From the Office of Economic & Revenue Forecasts
2024 Q4/Year-end Revenue Report (PDF)

Facing inflation and rising wages as they sorted out 2025 spending plans in the face of a possible $260 million budget deficit, Seattle leaders avoided more serious cutbacks by leaning heavily on a tax that was originally put in place to help the city pay for services and affordable housing at it recovered from the pandemic — the JumpStart payroll tax on its largest employers.

Now the city’s Office of Economic and Revenue Forecasts says its latest tallies show the JumpStart source of revenue, after years of growth and better than expected totals, is not as stable as Mayor Bruce Harrell and the Seattle City Council hoped and has fallen tens of millions of dollars short.

According to the city, JumpStart revenues fell 11.5% below forecast, coming in at $360 million in 2024 — $46.8 million less than anticipated.

Here is how the OERF reports (PDF) the JumpStart math for 2024 worked out:

In 2023 the tech sector stabilized, stock prices resumed to grow, and in addition the return to the office continued, and so the payroll expense tax obligations recovered as well. They grew 23% year-over-year to $311 million, and the 2023 revenue collection exceeded the October 2023 forecast by $42.2 million, or 15.7%. The tax rates for 2024 increased by a factor of 1.065, all things equal on its own this would imply a 6.5% increase in revenues. The actual Payroll Expense Tax revenues ultimately grew just 14.23% – a notable slowdown from previous year, despite stock market growing 25% in 2024, compared to just 4.5% in 2023.

The 2024 shortfall follows a run of over-achievements by the tax highlighted by 2023’s revenues exceeding the forecast by $42.2 million, or 15.7%.

City leaders will now watch as updated numbers come in as they face a potential scramble over the lower than expected revenue.

“We will be closely monitoring OERF’s April forecast to understand the full implications and what steps are necessary to maintain a balanced budget,” Mayor Bruce Harrell said in a statement. “As we develop the City’s 2026 budget, my office will consider all options, including additional revenue sources and appropriate expense reductions, to ensure we are making the priority investments and funding the essential services that matter to our residents.”

Harrell’s office also couldn’t resist an “I told you so” over the situation. “This news also underscores why I have been consistent in noting the fragile nature of our economic recovery – we know this decrease in revenue is aligned with recent reports of major employers moving thousands of high-paying jobs out of Seattle to other cities in our region,” Harrell said.

“Large corporations should pay their fair share and we should be wary when they use job placements to avoid paying funding that our communities rely on, but we also must recognize businesses will make choices based on their bottom line. We need to design our tax policies with the full context of our economy and a comprehensive view that ensures we raise the revenue needed to support all of our residents in a progressive way, aligned with our values.”

Established in 2021 to fund pandemic recovery including housing and small business support, the tax applies to Seattle companies with payrolls $7 million and up, on pay to employees making more than $150,000 per year. The tax rate ranges from 0.7% to 2.4% with tiers for various payroll and salary amounts. Late amendments approved include an expanded 20-year sunset clause that puts the tax in place for two decades. Grocery businesses and independent contractors are exempt. The tax was fought tooth and nail by business groups including the Seattle Metropolitan Chamber of Commerce which lost its court battle over the new tax in 2022.

Katie Wilson, the Transit Riders Union co-founder challenging Harrell in his reelection campaign, was part of the advocacy efforts that shaped JumpStart and says that last year’s shortfall is a core reason the funding should never have been shifted from its original purpose.

“That’s why JumpStart was originally intended primarily for capital projects like affordable housing, not to fund ongoing operations that depend on stable funding from year to year,” Wilson said in a statement on social media. “This is one reason why Harrell’s approach to last year’s budget process was short-sighted: Funneling a massive part of JumpStart into the General Fund makes its volatility more of a problem. It also compromises our ability to address the housing and climate crises and takes away money that was intended for community development and small business support.”

The region’s business interests have also chimed in as efforts to establish a similar statewide payroll tax have grown.

“No one should be surprised that Seattle’s payroll expense tax is exactly what economists said it would be: volatile – because it is tied to the stock market, unpredictable – because businesses are making decisions on how to keep their payroll costs down, and precarious – because it intentionally relies on a small group of businesses that can easily move employees to a more welcoming environment,” a joint statement from the Association of Washington Business, Bellevue Chamber of Commerce, Seattle Metropolitan Chamber of Commerce, and Washington Roundtable reads.

“The fact that state lawmakers are ignoring these realities, dismissing voter concerns about affordability, and disregarding employers’ repeated warnings is alarming,” the statement concludes.

In Seattle,  the city’s budget woes have familiar sources. A city audit revealed nearly 80% of Seattle’s previous $1.7 billion budget increase was due to inflation and soaring wages. New programs accounted for only 19% of the jump with the remaining two percent of spending being powered by one-time revenue injections like federal aid during the pandemic.

Seattle has seen continued cost increases with new agreement on higher wages for its workers and a new deal with 23% raises for its police officers. Officials looked at revenue from the city’s JumpStart tax on its largest employers as a potential source to patch part of the hole.

The volatility of the tax was not unexpected. Harrell’s proposed budget called for JumpStart Payroll Expense Tax revenues of $287 million to be allocated to support the city’s General Fund to pay for core costs including the salaries of city and police employees, leaving a projected $233 million to what the mayor called “Payroll Expense Tax categories” including affordable housing and social services.

The proposal also included $43 million to create a new Payroll Expense Tax reserve “to add fiscal stability to the revenue source.”

The Seattle City Council, trying to fit all the pieces together in the larger budget, sliced that buffer away.

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