For the last several months a discussion has been ongoing in Seattle about how to increase funding for the Office of Labor Standards (OLS). The OLS was established in 2015 to enforce standards related to city ordinances like the minimum wage and paid sick leave.

An April 1 staff memo to the Seattle City Council’s Civil Rights, Utilities, Economic Development, and Arts Committee (CRUEDA) noted that the 2016 city budget included a statement of legislative intent that OLS funding be increased via a “new dedicated source of funding.” Currently the OLS is funded by the General Subfund. 

The City Budget Office estimated that the OLS’ 2017 budget would total $4.8 million (a $2.6 million increase over 2016). The memo suggests three potential revenue sources: an employee hours tax (also known as a head tax), an increase in the Business License Fee, or a business and occupation (B&O) tax rate increase. (Mayor Murray later proposed increasing B&O tax rates and the Business License Fee to pay for hiring new police officers.)

According to the April 1 memo, there are only four other cities with separate labor standards offices (San Francisco, New York, Los Angeles, and Washington, D.C.)—none of which have a dedicated funding source. (The memo was prepared for a May 10 committee meeting.)

Also in April, the SEIU filed an initiative petition with Seattle that would impose a “business license tax certificate surcharge.” This would be a fee of $0.01 per employee hours worked in Seattle. Of the collections from the fee, 40 percent would fund OLS operations, 50 percent would “fund contracts with community-based organizations to perform outreach, education, and compliance assistance to employees,” and 10 percent would “fund contracts to perform outreach and education to Seattle’s businesses about their obligations.”

According to The Stranger, “the unions are still hoping the city council will pass the tax through the legislative process, but they're starting the initiative in case city hall fails to act.”

On April 25, Mayor Murray proposed increasing the OLS budget by $3.6 million in 2017, to bring the total 2017 budget to $5.58 million. According to the Mayor's office, “Murray is proposing to fund the expansion of the Office of Labor Standards within existing resources from the General Fund. The mayor is not suggesting that the Council adopt new taxes or fees to expand OLS activities.” 

On June 14, CRUEDA again discussed this topic. A June 13 staff memo notes that the City Budget Office updated its 2017 estimate for the OLS budget to $5.58 million (presumably based on Murray’s proposal). Still, “Discussions with stakeholders suggests that the outreach and education budget should be larger, resulting in a new estimate of $6.0 million for the 2017 budget.”

Committee Chair Lisa Herbold had requested funding options other than those discussed at the May meeting (since some of them may be used for police hiring). The June 13 memo suggests “a new regulatory fee on businesses . . . . The fee would be levied specifically and solely to cover the cost of implementing the City’s labor statutes and therefore would be sized to recover $6.0 million.” 

It follows the paid sick and safe time (PSST) model in that it separates businesses based on number of employees into three tiers. This

naturally suggests the number of employees as the measure for the fee; that is, the basis upon which the fee would be assessed. Unfortunately, the City does not have accurate, up-to-date data on the number of employees by business within the city. The most recent data available are from 2009, the last year the City imposed an employee-hours tax on local businesses. The analysis below relies on those data. Arguably, since the economy was in a deep recession at that time and employment has grown significantly since then, the numbers used here underestimate current actual employment in the city.

Of the approximately 67,000 businesses in the available data set, around 63,000 have four or fewer employees and so are not part of the PSST target demographic (48,000 have no employees). This leaves just over 5,000 businesses from which to raise the revenue.

Based on head count, the memo provides some examples of how the fee could be assessed (for example, it could be a flat fee per employee, or more could be charged per employee based on the size of the employer).

No decisions were made at this meeting; next steps, according to Chair Herbold, are to figure out ways to get more up-to-date employment data and to circulate the pros and cons of the policy choices presented.

Maud Daudon of the Seattle Metropolitan Chamber of Commerce said in April,

Mayor Ed Murray’s proposal for funding the Office of Labor Standards (OLS) reflects our long-held position that implementing the city’s labor laws—an important function that we support—is a general fund responsibility. This core responsibility does not warrant new taxes on business, nor a dedicated funding source. . . .

With so many new labor laws being implemented over the past few years, outreach to employers needs to be significant. The Chamber will continue to press for allocating 50 percent of the proposed outreach funding for educating employers on Seattle’s labor laws, especially since employers have made 75 percent of the contacts to OLS so far.

A head tax was established in Seattle in 2006 and repealed in 2009. As Jan Teague of the Washington Retail Association wrote in May, a head tax

penalizes businesses for hiring people. It discourages Seattle businesses from remaining in the city and intimidates others looking to move in. Any idea that discourages hiring threatens the economy and vitality of the region.