To business tax or not to business tax, that is the question.
To business tax or not to business tax, that is the question. Timothy Kenney

This week on my new favorite TV show, "The Seattle City Council Budget Committee Hears About the Amazon Tax," the plot got more complex.


Councilmembers Tammy Morales and Kshama Sawant have sponsored a three-bill package to create a business payroll pax, otherwise known as the Amazon Tax. On Wednesday, the council heard the last two bills of the package—the payroll expense tax itself and how it will be financed through 2020 by way of interfund loans. They covered the spending plan last week.

There were some moments of comedic relief like when Councilmember Debora Juarez had her mic on twice, one time while she was telling someone about the person presenting to the council. The biggest drama was the council central staffer with the world's worst internet connection. He had to do his entire presentation twice. If that doesn't inspire an elected official to take up the mantle of municipal broadband I don't know what will.

Mostly, though, the committee meeting was a dense discussion on tax policy and interfund loans. What the heck does that mean? Great question. Good thing watching council committee meetings is basically like auditing a college class from hell.

The tax itself will put a 1.3 percent tax on payrolls of Seattle businesses that spent $7 million or more on payroll in the prior year. The money is intended to help struggling populations in 2020 with emergency cash assistance and then, after 2020, will pay for affordable housing and green infrastructure. Because of the immediate need, the bill includes an emergency clause that would put it into action immediately after being voted upon. Businesses won't owe tax until February of 2022 but will be responsible for back taxes from 2020 and 2021.

In that interim period when the council is giving out cash and the tax isn't even in effect, the plan is to borrow city funds as interfund loans. According to Dan Eder, the assistant director of council central staff, this "has been a routine practice of the city to borrow between funds." The 2015 seawall replacement, for instance, used $85 million in interfund loans.

The payroll tax would need $200 million in interfund loans. It would use money from six funds that have cash reserves that aren't expected to be used by the end of 2020: Low Income Housing Fund; Move Seattle Levy Fund; Families, Education, Preschool and Promise Fund; 2019 Library Levy Fund; Housing Incentive Fund; and the Metropolitan Parks District. These were all voter-approved levies. The payroll tax would borrow up to $50 million from each.

Once the tax kicks off in 2022, that money will be paid back.

However, there's a possibility that the city will need to tap these funds to fill the up to $300 million budget shortfalls the city is facing because of the city's reliance on sales tax and B&O taxes, both of which have been compromised by the pandemic. The interfund money is relatively secure since it's born out of property taxes which are stable right now, Eder said.

"You have policy choices about what you want to do with the anticipated revenue that will be in the city’s consolidated cash pool at the end of 2020," Eder said. Essentially, the council could decide whether this money goes to the payroll tax or plugging budget holes.

That struck a chord with Councilmember Andrew Lewis who has been the only first-year council member to raise his voice in either of these meetings (other than Morales, also a first-year council member and one of the bill's sponsors).

"Making sure we don’t set up a massive time bomb on the general fund is going to be a priority for me," Lewis said.

Another speed bump that got some attention in the meeting was the emergency clause. Its inclusion—which is important because otherwise the bills wouldn't be enacted until at least November and more likely not until 2021, Sawant pointed out—means that seven out of nine council members will have to vote to approve the bills and Mayor Jenny Durkan has to sign it. The clause also protects the legislation from a referendum.

"It is not some technicality," Sawant said, "It is because people are in an emergency."

Typically, central staffer Tom Mikesell explained, only five council members have to vote to approve something for it to pass. Then it goes to the "mayor for either signature or to let it go into action without further action of the mayor," the latter is what happened with Sawant's winter eviction moratorium that passed back in February.

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"There’s not a situation where the council would approve this and the mayor could not act," Mikesell said. This is tricky since Mayor Jenny Durkan has rebuked the payroll tax. And, there's almost certainly already a no vote on the council from Alex Pedersen, who wrote an anti-payroll tax op-ed in the Seattle Times.

If the bill gets vetoed by Durkan it could be resubmitted but the emergency clause would have to be left out, Eder said.

Since the first committee meeting, there has been growing opposition to the bill reminiscent of the 2018 head tax. The business community has sent a letter to the council and has an online petition with nearly 12,000 signatures. The pro-side is equally as fervent. The next meeting on May 13 should be heated.