City of Seattle

Mayor Jenny A. Durkan

April 17, 2018
Dear Councilmembers:

As we all know, our homelessness and affordability crisis demand our urgent action. We need
accountable and effective solutions to help thousands of people experiencing homelessness and many
more who suffer from housing insecurity. I am proud of the steps we have taken together to meet these
challenges, but we all agree that more needs to be done.

The "Progressive Revenue Task Force? has proposed the largest Council-imposed tax increases in Seattle
history to deal with these challenges other than the income tax. The task force had a number of
members that I regard very highly, and all gave their best input on how we could address the crisis. I also
appreciate that their recommendations came in a relatively short period of time, with limited access to
data, the law department, or the ability to receive public input. As Council deliberations are underway
regarding these recommendations, several Councilmembers have asked for my views on the proposals. I
understand there is a significant range of approaches under discussion, which is why I want to outline
my principles as Council begins drafting legislation.

First, as have reiterated since last year, Seattle must protect our small businesses when considering any
new business taxes or regulations. Seattle small businesses are our largest employer; they provide
economic opportunity and create the rich texture and character of our neighborhoods and city. With
many small businesses facing a series of increased commercial rent, taxes, regulations and construction
impacts, our City must ensure we?re protecting and reinvesting in the vibrant web of small businesses.

in addition, I believe it is imperative that any proposal has full accountability and transparency for our
taxpayers from the initial spending proposal to oversight as the funds are delivered. These spending
priorities must be in line with our regional implementation plan of One Table.

Finally, we need solutions that improve lives but do not harm our economy. All our businesses, arts and
cultural organizations, and civic ventures rely on each other in an interdependent ecosystem. A large
range ofjobs from our building trades, to restaurant workers, to nurses, teachers, manufacturing jobs
and tech workers have depended on the economic growth we have experienced. As we work to lift up
those that have been left behind and make our City more affordable, we must be careful not to do
harm. The size, scope, and impacts of any proposal must be gauged correctly.

it is critical that the Council includes these initiatives and priorities:
1. Protecting Our Vibrant Economy, Small Businesses, Non-Profits, and Community Service

Organizations Any new tax should not harm the economy, the small businesses that employ most of
our workers, or the non-profits that serve our community. Our neighborhood small businesses are our

 

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largest employers with more than 200,000 employees. We also have some of the most highly regarded
nonprofits in the nation working right here in the city we must continue to support their work. Steps
to protect our economy and small businesses should include:

Rejecting the so-called ?skin in the game? flat tax, which is an additional tax on top of recent
increase in business and occupation tax rates, and the substantial increase in business
license fees that was imposed in 2017. For firms with worldwide gross revenues of $2
million or more, the cost of their annual business license increased from $110 to as much as
$2,400. This recommendation undervalued the many ways small business owners already
have ?skin in the game? and have been directly impacted by affordability crisis;

0 Craft exemptions for small businesses, which provide jobs that we cannot afford to lose but
are already shouldering significant taxes and regulations. In total, we know that business
activity provides approximately 56% of our total General Fund tax revenues;

. Craft appropriate exemptions for non-profits, member organizations, and health ca re
providers;

*3 Eliminate proposed blanket exemption for marijuana businesses, which could still
qualify for the small business or health care provider exemption;

Create new Seattle Investment Zones in our most underserved communities that are at high

risk of diSplacement and need good paying jobs, then craft exemptions for businesses
located in those zones; and

- lncentivize private investment in homelessness solutions and affordable housing, by
creating a credit for private spending in these areas.

2. Help Workers and Build the Economy by Reinvesting in City Businesses As we generate
additional tax revenues from larger businesses, we should use the new revenues to provide tax relief to
our small businesses, including our immigrant and minority businesses. It would help even the playing
field to:

. Reinvest in Seattle?s small businesses by exempting small sta rtups from the City 3&0 tax for
up to three years;

- Reduce 3&0 taxes on businesses located in new Seattle Investment Zones (see above);

0 Reduce costs on small businesses by offsetting other regulatory costs like business license
fees;

0 Create more support programs and resources for our small business; and

. Restore the life sciences research and development tax exemption for federal grants and

subcontracts that the City allowed to expire in June of last year. Taxation of these funds
puts many of Seattle?s research entities at a competitive disadvantage in seeking these
federal resources.

3. Creating 3 Transparent Spending Plan Working Within A Regional Solution As my Small
Business Advisory Council emphasized, there must be an accountable and transparent spending plan,
built around regional solutions. King County has the third largest homeless population in the United
States. Seattle cannot go it alone, and we must work with our regional partners. Homelessness and
affordability challenges do not respect any city boundary and cannot be solved just by Seattle. Not only
will it not work, it unfairly shifts significant burdens to Seattle taxpayers. Through One Table, we are
establishing a framework and implementation plan to address the root causes of homelessness in a
comprehensive and regional manner, which we will announce in May. In considering the needed
revenues as well as spending gaps, it?s critical that the City, County and our regional partners are aligned
on any new significant investment that could be made in both housing and homelessness. Seattle?s
investment plan should include:

4.

investing in bridge housing and shelter options. As part of the legislation that passed Council
in February, we have already begun our work to create additional shelter and housing
options, but we need additional safe alternatives;

Expanding outreach, including additional navigation teams, to those living unsheltered as
well as those living in vehicles and 

Dedicating resources to meaningful and sustainable mental health and substance abuse
treatment. Underfunding behavioral health has a significant, if not determinative impact on
our homelessness crisis. This is an area where regional solutions and working in the One
Table framework will be key;

Providing dedicated funding for increased need of homeless services, public health, litter,
trash and debris removal strategies to fill the gap. Last year, the City spent $75 million, more
than budgeted, providing a range of support services, operations of sanctioned
encampments, and the ongoing costs of managing unsanctioned sites, including hauling
garbage, human waste and used needles; and

Directing resources to temporary affordable housing as well as permanent affordable
housing. Before fully leveraging with Federal Low-Income Housing Tax Credits, the State
Housing Trust Fund, and other contributions, the City of Seattle is expected to invest nearly
$70 million in 2018. Once fully leveraged from state, federal and private sources, this is
expected to result in total spending of more than $200 million; three times our original
investment. However, these permanent affordable housing units will take years to come
online, which is why the City must consider temporary affordable housing, such as modular
homes.

Showing Progress and Ensuring Accountability Unfortunately, many Seattle residents don?t

trust that the City is spending their dollars wisely at a time that taxpayers are already paying a significant
amount to address this crisis. The City spent $75 million in 2017 for homeless and related services. We
also spend significant resources on indirect spending to deal with this crisis, including our first
responders. In addition, less than two years ago, voters approved a $290 million affordable housing levy.
For every dollar the City spends on housing, purchasing power has historically been leveraged to nearly
$3 in other federal, state and private resources.

All new revenue should have a strong level of accountability and transparency to taxpayers, including:

Independent oversight committee, similar to the Sweetened Beverage Tax Community
Advisory Board. This board should include members appointed by the Mayor and the City
Council. The board should represent a diverse group of stakeholders, but no entity or
person receiving funding should be eligible to serve on the board;

Require improved accountability provisions in all service provider contracts;

Require retention of an economist to advise the City and the Advisory Board. This economist
should be experienced in both housing markets and in the economic impacts of increased
taxation on businesses to the economic, philanthropic and health of a community.

Require the City to monitor and measure the impact of a new tax. We need to monitor the
cumulative impact of Seattle?s taxes and regulations to ensure that we are not pushing jobs
out of our City or creating any unintended consequences. The City should measure the
impacts through a race and social justice lens. In addition, a City economist should measure
whether the new taxes lead to a drop in jobs or philanthropic contributions, that fuel
everything from our arts organizations, to homelessness services and affordable housing;
and

- Re-evaluate progress with an affirmative renewal. By creating a sunset provision, the City
can hold itself accountable and measure the effectiveness and impact of this tax and allow
for affirmative renewal similar to the previous employee head tax.

In the upcoming weeks, i look forward to working closely with each of you as we aim to ensure any
proposal meets a robust legal challenge and can be fully and effectively implemented to address the

homelessness and affordability crisis.

Sincerely,