those” for money this year, he said. “I don’t know how far into them we will go.”
City Councilmembers Kshama Sawant and Tammy Morales, who unveiled legislation earlier this month for a new tax big businesses, renewed that push Monday.
They said their tax could raise $500 million a year and said the revenue could fund relief for people rocked by the current crisis. It’s not yet clear what the appetite is among others at City Hall for that.
“We’re in a civil emergency, a national emergency,” Morales said in an interview. “We need to ask our corporate neighbors to step up.”