Tech slump takes toll on Seattle's big business tax
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The tech industry's slowdown is hurting Seattle's JumpStart payroll tax, which targets Amazon and other big businesses.
What's happening: Revenue from the payroll tax is projected to come in about 10% lower than previously predicted through 2024.
- That equates to about $62 million less over two years, according to a city revenue forecast delivered last week.
- Plus: The city now predicts the tax will bring in about $103 million less than expected between 2025 and 2027, largely due to the ongoing effects of the tech sector slowdown.
Why it matters: The JumpStart tax pays for a range of city initiatives, including affordable housing projects, efforts to fight climate change, small business assistance and community development programs.
- It's also being used to help plug a hole in the city's $1.6 billion general fund budget, to the tune of about $100 million annually over the next two years.
Context: The city's general fund is running a long-term shortfall because the city is spending more than it‘s projected to bring in.
- City officials agreed to use the JumpStart money as a temporary fix for 2023 and 2024, but it's not supposed to be permanent.
Catch up quick: The JumpStart tax applies to businesses that have a total payroll of more than $8.1 million annually, and that have at least one employee making $174,337 per year or more.
- Relatively few companies meet those criteria, and many that do are in the tech sector, Ben Noble, director of the city's Office of Economic and Revenue Forecasts (OERF), said at a meeting last week.
- As a result, recent declines in tech company stock values have hurt JumpStart tax collections, Noble said.
Many tech employees have also continued to work from home post-pandemic. That "means at least some of the working hours of employees living outside the city are not subject to the tax," per city officials.
State of play: To avoid potential cuts to JumpStart-funded programs this year, the City Council may have to vote to reduce the amount of money being transferred from the JumpStart fund to the general fund.
At the same time, the decline in projected payroll tax revenue doesn't cause a major budget problem right now, said Seattle City Councilmember Teresa Mosqueda, who chairs the council's budget committee.
- Over the next two years, other taxes that feed the general fund — including business taxes and sales taxes — are now projected to come in about $70 million higher than previously predicted. That extra money can be used to offset the lower-than-expected JumpStart tax collections for now, Mosqueda told Axios.
Yes, but: In the long term, the city is facing a serious budget crisis.
- Starting in 2025, the city's general fund is projected to run an annual deficit of more than $200 million, according to city staff.
What's next: Mosqueda said the city's projected budget shortfalls show a new tax stream is needed.
- A work group is looking at potential options for a new tax and is expected to release recommendations in July.
- Meanwhile, the mayor's office is reviewing the revenue numbers and may issue updated spending guidance to departments if necessary, Jamie Housen, a spokesperson for Mayor Bruce Harrell, told Axios.