Seattle's Latest Economic Forecasts Bolster Mayor Greg Nickels' Calls To Get City Finances Under Control

June 3, 2002 - A new City of Seattle economic analysis concludes that the Puget Sound region's current recession is the worst seen in nearly 20 years, according to city of Seattle economists.

"This puts in historical context the revenue problem faced today by city government, and reinforces my commitment to get city finances under control," Mayor Greg Nickels said.

According to the report by city economists, Seattle taxable sales growth during the 2001-2002 recession closely resembles that of the 1981-1982 recession, one of the longest and most severe recessions of the post-war period. When adjusted for inflation, growth in 2001 was slightly weaker than in 1981 - a decline of 7.8 percent vs. a decline of 7.3 percent. Inflation-adjusted growth in 2002 is forecast to be similar to that in 1982 - a decline of 4.7 percent vs. a decline of 4.3 percent.

Employment conditions in the Puget Sound region mirrored national conditions during the 1981-1982 recession, though job loss was somewhat higher here. The region lost 3.4 percent of its jobs, compared to a 2.9 percent drop nationally. During the current recession, jobs in the Puget Sound region are expected to decline by 3.7 percent, with employment hitting bottom during second quarter 2002.

"The analysis is sobering," Mayor Nickels said. "Current revenue drops compare to those seen during the severe 1981-1982 recession, with similar drops in employment. With different factors affecting the local economy than in years past, we're facing more uncertainty today about how and when we'll come out of the recession. As a result, I'm determined that we cut costs. We'll cut overhead first and direct services last."

With layoffs at Boeing expected to continue through at least the middle of this year, the economy is expected to remain relatively flat during the rest of 2002, and then begin to grow in 2003. Economists are not forecasting a strong bounce-back in 2003-2004, however, as was experienced in 1983-84.

In April, Nickels announced Seattle faces at least a $50 million General Fund budget gap in 2003 and directed departments to make substantial spending cuts as they prepare their 2003-2004 budgets. The report released today does not change the projected budget gap.

In mid-March, to better prepare the city for dealing with the 2003 challenges, Nickels announced a package of spending reductions for 2002 that included:

• $37 million in spending reductions by Seattle City Light;
• $11.6 million in spending reductions by Seattle Public Utilities; and
• $7 million in spending reductions by General Fund-supported departments.

The mayor also extended the city's hiring freeze through the remainder of the year.

City expenses since the mid-1990s have steadily increased while revenue growth has declined:

• Seattle has added about 1,000 full-time equivalent employees since 1998;
• Councilmanic debt (City-issued debt that does not require voter approval) has steadily increased since 1995;
• The city's employee health care costs have steadily increased since 1997;
• In 2001, tax revenue growth slowed considerably and barely kept pace with inflation; this year, revenue growth is expected to fall far short of inflation; and
• In 2001, for the first time in more than 31 years, sales tax revenue was less than the amount collected the previous year. (Sales, and business and occupation taxes traditionally fall when the economy dec

City Finance Director Dwight Dively emphasized that while the city faces a serious short-term budget problem, the city's long-term fiscal health is good, noting it has more than adequate reserves to meet its long-term obligations.

Nickels' 2003-2004 budget will reflect further spending reductions while incorporating his overall priorities for Seattle. Departments submit their 2003-2004 budget and 2003-2008 Capital Improvement Program to the Department of Finance on July 1. Nickels will spend July and August making his budget decisions and will present his 2003-2004 budget to the City Council September 23. The Council is expected to adopt the budget by late November once it concludes its deliberations. State law requires the city budget be balanced.