Regional Economy and General Fund Revenue Overview

Economics & Revenue Team, City Budget Office

U.S. and Regional Economy

April 30, 2018Regional Economy and General Fund Revenue Overview2

National expansion is in 9th year • Soon will be 2nd longest post - WW II

Changes since last forecast• Tax cuts and bipartisan budget agreement

Stronger growth in 2018 & 2019

Risk that economy overheats, leading to Fed rate hikes

• Trade war?

Puget Sound economy• Growth picked up in 2017 Q4

Construction

Regional Economy

April 30, 2018Regional Economy and General Fund Revenue Overview3

0%

2%

4%

6%

8%

10%

12%

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

2016

Q2

2016

Q3

2016

Q4

2017

Q1

2017

Q2

2017

Q3

2017

Q4

Combined Retail Sales and B&O Tax BaseYear-Over-Year Growth Rate

Regional Economy

April 30, 2018Regional Economy and General Fund Revenue Overview4

0

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

1,600,000,000

1,800,000,00020

00 Q

1

2001

Q1

2002

Q1

2003

Q1

2004

Q1

2005

Q1

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2010

Q1

2011

Q1

2012

Q1

2013

Q1

2014

Q1

2015

Q1

2016

Q1

2017

Q1

2018

Q1

Value of Building Permits Issued, Seattle

Regional Economy: Forecast

April 30, 2018Regional Economy and General Fund Revenue Overview5

Latest regional forecast is stronger • Reasons include:

Stronger U.S. forecast in 2018, 19

Region ended 2017 strong

• Yields higher revenue forecast

Regional economy is expected to slow • Forecast assumptions:

U. S. economy slows in 2020

Amazon’s growth will slow

Modest construction downturn begins in 2019

Regional Economy: Forecast

April 30, 2018Regional Economy and General Fund Revenue Overview6

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

F

2019

F

2020

F

Annual Growth of Seattle Metro Area* Employment

*King and Snohomish Counties. Source: Seattle CBO.

Sales and B&O Tax Forecast

April 30, 2018Regional Economy and General Fund Revenue Overview7

0%

2%

4%

6%

8%

10%

12%

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

2016

Q2

2016

Q3

2016

Q4

2017

Q1

2017

Q2

2017

Q3

2017

Q4

2018

Q1

2018

Q2

2018

Q3

2018

Q4

2019

Q1

2019

Q2

2019

Q3

2019

Q4

Combined Retail Sales and B&O Tax BaseYear-over-Year Growth Rate

Tax Base

SeattleCPI

Revenue Analysis

April 30, 2018Regional Economy and General Fund Revenue Overview8

Property Taxes, $295 , 24%

Business Taxes, $264 , 22%

Sales Taxes, $253 , 21%

Utility Taxes, $214 , 17%

Other General Subfund Revenues,

$194 , 16%

2017 General Subfund Revenues $1.219 Billion

Revenue Analysis

April 30, 2018Regional Economy and General Fund Revenue Overview9

34% 47%

100%

46%

35%

66% 53%

54%

65%

$-

$50

$100

$150

$200

$250

$300

$350

Property Taxes Retail Sales Taxes Business Taxes andLicenses

Utility Taxes Other Taxes

Mill

ions

General Fund Taxes by Payer - 2017

Business Share Non-business Share

Revenue Analysis

April 30, 2018Regional Economy and General Fund Revenue Overview10

$684 $696 $724 $749 $767 $811 $840 $880 $926 $973 $1,012 $1,054

$44 $35 $38 $48 $52$62

$77$87

$93$96

$92$88

$6 $6

$7$14

$33 $32 $32

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Mill

ions

General Subfund Tax Revenue during Expansion

Base Taxes Sales/B&O Construction Tax Policy Changes

Tax Policy Changes:Water Tax rates 2009-2010Tonnage Taxes 2016 Solid Waste Tax rates 2017 B&O Tax rates 2017 & 2018 Sweetened Beverage Tax 2018

Forecast Update

April 30, 2018Regional Economy and General Fund Revenue Overview11

$1,198

$1,269

$13 $8

$10

$1,312

$1,376

$1,000

$1,050

$1,100

$1,150

$1,200

$1,250

$1,300

$1,350

2017 2018 2019 2020

Mill

ions

April Forecast General Subfund Revenues

November Pass-through April Update

Forecast Update

April 30, 2018Regional Economy and General Fund Revenue Overview12

2019 2020GSF - Item Actuals Chg from Nov Revised Chg from Nov Forecast ForecastProperty Taxes 294,731,000 1,030,000 310,600,000 (219,000) 318,181,000 352,587,000 Sales Taxes 253,035,800 3,545,000 269,944,000 10,163,000 277,864,000 285,006,000 Business Taxes 264,183,000 3,704,000 296,582,000 3,294,000 308,527,000 319,360,000 Public Utility Taxes 153,780,000 1,977,000 158,233,000 805,000 165,755,000 176,074,000 Private Utility Taxes 59,994,000 (1,380,000) 60,499,000 (1,963,000) 59,741,000 59,140,000 Business License Fees 14,801,000 - 16,624,000 1,180,000 17,439,000 17,857,000 Court Fines 26,258,000 380,000 25,948,000 (1,937,000) 25,830,000 25,759,000 Parking Meters 38,223,000 (938,000) 38,203,000 (2,209,000) 37,345,000 37,462,000 Other General Subfund Revenues 114,266,000 11,871,000 101,897,000 393,000 101,301,000 102,893,000

General Subfund - Grand Total 1,219,271,000 21,240,000 1,278,530,000 9,506,000 1,311,982,000 1,376,138,000

2017 2018

Individual Revenue Changes,from Adopted November 2018 forecast

April 30, 2018Regional Economy and General Fund Revenue Overview13

1) Property Taxes New construction remains strong through forecast period Assumes 2019 Medic 1/EMS levy renewal at $0.30/$1,000 AV

2) Retail Sales and Business & Occupation Taxes Revenue exceeded forecast in 2017

Stronger economy, especially construction Sales tax by $3.3 million B&O tax by $2.5 million

Forecasts for 2018-2020 have increased Stronger 2017 revenue Stronger economic forecast in 2018 and 2019 Construction rebound

Individual Revenue Changes,from Adopted November 2018 forecast

April 30, 2018Regional Economy and General Fund Revenue Overview14

3) Utility tax revenue slightly exceeded forecast in 2017 Public utility taxes were $2.0 million over Private utility taxes were $1.4 million under

4) Court Fines forecast correction to reflect actual citations

5) On-street parking space reductions driving lower revenue

Forecast Update

April 30, 2018Regional Economy and General Fund Revenue Overview15

$74 $77

$3 $4

$83 $86

$-

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

2017 2018 2019 2020

Mill

ions

Real Estate Excise Tax

November April Update

Implications for the 2019 – 2020 Biennial Budget

Ben Noble, City Budget Office

Sustainable Budget?

April 30, 2018Regional Economy and General Fund Revenue Overview17

Growth is Forecast to Slow

April 30, 2018Regional Economy and General Fund Revenue Overview18

0%

2%

4%

6%

8%

10%

12%

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

2016

Q2

2016

Q3

2016

Q4

2017

Q1

2017

Q2

2017

Q3

2017

Q4

2018

Q1

2018

Q2

2018

Q3

2018

Q4

2019

Q1

2019

Q2

2019

Q3

2019

Q4

Combined Retail Sales and B&O Tax BaseYear-over-Year Growth Rate

Tax Base

SeattleCPI

Construction Dependence is a Financial Risk for the General Fund

April 30, 2018Regional Economy and General Fund Revenue Overview19

-

20

40

60

80

100

120

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Mill

ions

Tax Revenues from Construction

Sales Taxes B&O Taxes Property Tax

General Fund Forecast

April 30, 2018Regional Economy and General Fund Revenue Overview20

2016 Actuals g 2017 Revised 2018 Projected 2019 Projected 2020 ProjectedBeginning Fund Balance $61,568,000 $64,332,000 $37,232,000 $22,176,000 ($28,534,000)Revenues/Resources $1,179,188,000 $1,221,271,000 $1,288,772,000 $1,312,013,000 $1,375,501,000Expenditures* ($1,164,285,000) ($1,231,510,000) ($1,264,419,000) ($1,299,719,000) ($1,333,141,000)Reserves ($12,139,000) ($16,861,000) ($29,409,000) ($53,004,000) ($57,358,000)Judgment & Claims - unbudgeted expenses ($10,000,000) ($10,000,000) ($10,000,000)Ending Fund Balance $64,332,000 $37,232,000 $22,176,000 ($28,534,000) ($53,532,000)* Assumes a $10M underspend in 2018

Preliminary Financial Update for the General Fund - April, 2018

General Fund Pressures

April 30, 2018Regional Economy and General Fund Revenue Overview21

Additional Financial Pressures and City Funding Priorities• Homelessness - one-time 2018 funding and additional

spending for 2019 and beyond

• Safe consumption site

• Domestic worker bill of rights - enforcement will have both one-time and on-going costs

• Immigrant and Refugee Legal Defense Fund

• Office of Labor Standards

• Implementation of new accounting system

• Technology system replacements/upgrades