Seattle City Council votes to spend money it doesn’t have, approves budget for new payroll tax.

The Seattle City Council voted yesterday to spend money from reserves and identified how the city’s new and controversial payroll tax will be spent. (We’ve written about the jobs tax here, here, and here.) The Seattle Times reports,

The City Council voted unanimously Monday to authorize spending $86 million from Seattle’s emergency reserves to provide additional relief to residents and small businesses struggling to deal with the public health and economic crises caused by the coronavirus pandemic.

It also unanimously approved a resolution laying out a detailed plan for more than $200 million per year in expected proceeds from a new tax on big businesses, allocating the lion’s share to affordable housing projects.

The COVID-19 relief bill and the spending plan for the big-business tax are linked, because the spending plan calls for the first $86 million raised by the tax next year to be used to replenish the emergency reserves.

Mayor Jenny Durkan, who last Friday chose to allow the tax to take effect without her signature, objected to the budget action. (The council had adopted the tax, 7-2, giving it a veto-proof majority if all the votes had held.) The ST reports she called the Council’s actions “fiscally, legally and economically risky.” The tax is scheduled to go into effect next year.

The Durkan administration asked the council Monday to resist sapping the emergency reserves for COVID-19 relief, at least until August, when more will be known about the city’s economic trajectory and about additional Congressional assistance. Seattle is dealing with a massive budget hole this year and can expect to encounter an equally large gap next year, due to the downturn and money already spent on COVID-19 relief, Senior Deputy Mayor Mike Fong and Budget Director Ben Noble wrote in an email.

The mayor is right: There are significant concerns about whether the job tax would withstand a legal challenge, an argument made by her staff.

“Now is not the time” to spend so much from the emergency and rainy day funds, “when there seems to be so much rain in our future,” Fong and Noble countered, also asserting a lawsuit could block the JumpStart tax before 2021 and leave the city without that source to replenish the emergency funds.

As well, it’s far from clear that businesses targeted by the tac will remain in Seattle. It’s fair to speculate that the tax, if it stands, will generate the anticipated revenues, a concern also cited by Durkan.

[Durkan] said she worries the tax may encourage large companies to move workers away from Seattle, arguing the policy would work better at the county or state level.

State legislators, as we’ve written, are eyeing the Seattle tax as a model for the state, an action which would also likely prompt discussion of whether a statewide payroll tax would preempt the city tax. 

The mayor’s characterization of the council’s actions sound right: risky.