The Seattle City Council last month passed a new payroll tax intended to help plug shortfalls in the city budget, and there’s a strong likelihood other new tax proposals are in store. The council also aims to revise the 2020 budget enacted earlier this year, with its proposal recently vetoed by Mayor Jenny Durkan in part over spending cuts to the Seattle Police Department (SPD).
Economic development experts say both the council’s strategies are bound to backfire at a time when Seattle’s businesses are struggling to remain open during the ongoing pandemic response. While Seattle City Councilmembers have argued new revenue is needed, others have questioned the city’s spending priorities over the past decade and how cuts to the police department could further undermine business recovery.
“If there’re losing tax revenue because people have no money, why would you increase taxes?” Washington Policy Center Small Business Center Director Mark Harmsworth said. “If you continue to push them, they’re just going to move out of town and go somewhere else.”
That “somewhere else” could be other cities in the region such as Bellevue. City Chamber of Commerce CEO Joe Fain, a former state senator, said the attitude toward businesses from the City Council there is friendlier.
“I can only say I’m grateful to be in the position I am in Bellevue,” he said. “Really all of the (Bellevue) councilmembers are…receptive to the needs of small businesses, in particular during the COVID era. (It) has really been extraordinary.”
While Seattle councilmembers such as Andrew Lewis hope the city’s payroll tax will eventually expand to a regional or statewide level, Fain said “we’ve been very skeptical of new revenue sources at a time when the revenues that businesses are receiving in large part come from congressional appropriation.”
Others have noted that city’s budget spending increase has outpaced the population growth. Seattle’s population has grown from 608,661 in 2010 to an estimated 779,400 this year – a 28 percent increase. Yet during that same time period, the city’s general fund spending has increased by 66 percent, from $906 million in 2010 to $1.5 billion in the current 2020 budget.
At the same time, Fain believes the issue isn’t so much about overspending as it is how the money is being spent. “In many cases, when government gets high return on investments and spreads that (tax) burden in a way where no one is hit too much, increased spending can be really positive.”
Since 2010, the top three single line item general fund spending increases in Seattle’s budget have been:
- $164 million for the Seattle Police Department
- $88.5 million for the Human Services Department
- $66 million for the Seattle Fire Department
However, Harmsworth and others say there’s nuance involved with the additional spending on law enforcement. The number of sworn officers within SPD is currently 1,300 – the same as in 2011 when the population was 623,000. In addition to new union contracts approved in 2018 increasing officer pay, much of the increased spending has been overtime pay due to an understaffed department.
Harmsworth said the added cost of overtime pay is “a direct result” of City Council policies regarding homelessness and delays hiring more officers. “They’ve created an impossible situation that actually cost them more money.” A former Mill Creek city councilmember, he said an understaffed police department and consequent overtime pay created significant issues for the city’s budget.
Views are mixed on the extent to which the city has amply invested in promoting business growth. Economic development remains a small portion of general fund spending, increasing from $6.2 million in 2010 to $11.4 in 2020.
Harmsworth believes the city has more or less “lucked out” on having companies such as Amazon headquartered there.
However, Fain says there’s a disconnect between rhetoric coming from the city council and actual efforts by the city to promote business. Along with a Workforce Development Team and Small Business Advocates, the city’s Office of Economic Development offers a variety of programs for small businesses, including $10,000 grants from a stabilization fund to aid employers impacted by COVID-19; so far, the city has provided grants to 469 businesses. The city also has $1.3 million worth of grant money for its Only In Seattle program intended to promote business growth in neighborhoods.
“There are some economic development experts who are…really quite focused on preserving Seattle’s economic health,” Fain said. “There’s some really great people, ideas, and practices, that are alive and well inside of city government. It’s easy to drown out those voices when there are other voices that have done everything short of taking up arms against the business community.”
Fain also cited the city’s collaboration with Greater Seattle Partners, a new public-private partnership that includes numerous regional companies such as Alaska Airlines, Amazon and Comcast, in addition to local elected officials from central Puget Sound cities including Seattle, Bellevue, Everett and Tacoma.
Greater Seattle Partners CEO Brian McGowan told Lens the city “has done a remarkable job” of processing the large influx of construction permits in recent years, citing the transformation of South Lake Union for Amazon’s new campus, along with the $728 million Waterfront Seattle Program financed in part by a $290 million, 30-year Seawall Bond. He also notes that in recent years Seattle had the most construction cranes of any U.S. city.
Yet, the city still suffers from what he calls an “exclusive economy,” which in Seattle’s case is heavily composed of high-paying tech jobs that create affordability issues. “San Francisco is an exclusive economy. Seattle as a region has kind of been barreling down that San Francisco path for a long time.”
In addition to diversifying the regional workforce, he said “we want to make sure we’re focused on creating jobs throughout the entire region, not just the center of the region.”
However, Harmsworth says the council’s behavior is “effectively killing any economic development,” and the problem will only grow worse if SPD funding is reduced as the City Council has proposed. “I’ve got friends who are not wanting to go to Seattle. (There are) business owners currently relocating out of Seattle. There’s no protection anymore.”
While local law enforcement and economic development may not seem to have much in common, McGowan says that public safety is the number one thing a city can do to promote a healthy business climate, as low crime rates are a key factor in attracting new employers. “Capital will only go to places where it feels safe. You want to keep investments and jobs? You need to make sure the people working for those companies feel safe every day.”
He added that “whatever the city council is planning on doing, it has to have the effect of making people feel safe.”
Greater Seattle Partners regional approach to economic prosperity reflects an attitude shared by Fain’s sentiment that “our region rises and falls as one. A weak Seattle…does not help anyone in the region, and so it’s important that we’re all committed to the success of Seattle.”