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Seattle, Everett starting to talk about cuts as cities see revenues collapse

Later today, the Seattle City Council Budget Committee will hear a staff presentation laying out three possible revenue scenarios as a result of COVID and its impact on the economy.

In the “Baseline” scenario, which staff suggests has a likelihood of 45%, the prediction suggests that consumer spending will drop a mere 5.5% in 2020 nationwide and that the unemployment rate will peak at 10.3% in the fourth quarter.

In the “Pessimistic” version, staff predicts a national GDP contraction of 14.9%, an unemployment ceiling of 22.3% in Q3, and a hit to consumer spending of 17.1%.

The presentation suggests a 35% chance of the “Pessimistic” scenario coming to pass. The “Optimistic” version only has a 20% likelihood of coming to pass.

The difference in the staff confidence level between the “Baseline” and the “Pessimistic” – from 45% to 35% – is not much. Moreover, compared to other data points in the economy, the “Baseline” level seems pretty optimistic.

Revenue lags from sales and B&O tax can take a few months. So, these predictions will be refined as more data comes in.

They are based in signficant part on the question of whether the economic slow down is long or short, deep or shallow.

Staff prepared predictions for some of these variables.

From the City of Seattle Budget Commitee staff presentation
From the City of Seattle Budget Committee staff presentation

Seattle is ahead of the curve in preparing for an inevitable shortfall in tax receipts among cities.

Everett is working on this challenge, too.

At an Everett City Council meeting set for 12:30 today, staff will bring forward an amendment to begin to trim the 2020 and 2021 budgets as a result of COVID-19.

In what the staff is calling a “COVID-19 response budget action plan,” the amendment proposes cuts of about $2.5m on an overall annual budget spend of $430.4m, or about 1/2 of a percent.

The cuts are a first step in anticipation of a second round of cuts in May when a clearer picture will emerge of tax receipts.

From the staff memo to the City Council packet (pg 10).

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