Seattle City Councilmembers Sawant and Morales have introduced three bills related to their effort to impose a new payroll tax in the city.

First, CB 119772 would impose a 1.3 percent tax on the payroll expense of every person engaging in business in Seattle with an annual payroll of more than $7 million. Grocery businesses; nonprofits; pension trusts; certain insurance businesses; businesses that only sell, manufacture, or distribute motor vehicle fuel; businesses that only sell or distribute liquor; and governmental agencies would be exempt. According to the Council, 800 businesses would be subject to the tax.

Payroll expense is defined in the bill as being the compensation paid to employees primarily assigned in Seattle, employees not primarily assigned to any place of business and who perform at least 50 percent of their work in Seattle, and employees not primarily assigned to any place of business and who do not perform at least 50 percent of their work in any one city and who live in Seattle. Employees include sole proprietors, members of limited liability companies, and independent contractors.

The tax would take effect on June 1, 2020. The fiscal note estimates that this tax would increase city revenues by about $500 million a year. The payments for 2020 (estimated to be $286.4 million) would be due with the final payment for 2021, so the bill would increase 2021 revenues by $786.4 million.

Second, CB 119773 would authorize the Director of Finance to make $200 million in interfund loans to the general fund in 2020, “to pay for the immediate needs resulting from the COVID-19 civil emergency.” The Director of Finance would be authorized to determine the specific amounts from each fund, up to:

• $60 million from the Low Income Housing Fund,
• $50 million from the Housing Incentive Fund,
• $50 million from the Families Education and Preschool Promise Levy Fund,
• $50 million from the Move Seattle Levy Fund,
• $50 million from the Seattle Park District Fund, and
• $50 million from the 2019 Library Levy Fund.

The loans would have to be repaid by Dec. 31, 2021 using revenues from the proposed payroll tax.

Third, CB 119774 spells out how the city would use revenues from the payroll tax. In 2020, the loans would fund “cash assistance to low-income households impacted by COVID-19.” Up to 100,000 households would get four monthly payments of $500. In 2021:

• Up to 5 percent of the revenues would be used for administration and implementation costs.
• $205 million would be used to repay the interfund loans.
• After administrative costs and repaying the loans, 75 percent of remaining funds would be used for affordable housing and 25 percent would be used for “Green New Deal housing related strategies.”

Here’s the proposed five-year spending plan. It proposes that in 2021, $414 million would be spend on rental housing production and $138 million would be spent on “Green New Deal” activities (e.g., transitioning from natural gas to electricity).

The three bills include emergency clauses, so they would need to be approved by a three-fourths vote of the Council. Additionally, as Kevin Schofield of Seattle City Council Insight notes, this means they would not be subject to referendum.

Schofield also has an interesting discussion here about whether the Council can consider this bill right now under the terms of Gov. Inslee’s emergency proclamation that suspended parts of the Open Public Meetings Act and about whether some of the loans can legally be made, given that they include voter-approved levy funds.

The Seattle Times reports on another potential issue with the interfund loan proposal:

“We’ve never done an interfund loan at the scale suggested by the council members,” [Mayor Durkan spokeswoman Kelsey] Nyland said. “The city only issues interfund loans when we have strong confidence in the source that will be used to repay the loan. In addition to potential legal challenges or ballot measures, the city anticipates declines in all of our economically dependent revenues, including sales tax, business and occupation tax and utility taxes.”