Seattle's Head Tax - an alternate proposal

Last night’s Head Tax Hootenanny in Ballard was absurdist theater. Both sides - the Council members who want to suck money from city businesses per-employee and the community mob that screams homeless camps = crime = property value loss - knew the the outcome going in, and played to the audience that wasn’t in the room. They postured. They flounced. They yelled past each other.

Seattle is better than this.

Tacoma Narrows: representation of folks passing each other.

Lets’s start with a couple facts. First both sides are correct. The Council is correct that the City needs to raise funds to assist the homeless. They are constrained by the limits to municipal authority and are trying to use whatever is available to find this revenue. We have businesses with employees. The growth of these employee numbers has led to our affordability issues. Let’s count the employees and charge the businesses. Standard operating procedure.

The opposition is correct that there is no plan on what to do with this money. It is a lot to ask the engines of our economy to swallow an annual bill for $75 million dollars when there is little effort to show where that money is going to go. Additionally, it’s pretty evident that the money spent to date has not been particularly effective. There is a general idea that head tax money will be split between building affordable houses and homeless services, but no real tags (or specifics in the legislation) put on those numbers. It sounds like the Council just wants another piggy bank at the expense of successful local businesses.

But they are both wrong. They’re both using tactics, playing games, and misrepresenting the other. Vocal opponents have found traction with one issue to pile on a list of grievances. Council members are entrenched and fending off questions to both the issues and their own dignity.

Seattle is better than this. Perhaps we can come up with a better plan too.

We can see common sense. Somewhere.

While this is a fertile ground for talking past one another, anyone from outside the fortified positions can also see it’s also a solid place to start building an alternative recommendation. What can we organize that will 1) raise money, 2) support businesses, and 3) provide accountability that the money is going to improve affordability?

Before we get rolling, I’m going to throw one wrench into the “raise money” issue. Annual taxes are the wrong source of money to build capital projects. Very few people buy a house with cash. They are big ticket items you use - functional investments - so we employ financial mechanisms to spread out that cost over time while living in the house. Annual taxes are cash for a city, money we should not be shoveling into capital investments like construction. We should be smart in using our very affordable bonding authority to make capital investments.

That opens up an idea. An annual head tax is a shot in the arm for City revenues and a drain on company’s resources. It is short term adrenaline for the City: it will boost energy today at the expense of a deep hangover tomorrow. But if we work with the financial sector and the businesses we need to survive, Seattle has an opportunity to show that its vision is longer than simply the next budget.

Seattle should endow its future with a structure that builds affordable housing and the infrastructure to support it. We can establish a perpetual way to fund projects that make Seattle a more affordable place for years to come. We can show businesses that their continued success is a cornerstone. We can show that the money is going for the purposes its intended. We can literally call it the SAFE - Seattle’s Affordable Future Endowment.

Let’s start with the City Council’s idea - the head tax. Let’s move back from dragging this money out of a business every year. Instead, let’s take the annual tax value - 5 cents per hour worked in the City - and turn it into a deposit. Instead of going into the City’s coffers, companies put this money into a SAFE account. Each business could have three years to get their accounts up to capacity, but once they’re full, no more need to pay into the account.

Elementary school lost and found: representation of exponential growth.

The money belongs to the business and can still be recognized as an asset. The interest comes to the public purpose. Lawyers do it all the time. It’s called IOLTA - money lawyers hold in trust must be deposited and the interest funds legal aid bureaus across the country. Perpetual insurance companies also are established on this principle. They’re the insurers that tend to not go bankrupt.

There is a bonus here. In establishing an endowment like SAFE, the City recognizes that each employer is an asset to the community and not just a pump for more tax revenue. The City has an investment in keep these businesses rolling. A business closing or moving away means three more years to get the new business account up to capacity.

Now, this is not going to raise the $75 million in revenue that the Council has penciled in. This is a good thing because it allows the City time to actually form a functional plan on how to deal with the homeless issues. The proposed 1700 units over 5 years is nothing in a metro area that’s talking about adding 50,000 units over that same time. Another benefit of an endowment is that it will act as a trustee for the money collected and expended. The legal requirements for trusteeship are much higher than the Council’s ability to expend money willy nilly.

But even at capacity and a well managed interest rate, the SAFE interest will be a fraction of what the annual tax would have been. Some of this can be made up by expanding the number of businesses that must contribute or offering SAFE accounts to the general public. If organized properly, there may be tax benefits for regular folk putting a couple of dollars into the SAFE. Additionally, there are things that screw with affordability in this city, such as short-term rentals and parking spaces. Fees on those activities can be put into the SAFE.

Of course, if the City wants the endowment to grow faster, it can put skin in the game. Start with assets that the City has. SAFE can be used to receive revenue from leases and sales of City properties. SAFE could also be the recipient of developer contributions established under HALA or development fees in upzone areas. And when SAFE money is used to develop a property with affordable housing, rent and revenue from that development can come back into the endowment to seed affordable developments into the future.

And that is where we start to engage the true wheels of finance. In addition to just building housing, the SAFE can look towards other infrastructure that improves affordability in the City. Development around transit stations, investments in new facilities, growth of transportation options can all be planned and financed through the SAFE, with funds returning to the endowment. The SAFE can be the dynamo that stores energy from this quickly moving, growing, and evolving economy.

As written, Seattle’s head tax is a brake on that economy. It will slow business expansions and inhibit new companies from joining our City. Instead, let’s turn this into an opportunity. We’ve seen a lot of sniping from opposing positions in this issue. Seattle is better than this. We’re more creative, innovative, and progressive than any part of this debate so far. Let’s start using the City’s energy in ways that build more energy.