(The Center Square) – Seattle’s economic forecast improved from a pessimistic view in April after anticipated blows from tariffs were less than expected, but the city still has a $143 million budget deficit
The Seattle Office of Economic and Revenue Forecast’s August baseline forecast anticipates a total 2025-26 general fund revenue increase of $62.8 million, excluding grants and transfers. Seattle’s 2025 general fund revenue is expected to total $1.63 billion.
Part of the improved outlook comes from national recession fears cooling down. Economists were surveyed by The Wall Street Journal in April, with findings showing a 45% probability of a recession in the next 12 months. In July, that probability dropped down to 33%.
Seattle Chief Economist Jan Duras said the optimistic outlook is a result of the implemented tariffs having not yet resulted in higher inflation or job losses, as many economists predicted. However, tariffs are still expected to increase inflation in the coming months.
“The pessimistic scenario in April and the current pessimistic scenario are fundamentally different in regard to whether they expect the economy to go into a recession,” Duras said during an Economic and Revenue Forecast Council meeting on Monday.
This improved forecast could be upended depending on new tariffs announced on July 31 and a recent weak jobs report.
The Jumpstart Payroll Expense tax – which relies heavily on a small group of businesses – is expected to total $382.9 million in 2025 and $388 million in 2026. In comparison, the tax generated $360 million in 2024.
The city’s business and and occupation tax, or B&O tax, was revised up $14.4 million in the August forecast to a total of $383 million. The tax represents Seattle’s economic activity. Despite the improvement, Seattle City Council President Sara Nelson was concerned about the city’s office vacancy rates, which are not expected to meaningfully decline at least until the mid-2030s, according to Monday’s presentation.
In the second quarter of this year, the Seattle Office Demand Index, as reported by the commercial real estate platform VTS, was 32% of the 2018-19 average. This was the lowest among tracked cities as overall demand in the U.S. was 70%.
Seattle’s sales tax revenue collection has been consistently weak since the second half of 2023, largely due to the downturn in the construction sector which weighs down overall tax collection. For 2025, the tax is expected to generate $344.7 million this year and $361.1 million in 2026.
The Office of Economic and Revenue Forecast expects the trend to continue on as the value of construction permits issued by the city continue to decline. The value of these permits declined from $3.8 billion in 2021 to $2.3 billion in 2024.
This year, Seattle voters approved a social housing tax 5% on businesses with annual compensation above $1 million paid in Seattle to any employee. The Office of Economic and Revenue Forecast estimates the tax to generate $65.8 million in 2025. However, there is a “large amount of uncertainty to it” due to data limitations, according to Duras.
The Office of Economic and Revenue Forecast will revise projections again in October when the city council nears its revisions to the 2026 budget.
