Seattle businesses rejected tax as ‘wrong approach’ to homeless crisis — now what will they do?

Tents line a street in Seattle’s Pioneer Square neighborhood. (GeekWire Photo / John Cook)

The dramatic defeat of a new business tax designed to alleviate Seattle’s dire homelessness crisis was seen as a victory by many in the business community. Reactions ranged from measured to celebratory: Amazon put out a brief statement calling the move “the right decision for the region’s economic prosperity,” while the campaign responsible for the tax’s demise toasted to their success at Fremont Brewing.

But for more than 12,000 people living on the street in King County (which contains Seattle) the repeal of the so-called “head tax” means fewer affordable housing units and less funding for homeless services will be available in the near future. Amazon, Starbucks, Vulcan, and more than 100 Seattle business leaders fought the new tax aggressively, claiming it is the wrong approach to addressing the region’s growing homelessness problem. That resonated with many Seattleites.

The “No Tax on Jobs” petition to overturn the tax with a ballot initiative received more than double the requisite signatures, leading the city to repeal the tax less than a month after passing it rather than fight a costly political battle.

In a deeply divisive debate, everyone agrees on one thing: homelessness is a crisis, it’s getting worse, and it must be addressed.

Two big questions remain in the wake of the head tax defeat. Are the alternative solutions proposed by the business community viable? And will the Seattle companies driving record growth in the region play a meaningful role in solving this crisis?

After the head tax was repealed, Amazon, Starbucks, the Seattle Metro Chamber of Commerce and Downtown Seattle Association all pledged to work with city government to address homelessness. But understanding their level of commitment and likelihood of moving the needle requires taking a step back. Continue reading for a detailed look at the tech industry’s problems with the head tax, the viability of alternative solutions, and how the private sector can actually make a difference.

Why business fought the tax

The business community’s chief criticism of the head tax was the mechanism for raising funds. The tax would have cost businesses with more than $20 million in annual revenue about $275 per full-time employee, per year. Opponents of the legislation said taxing based on employees would discourage job creation, and qualifying companies based on revenue, rather than profits, would hit low-margin businesses too hard.

That’s the position taken by Manny Medina, the Outreach CEO whose comments in GeekWire calling the head tax a “punch in the gut” went viral.

“The tax had the following problem,” he said in an interview after the repeal. “The tax was punitive to headcount as opposed to profits. I’m not making profits because I’m in a particular dynamic in which I need to continue to build the product and grab more market share. So if you tax my headcount heavily, I’m going to have to put the headcount somewhere else because I still have to deliver value. Whereas you can tax profits and the company profile for those that are making profits is different.”

Rachael Ludwick, a software developer and affordable housing activist, showed up to Tuesday’s meeting to support the head tax. (GeekWire Photo / Monica Nickelsburg)

But the city is not allowed to tax corporate income under state law, so its revenue-generating options are limited. That’s why Rachael Ludwick, a Glowforge software developer and member of the Seattle Tech 4 Housing advocacy group, called the head tax “an imperfect proxy for the income tax the city can’t impose.”

“I am lucky, and most folks in tech are lucky,” she told GeekWire before the tax was repealed. “Most anyone making well above median income in Seattle was lucky. We can afford to share our luck and the larger companies are best able to make a non-ideal tax policy work without hurting lower-income workers.”

Many in the private sector argue that the city doesn’t need more money to address homelessness in the first place. That’s the position Amazon took at the helm of the effort to defeat the tax.

The e-commerce giant became a target of head tax advocates, who carried signs and bellowed chants criticizing Amazon for driving Seattle’s growth without doing enough to mitigate the consequences. Amazon inflamed tensions by threatening to slow its growth in Seattle pending the City Council’s decision on the tax. The company donated $25,000 to the referendum campaign, as did Starbucks and Paul Allen’s Vulcan.

During the tense weeks of head tax debate, Amazon did not offer detailed alternatives to address homelessness in its hometown but did criticize the municipal government for inefficient spending.

“City of Seattle revenues have grown dramatically from $2.8B in 2010 to $4.2B in 2017, and they will be even higher in 2018,” Amazon VP Drew Herdener said in a statement after the City Council passed the tax. “This revenue increase far outpaces the Seattle population increase over the same time period. The city does not have a revenue problem — it has a spending efficiency problem.”

Seattle Chamber CEO Marilyn Strickland. (GeekWire Photo / Monica Nickelsburg)

The Seattle Chamber, which energized its membership to fight the tax, also insists that fiduciary inefficiency is the root of the problem.

“The Council has demonstrated an alarming recklessness about spending,” Chamber CEO Marilyn Strickland said in a statement.

Sharon Lee, executive director of the Low Income Housing Institute, balked at that idea in an interview with GeekWire after the tax was repealed.

Sharon Lee, Executive Director of the Low Income Housing Institute.( LIHI Photo / Ron Wurzer)

“The private sector has a great role to play,” she said. “They can’t just say, ‘why can’t you be more efficient?’ It’s not going to produce 20,000 [units] of affordable rental housing which is what we need. It’s not to say that the city programs or county programs are perfect. They’re not. But it’s one thing to just criticize them and say, ‘we’re throwing money down a black hole.’ That’s not the situation at all. We know how to end homelessness.”

The housing-first approach

The notion that the city has adequate funding to fight homelessness doesn’t square with a report from consultancy firm McKinsey released in May. The study claims dramatic increases in spending are necessary to keep up with Seattle’s growing homelessness crisis. The report’s authors estimated that it would take $360 million to $410 million to adequately address homelessness in King County.

The McKinsey report is predicated on the “housing-first” approach, the notion that the top priority should be to provide unsheltered people with permanent housing. Supporters of housing-first believe that stable housing makes it easier for people to deal with other root causes of homelessness, like employment or behavioral health. Many of the cities that have been most successful decreasing chronic homelessness did so using a housing-first approach.

But Seattle’s business community has been more focused on emergency shelter and immediate relief services for people living on the street. As part of an ongoing partnership with Mary’s Place, Amazon is creating a permanent transitional shelter for 65 families at its headquarters. Starbucks also works with Mary’s Place on the “No Child Sleeps Outside” initiative to shelter homeless children. Just last month, Paul Allen’s Vulcan organized more than 500 employees and volunteers for one of Seattle’s largest tiny home builds to create a new shelter village.

A nearly complete tiny house from Vulcan’s build. (GeekWire Photos / Monica Nickelsburg)

“Even before the tax on jobs or the referendum on the tax on jobs, long before that, Paul Allen and Vulcan have been focusing on homelessness here for many years,” Vulcan CEO Bill Hilf told GeekWire. “This isn’t a new issue for us. I think there needs to be a lot more alignment from the business community and the city to come together on how to solve this.”

These are vital contributions but Lee says they are not enough to move the needle on homelessness.

“One area that’s truly, truly lacking is financing for affordable housing,” she said. “We can’t keep having people living in shelters living in cars living on the street who have no way of exiting homelessness unless there’s some low-cost rental housing.”

The head tax would have generated $45 to $49 million annually, most of which was earmarked for affordable housing. But Lee — like many opponents of the tax — stressed the need for a regional approach and said Seattle shouldn’t bear the full burden. “The county is not doing its fair share,” she said.

Seattle’s job growth, driven by the tech industry, is bidding up the cost of housing at a breakneck pace. A report from Seattle-based Zillow last summer tied rent increases to rising homeless populations. Zillow found that a 5 percent rent increase in Seattle would push an additional 258 people into homelessness.

But homelessness is more complicated than the cost of housing. All Home, the organization coordinating King County’s homelessness response, released results of its annual survey of the region’s homeless population in late May. Respondents self-reported what caused them to become homeless. Just 6 percent said “inability to afford rent increase” while an additional 11 percent said eviction. The remaining participants cited issues like losing a job, addiction, illness, and domestic issues.

Industry’s approach

The Seattle Chamber and many of its members advocate for improving services to address some of those root causes of homelessness and rezoning Seattle’s single-family neighborhoods.

Here’s how Strickland, the Chamber’s CEO, put it in an email to members:

Our elected leaders can make long-lasting, sustained change through two policies that do not require a dime of revenue:

  1. Pass common sense zoning laws that will allow more housing to be built citywide and do not discourage development.
  2. Fix our fragmented regional system for homelessness services.
Redfin CEO Glenn Kelman at Seattle Startup Week. (GeekWire Photo / Nat Levy

Redfin CEO Glenn Kelman agrees that zoning is the primary driver of the city’s affordable housing crisis. Single-family homes take up 69 percent of Seattle’s residential land plots, a bigger percentage than other rapidly growing cities.

“The amount of housing the city can build with a head tax, or any tax, is nominal,” he said in a blog post. “The change that can make a major difference is to neighborhood zoning, which will lead to more home-building.”

Lee disagrees. She said that zoning changes cannot ensure that an adequate supply of low-income housing will come on the market.

“We’ve changed the zoning code to allow more housing and it’s been market-rate housing that gets developed,” she said.

Kelman also noted that “simply opposing every tax won’t work.”

He criticized his tech industry peers for opposing efforts to instate an income tax in Washington and Seattle to address regressivity in the tax code.

“Redfin’s execs feel that now that the business community has blocked a reasonable statewide tax, we can’t be surprised the city is proposing unreasonable taxes instead,” he said.

The “regional approach” Strickland mentioned has also been a key talking point for the business community during the head tax debate. In a statement following its repeal, Starbucks VP John Kelly said “the best path forward is to implement the reforms recommended two years ago by the city’s own homelessness expert.”

That expert is Barbara Poppe and she authored a report urging the region to prioritize the reduction of unsheltered homelessness and create a stronger pipeline from shelters to homeless services. But Poppe stressed that “the equally important work to address the “upstream” issues of affordable housing, jobs that pay a living wage, lack of quality public education, gaps in the social infrastructure, and ongoing structural racism are beyond the scope of this analysis.”

An audit released last month revealed problems with the regional response to homelessness, including a lack of centralized authority and coordination between service providers. Seattle Mayor Jenny Durkan and King County Executive Dow Constantine planned to bring stakeholders throughout the region together to tackle homelessness with the One Table initiative but it has stalled.

Lee says the bottom line is still funding. Without an adequate supply affordable housing to move people out of the shelters, Lee says, even an efficient and well-coordinated regional emergency response system won’t do the trick.

How business can move the needle

In Lee’s opinion, the most effective way for the business community to make a dent in homelessness is through affordable housing funding mechanisms. With the head tax dead, she suggested other mechanisms for channeling wealth from the tech industry into low-income housing, like New York City’s “mansion tax.” She also stressed the importance of the work Seattle companies are already doing, like funding tiny house builds and emergency shelters.

Amazon and others in the tech community could adopt policies, like matching for employee donations, to funnel more resources to non-profits tackling the issue. But those efforts address a narrow slice of a much broader problem.

One idea floated by GeekWire during the head tax debate is for a company like Amazon, the emblem of Seattle’s growing pains, to take on homelessness as a flagship issue. The tech giant could establish a $1 billion philanthropic arm and use its innovative horsepower to tackle homelessness. Amazon prowess in solving thorny problems has propelled it to a market cap of more than $700 billion.  It would actually serve as a natural progression from the work Amazon is already doing with Mary’s Place and FareStart, a job training program. Amazon is already using its problem-solving skills on another difficult undertaking, healthcare.

It’s possible that Amazon is already considering a more dedicated effort to reduce homelesness in its hometown. On Wednesday, the day after the head tax repeal, Amazon CEO Jeff Bezos tweeted that he has decided to back two philanthropic initiatives that he will announce sometime this summer.

But it is just as possible that there is too much bad blood in the wake of the head tax battle, one of the most polarizing debates in Seattle history. Whether the city government and business community can mend burned bridges remains to be seen.

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