How A New King County Property Tax Could Fix Homeless Crisis

SEATTLE, WA — A recent review of the homelessness crisis in King County by McKinsey & Co. suggested that local government would have to double spending on homeless services and affordable housing to adequately address the problem.

That means the joint Seattle-King County homeless services axis would need to increase spending to about $410 million per year.

Where would that money come from? There are no specific plans, but there are some ideas. A memo created around the time the Seattle City Council was deliberating on the head tax described a few scenarios - including how a county-wide property tax increase could generate enough revenue to hit that $410 million McKinsey & Co. number.

The McKinsey Report

Last year, McKinsey, one of the world’s largest consulting firms, approached the Seattle Chamber of Commerce about studying the region’s homelessness problem. The results of the study were made public during the Seattle City Council head tax debate around May 9. The $410 million figure mentioned in the report got headlines, but there are more details in the report about why fixing homelessness is going to cost so much.

Homelessness has grown in King County by about 11 percent per year, according to the report. Meanwhile, funding has only grown 2.4 percent per year. McKinsey found that rising rents are compounding the problem, forcing people out onto the street.

“Ten years ago, our community had pockets of cheap motels and apartments. When you hit rock bottom, you could still find a roof. Today, there is no safe place for people to fall to. When crisis hits, you fall to the street,” McKinsey quoted one emergency shelter worker as saying.

The report found that the supply of apartments has grown by about 40,000 units since 2010, but most of those new units are affordable for high earners who make at least 80 percent of the median area income ($73,000 in King County, about $80,000 in Seattle). In 2016, 47 percent of rentals were out of reach for low income people, up from 20 percent in 2010.

The answer to that problem, according to McKinsey: build affordable housing. Specifically, 22,000 affordable units for households earning 50 percent or less of the median area income. And that's what McKinsey estimates that will cost about $410 million per year, in addition to shelters and other costs.

The Memo

As Seattle City Council was debating the head tax, Council staff prepared an analysis of the McKinsey report to see how Seattle and King County might be able come up with another $200 million or so per year (to hit the $410 million number).

A county-wide property tax is one way. To come up with about $200 million per year (on top of the $196 million the county already spends), a property tax levy of a maximum of 42 cents per $1,000 of assessed value would be necessary.

Seattle residents and businesses would pay about $87 million in a county-wide levy increase, the memo estimated. That share is “lopsided,” according to the memo.

“Seattle would be put in a position wherein we are further subsidizing other jurisdictions’ inadequate funding of homelessness and housing services, being on the hook for between $64,512,513.39 and $87,404,050.40 per year,” the memo says.

(Too late now, but the memo suggests that a five-year Seattle head tax at $350 per year per employee would put the city in the range of $64 to $87 million per year. The approved head tax is $275 per employee, and there's no spending plan for that money yet.)

New Tax Levy Possible?

The Seattle City Council memo is hypothetical, but it’s important because King County and Seattle are working together on solutions to the homelessness crisis. The One Table group - headed by King County Executive Dow Constantine, Seattle Mayor Jenny Durkan, and Auburn Mayor Nancy Backus - is supposed to come out with some recommendations soon.

Constantine is opposed to a head tax, and reportedly joined One Table as a way to sidetrack Seattle from creating one. So that's presumably off the table.

Asked about a possible property tax levy instead, Constantine spokesman Alex Fryer said, “We have nothing to announce at this point [in regards to] a levy or other revenue sources.” Fryer did highlight Constantine and disgraced former mayor Ed Murray were working to put a 0.1 percent sales tax increase on the 2018 ballot.

Durkan spokeswoman Stephanie Formas did not return a request for comment.

A property tax increase of 42 cent would not be the biggest recently. Sound Transit 3 raised property taxes 25 cents, but school districts around the county in February approved increases of $1.30 or more for school funding.

"Builders, businesses, philanthropists, government, and housing providers in King County and beyond should therefore work together if they are to find a sustainable solution to the homelessness crisis plaguing their cities," McKinsey associate fellow Maggie Stringfellow concluded in her report.

File photo by Neal McNamara/Patch