Seattle faces budget challenges amid declining payroll tax revenues from tech sector

During a recent meeting of the Finance, Native Communities, and Tribal Governments Committee in Seattle, significant concerns were raised regarding the city's financial outlook, particularly the structural budget challenges facing the general fund. The discussion highlighted the limitations of property tax revenues, which have been capped by state law since 2001, restricting growth to just 1% plus the value of new construction. This growth rate has not kept pace with rising costs, particularly for essential services like police and fire departments, which consume about half of the general fund.

City officials expressed concern that the current funding model is unsustainable, especially as the city anticipates a deficit beginning in 2027. The reliance on one-time federal support during the COVID-19 pandemic and the depletion of uncommitted resources from the payroll expense tax (PET) have temporarily masked these issues. However, as these funds are exhausted, the city will face difficult decisions regarding service levels and budget cuts.

The committee also discussed the recent decline in payroll expense tax revenues, which are projected to fall by over $200 million in 2025 and 2026. This decline is attributed primarily to the performance of large tech companies, which have seen a drop in stock values affecting their payrolls, and a reduction in the number of tech employees in Seattle as companies shift operations to other areas like Bellevue.

As the city grapples with these financial challenges, officials emphasized the need for new revenue sources and careful consideration of budgetary decisions. The discussions underscored the importance of addressing these structural issues to maintain essential services and support the community effectively. The committee's deliberations will play a crucial role in shaping Seattle's financial strategy moving forward, as they seek to balance fiscal responsibility with the needs of residents.