Seattle’s Lost Decade

An editorial in the current issue of the Puget Sound Business Journal promotes our recent Policy Brief, “Seattle’s Lost Decade”:

A new report by the Washington Research Council should be required reading for policymakers in Seattle’s City Hall.

The full editorial is available through this link to the PSBJ (subscription required).The brief itself is available through this link.

Here is its introduction:

Employment in Seattle never fully recovered from the dot-com bust. In March 2008, at the peak of the last expansion, the city had 7,900 fewer private sector jobs than it had in March 2000. Nearby cities did considerably better over the same period: Bellevue added 19,200 private jobs; Redmond added 16,000; Issaquah, 4,000; and Bothell, 3,400.

Even as Seattle’s employment stagnated, the population of the city has continued to grow. New residents are drawn to the city by its attractiveness as a place to live. Many of these new residents, however, commute to suburban jobs. It is important not to let Seattle’s residential renaissance deflect attention from the challenges it faces as a working city.

Location is a choice, and increasingly businesses are choosing suburban locations over Seattle. This presents a long-run fiscal challenge for Seattle city government, which gets 54 percent of its general tax revenue from taxes paid by businesses. As population expands, the demand for public services expands proportionally. If employment is not also expanding, city revenues will lag behind.

The temptation is always to make up the shortfall by boosting taxes on business, but this is counterproductive. The research is clear: taxes matter to businesses when they choose where to locate within a metropolitan area. Seattle’s business taxes are already significantly higher than those in the suburban jurisdictions. In 2007, the city collected $485 in business taxes and fees per private sector employee, which was nearly twice the amount collected in Bellevue and more than five times the amount in Redmond. The tax gap is even larger today because of the $25 per head annual tax that the city began collecting from businesses in 2008.

To reverse the trend in jobs, Seattle must become more competitive within the region. If this does not happen, the alternatives are either fewer public services or higher taxes on residents.