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Seattle is bracing for major spending cuts after a new revenue forecast shows revenues over the next two years, not including grants and transfers, are expected to be $241.5 million less than previously thought.
That's under Thursday's "pessimistic" forecast the Seattle Economic and Revenue Forecast Council now considers more likely than its baseline forecast – a rare shift for the city – due to global economic uncertainty.
The April pessimistic forecast anticipates a total 2025-26 general fund revenue decrease of $50.4 million, excluding grants and transfers.
For comparison, the baseline forecast – which city officials typically use to consider future budget moves – predicts a revenue decrease of $9.5 million through 2026 without the inclusion of grants and transfers.
The projected blow to revenue is due to the impacts of slower growth and tariffs as a result of weakened sales and use, business and occupation, and public utility taxes.
On Friday, Harrell said the revenue projections reflect the ongoing uncertainty about the volatility of the national economy as of late. He added that the city has been proactive in preparing for revenue implications of this magnitude.
Jan Duras, an economist with the city, told the council that market volatility has spiked due to new tariffs, fueling concerns about long-term financial stability. However, current volatility is not at the scale of the 2008 great recession or in 2020 when the COVID-19 pandemic started.
Markets partially recovered losses earlier last week when Trump announced a 90-day pause on reciprocal tariffs – with the exception of China – but Duras said volatility is expected to linger.
The new forecast prompted Harrell to order departments to limit non essential spending.
“Effective immediately, I am directing departments to preserve funding, including reducing or ending discretionary spending on items like travel, non-essential equipment upgrades, and new consultant contracts,” Harrell said in a statement. “The City’s hiring freeze remains in place, and we will decide whether to pause or reduce investments in new projects and programming included in the adopted budget on a case-by-case basis.”
Stock market volatility also influenced the April revenue forecast, which now estimates the city’s JumpStart Payroll Expense Tax revenue to decrease by $167.4 million through 2026 with the updated pessimistic scenario.
The payroll expense tax – dubbed the “Amazon Tax” – relies heavily on a small group of businesses, with 93% of 2024 revenue coming from the top 100 companies and 75% from just 10, mostly operating in the tech sector.
The JumpStart tax helped the city close a $250 million general fund gap in the 2025-2026 budget, along with staffing cuts.
Seattle’s taxable sales were flat, and local spending trailed the national average.
Sales tax in Seattle from the trade sector declined 1.4% year-over-year, and taxable sales in the construction sector declined 7.1% from 2023. Sales tax obligations rose just 0.1% in 2024, showing weak growth.
Duras said these statistics imply that people are continually hesitant to make large purchases going into 2025.
This isn’t the council’s first warning. In the council’s 2024 October forecast, the payroll tax was forecasted to collect a baseline of $406.8 million, or $361.2 million in a pessimistic scenario for 2024.
Actual revenue totaled $360 million – $1.2 million below the council’s pessimistic projection.