-Good morning, everyone.
The August 4th meeting
of the Office of Economic and Revenue Forecast
will come to order.
It is almost... it is 9:47.
I'm Sara Nelson, Vice Chair.
-So I'm here today with City Finance Director, Jamie Carnell.
I am Andrew Myerberg from the Mayor's Office,
and I'll be the designee for the Vice Chair, Jeremy Racca.
We're joined today by staff
from the Office of Economic and Revenue Forecast,
as well as from representatives from CBO and
City Council Central Staff.
So the main purpose of today's meeting is
for the Forecast Council to receive
and review the updated economic and revenue forecast.
This forecast is particularly important,
because it will serve as the basis for the mayor's
upcoming proposed budget, city budgets.
-While we're waiting, I misspoke.
I am not the vice chair. Jeremy Racca is the vice chair.
-Let me know if I can get us started again.
-They can't hear you on WebEx.
[ Indistinct conversations ]
-So good morning.
Today is Monday, August 4th, 2025,
and this meeting of the Economic and Revenue Forecast Council
will come to order.
I am Andrew Myerberg.
I am the Chief Innovation Officer
in Mayor Harrell's Administration.
I'm attending this meeting today on behalf of Chief of Staff
and General Counsel, Jeremy Racca,
who is the vice chair.
I'm here today with our Forecast Council colleagues,
City Council President, Sara Nelson,
City Finance Director, Jamie Carnell.
And we are still waiting for the other vice chair,
Councilmember Dan Strauss.
We are also joined today by staff
from the Office of Economic and Revenue Forecast,
as well as representatives from the City Budget Office
and the City Council Central Staff.
The main purpose of today's meeting is
for the Forecast Council to receive
and review the updated economic and revenue forecasts.
This forecast is particularly important
because it will serve as the basis for the mayor's
upcoming proposed budget.
City budgets must always be balanced.
So the mayor's proposed spending will be directly affected
by the forecast that we'll be reviewing and approving today.
City Council will then begin its review of the proposed budget
and we, the Forecast Council,
are schedule to receive a final revenue forecast update
this year on Monday, October 20th.
This final October forecast will set the stage
for the City Council's budget deliberations
and determine the total resources to be appropriated
through the council process.
So I'm now going to do the adoption of the agenda.
And I get to wait for it. -Thank you for waiting, sir.
Where would you like me? Good morning.
Good morning. Good morning. -Morning.
-Great to see you.
-So I'm going to give to you the adoption of the agenda.
You can take over, unless you want me to go through it.
-Has the meeting been open?
-It's been open. -Okay. Apologies.
Have we taken any actions yet?
-No actions. -Just been at ease.
Thank you.
-So Councilmember, I did some introductory remarks
and we're ready for the adoption of the agenda.
-So I've got a script in front of me.
I'm sorry to the award-winning Seattle Channel for...
so we are at adoption, so you don't need my introduction?
-Yeah. -Okay. Thank you.
Before moving on to the forecast presentation today,
let's begin by formally adopting the agenda
for the day's meeting.
I will make my own introductory remarks.
Thank you for waiting.
The comprehensive plan meeting that was scheduled over this,
which has been a standing committee.
I'd also like to bring up at the last, just...
and this is a question for the table.
At our last meeting, we had some technical issues.
So I'm hoping that that won't present itself here today.
One of the conversations we had
was about using council chambers.
And this is a question,
because I don't actually know the answer.
Who is in charge of reserving the room for...
who administratively is in charge here?
-Well, you owe it to me for reserving the rooms.
-Okay.
You need to use myself and the council president
a little bit more to ensure that what we agree on in here
that we can use council chambers is something
that we can do together. Because we have that ability,
you probably don't, to reserve that room.
And I just bring that up because had we stayed
to that course of action as described,
we wouldn't have had the conflict with the comp plan
this morning, because this is a standing meeting
that the schedule is set forth at a longer duration
than the comp plan meeting. So let's work together.
Let's use council chambers, the Seattle...
award-winning Seattle Channel
doesn't have to set up with their tripod in here.
Thank you for letting me have my introductory remarks.
A copy of the agenda has been circulated to members
and it is available online at the Forecast Council website.
I move to adopt the agenda.
Is there a second?
-Second. -Thank you.
It's been moved and seconded to adopt the agenda.
Today's agenda is before the Forecast Council,
and this is the opportunity
for members to move to amend the agenda,
to add an item if desired.
Are there any proposed amendments?
I'm seeing no proposed amendments.
So if there's no objection, today's agenda will be adopted.
Hearing no objection, today's agenda is adopted.
We're going to move on to item number one.
A copy of the minutes
from April 10th meeting of the Forecast Council
has been circulated to the members
and posted on the website of the Forecast office.
I would move to seek a second for the approval of the minutes.
-Second. -Thank you.
It has been moved and seconded to approve the minutes
from our last meeting.
If there are no objections,
the meeting minutes will be approved.
Hearing no objections, they are approved.
Let's move on to the meat of the agenda,
why we're all gathered here today.
Director Duras,
the presentation of the 2025 Economic Revenue Forecast.
Moving on to today's main item,
which is the presentation of the Economic and Revenue Forecasts.
Forecast presentation will be led by staff from the city's
Independent Office of Economic and Revenue Forecasts.
As a reminder to the public,
this office was established in 2021,
and is modeled on similar independent forecasting offices
operating in King County and Washington State.
The purpose is to ensure the utmost transparency
and accountability around the city's
revenue forecasting process.
That's why it's a joint oversight by the legislative
and executive branches.
And you even saw some of this this morning.
We're five years in
and still getting our best practices in order.
And this joint responsibility is what creates actual transparency
and actual accountability,
because Director Duras does not just report to
either the executive or the legislative branches.
To ensure that the Forecast Council is fully informed
and able to have its full range of questions addressed,
staff from City Council Central Staff and City Budget Office
will also participate in the briefing.
Staff from the City Budget Office
is also present today to provide briefing regarding revenues
still in the purview of the Budget Office.
Forecast Office will present three economic
and revenue scenarios; baseline, pessimistic, and...
-Optimistic.
-Optimistic,
which I don't think we're quite there yet today though.
The office will then provide a recommendation
about which of these scenarios
should become the formal forecast.
We will then have the opportunity to discuss
the recommendation and whether to affirm the recommendation
or consider a different forecast scenario.
As a reminder, at the last forecast meeting,
we did something unusual and prudent,
which was adopt the pessimistic forecast.
With that, I will now turn it over to the Forecast Office.
Director Duras, please take it away.
-Okay. So let's...
...let's look at the update for the revenue forecast.
Before we get to the forecast, the revenue forecast itself,
I will quickly go over the update
on recent economic development and summarize the U.S.
economy forecast and regional forecast.
Those are the initial starting points
when we develop the revenue forecast itself
and inform the revenue forecast.
Here's a summary of a recent economic development focusing
on tariffs and their impacts. The announcement of tariffs
in April led to a large amount of volatility
in the stock prices, spike in uncertainty.
Economic uncertainty is still high.
The financial markets have recovered,
as you can see in this chart.
The S&P Global actually recovered all the losses.
And the thread point shows where it was on Friday.
Today, it has actually gone up by about 1.3.
So it's around 6,300, essentially record high.
Slightly below the record high
since there have been some announcements last week
that brought it down a little bit.
That's said,
overall The Economist assessed the current situation at better.
As in April there was a study on...
there was a survey of Wall Street Journal economies
that conducted in the beginning of April,
and the average probability of a recession in the next 12 months
in that survey was 33%.
So that's down from 45% in the April survey.
Again, overall, the situation has stabilized somewhat,
let's say in the last few days
there have been some developments
that shifted the balance of risk more towards the downside.
There were new tariffs announced on last day of July.
And then on Friday last week,
unemployment report was released that was weaker than anticipated
and has revised previous employment
estimates down as well.
On a bit of a brighter side,
the layoffs have not picked up yet even
though the employment report was weaker.
There are no signs
that the economy is currently in recession.
The risks are higher that it might go into a recession,
but economists still believe
that it is possible to avoid that recession.
The chart here summarizes the economic outlook
from two organization that we subscribe to,
that we obtain the U.S, forecast from,
and compares those forecasts
to that Wall Street Journal's survey median.
Overall, there is...
the reason why the economic outlook has improved,
the economic situation has improved,
is that the tariffs have not yet resulted in higher inflation,
and have not led to job losses
as a lot of economists were afraid of.
There was that concern that by summer this year,
we are going to see inflation,
which is significantly higher as a result of the tariffs,
and we are going to see the first impacts
on real economic activity on employment and GDP.
Again, that has not materialized yet.
And so there is some discussion among economists
why that's the case.
There is considerable disagreement in terms
of what it implies, what it means for the outlook.
And you can see that reflected in that top part of a chart,
which shows the CPIU inflation, U.S.
inflation as predicted by the S&P Global.
That's red point. The Moody's Analytics,
that's the blue point.
And then the median in The Wall Street Journal survey,
that's a black point.
This is their estimate for summer next year.
And so the belief, the general belief,
is that there are going to be effects of tariffs on inflation.
They will materialize eventually.
How large they're going to be, what the magnitude is,
is a little bit uncertain.
Also, how long it's going to take is uncertain.
And so again,
that disagreement manifest itself in the fact
that S&P Global in their July forecast believe
that in the summer next year,
the inflation will be only somewhere around 2.5%.
Moody's Analytics, on the other side, they have more...
they're more concerned,
and they believe that the effects of tariffs
will be more pronounced
and the inflation will be somewhere around 3.5%.
And again, somewhere in the next year.
So that's a whole one percentage point difference
between those two.
The median in the survey is somewhere in between.
When it come to the federal funds rates,
economists in general believe that the Fed will resume
the monetary easing in fall this year.
And so the interest rate, federal funding interest rate,
will start to come down from the current level,
which is above 4%.
And so by summer next year or by the end of next year,
they will be closer to 3%, which is again,
whole one percentage point lower than when we are right now.
The other place
where you can see that disagreement about the impact
of tariff is that bottom part
which compares the real GDP growth forecast for 2026.
Again, Moody's Analytics is a little bit more concerned
about the effects of tariffs
and expects that they will have more of a negative effect
on economic activity,
while S&P Global is more optimistic,
given what we have seen in recent months,
given that so far,
there hasn't been a particularly negative reaction to tariffs.
Traditionally, we have used the S&P Global
as a starting point to develop
both the regional economic forecast
and the revenue forecast.
To have addressed that risk that in this particular case,
their forecast might be a bit too optimistic.
It's certainly more optimistic than that median
in The Wall Street Journal survey.
To address that risk,
we have actually used the average of two U.S.
forecasts; the one from S&P Global
and the one from Moody's Analytics,
took an average of those two,
essentially like asking for a second opinion
and then using the average to be more conservative
and to prevent...
to mitigate the risk that come October or April next year,
we'll have to revise our revenue forecasts down.
So a little bit more on how the forecast has changed.
Again, looking back at where we were in March or early April
and what the expectations were for the inflation.
That gray line shows the forecast from S&P Global.
That's the one that we used as a starting point
for the April forecast.
And you can see that they were predicting the inflation
to rise quite quickly,
reach almost 4% by the summer this year.
That did not happen.
The second quarter's inflation was significantly lower
than they were predicting,
about 0.8% relative to that March forecast.
So that, together with the overall weaker,
but still reasonably stable economic situation
when it comes to the employment growth,
has compelled the S&P Global
to that significantly large revision for the inflation
that they brought down quite considerably.
And so after that initial scare,
which led them to increase their inflation forecast in April
after the third announcement,
they have gone the opposite way
and they have since revised their inflation forecast down.
The red line here already shows the average of the S&P Global
and the Moody's Analytics forecast.
So it's already higher than what S&P Global is predicting.
Again, on the previous slide,
you can see that they were expecting
essentially inflation to continue coming down.
So and that relatively steady rate of inflation
here is a result of more conservative outlook
from Moody's and more optimistic outlook from the S&P Global.
Well, that said, there is that pessimistic scenario
in which the tariffs have a more negative impact on prices,
more pronounced response of trading partners.
And the overall impact of that economic outlook
in that scenario is...
one part of it is that the inflation will be
above what the baseline scenario predicts,
more than half a percentage point higher
than what the baseline scenario predicts.
So in regards to the interest rate,
the Fed has not decided to lower its interest rate.
That is last meeting on July 30th.
But as a result of that big employment data
that was released on Friday,
the financial markets now put about 80%
probability on the first cut on the interest cut of 0.5%
in September and then two...
one or two potential cuts in the meetings
in October and December.
So again, that is expected to resume monetary easing.
How that will play out depends, of course,
on which of these two inflation scenarios
will turn out to be the one
that the economy is heading down together with
of the next employment report will show.
If it's very weak,
then will be very compelled to cut that interest rate.
There is going to be a lot of pressure on the Fed to do that.
-Director, I have a question.
-Why don't we do this section with the PowerPoint
and then we'll come back to questions.
-It actually helps me going forward,
and it's really just a quick question.
You said chance of a point...
0.5 rate cut in September, but this says 0.25.
-Zero point two five percent, I'm sorry.
-Okay. Thank you.
I just wanted to make sure that it hadn't changed.
Okay. Thank you. -Okay.
Looking at the outlook for employment and real GDP,
again, the gray line shows what the starting point was
for the April revenue forecast.
We use the pessimistic mark scenario, again,
as a way to be more prudent
and more cautious about the overall outlook.
One reason was that, again,
the April, there is announce were made
after the March forecast was released by S&P Global,
so did not incorporate the extent to which the rates,
tariff rates, have gone up.
Compared to that March pessimistic scenario,
the current baseline is again brighter.
The outlook is slightly brighter.
It's less especially when it comes to the employment
for 2026 and beyond.
The current baseline has some slow,
very slow employment growth.
And so the employment losses, again, did not occur yet.
And the belief is that well, hopefully,
this will continue and businesses and consumers,
their confidence will not erode significantly
and the economy will not go into a recession.
The recession scenario is...
the assumption of a recession is kind of...
a set of assumption
that lead to recessions
are built into the pessimistic scenario.
In that case,
higher tariffs, larger respond of trading partners,
stronger immigration policy,
which restricts the labor market,
employment in the labor market
and overall deteriorating financial conditions
lead to eroding confidence and result
economy going into the recession.
So that essentially means that fundamentally,
the current pessimistic scenario,
which has a recession built in
is fundamentally different from the March pessimistic scenario,
which assume lower GDP growth, some employment losses,
but not a recession,
not what the economies would call a recession
as it would not lead to a broad decline in economic activity
and decline in GDP.
Turning to the regional labor market.
The regional labor market is weaker than the national one.
Employment has actually declined slightly,
very slightly,
marginally by 0.1%
in the first six months of 2025 relative
to the first six months in 2024.
That happened at the same time as the U.S.
employment grew by about 1.1%.
Those large declines, particularly large declines,
have been seen in construction sector, and manufacturing,
and financial activities.
The first one, construction sector downturn,
that's a continuation of the trends.
We have already seen these declines
over previous two years.
So it's the extent that obviously quite striking here.
Moving on to regional inflation forecasts,
in a similar way as in the U.S.
inflation, we have actually seen lower inflation
in the second quarter than what we had expected in early April,
based on the March pessimistic scenario forecast.
Foresaw an increase in U.S.
inflation that led to similar large increase
in regional inflation.
Regional inflation actually cooled down faster
than the national, on the national level.
The first two points in the 2025 in the trade line
are the actual inflation numbers.
So they are about one percentage point lower
for the second quarter.
Overall, there was a much slower rent growths
and slower housing inflation led to lower inflation overall
for the regional economy. That said, again,
tariffs are expected to have a negative impact on inflation,
are expected to lead to inflation rate,
which picks up
and re-accelerates in the baseline scenario,
reaching about 3.5% by summer next year.
In the pessimistic scenario,
it would be about 4% by summer next year.
So that would be considerable increase relative to
where we are right now.
For the regional employment forecast,
similarly as in that U.S.
national forecast in April...
...the tariffs were assumed to lead to some employment losses.
Not really a recession per se,
but employment losses nevertheless.
That forecast is again,
the outlook is slightly better currently even
though actual employment data has been revised
down slightly by the Employment Security Department
for the second half of 2024.
The lower interest rates and Fed resuming the monetary easing
in fall 2025,
that expected to lead to modest employment growth starting
in fall and then going into 2026.
And similarly, as in the U.S.
employment data, we are not expecting...
in the baseline scenario,
we are not expecting employment to decline.
But if the pessimistic scenario happens to be the case,
the economy goes down.
This would lead to cumulatively about 2.9% employment losses
between where we are now and, in the bottom,
to occur in the second half of 2027.
This would be a recession that's similar in the magnitude
and in duration similar to the 2001 recession.
So definitely, shallower and shorter than 2008
and or 2020 recession for sure.
But recession nevertheless, all the implications.
-Pause here.
See if there are questions
about the underlying economic environment leading
into our forecast today.
Are there questions here?
I'll take back to the numbers of employee.
-I'm sorry. This is an operational.
I just want you to know that I will be going
and joining at my desk so that I can raise my hand on the screen.
And so, and then it occurs to me
that maybe the chairs can work with reserving chambers.
I think the next one would be during budget.
So that would be it.
I just wanted to take the burden off of the director.
Anyway, I'll join you. Excuse me.
-Okay. Great. If you could take back to...
and if somebody can also help
if she raises her hand on the screen and I don't see it,
just let me know.
This number.
So manufacturing and trade, if...
and this is...
I guess I'll just prime you for an offline conversation
that we can meet and go over these numbers
a little bit more in depth.
I appreciate that.
I hear them at the same time
that the public hears them.
I think that that is also something
that is important for transparency
so the public can see via Seattle Channel
me interacting with this information for the first time.
Within manufacturing and trade...
and it could have been a different slide
that looks very similar in the past.
I believe that we were outpacing national averages in the past
for both manufacturing and trade.
Is that a different slide?
Is that a different graph that has the same colors?
And I'm thinking in the past economic updates.
-Yeah.
-Maybe rather than doing this all on camera,
why don't we come back to these numbers?
-Sure.
-You'll hear this request from me a couple times over
where I'll be asking for, let's look at this graph,
or this set of information as compared to past years.
And I think one of those graphs
is also ticking back to slide 10.
I guess ticking forward to slide 10, sorry.
Which is...
and one of the questions that I'll have for this next section
as well is,
if we had adopted the baseline in April
rather than the pessimistic...
well, I guess this is the March pessimistic for this whole area.
I want to know and see those visualizations.
And we don't have to do it today,
but when we meet to see
if we had chosen the baseline in April, what would that...
what would the differential be today?
Just wanted to flag. Those are my questions.
-Yeah, we can certainly provide that information.
Going back to the first one,
when it comes to the manufacturing,
yeah, I would've to look back at the last couple
of presentations.
The one that...
the similar chart that we showed in April,
I believe will have similar,
qualitatively similar changes for the Seattle metro area
for manufacturing.
That's the impact of Boeing layoff essentially.
The aerospace manufacturing,
the layoffs in Boeing are showing up here as...
manifest as a large decline in manufacturing employment
this year relative to the previous one.
For trade, less certain.
I have to say here that this employment data
for the regional economy is more noisy than
for the national level. It's subject to large revisions.
In general,
the quality of data has declined over the last couple of years
as the agencies are struggling with lower response rates.
The employment data is constructed in two steps.
First, there is a survey of large employers.
Based on that, there are some initial estimates made,
and then the administrative data on actual deployment
in most of the businesses is used to revise it.
And occasionally, this leads to large revisions,
especially again for original data.
So it's possible that one of the previous version
had shown trade doing better than international economy.
This is what the ESD data shows currently
for that comparison based on
how the data was revised in the latest release in July.
-Thanks.
And as a reminder to myself and others,
this is Pierce, Snohomish. King...
-This is King and Snohomish counties.
Only those two metropolitan division does
not include Pierce.
MSA, metropolitan statistical area would include...
and that's the one...
that's the area for which the inflation is reported.
But for the employment, we use the King and Snohomish.
-How does Tacoma feel about that?
Don't answer that.
I mean, that gets to my next question about trade,
and this is something we can get into.
Is this factor...
is this data representing the Northwest Seaport Alliance,
which also operates the Tacoma port,
or is this just Seattle and Port of Everett?
-So again,
this would not include anything in Pierce County.
Only King and Snohomish, everything...
all the employers that fall in that area.
And we can certainly look at the split in King
versus the Snohomish counties
and look at how the employment looks in Pierce County.
We do have that data.
We just don't use it as an input for regional economic forecast
and consequently, the revenue forecast.
-Fair point.
The reason I ask is Port of Tacoma and Seattle
operate as one entity.
So I don't know how they split their data.
It would be something that...
-Something...
-But I don't need to spend this...
any more time here because this is not why we're here today.
Are there any other questions on the economic environment
in which we find ourselves in?
With that, bring us to the show, please, Director Juras?
-Yes.
With that, let's move on to the revenue forecast.
Before looking at the forecast itself, quickly, again,
summarizing what the revenue collection looks like,
what sort of information we have right now,
what sort of outlook and risk we see in general.
So, at this point, usually, we have about 38%
of the general fund revenues collecting.
That's the information that goes into the forecast.
So it's mostly revenue collection for quarter one
obligations and some quarter two obligations,
but not all of them.
There is usually a delay between the economic activity
taking place and then when the tax is due.
In particular, for business and occupation tax,
again, it's just first quarter obligation,
payments that we have that are informing the forecast.
For sales tax,
we have data from the Department of Revenue that covers,
in general, the obligations from January through May,
another whole first half of a year, but almost read.
That data comes with a small lag.
And so for that,
revenue stream, we do have January through June revenues.
Looking at those main economically-driven revenues
and how they perform, for sales tax collection,
again, there is a continuation of the trends
that we have seen in last couple of updates.
The revenue collection has been...
the growth has been quite weak.
A large part of that is the down...
is due to a downturn in the construction sector.
So looking at the decomposition,
that black line here shows the year-over-year change
in the total sales tax revenue obligations by filing months.
The bars show the decomposition,
how individual parts of the economy
contribute to the overall revenue collection growth,
or as we have seen more recently, declines.
And the yellow bars in particular...
...if you focus on those,
those yellow bars recently are weighing down
on the overall growth as construction sector decline
and less construction activity means
that we are also receiving less in sales tax revenues
from that sector.
That kind of trend is expected to continue on,
looking at the construction permits issued
by the Seattle Department of Construction and Inspection.
The permit, the value of permits that they issue
has declined further in recent months.
In 2016 to 2019 period, the average was about 3.9 billion.
Currently, for the close month ending June,
it's only 2 billion.
So that's even less than last year.
In 2023, it was 2.3 billion.
So the decline in the demand for new constructions,
how much the developers would like to build,
that continues to decline.
The reasons are the same that we have discussed previously;
they are high interest rates lead
to overall financial difficulties.
Construction inflation,
construction material inflation has been high.
In addition to that,
the demand for office space is in general low.
So that's again something that we have seen for a while now
and just continues. Just like last year,
the VTS platform, commercial real estate platform, VTS,
which constructs the office demand index,
has reported that in the second quarter of 2025,
the demand for office
is only one-third of the pre-pandemic average.
It's lowest among the cities
that they report these numbers for.
And in that recent report,
they know that the demand is particularly low
for the Downtown Seattle area.
You can see that those office vacancy rates in the chart
shown here for first the U.S.
as a whole and for the Seattle metro area in green,
Seattle city in yellow,
and Seattle Central Business District in red.
Those office vacancy rates have gone up considerably.
They're still expected to rise somewhat.
What's quite concerning is that they are
not really expected to come down anytime soon.
And they don't...
CoStar, which is the source of this forecast.
Again, we use as one of the inputs for the revenue forecast.
CoStar does not expect office vacancy rates
to meaningfully decline until mid-2030s.
So it's just continuation of the same situation where we are.
Finally, sales tax revenues from leisure and hospitality
sector are quite dependent on tourism.
One of the concerns that has come up
since in the beginning of this year
and was already present in April, and this chart here
provide some kind of additional insight on that.
There is a concern
that there are going to be fewer international visitors
or visitors in general
and international visitors in particular in Seattle area.
Tourism Economics,
that's a subsidiary of Oxford Economics Company,
which provides some data analysis regarding the travel.
They predict a 27-point decline in the number
of international visitors in 2025.
They do expect a recovery to kind of begin in 2026.
So overall improvement next year,
but not full recovery until 2028.
So again,
this would weigh down on sales tax revenue forecasting.
That additional data points is one of the things
why the sales tax forecast looks the way it looks when we get to.
Moving from sales tax to business occupation tax,
there are large policy changes that have been adopted
or proposed that would lead to potential reason,
potentially larger variance in the actual collection
relative to the forecast.
The first, the Washington State Senate Bill 5814
reclassified certain services, and as a result,
there will be a different rate imposed
on the BNO taxable
was received for those activities.
In addition to that,
there is currently a proposal to restructure Seattle's BNO,
which will increase the rates...
narrow the tax base and increase the rates.
For both of those, there are...
we have tried to do our best to incorporate the likely impacts
into the revenue forecast.
Well, for State Senate Bill 5814,
it is already part of the August forecast
for the proposed restructure.
Since that has not been adopted, approved by voters,
it's not part of the August forecast.
But we performed analysis on impacts,
running impacts for that proposal.
When we were doing that,
in general, there is limited data to inform those estimates.
And so but the direct effects are...
is quite uncertain
and thus the potentially large variance
between what the collection will eventually end up in 2026, 2027,
relative to what we are forecasting.
There's just not enough information
to incorporate all the likely effects.
In addition to that,
I do need to point out
that these two changes are just the last two
in a number of recent policy changes
that overall have led to an increase in tax burden.
And so... let me just finish here.
And so what the impact will be,
what the reaction of large businesses will be,
the large taxpayers will be is, again,
very difficult to predict and thus can,
again, lead to larger variance between our forecast
and the actual collection.
And we just will have to kind of wait out
and see how these things will play out,
because there isn't anything
that would inform us to incorporate it
into our forecasts.
-Council president, I see you've got your hand.
I'm wondering...
I've been taking down my questions.
I'm holding them to the end.
Can we get through this section,
then we'll go through this section of slides?
Or is it a clarifying question? -Okay.
-Thank you. That would be helpful.
-So with that introduction,
let's turn to the actual forecast.
First, looking at the general fund revenues
for the August baseline scenario.
The table here shows in the very left column, the 2024 actuals.
The next two columns are the current...
the August forecast for '25 and '26.
And then column four and five,
they show the difference between the current August forecast
and the April forecast.
So those are the additional revenues
or the declining revenues,
changes in revenue in general
compared to what we expected things will look like
when we're back in April.
So first, looking back at...
looking at the overall change for the general fund,
it's minus 5.1 million for 2025, and then 33.4 million in 2026.
The first one,
that 5.1 million decline is that is
to a large degree driven by a lower fund balance transfer
from jumpstart payroll expense.
The extent,
looking at the total general fund
without grants and transfers,
so the very bottom row,
excluding those two revenue sources,
the change is 29.2 million to the plus side for 25,
3.6 million to the plus side for 2026.
So a combined increase of 62.8 million.
Looking at individual revenues, first of all,
our office, the Forecast Office,
is responsible for those revenues
which are highlighted blue.
The remaining ones...
...their forecast remain with City Budget Office.
So I'll first talk about those revenues that we oversee,
and then I'll hand it over to the City Budget Office staff
to provide insight on the others.
For sales and business occupation tax,
as I mentioned, the Washington State Senate Bill 5814
reclassifies activities
and makes them subject to a sales tax.
As a result,
we are also going to see different rates imposed
on those activities, the business and occupation
rates imposed on those activities.
And so the overall changes for the two years presented here
are a result of first changes in the economic outlook
and then those other things that affect the economic...
the overall revenue forecast.
So overall, it's 20 million each to the plus side
for the two years in the baseline scenario.
Then looking at the utility taxes,
Sean can comment on that one. -Thank you, Jan.
Yeah, utility, private utility,
taxes seem to be being consistent with the modeling
for the rest of the year so far or so far of the year.
For some private utility taxes are more impacted
by weather patterns like natural gas, steam.
We've seen that at the beginning of the year
was a lot colder than initially expected,
and therefore, we had a little higher revenue for those years
or for those revenue streams.
As a result,
that raises the base for the current expectations
and how it impacts the out years.
Outside of those kind of weather impacts private utility taxes;
we have cable and telephone. Since like the last decade,
people have moved away from these kind of...
for their entertainment communication needs away
from cable and telephone to more digital-based things.
We still continue to see a decline
in those revenue streams.
What is nice though is that the decline is not as large
as we initially expected before.
We're open to kind of bottom out on the decline
and have a kind of stable tax base for these revenue streams.
Overall, though, all these changes to the modeling
culminated to about 2 million over the couple years
and more beyond that.
But for this presentation,
that's kind of the main focus on the CBO
for their revenue streams.
-So I will take property tax first.
-Please, we've introduced Director Duras.
And maybe I'll take this moment if...
can everyone who's presenting today introduce themselves?
My apologies. That was my oversight.
Sean, I'm going to start with you.
Can you reintroduce yourself for the table?
-Thank you, Councilmember Strauss.
Yes. So Sean Thompson.
I work with you on the Office of Economic and Revenue Forecast,
and I forecast primarily the private utility taxes
for revenue and then some other things
for assess value and stuff like that.
CBO.
-Alexandria Zhang,
I'm an economist with the City Budget Office.
-Oh, dear.
Joseph Russell, also on the economics team...
economics and revenue team in the City Budget Office.
-And I'm Richard Dadzie.
I'm replacing Dave Hennes.
And I am, you know,
with the Economics and Revenue Forecasting team as well.
-Welcome. -He's our new lead.
-Not new, but he's new to us.
-He's new to you. -Thank you.
Back to you, Alex.
-Yeah.
So with the property tax,
there is a little bit of a decline in 2026.
Just as a refresher, under state law,
the property tax is allowed to grow by 1%
plus new construction.
So if there's a lot of new construction activity
that can add quite a bit to property tax.
Unfortunately, for 2026,
the outlook for new construction
has been significantly revised down.
So that explains that slight reduction there.
Moving to public utility tax.
Those taxes, which include electric and water,
have been performing according to baseline expectations.
So of course, compared to the pessimistic scenario of April,
they're doing much better.
For other city taxes, there's also a slight reduction in 2026.
That was actually an error made in one of the revenue streams
that just assumed a higher number for 2024 actuals
than actually occurred.
And then we'll move to Joe for the next two.
-Sure.
I'm going to speak to the parking meters and
court fines line.
So parking meters,
you see a slight downward revision relative
to the April forecast.
That is largely due to paid occupancy continuing
to come in lower than we expect it to.
And there was also a rate change in July.
The April forecast had anticipated those rates
to be a net neutral.
They end up...
well, we project they will have a slightly downward effect
on revenues, in fact,
just based on the mix of parking areas around the city
that had saw rate changes.
Court fines there, this is a mix of different revenue streams,
mainly driven by parking tickets and red-light cameras.
The $1.1 million revision, downward revision, is due to...
mostly due to red light cameras coming in much lower
than we had expected them to.
The citations in the spring were quite a bit lower.
The larger adjustment in 2025 relative to 2026
is mostly due to several light cameras
that were out in the spring that we had not expected to be.
Not issuing very many citations, that is.
With the court fines line,
there's also some change going on with parking tickets.
Those fees went up substantially starting
in January of this year.
And we're still monitoring
the behavioral component of that change.
So are folks paying those tickets on time
like they used to?
Are they paying them later than they used to?
So some of the downward revision is
because on-time payments have lagged a little bit relative
to what we had expected.
Though it's still a little bit early
to assess the overall behavioral change.
I'm going to pass it to Richard to talk about the licenses,
permits, interest income, and other.
-Yeah. Thank you, Joe.
So with regards to license permits and interest income,
you can see sort of a total uptick relative
to the April forecast of 2.6 million.
Much of that is influenced by things
like the interest rate environment
not kind of declining as fast as was anticipated.
However, this calculation here
still assumes two potential rate cuts for the remainder
of the year,
consistent with what Director Duras has talked about.
And so you see a dip there in 2026,
and that's also in anticipation
of the fact that the forecast kind of calls for
relatively more rate cuts, right?
Potentially happening in '26.
With regards to revenues from other public entities,
a lot of this has to do with things
like liquor board profits, marijuana enforcement,
and other distributions
that the city is receiving from the state.
So much of those receipts,
if you will, are very formulaic.
Many of them are based on, you know,
certain sort of thresholds and per capita,
and in other words, population growth and so forth.
And so we see a marginal increase there relative
to their forecast of about 500,000 and on a combined basis
about 1.6 million.
So I pass it on back to Alex
to talk a little bit about the service charges.
-For service charges, the uptick in 2025
is due to higher-than-expected reimbursements from the state,
specifically for the fire department.
And then for 2026, just slightly...
...expecting slightly less reimbursements in 2026.
For grants, the reduction in 2025
is completely owing to simply a cleanup
of expected carry-forward revenues coming in.
And then for fund balance transfers,
as Director Duras said,
that takes into account
the legislation currently in the pipeline
that reduces the transfer from PT to the general fund.
-All right.
So unless there are some questions
about the baseline scenario, I would move to the pessimistic.
-Just keep taking on
and then we'll come back for questions then,
because I suspect there will be a lengthy number of questions.
So we want to make sure you get your information out.
-All right.
So the pessimistic scenario,
again, same structure of a table 24 actuals.
Next two columns are the current August forecast,
then the difference between the August forecast,
and the April forecast, and the two-year total difference.
Again, I want to remind everybody
that the April forecast was based on a pessimistic scenario,
but did not incorporate...
did not assume a recession.
The current pessimistic scenario does assume a recession
or is based on a set of assumption
that leads to a recession.
And so that's why you can see that for 2026,
the revenues forecasted are actually lower
than the pessimistic scenario than the April forecast itself.
And so economy entering into a recession
would have a negative impact on a number
of revenue streams here.
Overall change is minus 5 million
to the total general fund relative
to that early pessimistic scenario forecast.
For 2025 however, again,
things looking in general better than in the April
even know that can change quickly.
The overall amount of additional revenue added is 21 million.
Again, that's excluding the change
in the fund balance transfer here.
One more thing that I want to again point out
is that the changes for sales tax
and for business and occupation
tax are the result of both changes
in the underlying economic outlook
and then the other thing that we incorporate into the forecast
that are related to with the 14 changes
in legislation changes in the amount of refunds
or similar changes.
So moving now to the August baseline scenario...
...for the selected other non-general fund revenues,
the payroll expense tax revenues have been revised up,
and that's the largest change in the table here.
Again, since the financial markets...
since equity markets have recovered since April,
the overall outlook for stock prices
is more positive in this current forecast.
We do rely on the outlook
that The Wall Street Journal analysts provide
for individual companies,
and we build that forecast based on their outlook
for the stock prices of individual companies here.
We have discussed in the past why that's the case.
For rate, there is slightly more revenue in 2025.
There have been a couple of large sales,
about three large sales
that added additional revenue above what we were expecting
in the first half of 2025.
For 2026,
the interest rates still lead to a market that that's frozen.
There is still that lockout and lock-in effect.
There are fewer sellers.
Mortgage trades are still higher and so fewer homes are sold.
Thus, the lower forecast in the baseline scenario for 2026.
The admission stacks,
that revision down is a result of
both a little lower collection and the change in the outlook.
You have seen in the slide on the international visitors
that there is overall lower amount of visitors expected.
That would then feed also
into the lower admission stacks forecast.
One final revenue here that's highlighted blue
that's our purview
is the transportation benefit district sales tax changes here
reflect for similar reasons as in the sales tax
that goes into the general fund.
Now I turn it again to the City Budget Office staff
to talk about their revenue streams.
-Yeah, thank you.
So the first one we want to talk about
is the sweetened beverage tax.
So as you recall, that tax,
it's kind of behaved in a very seasonal kind of manner.
There was a tremendous dip during the COVID years,
and it appears to be stabilizing right around
kind of the $20 million collection mark.
And so this forecast here is a reflection,
if you will,
of what appears to be a stabilization
in the behaviors and exposure,
if you will, of the taxpayers to this tax,
but also incorporates potential sort of upticks
from FIFA and the World Cup.
So that's why you see a slightly higher uptick there in 2026.
Alex.
-Did you want to talk about license fees and?
-Yeah, sure. Okay. Yeah.
So also, the other one to talk a bit about,
which is the, you know,
Seattle Transportation Benefit District related
to the vehicle license fees. As you can see,
sort of the growth in the forecast from
'25 to '26 tends to also kind of mirror,
if you will, the sales tax as well.
Much of this fee will cost around $50
to help register your car.
So the analysis incorporates,
if you will, the stock of registered vehicles
in the Seattle area and also incorporates some measure of...
you know, tries to capture,
if you will, more people moving into Seattle and so forth,
and therefore potentially paying that vehicle license.
-Okay.
Jumping back to short-term rental tax.
So this forecast is primarily dependent
on the hotel outlook for Seattle CBD.
And as Director Duras has been talking about
with the ongoing declines in international visitations,
that outlook has weakened quite a bit
for the next couple years at least.
And so we can see not much of a change in short-term rental tax
compared to April. There is...
there are a few assumptions built into 2026,
which is why you see a little bit of a bump in '26.
And then for commercial parking tax,
so that forecast is mostly driven
by the leisure and hospitality sector,
which is a fairly good barometer for economic activity,
especially downtown.
And so there are two reasons
why we actually see reductions this time.
One is that Director Duras alluded
to ESD revisions to employment.
And so for leisure and hospitality,
that was revised down noticeably
for the first quarter of this year.
And so that, you know, shifted the base down.
And then going forward,
the growth is essentially flat
or the expectation of growth is essentially flat.
And so you can see that also a bit more clearly
if you compare the '25 and '26 to '24 actuals.
Slightly up from '24 actuals, but pretty much no change.
-I'll speak to that final line,
the school zone speed enforcement cameras.
There is a substantial downward revision in this forecast.
That is driven in part by lower citation volumes
than anticipated for the end of the school year
that wrapped up in June.
And these are, again,
these speed cameras when you go through too fast
in a school zone.
So we saw citations come in a little lower
than we had expected.
But the line share of this revision
is due to the slower-than-expected
installation calendar for the new stock of cameras.
In the 2025 adopted budget approved basically a doubling
of the number of these cameras
that will be on Seattle streets and around Seattle schools.
And we had anticipated some of those being online already
for this school year that just finished,
but that count...
but that didn't happen for a mix of reasons.
This is a very large project and SDOT
has revised their installations to say
that all of these will be installed
by the end of the year.
But that pushes back the calendar
that we had anticipated during the April forecast.
So we are also... another factor in here
is that the April forecast had not anticipated
a 30-day warning period for these cameras.
That was...
that 30-day warning period
that exists for other camera types
was extended to these school zone cameras
via an amendment to the May,
2025 legislation that made various revisions to our...
to the city's automated camera program.
So that...
anyway, that new 30-day warning period also delays
when these cameras actually start issuing citations.
So that is reflected in this downward version as well.
-Moving now to the August pessimistic scenario
for the select non-general funds revenues.
Again, the largest changes here for '25 and
'26 are for payroll expense tax. As I said before,
a large share of the compensations
for a lot of companies paying these tax
is in the form of restricted stock units.
And so they...
that part of compensation is sensitive to changes
in the stock prices.
In the pessimistic scenario,
the decline in the stock prices in 2026...
'25 and then 2026 would imply a much lower...
much smaller tax base
and much lower revenues collected
in the pessimistic scenario
to the order of almost 40 million less over
in the two years. For rate,
economy going into a recession
would have significant impact on real estate
excise tax collection.
Again, overall impact close to 20 million here.
Admission tax,
fewer visitors,
weaker purchasing power of consumers
implies less admission tax revenues.
For sales tax, the revision is to the plus side.
But again, in addition to the changes in economic outlook,
the Senate Bill 5814 changes the way how these tax is imposed.
And so that's the reason
why there is actually additional revenue relative
to the April forecast.
Turning it over to CBO. -Yeah.
So, you know, for sweetened beverage, again, you know,
on the pessimistic forecast
and taking that relative to the April forecast,
you know, we expect 2025 to again, come around...
come in around that sort of stabilized number of
right around the high end of 19 million to 20 million.
Partly because sweetened beverage taxes is,
if you will, targeting...
it's a sin tax in essence, right?
So unless we have large changes in people's behaviors,
we should expect that to effectively stabilize.
And then we have a slightly moderate increase,
if you will, for '26.
And that's sort of a relatively pessimistic outlook
on the impact of people drinking soda and so forth,
and the distribution of soda,
if you will, during the World Cup.
And much of that we would expect to see in the second quarter,
if you will, of '26.
And then again, for the vehicle license fee that again,
much of those calculations are very much population-driven
and very formulaic
in terms of certain thresholds with regards
to things like crime and so forth being met.
And so this slight downward revision kind of captures
the fact that, you know, with Seattle,
we're not seeing population declines in Seattle.
We're seeing,
if you will,
perhaps a relatively slower growth
in those sort of benchmarks.
-Yeah, for both short-term rental tax
and commercial parking tax,
these numbers are slightly larger reduction
over the two years in line with an economy dipping
into a recession.
Short-term rental in 2026 doesn't quite go negative again,
because of the FIFA assumptions
that are bullying it a little bit.
-Yeah, and the speed zone cameras,
again, under the pessimistic scenario here,
are not substantially different.
Mostly again,
because the downward revision is related
to installation calendar,
which isn't driven by the regional economy or recession.
So not a substantially different outlook here.
So certainly some pessimism around citation volumes
is also built in.
Turn it back to you. -All right.
This is a slide that summarizes the alternative scenario,
compares them to the current baseline.
We have gone over the pessimistic scenario,
so those are the right numbers in the left part of the table.
The optimistic scenario in the right part of the table
overall leads to higher revenues collected,
about $44 million for the total general fund over the two years.
In addition to that,
a significant amount of payroll expense tax revenues
and rate revenues above the baseline,
so combined general and non-general fund
revenues combined
would add about almost $100 million relative
to the current baseline scenario.
And so there is a significant range between the outcomes
in the pessimistic scenario, which would be --
which would mean about $146 million less relative
to the baseline,
and then $100 million more in the optimistic scenario.
The baseline is somewhere in between reflecting
general improved outlook since April,
thus, in general,
revenues being higher than in the April forecast,
not to the extent
that the optimistic scenario would suggest, though.
Finally, we have been requested to estimate what
the social housing tax would collect,
so we used the Employment Security Department payroll data
to develop an estimate for the 2025 tax year obligations,
which will be due in January 2026.
These revenues will not stay with the city,
but again,
we have been requested to produce the forecast.
An estimate of $65.8 million that resulted in this work
has a large amount of uncertainty attached to it.
This is due to data limitations,
the tax base itself, the factors, and just its size,
it's harder to determine how it might --
how that might change over the two years between the time
for which we have the payroll data
and when the tax will be due -- it will be imposed
and due introduces additional uncertainty
and so the range is quite large here,
$39.2 million to $80 million are plausible.
That said, even larger variants cannot be rolled out
for these particular revenue streams,
and we'll see how things will play out,
and then over a longer period of time,
we'll get a better understanding,
just like with the payroll expense tax.
So that brings us to the summary,
and before making a scenario recommendation,
which scenario should be adopted as the official forecast.
There is a not-so-short summary here,
it's essentially summarizing the main points that I went over,
so I'll just briefly go over them.
Overall, the outlook is better
because there it has not had those negative impacts
that the economies were afraid of,
probability of recession
in the recent Wall Street Journal survey
has gone down from 45% to 33%.
And so the overall outlook by S&P Global is better
than it was in March and April.
The current assignment of probabilities
is 50% for the baseline, 25% for optimistic,
25% for pessimistic,
and pessimistic scenario now incorporates the recession.
So again, it's fundamentally different
from the April forecast,
where the same probabilities were attached
to the three scenarios,
but the pessimistic one was a scenario
where growth was slower
but the economy would not go into a recession.
That has led us to recommend the pessimistic scenario
as a more prudent way
how to prepare for and deal with the uncertainty,
prepare for a potential negative revision
come summer if things don't play out in a particularly great way.
I have included here a summary
of what these probabilities have looked like.
Last two or three years, there have been several occasions
where the economy was on the brink of recession,
particularly summer 2022,
the S&P Global was attaching a 45% probability
to the pessimistic recession scenario forecast
due to Fed increasing its interest rate
and the fear
that Fed will not be able to manage [inaudible] planning.
So overall,
as I have shown in the slide
with the Wall Street Journal survey,
the forecast by S&P Global is slightly more optimistic
than we would prefer for more cautious approach.
We have developed our forecast based on the average
of the S&P Global's forecast and all these analytics,
which we believe is more conservative
and more prudent way
to prepare the forecast and plan for the risk
and the uncertainty. They're still ahead.
The two announcements made last week regarding new tariffs
and then the employment numbers shifted the balance
of risks to the downside.
That said, there have not been layoffs in the employment data
and, as I have said, the economy still believe that the U.S.
economy can avoid the recession.
Though probability of a recession is now, again,
somewhere close to the 45% than the 25%
that's attached by the S&P Global.
So the next couple of months are going to be quite crucial.
The regional economy faces additional risks,
lower employment pros.
There are risks coming from the policy changes
and our limited understanding
and limited ability to incorporate those policies
and their forecast based on those policy changes.
We just have to see, again,
how the tax base and revenues will change over time.
But the overall summary, the overall conclusion here
is that with all those considerations taken
into account,
the baseline scenario of the August revenue forecast
is the one that we believe to be the most likely outcome.
That said, when developing a budget,
decisions should recognize that the risk is really high,
that there will be a downward revision,
not necessarily to the extent of a pessimistic scenario,
but somewhere in between, again, employment,
job market weakens,
even though the economy still does not go into recession.
So we will strongly encourage to plan for that eventuality.
So that brings us to the end of the presentation,
and I'm happy to address any questions.
-Thank you, Director Duras.
Council President, I see your hands, so don't worry.
Feel free to lower it, I'm going to call on you next.
I want to thank you for all of your work in this.
Colleagues, we'll take questions first from the members
of this oversight committee,
and then if you've got questions or others
want to get into the discussion, we're going to do that.
We'll take questions on anything under the sun,
but focused on the second part of the presentation.
Council President, I know that you've had your hand
and thank you for waiting.
-Thank you very much, Chair.
I am concerned about vacancy rates.
So could you go to Page 14, please?
So the reason I'm so worried about this
is that they keep going up,
and they signify potentially some really bad things.
So are those businesses that lease those buildings,
are they leaving town?
Are they having workers work at home?
Either way, that impacts our PET revenues
and also a whole host of them downward impacts
to the small businesses that serve those employees,
of course, but then ultimately the banks,
and what happens
when a property owner has a hard time paying the mortgage
on these really tall buildings.
So I ask myself, well then, who is leasing these spaces,
these floors in the buildings
that are having such high vacancy rates?
And I'm assuming, correct me if I'm wrong,
that it's service industry.
So I'm looking at the categories of businesses that, you know,
per the IRS categorizations,
and so I would assume that that is services.
I'm not really sure tech,
I don't know what category that goes into.
But I'm referring now to the memo
that the office put out on June 26
in response to Tom Mikesell's question about the impacts
of the, you know, tax on revenue and tax estimates.
And Page 1 does break out the different sectors and the,
you know, tax collections.
And at the very bottom line is service
and other business activities,
and that has a massive --
and the businesses with a taxable amount of
over $2 million is really significant.
Out of $324 million,
$219 million of that is coming from the service
and other business activities.
So am I correct in assuming that those are the businesses
that are largely responsible for the vacancies,
and if so, then is that connecting of the dots
between your risk -- the noted risk that you noted,
the business and occupation tax increase related to,
you know, potentially worse vacancy rates going forward?
-Yeah. So when it comes
to which companies have not renewed the leases,
we can go to the underlying data
and provide some additional information on that.
Our subscription to CoStar data
would allow us to do some analysis on
where that vacancy space is coming from.
In general,
as you mentioned, working from home
means companies require less space.
That does not directly translate
to higher vacancy rate immediately.
An office can be leased fully with employees working from home
and nobody being actually present at the workplace.
So eventually that,
however, can lead to higher office vacancy rates
as the businesses' downside adjust,
they will not renew those vacancy rates.
And so the lower foot traffic data
that we occasionally present, which I'm not showing here,
which suggest that the return to the office is ongoing,
but certain areas of Seattle, and in particular,
the Seattle Central Business District is lagging,
significantly lagging in that foot traffic
and return to the office. That, again,
is kind of consistent with what we are seeing here
with higher office vacancy rate for that particular area
as less full return to the office means less demand,
less need for office space in that part.
And so companies not renewing the offices,
which eventually leads to higher office vacancy rates.
That has impact on business and occupation tax directly.
The two-factor apportionment allows us to see to
what extent the share of a payroll in the City of Seattle
as a fraction of overall payroll by companies
has changed over time.
And we do see some declines there as well,
which means that essentially the tax base is smaller
than it was a couple of years ago
because some of that work is not being done
within the City of Seattle, but somewhere else,
so lower obligation for business and occupation rates.
I don't know if that answers the question,
but again, we can provide additional information
on the companies which are not renewing the leases where the --
-Okay, so to that last point, thank you.
I'm just looking at the categories of businesses,
and I think that's what you use to sort of track
your projections.
There are manufacturing, wholesaling,
retail sales and retail services,
printing, tour operator,
transporting freight,
and then service and other business activities.
And so I'm just assuming that it's not the top,
you know, sectors,
and so that's why I am assuming that it's service
and other business activities.
But I think that would be a good thing
for me to understand to see who's paying what,
and then I have a couple of other questions.
On page, if you don't mind, going back to Page 17.
-Council President, just one question for process.
I see Director Duras scrambling to write down the questions.
Can you ask them --?
-Give me a second. -Okay, sorry.
-Just ask them one at a time,
you can have the floor until you're done.
So don't feel pressured to get them all out at one time,
but please just ask them one at a time.
-Okay, yep. -Go for it.
The floor is yours, Council President.
-Okay, the second one is on Page 17.
I keep looking at the negative $33.3 million
in the 2025 April forecast,
and then it ends up, again,
in the two-year total difference forecast.
Could you please explain that difference?
It has been said that that money was shifted from one account
to another, but could you please go into that in more detail?
-Yeah.
So that, again, reflects the legislation
that just moved out of committee, I believe,
that reduces the transfer
from the JumpStart Payroll Expense Tax Fund
to the general fund by $34 million,
and that's just slightly offset by something else
in that category,
but essentially that's what that is.
-Okay.
Well, we sort of went through that part quickly,
and there was not a discussion explaining the two pieces
of carry-over legislation,
so maybe I will get more information
from you on that offline.
And then finally, in the line on that page
that says licenses, permits, interest, income, and other,
my question is,
do you disaggregate business license renewals
from that whole line, and if so, what trends are you seeing?
Are there increases or declines in business license renewals?
Because, again, that gets at, you know,
how businesses are doing.
Are they leaving Seattle, or what?
-We can provide that information.
We do forecast those separately.
They're not reported here,
but they are in the revenue reports,
reported separately in revenue reports,
so those foreign reports that we send out.
Business license fees are, in general,
paid at the --
towards the end of the year for renewals for the next year,
and so for the first half of the year,
there usually isn't much received yet,
so we'll have to wait and see. -Thank you.
-But for past years,
yeah, we can provide the information for past years.
-Okay, yeah, and if you want to just take chunks of years,
like two years from here to here, I mean, that --
rather than trying to deal with the time of year
that the number is coming from, that would be helpful.
Because I'm wondering if it has to do with the,
on Page 22, the social housing information.
The range, I keep asking myself,
why is the social housing tax revenue estimate range so wide?
-So the range -- -I'm like 40 to 80.
-Yeah, the range is so large here
because the Employment Security data
that we have used to develop the forecast
allows us to essentially understand what the payroll is.
It gives us a good insight for payroll, employment,
and wages on the county level. Assigning it to the --
on the city level is harder
because some companies essentially report
all their employees to a single location.
Some taxpayers might simply have just one headquarters
officially, let's say in Seattle,
that have additional offices, let's say in Bellevue.
And so when they employ some workers who work in Bellevue,
those are reported to the Seattle location.
And so they do show up as additional wages paid
in the City of Seattle,
but they would not be subject to the social housing tax.
So in that sense, the data that we have is imperfect.
We do have to estimate the extent
to which what's being reported
and what we see in that Employment Security data
coming from the unemployment insurance program
reflects the actual tax base.
We have tried to use the payroll expense tax
and how the collection for payroll expense tax
relates to what we are seeing in the payroll data from ESD,
and inform the social housing tax forecast that way.
But again, it's not the same tax base
and thus the range being larger
because we don't have a perfect understanding
of the relationship between what's being reported
in the payroll data
and what will eventually be the tax base
for the social housing tax. Essentially saying,
it's hard to estimate what share of those workers and wages
that are being reported in Seattle
are really people working in Seattle
and not elsewhere because of the way
how the companies report their headcounts.
-Thank you for that.
I didn't know that there was a --
well, I'm not well-versed in the nuances between
how the payroll expense tax is collected
and how the social housing tax is collected.
They're both really important
because one pays so much of our services,
and the other one will pay for housing desperately needed.
But they all seem to be related to, you know,
who's working --
jobs in Seattle is what they're related to
and the companies being in Seattle.
So if the payroll expense tax is going down, which it has been,
which is part of our risk,
then that -- so we're having to make up for it
by increasing the B&O,
well, that's one of the reasons
why we're increasing the B&O tax rate,
you know, later today or whatever, probably later.
So one tax goes down,
so we have to raise another tax,
but they're all related around the general jobs economy here.
So just to be continued, well, correct my misassumptions later.
Thanks. -Thank you, Council President.
Is that all? -Yeah.
-I will disagree, but I do not need to argue with you.
I will disagree with the characterization of one tax
goes down, which is why we have to raise another tax.
Just the characterization, we can go --
we can have that conversation later today, though.
-Plus Trump's, you know, cutting of -- you know,
the federal cuts that are coming,
that we haven't quantified exactly yet.
That is also a big part of it, too.
-Thank you.
Are there other questions from the table?
Then I'm going to run through mine,
and Director Duras,
thank you for coming to my committee later this week.
If we could start with Slide 13,
I'll try to tick through these quickly,
because I know we're running a little long.
This is a great, great chart.
You've got trade, construction, leisure,
hospitality, and rest of industries.
Can you tell me, what is rest of industry?
I know we've had these slides in the past.
It is consistent from time to time.
But just to help me understand,
maybe the general public to just say,
here you've got three very small,
you know, niche areas, and then one pretty large one.
-Okay, absolutely. I'll --
I'll go to one of the slides in the appendix,
in the back pocket here,
which shows the sales and use tax collection 2022,
2023, and 2024 actuals.
And here they are disaggregated in industries
in a narrower fashion.
So the trade and the construction sector
are the same as in that other slide.
And leisure and hospitality,
that's again, same as the other slide.
So these three groups are essentially a large part
of a sales tax base.
The rest of industries is, what you are seeing here,
information, financial activities,
professional and business services in particular,
contribute not on their own significant amounts,
but combined they are a significant share
of the overall sales tax plus others,
and that really includes everything --
-Excellent. --- other than that.
But yeah, the rest of the industries
is mainly driven by trends in information,
professional, business services, financial activities.
In general, you can think of that as tech sector
and adjacent, and related to financial activities.
-Excellent.
So to better understand Slide 13,
we go to Slide 29 in the appendix
of the presentation attached to the agenda.
Thank you, Director Duras. That was helpful.
Moving on to Slide 15 regarding fewer --
the headline here
is fewer international visitors are expected in Seattle in 2025.
I would, if I had the power,
but I don't, because this is a transparent process,
if I had the power to tell you to change the title,
I would change it to higher number of visitors expected
in Seattle in 2025, international visitors lack.
I only say that because if I'm doing the back
of the envelope calculations here, you know,
rough numbers in 2016,
it looked like Canada had roughly 1.75 million visitors,
international had roughly 2.25 million,
I'm kind of guessing where the numbers are here,
and that domestic was 5 million or so visitors.
When I look at 2026,
I'm seeing 6.5 million domestic,
about 2 million international, and about 1.5 Canadian.
I'm being conservative in mine.
The 10-year comparison is there were 9 million visitors in 2016,
and 10 million visitors projected in 2026.
I don't know if this includes FIFA World Cup.
I would hope that you are not, candidly.
I know that we're including it in some projections,
but I would prefer to be surprised by World Cup
than disappointed.
Is that generally, are you seeing a similar trend overall,
especially after the pandemic,
when people said that, you know,
Downtown Seattle was words that I won't repeat?
But whenever I'm hearing people's impressions
of Downtown Seattle today,
they're astonished by the waterfront,
they're astonished by, you know, the Convention Center,
they're astonished by the work
that we've done to revitalize Downtown.
Granted, we've still got some more work
to do around places
that have troubled Downtown Seattle for 30-plus years,
but the things are back on the right track.
Are you getting the same sense from the data,
or am I totally off my rocker here?
-No, that's a fair point.
So overall, the trends in number of visitors is increasing.
The pandemic went to a large decrease,
and that's not the kind of decrease
that this graph shows for 2025.
That said, there are the concerns
that some visitors will just, you know,
not visit, you know, just Seattle, but U.S.
in general, as they are afraid what might happen at the border.
The relationship with Canada have become --
again, they are not as great as they were,
and those visitors from Canada,
they are a large share of overall visitors,
and so it does have an impact on the sales tax revenues.
That's the reason
why this slide is headlined the way it is looking at 2025
and 2026, by extension.
Twenty-twenty-six, again, there is a recovery here,
not just in international visitors,
but visitors more broadly,
again, FIFA is expected to improve on that as well.
-So you said -- -So this is --
-Yeah.
Well, I guess my point here is,
and I'll take it a step further with you about visitors,
is that if we did not have the cruise industry
that was taking visitors to Alaska,
we would be in a lot of trouble.
If Seattle still wasn't the gateway to Alaska,
also through Sea-Tac Airport, I think we'd be in worse trouble.
But I'm seeing an overall trending
in the correct direction,
and I also, I agree with you completely about international
and Canadian visitors.
Is that --? -Yeah.
-Are we -- I think we're on the same page.
Yeah.
And so on to the next one,
on the B&O, I don't, again, disagree
with the characterization made earlier in this meeting.
And I understand
that this graph can only show what the proposed rate is.
It can't show what the standard deduction changes are,
et cetera.
So my question here is, in your projections,
I know that there's just general uncertainty,
have you also taken into account
the relieving of the B&O obligation
for the smallest businesses and its potentiality of creating --
like, its impact on the economic activity?
Is there great enough change
that it could create actual economic growth,
because folks have so much more freedom?
Or are we still just talking about activity
within our own economic sector? -Yeah.
So our analysis did take into account
that part of the proposal on the revenue collection,
not -- we have not gone beyond that
and have not considered any impacts on the economy activity.
I think the main concern here is that for payroll expense tax,
for example,
those small businesses are not really contributing
by construction to the payroll expense tax,
and so what happens to the tax base --
-Sorry, I was just talking B&O.
-Right. But whatever the impact
and whatever the decisions of large businesses are,
as a result of not just changes in B&O tax,
but overall decision process,
those decisions will have implications
for payroll expense tax
because it's the same businesses
that are going to be taxed at a higher rate
for business and occupation tax,
and they are significantly contributing
to the payroll expense tax,
as we have pointed out in our memo.
And so that's why --
-Director Duras, with due respect,
I heard you loud and clear when you made those points earlier.
I read those points loud and clear when I read your memo.
I've heard those points loud and clear.
My question here was about the smallest businesses.
-Yeah, so that's the first part.
The second part,
will those deductions lead to more economic activity?
Here, I guess the main concern is that based
on the Washington State input-output studies
and what's called multiplier effects,
essentially looking at how much an additional job
or additional $1,000 in wages
in different parts of the economy
generates through some kind of chain effects,
they essentially --
that study confirms the fact that a lot of small businesses
are dependent on the behavior of large businesses.
And so additional wages,
additional employment in those large businesses
leads to more spending by those employees
on things like daycare,
spending in restaurants, landscaping, remodeling.
Those are the kind of expenditures
that then mean that there are some smaller businesses
that have customers, and because of those spendings,
there are those additional jobs created,
and that's the sense in which that input-output income study
by Washington State Office of Financial Management says that.
A lot of the impacts are through large employers
on the small ones.
Opening additional restaurants around Amazon campus
will be one example.
And so the concern here is, again,
that any changes in the behavior of the large businesses
will then have potentially negative impacts
on the small businesses as well,
will not go the other way around.
-Thank you.
And that's for your revenue forecast, is that correct?
-That's economic impacts and revenue impacts
by extension as well.
-Thank you.
You've been able to give us a fair amount of guidance
here over the course of the number of years of you
providing the forecasts on what you believe
different changes will create as far as the macroeconomy
or the microeconomy here in Seattle.
One of the questions that I'll have for you,
not today because we don't have the data for it,
which is how do we assist those smallest businesses,
and so I'd like to dig in on that with you.
And the reason that I want to dig in on that
with you is because even before we had Amazon or Microsoft,
you know, we had thriving businesses here in the city
that were small, and so would like to dig into that with you.
Let's move on to Slide 17, though.
Joseph, I'm going to give you a,
don't worry, you're doing the darndest --
like the best job possible.
We just keep changing the ground,
we keep changing the landscape on you.
And so I want to talk, you were very humble about those changes,
and I appreciate that for not pointing the finger at me.
I will point the finger back at myself.
In the course of the last year or so,
we've had just a number of different things
that have made projections difficult.
Number 1, we had a lot of people avoiding paying parking,
just paying for parking because paying the fine was cheaper.
And so we were maybe inflating the amount of parking fines
that we were receiving
and undercounting the amount of parking actually to occur.
To fix that,
we raised parking rates so that they were higher
than the parking fine that you could receive,
and, you know, when you do something like that,
it's not clear how that's going to impact people's uptake
on parking,
much like small businesses back for Director Duras
for a future conversation, right?
So a lot of these small changes have impacts on people's --
the amount that they're willing to pay for parking,
the elasticity of that good, right?
-Correct.
-And so not only did we change the parking rates,
but then that impacts your fines.
We also then changed
how many speed cameras were going out there.
I will admit to even going a step further
with removing some of that money so that we could do --
or sorry, we took some of the school red light --
school speeding money to do city-wide red-light speeding,
or city-wide speeding camera enforcement,
to then adding on another 30-day warning period,
which I believe is the right thing for Seattleites,
and all of that makes your data very noisy.
-Absolutely.
-So I'm just going to say thank you --
-- because, you know, I think in the next few years,
as these tendencies,
and we'll see what people's elastic ability for some
of these different things is, or the elasticity on those goods.
We'll start to see these things smooth out.
Any thoughts for us as we're looking to the future on this?
-I appreciate the acknowledgment there.
It has been a lot of moving targets
in these transportation-related revenues.
Yes, we have for some time
seen the paid occupancy as sort of the technical term
I use for parking meters going down.
We don't really know where the floor is, to be honest.
And when I say paid occupancy,
what I really mean is the number of people paying the meter.
We believe, and it's very hard to know
how many people are actually on the street,
but SDOT, you know,
I communicate with their current team quite a bit,
and we believe that those rates are pretty steady,
the number of people actually parking in those spaces.
What we've seen is sort of a continual decline
in the number of people actually paying those,
and as you alluded to,
that was likely because they were doing the math of, well,
the ticket's not that much, it's like 45 bucks.
And you know, as the rates sort of climb up over time,
they're just saying,
"If I get caught one out of three times,
then I've made -- you know, I've broke even basically,"
so they're playing some risks. Yes, there is potential
for parking meters to go up in terms of the number of people
who are paying those
because the fines for not doing so
have gotten quite a bit larger.
So I have not baked in too many assumptions in that regard.
It is very difficult to model those sorts of behaviors,
so we may continue to see some
of these revenue streams go up and down.
We are trying to analyze those behavioral components,
but yes, we may continue to see a bit of a rollercoaster here
in some of these.
Thanks for acknowledging. -Fair enough.
And Council President, I see you've got your hand,
but I'm going to tick through the rest of my questions
and come back to you if that's all right,
just as I did for you. Thank you.
Alex, you mentioned the property tax.
We each year are able to count for new construction.
New construction slows down,
so it is a negative number here in 2026.
I do just want to confirm with you, we are collecting our 1% --
-Yes. --- increase.
-Possibly.
-Great.
-We always do. -Thank you.
And then Director Duras, question here, overall,
how does the August baseline scenario compare to,
especially if we had adopted an April baseline?
I say this because, you know,
as you were talking about your risk assessment on tariffs,
in April,
I had less risk associated with those tariffs than you did.
But today, I have higher risk associated
with those tariffs than you do.
And I say that because in April,
we were in the second of three weeks.
You took the numbers in the second of three weeks
of the administration blustering.
We saw that bluster come down,
but where we are today is in the last, you know,
number of months, it feels like we are calm,
but it is in last week,
this week, and the next week
that we'll see who is actually having these tariffs applied,
who's making deals.
And so in April,
I was confident we would get to where we are today,
but today, I feel more risk than what you're presenting.
So those are the two questions.
We'll split them out.
First one, just general, this baseline compared to April,
what would it look like?
And maybe that's where you just give me another chart,
and we can meet offline.
But then, what's to say the worst is not still to come?
-Right, yeah, so we'll provide you with that comparison,
the table, similar table that compares it with the baseline...
...baseline from April,
rather than the pessimistic scenario from April.
When it comes to the risk assessment,
again, we are basing the --
I'm basing the recommendation here based
on the overall changes and, in part,
for example,
the changes in all the financial markets
have assessed the tariffs back in April
and how they are reacting to the news right now.
In April, the announcements have led
to a really significant decline in stock prices.
That was not really the case recently.
Again, as I mentioned,
the S&P Global 500 index is actually up today
when I checked it earlier.
-Right.
-That might not be the case,
but when I checked this morning,
it was actually 1.3% above that red dot,
which shows where we were on Friday.
And so there hasn't been a large negative reaction
by the financial markets.
So again, the financial markets definitely,
and the economies to some extent as well,
believe that the tariffs,
that the first reaction and the first --
the worst of those fears have not materialized.
Some of those tariffs that have announced have been walked back,
and, in the end,
the effective tariff rate is going to be higher
than what the belief was in January,
but not as high as what the announcement was in April.
Actually, tariffs,
even with a new announcement not being as large
and thus their impact not being as negative
as the first announcement would imply
if they came to be implemented to the full extent.
-I will just -- I think this is where you,
maybe for the first time in a long time,
I feel greater risk than you do, but that's okay.
I trust you.
I'm going to -- if we could slide on to Slide 12,
this will be my kind of last question statement.
Statement is that we see uncertainty
at the federal level.
Slide 21. -Right.
-I have uncertainty of the federal policies,
whether we will see interest rates change or not.
You presented, Director Duras, earlier in this meeting,
your uncertainty about inflation.
I just discussed my uncertainty about tariffs.
You expressed your uncertainty
of the JumpStart Payroll Expense Tax
as well as the social housing tax.
There is a lot of uncertainty today, and that's okay.
That is in part of why, in April,
it was a prudent decision to adopt a pessimistic outlook
rather than a baseline outlook.
What led us to adopting that pessimistic outlook in April,
and why are we not adopting that pessimistic outlook today?
-Yeah, so as I mentioned, the pessimistic scenario in April
and the current pessimistic scenario
are fundamentally different in the regard of
whether they expect the economy to go into a recession.
Back in April,
the pessimistic scenario was slower growth,
no recession occurring.
Definitely negative effects of tariffs, lots of uncertainty.
So in that regard,
given the option to choose the baseline
and the pessimistic outlook, you only need one.
Right now, comparing the baseline
and the pessimistic scenario and choosing one of them
essentially means taking a stance over
whether the economy is going to go into a recession or not.
Adopting a pessimistic scenario means
that we do have a significant amount of confidence,
or we are worried enough about that recession
to adopt a scenario that builds revenue estimates around a case
where the economy enters a recession.
Again, given what the economists believe,
the probability of a recession is around 40%,
45%, maybe as high as 50%.
And given where the financial markets are
after all the announcement, right at this point,
when it comes to just the assessment of which
of those outcomes is more likely,
the more likely scenario is the one without a recession.
-Can I repeat back?
And I see Director Eder has got his hand here.
We have volatility in both April and today.
The difference between April and today
is that the likelihood of recession is much,
I think in your slides,
it went from 45% down to 33% just in this intervening time.
And that is a primary driver
of even all other things held constant,
that one variable says to us
that we should be confident today
that we can adopt a baseline.
In April with all of those variables, it was so much noise,
plus the recession likelihood,
that is why we needed to take a pessimistic.
Is that generally correct?
And if not, I'm going to turn over to Director Eder.
-But if I can add one more thing.
We have been in similar situations
several times over the last couple of years.
Going back to August 2022,
again, the likelihood of a recession was somewhere
where it was right now,
and the recommendation was to adopt a baseline scenario
because, again, the risk of recessions were high,
but that did not look like the most likely outcome.
It's something that would be a good idea to prepare for,
build enough financial reserves, plan for the worst,
but it's not going to be the most likely
as the economy will go down.
In August 2024, last year, we were, again,
in a situation with large amount of uncertainty.
The July employment reports were weak in a similar sense,
in a similar way
that the weaker employment reports now have increased
the fear of a recession
and increased the risk to the downside.
And again, we did adopt the baseline scenario,
primary on the belief that the most likely way
how things are going to go is along that path.
Maybe slightly to the downside, more to the downside,
but not to the extent
that a pessimistic scenario would suggest,
not planning for a significant drop in revenues.
So, again, there are other ways how to plan for a raise,
and again, we will strongly encourage for the planning,
for the decision and the financial planning,
take into account
that there might be a possible downward revision,
hopefully not to the extent that a pessimistic scenario suggests,
given the belief that it is still possible
to avoid a recession, even if that's not a forgone conclusion.
-Thank you. Director Eder?
-I just wanted to offer some takeaways from my perspective
that I don't see clearly called out in the summary slides,
particularly on the general fund and the PET.
In October,
the forecast that supported the adopted '25 budget
and the endorsed budget, we assumed a certain level of,
excuse me, payroll expense tax and general fund.
In April,
things were much worse than were assumed in the adopted
and endorsed budget to the tune of about $218 million
of revenues that were no longer as of April
expected to come in the door in '25 and '26.
This is very good news,
much better than was included in the April forecast.
You're assuming about $95 million
of more payroll expense tax and general fund
coming in the door in '25 and '26 than in April.
But it's still well lower than what was included
in the adopted budget.
So it's $218 million is my calculation of bad news
that came in April,
that this partially
but doesn't at all fully offset that bad April forecast,
I don't mean a bad forecast,
but the bad news included in the April forecast
to the tune of about $95 million.
So there's still over $100 million of general fund and PET
that is not expected to come in the door in '25 and '26.
So that's my key takeaway.
-Okay. -Yeah, that's a good point.
So there was a significant downward provision
for a payroll expense tax forecast back in April
because of two things.
First, the stock prices have really dropped significantly,
and the outlook was much worse compared to the October.
The second part, the second reason was that
2024 collection came lower than expected.
So those two led to,
I believe it was about $80 million less per year,
give or take, $80 million, $90 million each year.
So here, this slide shows the change between April
and the current baseline scenario, right?
So we are, as you said,
not reversing by any means all of those downward revisions.
We are only adding $23.7 million for 2025
and just $8 million for 2026.
So significant to less than what the downward revision was.
That means that the payroll expense tax forecast,
even in the current August baseline scenario,
is below the October baseline scenario forecast.
The reason why this adjustment is done here is, again,
stock prices have recovered some of those losses.
In 2025, we have also received some late payments for 2024.
Not a huge amount, not in tens of millions of dollars,
but they do add up to about half of 2025 revision.
And it's what we have received,
plus what the Office of City Finance has informed us,
what they believe are revenues eventually coming in
for this revenue stream in the next couple of weeks or months.
Again, yes, we are below the October forecast
for payroll expense tax, even with this upward adjustment,
which is much smaller than the downward revision in April.
-I guess my worry here is that with the amount of volatility
that we have, you know, and to the executive's office,
I appreciate all of the holding back,
you know, spending that might not be best spent, right?
Like, I appreciate you holding back as much as possible.
This definitely gives more room for the mayor's proposed budget.
My fear, though, is that we get to October,
and we're back to a downturn situation.
So I guess here's our commitment,
working together to make sure that we've got it.
I won't take the rest of your reserves
for housing vouchers next year.
Sorry.
With that, Director Carnell or Mr. Myerberg,
do you have additional questions?
-No, I only wish that there was a pessimistic one, Point B
or not, you know.
We didn't have the recession piece of this.
I think that the pessimistic scenario would be more likely.
But I think the recession piece of that kind of
puts us back into the baseline.
But I would always urge us, as Jan has said,
to be very conservative as we're going through too.
We're not there yet, we're not to the October forecast.
-Right. Mr. Myerberg, anything?
-Nothing to add, thank you.
-Council President, I saw you had an additional hand, or no?
-Yeah, I really appreciate you, Chair Strauss,
trying to drill into the pessimistic versus the baseline,
et cetera, and the optimistic,
because that's where I'm always trying to go.
And from what I understand from what Jan was saying is that --
Director was saying is that the scenarios
that we adopt are based on recommendations
that are based on
whether or not we're going to go into a recession.
What is the likelihood of a recession?
Well, I'm looking at
how much money are we going to have this fall
when we're deliberating the budget.
And so that's where my mind goes.
And it looks like --
and so whenever these forecasts occur,
I'm always thinking about, what is the takeaway?
Do we have more money or less?
And so I'm assuming, is it true
that we do have a positive revenue forecast before us?
And how much positive is it?
I'm assuming it's not $99 million that's on Page 21,
because that is in that page -- right, that page,
because that is between optimistic and baseline.
So I guess if we're adopting the baseline,
what is the positive difference?
-So it's about, looking at the general fund,
it's about $62.8 million,
excluding grants and transfers, so $63 million.
Then adding the non-general fund revenues here
would add something a bit less than $30 million,
based on quickly glancing at those numbers.
I don't know --
-I haven't done the math more precisely than that,
but on that, it's roughly $90 million over the biennium.
Again, the majority of that,
either in the payroll expense tax and the general fund,
these other funds, they don't exactly offset,
which is mixed there.
But again, their individual uses are restricted.
So offsetting is not necessarily the way to think about it.
Yeah, if we go back a slide,
I do think it's the same time that we acknowledge
that there's $90 million there.
I think it is important to note that -- oh, go up to one more,
sorry, to the -- yeah,
on the baseline that the increment --
looking at the increment for '26,
there's $33 million roughly.
But then, if we go to the PET slide,
the increment for '26 is only $8 million.
So in combination,
from the general fund and payroll expense tied together,
the '26 increment is roughly $40 million.
So essentially, $50 million in '25 and $40 million in '26.
I think that's important,
because recognize that the implications in terms of
'27 and beyond are not $90 million a year, certainly not.
Maybe slightly more than $40 million, but more in that range.
So as the Council considers the implications for the longer run
and the projected deficit,
again, and when we have an opportunity,
we need Central Staff to present this revenue
in the context of those longer-run forecasts.
We'll highlight this point as well.
But there's still significant,
roughly $200 million deficit on a projected basis
in terms of expenses associated with the payroll expenses fund
and the general fund in '27 and beyond.
So I don't want to minimize the good news,
but recognize
that essentially $50 million is one-time money
rather than implying an increase in the ongoing revenue streams.
-Well, when can we use that one-time money?
Is that for 2026,
or is that backfill expenses in 2025?
-I believe that's a conversation
for our budget deliberations, Council President.
-Okay.
-Thank you. -All right.
And just I really do also appreciate, Chair,
that you really are asking questions about small business,
and it is really -- and Director,
I really do believe that you answered that question well.
You said that the impacts on small business
largely depend on the behavior of larger businesses.
So that's something to keep in mind.
And Director Eder, that was what I was trying
to explain earlier this morning, if you recall.
So thank you. -Thank you.
Anything further, Council President?
-No. -Thank you.
Director Duras, last words, but these are yes/no questions.
So I can't go on for three minutes.
-No, if I can have just one minute regarding the change,
the overall size of a change.
So it was about $240 million to the downside
in April for '25-'26, two-year.
We are now adding about $90 million for those two years.
So it's still about $140 million
below the adopted budget forecast
based in that calculation.
So we are reversing some of those downward revisions,
but not to the full extent, only partially.
And again, I want to point out
that 5814 was not incorporated in the forecast in April
and that results in some additional revenues
that are here, that are driving the revisions in sales
and then again on forecast.
And it's not just the economic outlook,
but additional things beyond that
that imply additional revenues
and thus improvement over the April forecast.
-Thank you for putting the bow on the top of the present for us
because I think that $140 million,
$150 million hole is the only thing that I can see.
And so yes, this is good news today,
but I'm still staring at a hole that is burning my retina.
So thank you for that acknowledgment there.
Colleagues, I'm not seeing additional questions.
So I will move on to Item 3,
which is the actual adoption of the recommendation
of the August 2025 revenue forecast per the ordinance
that created the Forecast Office,
and this council, it is the role of the council
to review and approve the forecast in terms
of proving the forecast.
If we concur with the recommendation
of the forecast scenario, then no formal vote is required.
The goal of the legislation
was to remove the risk of political influence
over the forecasting,
which is why we don't have a slide that says visitors are up,
but internationals are down,
and thus the independence of your office.
Thank you, Director Duras, for that.
That said, as the elected leadership of the legislative
and executive branches,
it is also appropriate
that we have the authority to override the recommendation
should our judgment lead us to that conclusion.
For establishing ordinance,
such a decision would require a three-member majority vote.
As you've heard,
Director Duras recommends the baseline scenario
for the August 2025 forecast
to be used as the official forecast.
Are there any objections at this time?
Council President? -This is not an objection.
I just wanted to -- I always ask a person --
-Can you hold?
If it's not an --
I'm asking only for objections at this moment.
You do not have an objection, Council President?
-Well, am I allowed to ask my question?
I always ask Mikesell, Tom Mikesell, Central Staff,
you know, he hasn't --
-I am going -- -Okay, never mind.
-So Council President,
I am going to take us out of the motion
to approve this recommendation.
Do you have further questions on the presentation
that we just received?
-No.
-Do you have questions for Tom Mikesell
about the presentation you just received?
-I'll ask him offline after the fact.
-Sounds good.
So as you've heard,
Director Duras recommends
that the baseline scenario for the August 2025 forecast
to be used as the official forecast.
In the case that there are no objections
to this recommendation,
I will simply request
that the meeting minutes reflect our concurrence
regarding that recommended forecast.
Are there any objections to using the recommendation
from the Forecast Office?
I am hearing no objections.
And so having heard no objections,
this -- we have concurred with the Forecast Office,
and the minutes will record our concurrence
with the recommended forecast in the meeting minutes.
Thank you. I will now move on to Item 4.
I know this has been a long meeting that started late.
My apologies.
I believe we still retain quorum with three members.
So somebody has to go, I understand.
Moving on to Item 4,
which is the presentation of the 2025 Work Program for
the Office of Economic and Revenue Forecasts.
I know that we had deep discussion ahead
of the April meeting,
which is why we've kind of allowed things
to move forward as they were. But with this,
I will turn it over to the Office of the Forecast --
the Forecast Office to walk us through the presentation
of your work plan, which you've already been underway with.
-All right, I'll be really brief here.
I'd like to be really brief here.
So this is a quick background for the Forecast Office,
but I'll skip that.
The revenues that we are forecasting are the ones
that we have talked about.
So I'll skip over that part
and just move over straight to the 2025 Work Program.
It's very similar to the previous year's
work program proposal.
We are producing regional forecasts four times a year
in January, March, July, and October.
Three of those are used to build a revenue forecast in April,
August, and then October, and then we present those forecasts.
In addition to that, we work on regular revenue reports,
which are published each quarter,
and we have now recently, thanks to the work that Sean has done,
Power BI dashboard version of revenue report,
which I would encourage you to have a look at if you have not,
because it's presenting in a much more streamlined,
much more approachable way.
We have started to work on the forecast accuracy assessment --
-Hang on real quick.
Mr. Nolte, you might be off mute, just so you're aware.
Continue. You can go ahead, Director Duras.
Sorry, I just, I heard some background noise,
and there's only one person not on mute on the screen,
so I just wanted to give a situational awareness.
-So in addition to that, those revenue reports,
we have started to work on an update
to the forecast accuracy assessment
that we have conducted in 2022,
essentially looking at
how accurate our forecasts have been
over the last couple of years.
So that's the work in progress.
We are, in addition to the forecast
and the revenue monitoring,
working on the refinements to our forecasting models,
improvements where we have enough time
and the reasons to believe that things can be made better.
We certainly have a lot
to improve on the payroll expense tax forecast,
which we have now some additional data
from
the Washington State Employment Security Department Office
that can be used to inform the forecast.
We have incorporated additional information
from Moody's Analytics, as I have talked about today.
We are now looking for a second opinion on the overall outlook,
economic outlook,
and that's part of the work
that has been done to improve the overall forecast accuracy.
We have new data for tourism,
for cruise ships that we are going to incorporate
in our forecast,
and some consumer spending data
that can provide insights into sales tax revenue forecast.
So in addition to those improvements,
we are then available to do any policy analysis
as requested by either the executive
or the legislative branch.
We are working in a confidential manner
to the extent allowed by the law,
so whenever a request is made by one side,
and so we are working
on that confidential kind of arrangement.
We do have some time for that,
but depending on where we are in the forecasting work,
that amount of time might be limited.
And in addition to supporting the executive
and legislative branch,
we do support the City Budget Office
in preparing sections of the budget book
and the City Finance
in preparing the LTGO rating presentations for Moody's,
S&P Global, and Twitch Corp.
I think there was [inaudible]
But yeah, that's essentially a quick summary
of what we are doing,
the kind of work that, again, we have been doing in the past,
to large extent, we're continuing improvements,
monitoring the forecast with the additional work
to support the other departments.
-And thank you for doing this work
while this official work program was not formally adopted.
-Yep. You're welcome.
We are here to help in any way we can.
To the extent that again, we have time,
we are trying to purpose --
-If I might just. -Please.
-One of our significant thanks and
appreciation to Jan and team.
The Council has just been considering this
B&O rate proposal,
and the technical analysis involved
to support that policy work has been significant.
And Jan and team were doing it
whilst they were also preparing the forecast
to be significant peak load for them.
So again, just appreciation.
There is a significant partnership there
on the policy analysis side,
and the one that's proven very successful.
-Millions of thanks.
And I know that only because one of those amendments was mine.
Thank you. -That was an easier one.
-I aim to be straightforward. I mean,
but it's also the ability
for me to be straightforward in this realm is
because of the assistance
that I've received from learning from you
and from others around budgeting and land use.
What is also not seen by you is beyond just forecast and B&O,
we also had Comp Plan amendments that went live
while we sat in this meeting.
So what's going on for your Central Staff, Ben?
-Yeah, again, just thinking about this further,
and this is really speaking from the legislative side
because in the past,
that kind of analysis would have been dependent
on the Budget Office to assist,
having played in that role as well.
That's something the assistance would have been provided,
but it is meaningfully different to have an entity
that is not on the executive side
that's providing that kind of policy support
on a really technical basis to the City Council.
So just in terms of how the office functions,
and it was Council's initiative to create it,
it is serving that purpose,
which was part of its original intent.
-Great work. I would just say, again,
thank you for the conversation
that we had in May about your work program.
It looked good then, it looks good today.
Thank you for moving forward with that work
while that April forecast meeting needed to be altered
in part because of the pessimistic outlook.
Colleagues, any other questions for the work program?
Thank you for letting me wax poetic
about Director Duras and his work.
So with that, I will move to adopt the 2025 Forecast Office's
work program as presented.
Is there a second? -Second.
-The motion has been moved and --
-Second. --- seconded.
Any comments before we call the vote?
Seeing none, says Director Duras called the roll.
-Right now?
-Yeah, sure, call the roll.
-So last year -- I'm not sure how to do it last time --
-Yeah, I don't know.
We might find, Seattle Channel would call the roll.
But if you will, go for it, Director Duras.
-All right, we do it that way. So Director Carnell?
-Yes.
-Chief Innovation Officer Myerberg?
-Yes. -Council President Nelson?
-Aye.
-Chair Strauss? -Yes.
-That's four in favor [inaudible]
-That's a unanimous approval of 2025 Work Program.
Thank you.
This does bring us to the end of our formal agenda.
Before we adjourn,
and I do want to work with the Forecast Council,
I know that you've been sharing Monday, October 20th
as your next forecast meeting.
I will tell you, Mondays are not helpful.
We can get into that as to why, but I also want to make sure
that we sync up on the budget calendar.
So while October 20th is the posted date,
I may request that altered by a day or two here
or there, as well as I will work with the executive's team
to understand if we do a joint meeting
or if we simply have a small meeting ahead of,
and then you come and join our presentation later on.
Because I did find
that bringing the other council members
into the forecast meeting during the budget session
was helpful for their understanding,
but also understanding we're changing our budget calendar
this year, so there may be less time.
So all of that said, thank you for your flexibility.
Any further questions?
Hearing no further questions, we are adjourned.
Thank you all. -Thank you.