Breakdown: Seattle City Council's 'Head Tax' Amendments

The council is debating amendments that could significantly change the legislation
 
 

The legislation itself is in two parts: an ordinance implementing the tax, and a separate resolution setting direction for the spending plan and requiring a detailed implementation plan by December 2018.  Each has proposed amendments in the queue.

First, the tax ordinance. So far, six amendments have been posted (amendment numbers are not sequential, suggesting others are still in the works or have been abandoned):

Amendment 1, offered by Herbold, does several things:

  • it removes the payroll tax that under the current bill would replace the employee-hours tax in 2021. So the EHT would continue on.
  • however, starting in 2024 it reduces the tax rate from $500 per full-time-employee annually to $180. It’s claimed that this would cover the long-term commitments in the spending plan: debt service on the 20 year bonds, operations and maintenance costs for new permanent supportive housing units to be built, and rental subsidies, but would eliminate funding for other programs in the original spending plan. This is, in effect, as close to a “sunset clause” as they can get for the tax while still allowing for the spending plan to leverage the city’s bonding authority and invest in much-needed long-term programs — though it could have gone further and included a full sunset at the conclusion of the 20 years of debt service for the bonds issued.
  • it anticipates that in 2023 the Council will conduct a thorough evaluation of the impacts of the head tax in order to determine what the tax rate should be in 2024 and beyond.

Amendment 2, offered by Bagshaw, allows companies to switch back and forth between methods for calculating the employee-hours tax; the current bill allows for switching only once. The previous head tax allowed for multiple switches.

Amendment 5a, also offered by Bagshaw, provides exemptions to the head tax for:

  • hospitals, as defined in state law;
  • healthcare organizations that provide at least 25% of their services to clients covered by Medicare and Medicaid, as measured by the charges for those services. (call this the “Polyclinic Exemption”)

Amendment 6, also by Bagshaw, exempts from the head tax non-profit organizations that are exempted from having to register as a 501(c)(3). The current bill only exempts those that are actually registered as 501(c)(3)  nonprofits.

Amendment 8, offered by Sawant, clarifies that if the payroll tax isn’t ready to roll out in January 2021 as originally anticipated, the employee-hours tax will continue to be imposed until it is. This is, of course, moot if Herbold’s Amendment 1 is adopted.

Amendment 9, also offered by Sawant, doubles the tax rates: it changes the employee-hours tax from $500 per employee per year to $1000, and the payroll tax rate from 0.7% to 1.4%. That would raise the total annual revenues to $150 million, which was the recommendation from the Progressive Revenue Task Force.

The spending plan resolution has one omnibus “substitute version” amendment that contains several changes and additions:

  • it removes the explicit guidance that 75 percent of the money should be spent on affordable housing and 20% on emergency homelessness response. This would allow for a greater share to be spent on emergency homeless response in the first few years while new housing is being built;
  • it requires the implementation plan (due in December) to include the formation of an oversight committee to oversee expenditures and evaluate the performance of programs and services. The executive branch must provide multiple options for how that oversight committee might be formed, and one of those options must be a committee to oversee all of the Human Services Department’s homelessness investments;
  • The Office of Civil Rights will complete a racial equity analysis of the implementation plan before it is submitted to the Council in December;
  • Capital projects must use community workforce agreements, and offer standard wages and bona fide benefits. They must also use an apprenticeship utilization of no less than 15 percent per contract and no less than 20% per craft. Capital projects over $1 million must adhere to the city’s Priority Hire rules;
  • The city must explore ways to increase the number of affordable housing units for people making less than 30% of Annual Mean Income (AMI). It should look at whether making free or reduced-cost land available for such projects would help to increase the number of units built;
  • The city will explore the means by which homeless people will get access to new affordable housing units (presumably so they don’t all fill up before the city has a chance to exit people from homelessness into housing);
  • The annual report (already a requirement in the current bill) will also include labor statistics and data on other state and local funding sources leveraged to extend the impact of the head tax;
  •  The city will hire an independent economist to analyze and report on the impacts of the head tax;
  • the city will ask the State Legislature to increase the funds in the State Housing Trust Fund.

A separate amendment, offered by Sawant, would call out explicitly that none of the head tax revenues shall be spent to fund removals of unsanctioned encampments (aka “sweeps”).

These amendments hit on most of the issues raised on Wednesday that appeared to be essential to building broader support for the tax with the Mayor and at least some of the fence-sitting Council members. However, given that at least two Council members (Juarez and Harrell) are concerned that $500 per employee is too high, it’s interesting that there isn’t an amendment (yet) to lower that figure. The Seattle Times is reporting this evening that Durkan has floated her own proposal at $250 per employee, and that Harrell, Juarez, Bagshaw and Johnson support it.

Two of Sawant’s three amendments are likely non-starters, intended to score political points with her base and as fodder for finger-wagging at her colleagues: doubling the tax, and prohibiting funds from being spent on removing unsanctioned encampments.

Herbold’s Amendment 1 is interesting in that it combines two ideas that could easily be separated: dumping the payroll tax, and adding a sunset provision. The latter probably has wide support; the former may not, as the feedback from the business community has been split on the issue (and both tax options generate the same revenue).

It will also be interesting to see how the Council responds to the idea of removing the 75%/20% guidance in the spending plan. Prioritizing new housing has been a big selling point for the tax, and there may be nervousness among the Council members to giving the executive branch too much flexibility — especially since the implementation plan is due after the 2019 budget is completed in November. Confidence in the Human Services Department is not high within the Council right now — thus the insistence on the oversight committee — and it would be strange if it were to issue HSD a blank check.

If the Council gets through all of these amendments tomorrow (and any additional last-minute ones), it will vote the two bills out of committee with a recommendation for the full Council to approve them. That final vote could come as soon as Monday, but it would require the Council to suspend two of its rules:

  • Only bills passed out of committee by noon on Thursday are permitted to come up for final vote the following Monday; otherwise they need to wait an additional week.
  • Bills passed out of committee with a divided vote (i.e. not unanimous) are required to wait an additional week before they can be brought up for final vote.

Both of these rules are intended to ensure that all of the Council members — particularly those who did not participate in the committee deliberations and vote — have ample opportunity to read the legislation, discuss it with colleagues, and consider the issues. But in this case, all nine Council members have been involved at the committee level, and the vote to pass it out of committee tomorrow will almost certainly be identical to the final vote in the Full Council meeting; delaying it a week accomplishes little. The final vote is more likely to get delayed if some Council members want to continue working on additional amendments and can’t finish that work by Monday, or if the Council believes that Mayor Durkan will veto the bill and it doesn’t have a veto-proof majority. And we will need to wait until tomorrow to see how those issues play out.

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