Seattle’s economic outlook is shrouded in uncertainty due to tech-sector layoffs, inflation, high oil prices and international instability. However, according to the city’s Office of Economic and Revenue Forecasting, the budget projection for the current year has largely held steady compared with last year. Weaknesses in the economy are being offset by revenue from new taxes and somewhat improved sales tax expectations.
Despite stagnant employment in the city and rising recession risks, analysts advise policymakers to follow a “baseline” budget approach, avoiding both excessive optimism and pessimism. The forecast surprised members of the city’s forecasting council, who had expected worse news amid the Middle East conflict and layoffs at companies such as Amazon.
That said, the city’s budget cannot be called sustainable. A systemic imbalance between spending and revenue forces the mayor and city council each year to rush to plug fiscal holes. The budget shortfall is expected to reach about $150 million by 2027. The main support for the budget has been new taxes, especially the progressive payroll tax on large employers (JumpStart) introduced in 2020. It applies to companies with annual payrolls over $7 million and high-wage employees, bringing in about $400 million a year to fund affordable housing, small-business assistance and community programs. This tax has become critical as traditional revenue sources have declined, providing stable funding amid uncertainty. Besides Amazon, its major payers include other tech giants such as Microsoft, Google and Meta, as well as large firms in biotechnology, retail, finance and law.
Seattle’s economic situation has looked worse than the national average for several years. Inflation is expected to reach at least 4% here, and employment is not expected to grow over the next two years. The only notable job growth is in health care and education, while employment is declining in trade, manufacturing and information technology. Office vacancy rates are expected to remain above 20% through 2030. This is due not only to tech companies shifting to hybrid or fully remote work models, but also to an oversupply of space built before the pandemic, economic uncertainty, and a nationwide trend toward cost-cutting and preferring more flexible workspaces.
The situation could easily worsen, especially if the conflict in the Middle East drags on, leading to a sustained rise in oil prices. According to the city forecasting office’s chief economist, Ian Durrance, in that case avoiding a recession would be nearly impossible. In a more pessimistic scenario, Seattle would face a sharp drop in consumer spending, business activity and tech-sector employment, adding hundreds of millions of dollars to the budget shortfall.
Mayor Jenny Durkan traditionally favors new progressive taxes, such as a capital gains tax, over cutting city services, though she acknowledges that spending cuts are likely this year. She has already tasked her departments with preparing plans to reduce costs by 5–10%. Thus, while city officials are heartened by the forecast’s current stability, they are preparing for potential difficulties ahead.
Based on: Seattle’s economic outlook is in choppy waters, but officials hopeful