Overall, the $1.6 billion general fund is projected to grow slightly in 2023 and 2024 – increasing by $74.4 million this year and $24.7 million next – compared to the figures in the $7.4 biennial budget adopted by the city last fall.
The city’s Jumpstart payroll tax on big businesses, on the other hand, is expected to raise $31 million less in 2023 and $31 million less in 2024 than previously projected. The new tax is now expected to bring in $263 million in 2023 and $271 million in 2024.
Layoffs in the tech sector – which includes many of the companies paying the tax – are a major factor in the projected decline. Working from home is also a factor, since the tax is collected based on a company’s Seattle-based employees. Work-from-home employees outside the city do not count toward a company’s tax bill.
The projected downturn is a change in course for Jumpstart revenue, which in 2021 and 2022 brought in tens of millions more than the original $214 million projection. The city used Jumpstart funds to help fill a $221 million budget shortfall last fall.
The city’s Real Estate Excise Tax (REET) is also forecast to take a hit, generating $13 million less in 2023 than the $68 million initially projected in the 2023 city budget. In 2022, REET raised about $91 million for the city. The tax is charged on the sale of both residential and commercial real estate.
Seattle’s residential real estate market is slow, thanks to high mortgage interest rates leading to less appetite from both buyers and sellers. More impactful, Seattle’s commercial real estate market has ground to a crawl as the industry struggles with slow return to work, high interest rates and high construction costs, leading to far fewer commercial property sales than normal.
Though inflation has ticked down a few percentage points since last fall, it still poses a significant problem for the city budget. The April revenue forecast showed that Seattle’s general fund revenue is not projected to keep pace with inflation through at least 2028, meaning the city’s buying power will decrease, even if the budget remains flat.
At the April 10 Economic and Revenue Forecast Council meeting, City Council budget chair Teresa Mosqueda acknowledged the challenges the forecast presents, but said the city’s rainy-day funds and Jumpstart reserves mean the city’s prepared: “While it’s not ideal news today, a $6.7 million shortfall out of a $7.4 billion budget I think is manageable.”