Commuter Tax

2009 Report Card - Funding for Transportation – Employee Hours Tax

Overview (25%): Next to the expedited vote to approve the tunnel, the Council's repeal of the Employee Hours Tax—also known as the "Head Tax"—is perhaps the most striking example of the Sustainability Gap. The "Head Tax" generated in excess of $4 million dollars for the City's efforts to improve pedestrian and bicycle infrastructure, with very little impact on business ($92 per year for the average business). Revenues generated by the tax were an important part of the overall funding strategy for the voter-approved Bridging the Gap package of transportation improvements. These funds could have been leveraged to support bond-financed projects, and the funds would have created many jobs for construction workers and other trade professions.
Other cities, like Portland, are incorporating investment in sidewalks as a strategy to create walkable neighborhoods, reduce vehicle miles traveled, and support reductions in carbon emissions. Meanwhile, Seattle is giving away funds in the form of a tax break to businesses that will hardly notice the benefit, won't create new jobs, and now have one less incentive to encourage their employees not to drive to work. Councilmembers, as a group, failed terribly here, but there were a few exceptions we note below.

Tim Burgess (B/F)

Although Burgess was a champion of the repeal he must be credited with working with supporters of the tax to find dedicated, sustainable, alternative sources of revenue to equal or exceed the revenue generated by the tax. In spite of his promise to the business community to eliminate the tax, Burgess still supported the transportation benefits of the tax. And while the work Burgess did to find funding alternatives will be beneficial as the City continues to find sources to fund its commitments to pedestrian and bicycle infrastructure.

Sally Clark (D/F)

Clark's position on the tax was similar to her colleagues although she seemed to be studied in her resistance to the facts on the tax. In her newsletter she wrote, "removing this barrier to job creation outweighs retaining the tax." However, there is no serious consideration of the tax that would lead anyone to think a windfall amounting to $92 would result in job creation. Clark seemed to hew uncritically to the business organization line that this would help business. Repealing the tax, of course, not only didn't create jobs but has helped create a shortfall in the SDOT budget.

Richard Conlin (F/F)

Transportation and neighborhood advocates found Conlin's position on the repeal of the tax to be entirely at odds with his principles and a big disappointment. Conlin seemed to struggle when rationalizing his support of the repeal. Conlin was fond of calling the various aspects of the tax designed to discourage driving as "cosmetic," suggesting that the tax was "not a large enough amount to make it worthwhile for the employer to subsidize alternative modes, and does not go directly to the employee to encourage them to use alternative modes." Conlin should have urged an increase in the tax so that it would be big enough to make it worthwhile. His own logic is that if the tax were bigger it would be a disincentive for single occupancy drivers. Furthermore, if the tax didn't hurt, then why repeal it? Conlin could not reconcile his divergent views on sustainability and the repeal of the tax.

Jan Drago (C/F)

There was a moment during the summer when it appeared that Drago would be a voice in favor of keeping the tax in place. She expressed concerns about letting the voters down since they supported the tax as part of the Bridging the Gap measure, joining Councilmember McIver and Godden in expressing doubts about the repeal. But as the summer and her candidacy for mayor wore on, Drago ended up being firmly in the repeal camp.

Jean Godden (B-/F)

Godden began the summer publicly opposing the repeal of the tax. By the end of the budget process, however, she switched sides. It is unclear why she made the change, although some have speculated that it was because Godden might run for re-election in 2011. According to Publicola, Godden "'held her nose' and voted for it "in the interest of supporting a budget that the entire council worked together to pass." Godden's reasoning for supporting the repeal seemed to be "well, everyone else is doing it." That is not the leadership we expect from our elected officials.

Bruce Harrell (D/F)

Harrell sounded notes of support for alternative transportation and expressed concern about the loss of funds for bike and pedestrian infrastructure. But then, writing on his blog, he implied that sustainability requires ongoing support for people who have to drive: "many people will remain car-dependent in the near future because of their circumstances. I believe our strategies must be cognizant of this reality in order to achieve long-term environmental sustainability." Rather than giving people more transportation choices, his decision perpetuates car dependency and the patterns of the past. While we were happy to see Harrell speak approvingly of green transportation choices, his position exemplifies the gap between talking about sustainability and supporting policies that would actually lead to a sustainable outcome.

Nick Licata (C/F)

Like his colleague Godden, Licata expressed his opposition to the repeal early in the summer months. That position eroded over the summer. Like Burgess, Licata offered an idea to replace the tax with parking ticket revenue. Licata has consistently taken the issue of pedestrian safety very personally, arguing for prioritizing pedestrians over cars. That's what makes his vote in favor of the repeal all the more confusing. It is true, as he said in a newsletter, that he tried to push "the Council in a new direction to look at dedicating existing infraction revenue for pedestrian safety purposes consistent with the Seattle Pedestrian Master Plan." However, making an effort, not succeeding, then voting the wrong way on the final legislation that is inconsistent with stated values, is not the basis for a good grade on this issue.

Richard McIver (B+/A)

McIver was the only member of the Council, in the end, to vote no on the legislation to repeal the tax. He was the lone and consistent voice sounding the warning that the middle of a deep recession was not the time for the City to be giving up revenue. One can only speculate on why he took so principled a stand compared to his colleagues, but McIver was retiring from Council and was not running for reelection again in 2009.

Tom Rasmussen (D/F)

Rasmussen voted to repeal the tax along with other Councilmembers and for the same reasons. Rasmussen is now chair of the Council's transportation committee, and could work on undoing the repeal or at least finding a replacement for the lost revenue. He has made some comments publicly indicating his willingness to find a dedicated source of funds to replace the repealed tax. He could dramatically improve his 2010 score by moving forward on this.

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Richard Conlin Justifies the Repeal of the Head Tax

Although we vociferously opposed the City Council's proposal to repeal the commuter tax (aka head tax), we did not prevail, and the Council voted 8-1 to repeal the tax. Below is Richard Conlin's response to our most recent lobbying email about the topic.

Thank you for your message about the repeal of Seattle’s Employee Hours Tax (‘Head Tax’).  The Council approved this repeal by a vote of 8 to 1 on Monday, November 23, Councilmember McIver voting no.  The tax was repealed for four reasons:

1.      While it was originally designed to complement the parking tax in raising funds for major transportation projects under the Bridging the Gap program, the parking tax is generating more income than had been anticipated, and the planned Bridging the Gap investments are fully funded using the parking tax alone.

2.      Seattle is the only jurisdiction in Washington that requires businesses to calculate three different taxes (gross receipts, square footage, and employee hours).  The first two generate more than 95% of the business tax revenue.

3.      During the Council’s deliberations on economic recovery, repeal of this tax was singled out by the business community as a high priority.  They consider having a tax on employees the wrong signal to send when we are hoping to put people back to work.

4.      Numerous organizations also noted that the paperwork is painful for very modest results, especially for organizations that have many part-time employees and many employees who use alternative modes of transportation.  The President of Antioch University Seattle, for example,  wrote in support of repeal, noting that it took about two weeks of employee time to survey staff and calculate the tax exemptions – for a tax payment of $866.

The repeal of the head tax will not have any impact on planned pedestrian and bicycle improvements.  These funds are not dedicated to bicycle and pedestrian improvements, and in fact this tax was intended primarily to support larger projects, although a small portion has been used for ped/bike projects.  While it could be used for more such projects in the future, there is no guarantee of that, and it was neither in the design or the arguments for the tax.

No pedestrian or bicycle improvements that are planned for the period 2009 to 2014 will be affected by the repeal of the tax, and I would not support it if it would put those projects in jeopardy.
Projects which could be funded from the head tax are fully funded by the parking tax revenue, which is bringing in more revenue than projected, and more than enough to make up for the loss of the head tax revenue.

I sponsored the amendment that exempted employees who used other than SOV's.  It was cosmetic -- to provide a defensible rationalization rather than any expectation that it would impact modes of travel.  This was not part of the original legislation, and there is no evidence that it has any impact -- it is not a large enough amount to make it worthwhile for the employer to subsidize alternative modes, and does not go directly to the employee to encourage them to use alternative modes.

There are numerous options for funding future ped/bike improvements, and this is a small and not ideal possible source of funds.  Something more directly connected to transportation would be much better.  Councilmembers are looking for the appropriate funding mechanism, and we will work with the new administration to design one that will provide the appropriate funding.

Council President Richard Conlin

Seattle City Hall

600 Fourth Avenue, Floor 2

PO Box 34025

Seattle, WA 98124-4025


(206) 684-8805

 

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Letter Urging Council Not to Repeal Commuter Tax, Offering Amendments if They Do

We sent the below letter via email to the City Council regarding the commuter tax. The Council plans to vote on the cut on Thursday, November 12 or Friday, November 13.

 

Dear Councilmembers,

I am writing to urge you to keep the commuter tax (Employee Hours Tax) and not repeal it during your budget votes on Thursday and Friday. The Council’s concern for Seattle’s businesses is admirable, but this is the wrong solution to the problem -- at $91 per year for the average business, the cut will offer little succor to struggling businesses. Meanwhile, the 20-year Bridging the Gap infrastructure-building program would be robbed of $100 million.

That fiscal hit, together with the city’s likely need to allocate new commercial parking tax revenue and new vehicle fees to the deep-bore tunnel, means the city’s vaunted Bicycle and Pedestrian Master Plans would become empty gestures. For the foreseeable future, too little funding would be available for sidewalks, bike lanes, and other such improvements. Now is time to make good on the Council’s commitments to build a walkable, bike-friendly, sustainable city. Keep the commuter tax.

If you do choose to cut it, I suggest two amendments to your plans. First, merely suspend the tax and reinstate it in two years when the economy will improve. Second, direct council central staff to prepare a report on the cut’s economic effect, with the report due to the Council in one year. The report should focus on the number of jobs and the amount of economic growth created directly by the cut. That way, the Council will accumulate actual evidence whether tax cutting is sound economic policy.

But the Council should not cut the commuter tax, because the economics tilt in favor of retaining it. Interest rates on municipal bonds are very low, and contractors are submitting low bids for city projects. By borrowing money now against future tax revenue, the city can get the most for the taxpayers’ money while giving the local economy a boost, especially in the beleaguered construction industry. Think of all the new construction projects and new living-wage jobs that will result.

Keeping the commuter tax will create more jobs, allow the city to build when its buying power is greatest, and move the city towards achieving its progressive transportation goals.

Sincerely,

Gary Manca
President, Friends of Seattle
 

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Head Tax Repealed (Publicola)

Friends of Seattle is in the news.

Erica C. Barnett, "Head Tax Repealed," Publicola (November 12, 2009)

Also this morning, the city council voted to repeal the employee hours tax, a $25-per-employee tax, paid by employers, that exempts employees who don’t drive to work alone. . . . Friends of Seattle sent a last-minute letter to the council earlier this week, pleading with council members to either vote against the repeal or to amend the law to merely suspend the tax temporarily and to track the economic impact of the repeal for a year.

 

Read the whole thing.

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Sally Clark on the Commuter Tax (aka "Head Tax" or "Employee Hours Tax")

Councilmember Sally Clark, writing in the July edition of her "Seattle View" newsletter (the bolding added by us):

If you're overwhelmed reading stories about the down economy, join the club. Budget forecasts look grim for this autumn. Employers large and small continue to shed costs – like workers.  It's disheartening to see employers in our neighborhood business districts close up shop, both because of what that means to sidewalk energy, but also for all of the employees who no longer have income or health coverage.

Earlier this year City Council reviewed ways we can help lessen the impact of the recession and possibly speed recovery. Repeal of the Employee Hours Tax (sometimes known as the "head tax") was one of many ideas listed that could help Seattle businesses. To comply with the EHT, passed in 2006 as part of the Bridging the Gap transportation funding strategy, employers pay $25 for every employee who regularly drives a single occupancy vehicle for their commute. They pay zero on employees who bike, walk or carpool.

[read the rest below the jump]

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Letter to Mayor Nickels & City Council About the Commuter Tax (aka "Head Tax")

As part of its advocacy work, Friends of Seattle signed the following letter.

Mayor Greg Nickels
Councilmembers Tim Burgess, Sally Clark
Richard Conlin, Jan Drago
Jean Godden, Bruce Harrell
Nick Licata, Richard McIver
Tom Rasmussen
600 4th Ave. 2nd Floor
Seattle, WA 98104

July 1st, 2009

Re: Proposed Repeal of Head Tax (Business Transportation Tax)

Dear Councilmembers and Mayor Nickels,

Funding from the Head Tax (also called the Business Transportation Tax), a tax which is relatively insignificant for individual business, is an important source of funding for transportation improvements that help to promote more responsible forms of transportation, such as biking and walking. While $4.7 million is not much of SDOT’s budget, it makes up a large percentage of total funding for pedestrian and bicycling projects in Seattle. Because of the incredible infrastructure deficit, especially in the Southeast and North parts of the city, and the fact that a prioritized project list has been identified through the draft Pedestrian Master Plan, it seems clear that there is a use and a specific need for these funds.

In fact, there is a clear use and a specific need for funding much greater than this, which is why Seattle needs all it can get for transportation projects.

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