Morning Fizz

Chamber Memo Foreshadows Legal Showdown Over Workplace Rights Fund

With budget vote, council adds more money for affordable housing, but shoots down charge on businesses to fund labor office.

By Josh Feit November 17, 2016

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 Affordable Housing

1. Eclipsing the city council budget committee vote yesterday to approve the $1.2 billion city budget general fund, the council made a $29 million amendment. With a 7-2 vote  the council approved using $29 million in city bonding capacity for affordable housing; only budget committee chair council member Tim Burgess and council member Debora Juarez voted no.

The mayor’s office, noting the $54 million the mayor had already put in the  budget for affordable housing, plus the overall $290 million housing levy, and his mandatory inclusionary zoning plan to make developers pay for affordable housing whenever they build new projects, had argued that the bonding capacity needed to be reserved for other items, including a new North Precinct police station. But in a memo to the mayor's budget director calling the $29 million item “modest,” council members Sally Bagshaw, Lisa Herbold, Rob Johnson, Mike O’Brien, and Kshama Sawant, the co-sponsors of the affordable housing add on, said their proposal would have “a minimal impact on funding allocated” for the North Precinct. Indeed, Sawant had an alternative affordable housing funding proposal that used all $149 million in bonding capacity that had been slated for the North Precinct station; Sawant’s plan (decoy cover for $29 million plan?) was voted down 7-2, with only O’Brien supporting her. (The North Precinct plans are on hold regardless. Responding to protests from the public that the planned station represented an inappropriate budget item to militarize the police force, the mayor pushed pause on the project until the city completes a race and social justice analysis of the precinct proposal.)

“Together we stand proudly in support of a new use of the city's bonding authority, namely, affordable housing production,” council member Herbold, the initial sponsor of the plan, said in a victorious statement after the vote.

A Tax or a Fee?

2. Herbold’s big win was coupled with a big loss, though. She also had a budget amendment to create a dedicated fund, about $4 million to start, for the Office of Labor Standards—using revenues from a proposed charge on businesses that would scale up in tiers according to the size of the business. OLS is the city department that enforces Seattle’s batch of six progressive workers’ rights laws—including the $15 minimum wage, paid sick leave, and now, sexual harassment protections for hotel employees. Herbold said she was scared that with federal funding for labor law enforcement in jeopardy under a Trump administration, she believed the city needed a dedicated fund. Murray’s budget includes $5 million for the OLS from the general fund, nearly doubling the existing OLS budget. Herbold could only line up three other votes plus hers, putting her one vote shy of a winning majority; Gonzalez, O’Brien, and Sawant voted with Herbold.

After the vote, Herbold called out Johnson, who she saiad had told her he supported the legislation.

Johnson shot back that he "supports a dedicated fund for OLS," but, said after meeting with "progressive" small business groups like the Ethnic Business Coalition and the Capitol Hill Chamber, he felt there hadn’t been enough outreach on the proposal. He added that Herbold’s proposal wasn’t slated to kick in until 2018, so he preferred to spend the next year working with small business stakeholders to reach a compromise. “If after that, we can’t reach a compromise,” he said he’ll support moving forward by 2018, arguing no harm no foul.

Johnson, in fact, pledged to Herbold on the council dais yesterday that he'd support the idea in the future. "If we can't get to that [an agreement by the first quarter of 2017] I commit to you council member Herbold that I will happily vote for a dedicated revenue stream in 2017 over opposition by business or labor. But I want to give us a little time to figure out if we can get that coalition together to agree on a revenue source." Due to Herbold's 2018 schedule, he said he did not believe his no vote was delaying implementation. 

But Herbold shot back that the very reason the legislation wasn’t slated to kick in until 2018 was precisely because they wanted to give stakeholders time to work out the right tier structure, or "futz with it a little bit," as she put it at yesterday's hearing. But, she told Fizz, she wanted to lock down the general idea of a dedicated fund now, and get it on the books.  

Go to the 1:31:00 mark here to watch Herbold and Johnson debate at yesterday's budget committee meeting.

Even if the council spends the next year working on the proposal, though, any charge to businesses is likely to face a legal challenge. The Seattle Metropolitan Chamber of Commerce asked Perkins Coie attorney Robert Mahon to analyze the proposal, and in a November 11 memo, Mahon argued that what Herbold is calling a “fee” is actually a tax. The distinction is significant because there are constitutional and state limits on city taxes, including the stipulation that they must be uniform—a stipulation that doesn’t jibe with Herbold’s progressive tiered structure.

Fees, on the other hand, are more flexible.

Mahon tells me there are legal tests to determine whether something can legitimately be ID’d as a fee. Is the money being used to directly cover the costs of regulation rather than simply used to raise money? And is there a relationship between the fee and the regulation?—in short, the fee must pay for a related service.  

At yesterday's budget committee meeting, Herbold said: "We've heard concern that this might be a tax. I want to clarify that the difference between a tax and a fee is that taxes can be used for general purposes whereas this fee is specifically targeted toward the enforcement activities that OLS is responsible for. There also needs to be a nexus between the fee collected and the work being done."

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Mahon argues that despite the fact that the proposal explicitly states the revenue would be used to cover the costs of regulating businesses, the historical context indicates that Herbold’s idea is “a resurrection of the head tax.” He points out that council has repeatedly tried to restore the old head tax, a straight tax on the number of employees at a company that former Mayor Greg Nickels’ administration scrapped, as a way to fund specific projects to free up general fund money. In other words, the revenues are fungible.

 “You can put lipstick on a tax and call it a fee,” he says. It’s true that on Herbold’s city council web page, she talked about her OLS proposal in terms of saving general fund dollars. In a description of her budget goals, she wrote: “Establish OLS as a Regulatory Fee-Supported Department: Our labor laws should be enforced with a small annual regulatory fee on businesses, saving $6 million in general fund dollars in 2018.”

Mahon also argues that the tiered structure as originally proposed, where the per employee charge skews wildly from a $3.20 charge per employee to a $30.77 charge per employee, demonstrates that the proposal can’t really be in earnest about charging a fee for a service if the service doesn’t have a uniform charge.

The tiered pricing, he contends, shows that the Herbold has designed a structure to simply get more money out of big businesses, and, in fact, she only added in a tier for the smallest of business—two-to-ten employees—after the uniformity issues was raised.

Herbold's office totally disputes these numbers and presented a chart of the proposal showing that the fee is consistent when broken down per employee to around $9.28—simply dived the total revenue by the number of employees.

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Finally, though,  Mahon closes with a gotcha. He says pushing to frame the business charge as a “fee” could end up screwing the city in its legal fight with the NRA to defend its gun tax as a tax rather than a fee. State law prohibits municipalities from regulating firearms. In order, to raise money from gun sales, the city went with an excise tax on gun and bullet sales that funds outreach and education rather than gun regulations; again, only fees can directly fund regulations. But if the city is now on record calling something a fee that turns out to be a tax, the NRA might be able to point to the city’s mix up and say the tax on them is actually a fee, which is prohibited by state law.   

Bike Share

3. In other budget news, by the way, SDOT got its wish: the council approved $300,000 to keep Pronto, Seattle's botched bike share system, running through the first quarter of 2017.

SDOT is planning to roll out a new electric-assist bike share program next summer, but with its eye on millions in sponsorship dollars for the new program, they wanted the council to send the signal that the city was all-in on bike share. Yesterday's vote, SDOT believes, sends that signal while also staving off a lull in city bike share service that could have deflated the launch of the new system.


4. Airbnb released a report this week saying that in the last year, they've brought in $1 million in tax revenue for Seattle ($6.6 million statewide.)

Other stats: They say they have 3,900 active hosts in Seattle, with the typical host bringing in $8,700 a year.

The city is considering regulations that would prevent hosts from renting rooms at a secondary residence.


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