Six Things to Consider About the Head Tax

by Erica Barnett

Weeks of tense negotiations, heated yelling sessions, and a high-stakes game of chicken between Seattle’s biggest employer and the city council culminated on Monday afternoon in a unanimous council vote to approve a $275-per-employee “head tax.” But what does the vote mean? Is Amazon’s threat to abandon the city off the table? And where does Seattle go from here? 

We have put together a handy primer to answer these and other pressing questions about this latest effort to address the growing homelessness crisis in Seattle.

  1. The $275-per-head tax the council passed Monday was not the tax a majority of the council wanted. Last Friday, in fact, the council’s finance and neighborhoods committee (made up of all nine council members on this occasion) approved a much larger $500 per employee tax that would have raised around $75 million a year. That vote, however, was too narrow (at 5-4) to withstand a likely veto by Mayor Jenny Durkan, who had proposed a $250 version of the tax as a counterproposal last week. The “compromise” most council members agreed to over the weekend raised the total size of the tax by just $25 per employee, enough for Durkan to cheerfully declare victory on Monday evening and for council members who wanted a larger tax, such as council member Mike O’Brien, to say that they had done everything they could. 
  2. The original $500 tax proposal did not come out of nowhere. It was recommended by the city’s Progressive Revenue Task Force, a team that was established after a group of city council members failed to pass a smaller, but similar, business tax during the council’s 2017 budget process. The task force was charged with proposing a tax that would produce between $25 million and $75 million in revenues. They ended up recommending a $500-per-employee tax on businesses with more than $20 million in gross revenues after considering, and rejecting, lower tax levels that would apply to a larger number of businesses. By targeting businesses at the very top of the city’s revenue scale, the task force was attempting to respond to objections by smaller businesses, ones with more than $5 million but less than $20 million in gross revenues that operate on narrow profit margins and should not really count as “big businesses.” The more businesses the task force exempted from the tax, though, the larger the tax had to be to yield the same revenues, which is how the task force arrived at the $500 figure.
  3. The head tax is not enough to address the problem. The tax, which sunsets after five years, would raise about $47 million a year for new housing, rental subsidies, and supportive services. Under the spending plan adopted by the city council, that amount would be enough to build approximately 591 units of housing—288 for low-income people making between 30 and 60 percent of Seattle’s area median income and 303 permanent supportive housing units for formerly homeless people making between 0 and 30 percent of the median. The plan also includes rental subsidies to move homeless people into “immediate housing,” funding for about 250 new shelter beds and authorized encampments, and additional money for safer parking lots and sanitation stations.

Obviously, a few hundred additional housing units is far from enough to house the more than 8,500 people who were homeless in Seattle at the beginning of 2017, according to All Home’s most recent homeless census. In fact, it is significantly inadequate, since that number has likely only increased over the past year.

The county needs an additional 14,000 units of affordable housing just to address the current needs of people experiencing homelessness in King County, according to a report from the consulting firm McKinsey & Co. Building that much housing and addressing the other needs of King County’s homeless population would cost the public and private sectors $410 million a year, the independent report concluded, and that is only if the annual rate of people falling into homelessness does not increase. King County would need to spend between $164 million and $215 million a year to pay its “share” of that $410 million total.

Michael Maddux, a staffer for council member Teresa Mosqueda’s office, crunched the numbers in the report and determined that Seattle’s “share” of that countywide total would be somewhere between $59 million and $79 million per year. The $47 million in annual spending that the $275 head tax should provide falls short of the bottom end of that range.

  1. The tax that passed Monday is just the beginning of the story. Although on Monday the national news crews packed up their cameras and left before the city council could begin discussing how to spend the new revenues, the spending plan is in many ways more critical than the size of the tax. The plan Durkan proposed for her $250 tax would have focused the vast majority of its spending on emergency shelter, encampment removal, and other stopgap solutions, rather than housing. It would have built just 250 units of new affordable housing over five years.

The council approved a resolution recommending a spending plan that took the opposite approach, emphasizing housing over temporary shelter. However, the real debate will come later this year when Durkan proposes an implementation plan for the tax as part of the city’s annual budget process. (The spending plan adopted this week sets the council’s priorities, but is itself a nonbinding resolution.) The implementation of that plan and the unwinding of the budget process will give proponents of the Durkan spending model another opportunity to recalibrate the spending balance in the tax proposal.

Interestingly, one group has already recommended the city do the exact opposite of what Durkan proposed in her original spending plan. The city’s adopted Pathways Home plan directs the city to focus its homeless service spending on programs that get people off the streets and into “permanent housing” as quickly as possible. Last year, the city adopted a spending plan for homeless service providers that eliminated funding for a large number of basic shelter beds, on the grounds that those shelter providers failed to demonstrate they could move their clients into permanent housing quickly. Pathways Home is controversial, in part, because it penalizes nonprofits that serve the hardest to house. However, the “housing first” principles underlying it are in line with the McKinsey report that suggests a lack of housing is the fundamental problem underlying Seattle’s homelessness crisis.

  1. Seattle has continued to insist that it will not continue to “go it alone” on funding for homelessness, but King County has yet to step up and propose its own tax plan to supplement Seattle’s. Although Mayor Durkan announced Monday that King County will provide $5.7 million in one-time funding to help keep shelters and authorized encampments open in 2018, the county has been noticeably quiet about what it will do to fund housing and services on an ongoing basis. “One Table,” a regional task force consisting of elected officials, advocates, and business leaders from across King County, began meeting in January. So far, they have announced that Pearl Jam will hold two concerts in Seattle to raise at least $1 million for homelessness. They have not said much else. The group’s last two public meetings were canceled with minimal public notice, and the closest they have gotten to a set of recommendations is a nine-page document, released quietly last month, that includes no cost estimates, no funding proposals, and no timeline for implementing any of the ideas on the list. That document no longer appears to be available on King County’s website.
  2. Finally, the passage of the head tax is unlikely to end the vitriol that has accompanied the debate over addressing homelessness that has plagued the past few months. Such acrimony was exemplified by a recent town hall meeting at a church in Ballard where homeowners shouted down a panel of elected leaders and progressive revenue task force members with bellows of “BULLSHIT!” “FUCK YOU!” and “RESIGN NOW!”

The problem with any municipal spending plan that fails to house enough people to make an appreciable dent in the homelessness crisis is that it opens the city to the predictable objection that “no matter how much money we give them, the problem keeps getting worse.” And the problem with any spending plan that takes large enough numbers of people off the streets and stuffs them into new shelters and “tiny house” camps is that those shelters become ways of warehousing people indefinitely.

Meanwhile, the problem with spending the amount experts consider “enough” is that it tends to inspire fierce pushback from the business community. (We may need $69 million from Seattle and $120 million from the rest of the county.) Amazon threatened to stop construction on one of its downtown projects over the original $75 million head tax proposal and said on Monday that the adopted $47 million tax “causes us to question our growth here” in Seattle. That kind of talk tends to send those who have benefited from the recent Amazon-fueled boom, such as homeowners who have seen the value of their properties skyrocket to an average of $820,000 over the last few years, into a tizzy. Amazon may not leave Seattle or even slow its growth here. The company’s latest statement was “passive-aggressive and vaguely threatening,” according to the business magazine Fast Company. Yet, the possibility that the company, which just reported $1.6 billion in quarterly profits, might retaliate against the city remains an axe the company is more than happy to hold over the heads of those who have benefited from its success.

  Featured image by Will Sweger

4 thoughts on “Six Things to Consider About the Head Tax”

  1. How’s about this idea. Hire Bull Connor to jump from his grave. He can unleash the fire hoses and German Shepherds to chase the freeloaders to se other county!! Presto, problem solved!!!!!
    Lol (satire)