As City Forecasts Budget Hole, City Council Takes up Big Business Tax Proposal

by Chetanya Robinson

Seattle City Councilmembers dug into the details about a proposed tax on big businesses during Wednesday's budget committee meeting. The tax would provide cash assistance to low-income Seattleites, build thousands of units of affordable housing, and create a green jobs training program, while retrofitting buildings across the city to be environmentally sustainable.

The tax is a package of three bills, co-sponsored by Councilmember Tammy Morales (District 2: South Seattle and Chinatown-International District) and Councilmember Kshama Sawant (District 3: Central Area). On Wednesday Councilmembers discussed details about only one of the bills, the spending plan for the tax.

Further discussion of the tax will continue during the next budget meeting on April 29, with May 13 being the earliest the Council will vote on a version of the legislation.

The tax would raise $500 million per year by taxing 1.3% of the payroll of the 800 largest businesses in Seattle — those with payrolls of more than $7 million per year, or about two percent of Seattle businesses. All nonprofits, government employers and grocery stores would be exempt from the tax.

In the first year, the funds would pay 100,000 low-income Seattle households $500 dollars per month for four months, in an effort to help those disproportionately hurt by the economic devastation of the coronavirus. In the following years, the revenue would be used to build thousands of permanently affordable housing units and implement measures in the Green New Deal for Seattle, such as converting housing units to electric heating, installing solar panels, and training people for jobs in the green economy.

During the meeting, conducted virtually, Sawant said the tax addresses not just the impacts of the coronavirus, but Seattle's prolonged homelessness crisis and lack of affordable housing. "What was an overwhelming crisis of housing affordability transformed overnight into an absolutely staggering, triple emergency," Sawant said.

The new affordable housing created by the tax would be available for people making between zero and 100% of Area Median Income annually. It would create an estimated 10,809 housing units over ten years, according to a summary of the proposed legislation.

Supporters of the tax, many from the Tax Amazon movement, spoke during public comment, calling into the Council's virtual meeting. Logan Swan, a rank and file union iron worker currently on unemployment, said he supports the tax because it will create thousands of jobs in construction and other fields.

Violet Lavatai, director of the Tenants Union of Washington, said: "There have been many, many bailouts for the rich. This legislation would help the working poor, communities of color."

Others noted that Washington's regressive tax structure allows wealthy people and corporations to pay proportionately less in taxes than working-class people.

So far, the tax is opposed by Mayor Jenny Durkan, Councilmember Alex Pederson, and business groups such as the Downtown Seattle Association.

"When I first heard this was being introduced, I actually couldn't believe it," said Louise Chernin, CEO of Greater Seattle Business Association, during public comment before Wednesday's meeting. "I could not imagine, in the midst of the greatest health and economic crisis of our lifetime, anyone would introduce a payroll tax when there are unprecedented layoffs and business closures."

Councilmember Alex Pederson indicated during Wednesday's meeting that he has concerns about the bill, without going into further details. Earlier this week, Pederson co-authored a piece for the Seattle Times criticizing the tax (with Matthew Gardner, chief economist for Windermere Real Estate and member of Gov. Jay Inslee's Council of Economic Advisers), arguing against creating a tax during a recession, and speculating that it would encourage employers to move outside of Seattle.

The piece also raised the concern that the tax requires an interfund loan — borrowing from elsewhere in the City budget. The tax would not actually be collected until 2021, so the emergency payments would require borrowing $200 million from existing funding, including possibly the Low Income Housing Fund, the Move Seattle Levy Fund, the Seattle Park District Fund, and others, according to the legislation. This funding would be repaid in 2021. Pederson raised the concern that it would be risky to do this when the tax could be overturned by the courts.

Mayor Durkan echoed this concern in an interview with King 5 on Thursday, condemning the tax as a dishonest proposal for Seattleites. Durkan doubted it would be possible to borrow from voter-approved levies, and said if interfund loans were to be used as a tool, their best use would be to balance the City budget, which is facing serious impacts from coronavirus. "So there is no scenario under which people would receive checks this year," she told King 5, adding, "And I think that's really not responsible to tell people during these really hard times."

The legislation was introduced as emergency funding, which means it requires three-fourths of councilmembers to support it, and can be vetoed by the mayor.

The City budget is facing a potential $300 million dollar hole in its general fund as a result of lost tax revenue due to the coronavirus pandemic, forcing a new strategy to balance the budget, said Ben Noble, director of the City Budget Office, during a presentation at the beginning of Wednesday's meeting.

Noble outlined the dire economic impacts of COVID-19 on the economy, forecasting a deep recession. Unemployment could peak at 10% according to the baseline scenario, or 20% in the pessimistic scenario. Regionally, in a rapid recovery scenario, the Seattle region could lose 65,000 jobs and eight percent unemployment by the end of 2020, or lose 170,000 jobs and 18% unemployment by end of year.

Noble identified two potential reserves to make up some of the budget: The so-called Rainy Day fund, containing $60.8 million, intended to help fill budget gaps like this one, and the Emergency fund, containing $66.9 million. The City also ended 2019 with an extra $18.6 million in the general fund. Other revenue sources include federal and state funding for the COVID-19 response, and levy funding.

Sawant said the projected budget hole was another reason why a new progressive revenue source such as the big business tax is necessary, and would be an effective solution to economic recovery, because it would put money in the pockets of people and create new jobs.

"Reducing 2020 spending cannot mean austerity in any way," Sawant said.

Councilmember Teresa Mosqueda, chair of the budget committee, began the proceedings by speaking out against austerity budgeting — budget cuts or freezes on spending — as a solution, criticizing calls for austerity from the White House and in local states and cities.

Morales said the state's regressive tax structure, and the revenue shortfall, has made it more difficult for Seattle to respond to the crisis. "We have to move in a different direction," Morales said. "The legacy of this pandemic should be that it was both a great leveller and community builder." Seattle is "leaving money on the table" if it does not ask the wealthy to contribute more, Morales said.

Sawant addressed some of the criticisms of the bill, saying it is not a tax on jobs but on payroll, and would constitute a tiny fraction of any company's tax burden. Meanwhile, the state's regressive tax structure wields a much higher tax on working-class people.

"I am stunned and disgusted but not surprised by how business owners have cried foul," she said. To claim that businesses are so fragile that this tax would cause them to collapse is "good old fashioned extortion, plain and simple," Sawant said.

The details of how the money would be distributed are still being hammered out. Of the $200 million the tax would raise for emergency assistance, half would be paid toward people receiving food vouchers, utility discounts, or other assistance programs, according to a summary of the legislation. The other $100 million would go to low-income people not enrolled in such programs, in an effort to reach immigrants and refugees at risk of deportation, people experiencing homelessness and others.

Councilmember Gonzlez questioned how undocumented immigrants can be reached without asking about their immigration status. Sawant said this was not the intention, but the goal is to work with community organizations that serve these populations, and that her office will work with other councilmembers to come up with a more precise solution.

The question of how soon the money could go out to low-income people depends on how quickly Council staff can work with the mayor to figure out a distribution plan. This strategizing has not been done, said Aly Pennucci, Supervising Analyst with City Council Central Staff.

Councilmember Mosqueda may soon introduce an alternative to the business tax bill, the Puget Sound Business Journal reported.

The big business tax comes almost two years after the Employee Hours Tax (or "head tax") that the City Council passed in May 2018, only to repeal in a 7—2 vote the following month. That tax proposal, also led by Councilmember Sawant, would have charged companies with over $20 million in gross revenue $275 per employee per year, to raise housing and homelessness services. Sawant and Mosqueda were the two councilmembers who voted against the repeal.

If the City Council does not pass the legislation, Sawant has filed an initiative to put the tax on the November ballot.

Chetanya Robinson is a Seattle-based journalist.

Featured image: photo courtesy of the Seattle City Council.