City of Seattle 6-year financial planning memo

This week the Seattle City Council held a discussion on the six-year projections for the city’s budget, and issued a memo summarizing the situation.

Last fall as part of writing the 2022 city budget, the city developed financial forecasts for the General Fund portion of the budget: the dollars with the least restrictions on their use (and consequently the dollars that the City Councilmembers have the most discretion on how to spend). At that time, the baseline prediction (i.e. projecting out existing revenue streams and already-committed spending) was for a $146 million deficit in each of 2023 and 2024 and a $119 million deficit in 2025. Some of this can be attributed to the city’s approach to financial management during COVID: rather than cut spending when revenues dropped, the city used federal ARPA funds, and to some extent new payroll tax funds, to cover the deficit in the General Fund. But the ARPA funding ends this year, revenue streams have been slow to recover, and by ordinance the payroll tax revenues are to be dedicated to other purposes in their entirety starting in 2023.

However, there is a bit of good news: the final numbers are in on 2021, and the city underspent by $265 million. Carrying that over in the General Fund balance will cover the deficits in 2023 and part of 2024.

The city updates its economic and revenue forecasts each April; based upon last month’s update, it now projects deficits of $117 million in 2023, $107 million in 2024, and $69 million in 2025.

The Council’s staff have proposed some options for Councilmembers to consider in how to close the gap, since the city is required to balance its budget every year. Among the options on the table:

  • Cut spending, for example a 3% cut across all departments. This will save about $50 million per year
  • Change the policies associated with various other restricted fund sources (such as the payroll tax) to allow them to help cover the general fund deficit. Former Mayor Durkan proposed this last summer, and the Councilmembers rejected it — in fact they doubled down on restricting payroll tax uses.
  • Switch to using the city’s “optimistic” forecast for revenues instead of the baseline one. That would add another $35 to $37 million in revenues per year. Keep in mind, however, that last fall the Council chewed out the Mayor for proposing a budget based upon the “baseline” revenue forecast instead of the “pessimistic” one; it would be hypocritical for the Council to now switch to the “optimistic” scenario.

The Council doesn’t need to make any immediate decisions, though the city’s economic forecasting office will soon need to make a recommendation to the Mayor and City Budget Office as to which revenue forecast to use as the basis for the Mayor’s proposed 2023 budget.

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