Getting rid of an unpopular business tax may seem like a no-brainer, especially in a campaign year and when money from another transportation tax is bringing in enough to make up the difference.
But Mayor Greg Nickels’ proposal to eliminate the city’s $25 head tax is proving to be complicated.
At a meeting of the City Council’s transportation committee Tuesday morning, council members – including committee chairwoman Jan Drago, who is among the candidates running against Nickels this year – said they weren’t so sure.
Neither are pedestrian advocates, when the city already has more needs in improving transportation than it can fund.
Council members, saying they wanted to fully understand the ramifications of removing the $25-per-employee tax on businesses, signaled that they plan to wait until budget discussions in the fall to take up the issue.
At its heart, the debate comes down to whether higher-than-expected revenue from the city’s parking tax is best used on transportation projects or to eliminate the head tax. It also has become a campaign issue during this year’s mayoral debate.
The tax is considered a nuisance by businesses, and Nickels, in the midst of running for a third term, pitched the elimination as a way to support business during tough economic times.
But although the elimination may help win the favor of the business community, including the Downtown Seattle Association, it also has important detractors during the mayoral campaign, and mayoral candidates appear split on the issue.
Nickels supports it. Drago is taking a more measured approach. T-Mobile executive Joe Mallahan supports eliminating the tax but would pay for it by killing the Mercer project. Former Sierra Club chairman Mike McGinn opposes repealing the tax. Former Sonic James Donaldson favors eliminating the tax.
The issue is that eliminating the tax would cost the city $4.7 million that could otherwise be spent on transportation. Rebecca Deehr, co-chairwoman of the Pedestrian Master Plan Advisory Group, said at a meeting of the council’s transportation committee that removal of the tax would cost the city roughly the same amount as the $5.5 million it is budgeting for sidewalks.
The comparison was drawn to put the tax’s elimination into context. Dwight Dively, the city’s finance manager, said that even with the elimination, the city would still be able to fund the voter-approved “Bridging the Gap” transportation levy.
The reason is threefold, he said. The tax itself is bringing in less money than expected, partially because it was difficult to estimate how much it would raise when it was passed. Small businesses of one or two people are exempted, and the tax applies to people who don’t use alternative means of transportation.
The city is receiving more revenue from its commercial parking tax. Construction prices are also going down, which means that transportation projects are expected to cost less.
To put it simply, Dively said the parking tax was expected to bring the city $123 million but instead is raising $182 million. So the additional $59 million is more than enough to offset the removal of the head tax.
Dively acknowledged, though, that should the city not eliminate the tax, it would have more money to spend on transportation. “To be honest,” he told council members, “there would be less than otherwise available, but there would still be more money than we thought.”
Therein lies the heart of the debate.
Dively noted that the money that would be used to eliminate the head tax hasn’t been dedicated to any specific projects yet. Therefore, the removal wouldn’t mean eliminating any projects.
Drago said she agrees the tax is cumbersome for businesses and the city should try to help business owners during the bad economy. But she said the council and the mayor had agreed the parking tax would be put toward the city’s $930 million share of replacing the Alaskan Way Viaduct with a tunnel. She considered that also meant that any excess revenue from the tax is “hands off,” because “we’ll be looking for every dollar we can find.”
Councilwoman Sally Clark also noted that money from the Bridging the Gap transportation levy was frontloaded to do more projects around downtown first to get ready for the viaduct replacement. So, she wondered how spending some transportation dollars would affect later projects that are aimed at improving neighborhoods.
In a letter to council members, Deehr and several other pedestrian, bicycling and environmental advocates wrote: “In fact, there is a clear use and a specific need for funding much greater than (what the city has budgeted for transportation), which is why Seattle needs all it can get for transportation projects. In turn, those transportation projects create much-needed construction jobs. At the same time, because so little in taxes are paid for each business, it is unlikely that repealing this tax will result in more jobs.”
Deehr wrote in a Facebook post after the discussion: “is not happy with the info left out of the Head Tax presentation. Let's talk about the NEED, not just the fact that we got lucky getting more Commercial Parking Tax funds.”
Previous stories on the head tax
Seattle transportation head tax: On the way out?
