Seattle faces stronger economic headwinds compared to the rest of the country due in part to its reliance on the technology industry, according to a revenue report released by the city’s budget office this week.
“Our regional dependence on the technology sector was a strength for many years, but that is shifting as the sector cools,” the report said. “In addition, the longer-term implications of work-from-home are expected to ripple through other local sectors, with perhaps the construction sector most directly impacted.”
The report reflects the outsized impact of the tech industry on Seattle as a whole, both in boom times and downturns.
The tech industry accounts for nearly 30% of the local economy in the Seattle metro area, the Seattle Times reported in May.
Longtime hometown tech anchors Microsoft and Amazon announced thousands of layoffs over the past year amid the larger economic downturn, following a period of rapid growth in stock price and headcount, particularly during the pandemic.
Seattle-area startups also trimmed their workforces as venture capital dollars dried up.
Seattle reported job growth in all sectors this year except information and construction. The tech slowdown is hurting overall Seattle-area wage growth, which recently fell below the national average, according to the budget report.
“Given that technology hiring led the local post-pandemic economic recovery, the loss of jobs in the high-paying Information sector is particularly significant,” the report said.
Layoffs and the adoption of hybrid work policies impacts the region’s commercial real estate market, which continues to see rising office availability despite recent job growth and return-to-office mandates from companies like Amazon. Total vacancy rose to 19.3% in the Seattle area during the second quarter, and overall availability is now at 24.6%, according to JLL.
The city’s latest budget report this month provides updated forecasts from April. It now projects an additional $10 million lost in real estate excise taxes over the next two years. It dropped its forecast for utility tax revenue from private entities in 2024 by $810 million.
It also lowered forecasts for long-term outlook on sales tax, and business and occupation tax.
“Pre-pandemic, regional growth was significantly outpacing the nation as the technology sector grew rapidly and drove a boom in local construction,” the report said. “Looking forward, regional growth is likely to more closely track national trends.”
There are some signs of a bounceback, at least from Microsoft and Amazon. Their recent earnings reports and stock price growth this year signal potential stabilization.
City budget experts upgraded their forecasts from April by 4% for expected revenue in 2023 from Seattle’s payroll tax known as “JumpStart.” The tax, passed three years ago, targets payrolls at the city’s largest companies, many of them tech giants such as Amazon.
The city this week released findings from a separate report detailing ideas for progressive taxes to help plug a budget gap that is projected to reach $221 million in 2025 and grow by another $207 million in 2026.
One idea from the report is to expand JumpStart by potentially increasing the tax rates or broadening its scope with lower thresholds for payroll (increase the number of businesses required to pay the tax) or lower payroll threshold (increase the number of employees for whom business must pay the tax).
The workgroup that compiled the report cautioned that expanding JumpStart, which generates about $250 million annually, “could influence decisions by large employers about whether to locate or expand their business operations within the City or to locate in nearby municipalities.”
Included below is the full budget report, and the city’s economic and revenue forecast council meeting from Thursday.
Seattle faces stronger economic headwinds due to cooling tech sector, remote work by GeekWire on Scribd
