Revenue Investment is a Key Component to Socially Just Climate Policy
Puget Sound Sage advocates for a strong carbon pricing policy that re-invests revenue from a carbon-pricing mechanism (whether it be a cap and trade or a carbon tax) into targeted communities that need it the most. A cap and trade or a carbon tax offer both upsides and downsides for the environment and equity, which you can learn more about here. In Sage’s opinion, the merits of each policy comes down to how well it is implemented and whether or not there is a targeted approach to supporting people of color and people with lower incomes.
A targeted investment approach would create massive opportunity to:
Identify which communities are the most in need
Target those investments to communities who are impacted first and worst by climate change and environmental degradation
We looked towards California’s policy SB 535 – which first commissioned a study to understand environmental hotspots in California. Based on the findings it then had community and policy experts work together to reinvest 25% of the revenue into smart investments that simultaneously address poverty and environmental challenges. This policy has resulted in the largest investment in environmental justice communities in the country. California has already moved millions of dollars to create green jobs, build affordable housing, build up transit centers and invest in clean trucks (which is vital for the health of communities living along heavily polluted truck routes).
How do we evaluate any carbon pricing policy? We start with equity and look towards investing in communities with the most need – but we should be clear about what equity means. This chart can be helpful to explain the difference.
Does Carbon WA’s proposal meet the equity measure?
Carbon WA’s proposal is to tax carbon and use the revenues to 1) reduce the sales tax by 1%, 2) give tax breaks to specific industries, and 3) put the rest towards funding a working families tax rebate. On the surface, this seems like good policy. But let’s examine their approach through a social justice lens.
Ultimately, the core concept to Carbon WA’s carbon tax proposal is “revenue neutrality,” where we greatly increase tax on one thing (carbon) but reduce taxes on other things (general sales). The problem with this is what the revenue neutral approach is about giving everyone the same via a tax reduction. Even at a 1% lower sales tax, this policy solution does not address the severe regressivity of our state’s tax policy – people with lower income pay more in taxes in Washington than any state in the country.
To their credit, Carbon WA included a portion of the revenue to the Working Families Tax Rebate a good policy similar to the Earned Income Tax Credit that gives working families larger refunds at tax return time. However, this solution does not take into account the fact that some communities live in closer proximity to environmental degradation and thus bear worse consequences. In addition, it leaves out large swaths of people with low incomes: specifically, people who lack documents to work in this country, single people, and people on fixed incomes.
For the future of our planet and for the people already experiencing the consequences of climate change, any policy must reduce carbon pollution. A successful and socially just policy will include revenue investments that create good jobs, prepare our region for climate change and incorporate the needs and input of communities of color and communities with lower incomes. We believe Carbon WA’s revenue neutral approach falls short of this measure.
A local urbanist, Owen Pickford, in a popular urbanist magazine literally called “The Urbanist,” recently published a call to urbanist action to support linkage fees. His article provides the strongest evidence yet that a linkage fee will build a better Seattle. Pickford methodically unpacks somewhat misleading arguments we’ve heard for a decade and half from big property owners and developers. He then calls on his fellow urbanists to heal their myopia and see the bigger picture:
“(w)e can remain the smallest voice in this debate. We can continue to conflate regulatory costs with housing limits. We can continue to ignore the problem of increasing land values. We can continue advocating only for policies that lead to displacement and segregation. We can expend our energy fighting against regulatory costs when we should be fighting for reduced housing limits. We can continue to use narratives that explain-away evidence rather than seeking to understand. We can continue to give people the perception that we are adversaries of affordable housing and integration by opposing a policy that evidence shows would be beneficial.”
What’s an urbanist?
Urbanism is defined by Miriam Webster as “a) the characteristic way of life of city dwellers, or b) the study of the physical needs of urban societies,” but is often understood as a movement for urban density, walkability, public transportation, and other modern urban “aesthetics.” Much appealing to the urbanist aesthetic is a value known as “vibrancy” which often goes hand-in-hand with the value of diversity, a.k.a. integration. However, the land-use and other policy decisions required to support both racial and economic diversity are often an afterthought, rather than a priority of decision-makers.
In our most recent op-ed, Puget Sound Sage also made the case for inclusionary housing programs by demonstrating a linkage fee will help prevent us from perpetuating land use patterns that perpetuate de facto segregation. De facto segregation is segregation inherited from a time of de jure segregation, like racial covenants or redlining. Linkage fees ask developers to set aside a small portion of new units as affordable or contribute to the city’s affordable housing fund. Because it would be applied broadly across the city, it requires only a modest contribution, but would become one of Seattle’s best tools to create affordable homes for low and moderate wage workers and families, because it would create new affordable housing within city limits, and mitigate the impacts of rising rents. Therefore, a linkage fee helps to prevent displacement, and contribute to the racial and economic diversity that both urbanists and social justice advocates hold dear.
The Growing Together Coalition, co-led by Puget Sound Sage and Housing Development Consortium, represents hundreds of individual signatories and over 50 organizational endorsers, including the some of the largest human service providers, faith, labor, housing, environmental, and social justice organizations in Seattle. All believe that the City of Seattle must pass an inclusionary housing program like the linkage fee, which would enable Seattle’s workers and their families to live near their jobs in the city.The Growing Together Coalition is pro-economic-growth, pro-density, pro-transit, pro-public investment, as well as pro-integration.
Pickford’s urbanism mirrors that of the Growing Together Coalition. Pickford highlights that linkage fee opponents have been detrimental to the plight of urbanists because they conflate height and density limits with regulatory costs like a linkage fee. He says this is a “mistake [that] has been detrimental to urbanists’ goals, creating an adversarial relationship between urbanists and affordable housing advocates. Furthermore, blurring the lines between housing limits and regulatory costs induces urbanists to overlook the most important factor in housing affordability: land values.”
In fact, Pickford’s article (which we will explain in layman’s terms in a separate post): 1) demonstrates that regulations like a linkage fee actually reduce land values, the increase of which contribute to our housing crisis for everyone, not just the extremely low-income; 2) provides evidence that linkage fees do not reduce supply of market-rate housing, but increase affordable housing production; and 3) calls on urbanists and social justice advocates to stand together because they ultimately share the same values.
This concept is not new – urbanists like Mike O’Brien, who sponsored the linkage fee legislation and others have long-supported social justice policies. If a linkage fee is not passed, the city would miss a significant opportunity to create thousands of permanently affordable homes where persons of color and people with lower incomes are experiencing displacement, like Southeast Seattle. This means that Seattle will not be “vibrant” or diverse, values that urbanists hold dear. In fact, demographic changes indicate that Seattle is becoming less diverse.
Last, Mayor Murray’s goals of creating 20,000 new affordable housing units in the next decade cannot be realized without a developer contribution program, even with the much needed renewal of the taxpayer supported Housing Levy. It is time to put to bed how linkage fees will end density as we know it, for good, if we want to live our values as urbanists and support economic growth, density and integration.
If you would like to stand with the 50+ organizational endorsers and individual petition signers in support of a linkage fee, visit our coalition website today!
With Seattle’s new minimum wage kicking in just two days, and tons of speculation about the impacts, I’d like to break down what it means for workers, businesses and our economy in some hard numbers.
What does Seattle’s minimum wage mean for workers?
Everyone in Seattle should be earning at least $11 per hour starting on April 1st. Depending on the type of business you work for, the compensation package may look different. If you work for a large employer (500+ employees) like Target, McDonalds or Amazon, your paycheck should reflect an hourly wage of $11 per hour. If you earn minimum wage ($9.47) today, then in two days you should earn $1.53 per hour more before taxes. If you work 32 hours a week and are paid every two weeks, your paycheck should show an increase of $91 before taxes. By December 31st 2015 you should have earned $1,836 more before taxes. That is enough money to buy a quality bed, put down a deposit on an apartment, or spend $10 on lunch three times a week for an entire year.
If you work for a smaller business (500 or less employees) your paycheck should reflect at least $10 in direct wages per hour, and $1 dollar in either tips or health care benefits. If you don’t get tips or healthcare benefits, you should be earning $11 per hour as your wage. So for example, if you are a tipped worker, your wages should reflect a $.53 cent increase AND your employer should show that you have earned least $1 in reported tips or they have contributed at least $1 per hour you worked towards a health care package. If you work 32 hours a week and are paid every two weeks, your paycheck should show an increase of at least $31 in pre-tax wages and at least $60 in compensation in the form of tips or healthcare benefits. By December 31st 2015 you should have earned $636 more before taxes.
What does Seattle’s minimum wage mean for the economy?
The University of Washington[i] estimates that nearly 37,900 people are currently earning minimum wage in the City of Seattle. As we’ve already estimated, each person will earn between $636 and $1,600 more this year if they work 32 hours per week until December 31st.[ii] If we look at the aggregate increase for all 37,900 workers earning minimum wage – minimum wage earners in Seattle could earn between $24 million and $69 million more in 2015 than they would have without a higher minimum wage. That represents a significant increase in buying power for Seattle’s lowest wages workers. That’s enough money to buy between 2.4 million and 6.9 million $10 lunches.
What does Seattle’s minimum wage mean for businesses?
Every business has a different model and labor costs can represent a different percentage of your total labor costs. The implications for restaurants have been dominant in the media, so we’ll explore what the implications are for a Seattle restaurant. Using the Washington Restaurant Association’s break estimates of a typical budget breakdown featured in the Seattle Magazine, we can get a sense of the total operating costs. According to Anthony Anton, CEO of the Washington Restaurant Association: 36% of funds are devoted to labor costs, 30% to food costs and 30% to everything else. These restaurants then operate on a 4% margin.[iii]
If we look at a $1 million dollar business, labor accounts for 360,000 of their total operating costs. Assuming all workers earn minimum wage (which means this estimate is looking at the largest possible increase to labor costs as the typical wage for cooks in our region is $11.27 per hour and the typical wage for dishwashers is $10.45 per hour)[iv] their labor costs should increase between 380,160 (if all workers are tipped) and 417,600 (if no workers are tipped). It’s safe to say that the total labor costs will be somewhere between those two numbers. Assuming 50% of work hours are tipped and 50% are non-tipped). The largest possible increase to labor costs for this business would be 398,880 – representing a 10.8% increase in labor costs. However, what is that increase compared to total operating costs? With a 10.8% increase in labor costs, total operating is no longer 1 million, but 1,038,880 – a 3.8% increase in total operating costs. A restaurateur could conceivably raise prices by 3.8% to make up the difference. For a $10 meal, that is a 38 cent increase. In short – in two days 38,000 people should see increases to their paychecks and some prices may marginally increase. By the end of the year – millions more dollars will have gone to the people who drive our economy – workers.
[ii] By comparing the number of FTE’s in Seattle (Employment Security Department Data) to the total number of jobs in Seattle (Puget Sound Regional Council Data) we were able to come up with a rough estimate of the typical hours worked for an employee in Seattle – 1600 hours per year or 32 hours per week.
[iv] According to 2014 occupational wage data at the Employment Security Department the median wage for cooks in the Seattle Metropolitan region is $11.27 per hour and the median wage for dishwashers is $10.45 an hour.
It is not a coincidence that Southeast Seattle has the greatest incidence of people with low incomes and possesses the highest poverty rate in the city. In Southeast Seattle, affordable housing and quality jobs are increasingly hard to find for low-income people and families, who are disproportionately people of color, immigrants, and refugees as a result of the history of segregation. However, the face of Southeast Seattle, and the country, is changing. As of 2012, a majority of the nation’s infants were people of color, which now puts the white population of the country in the minority.
Currently, Seattle is the fastest growing city in the country – average rents have increased even more dramatically in the past year and the trend does not show signs of slowing. Demographic changes in Southeast Seattle and South King County indicate that people of color have been displaced from their communities as the cost of living in Seattle has become unsustainable for them. As a result, low-income communities and communities of color are relocating to resource-poor suburbs while a largely white and wealthier population remains in Seattle. This segregative effect in major metropolitan areas are deepening racial disparities in this city – disparities we have long sought to change.
However, smart planning, policy and investments in the community can mitigate or even reverse this trend. The opposite of gentrification-fueled displacement is “prospering in place” – where low-income people and families can afford to stay where they are, access the region’s economic opportunities and deepen cultural roots in their existing communities.
Low-income communities and communities of color in Seattle have known this far too long and all too well. This past fall, approximately fifty people participated in a convening and survey through the city-sponsored, community-led equitable-development-focused Community Cornerstones program. Six multi-cultural coalitions, two foundations, four business associations and eight city staff from five departments were convened to share equitable development plans and accomplishments, deepen collaborative relationships and explore opportunities to coordinate ongoing efforts.
Through synthesis of the surveys and convening notes from community coalition participants, several overarching themes emerged that Sage was able to connect to project and policy next steps, in a report informed by community.
Growth must be place-based and culturally relevant.
Cultural anchors and community-supported economic development must be prioritized.
Government entities need to understand community vision in order to facilitate positive growth and increase capacity to align programs and funding that make those visions happen.
Community leaders need to be part of decision-making processes.
Multi-racial, multi-cultural equitable development coalitions have emerged and are currently working directly with the city as a resource. These community organizations must be adequately resourced to take ownership of their vision and actively participate in shaping development.
Community organizations expressed a desire for regional cohesion, and that organizations be adequately networked, working across cultures and sectors to become more effective, powerful and farsighted. Only then will meaningful change stem displacement and grow significant economic opportunity in the Rainier Valley.
As a result of climate change, our region can expect increased wildfires, extreme weather and heat waves, which will have a disproportionate impact on people of color and people with lower incomes.
Since our last post, we have advocated with leaders committed to economic and racial justice to ensure tangible benefits for people of color and people with lower incomes from the Governor’s Carbon Pollution Accountability Act (CPAA). Below, we break down exactly what the CPAA does and what it means for people with low-incomes and people of color.
First – the bill sets a limit on carbon pollution and targets big polluters in Washington State. In order to meet this limit, industries that pollute more than twenty-five thousand metric tons of carbon dioxide or more per year will bid on emission “allowances”. The amount of allowances a facility may have per auction will be capped, and the prices of the allowances will gradually increase every year until 2026. The bill prohibits free allowances ensuring that every big polluter participates in an effort to reduce our regions carbon pollution.
What’s the specific benefit for communities of color and people with lower incomes? In addition to reducing carbon pollution, the state will generate $1 billion in revenue from these auctions, which will be used to create clean energy jobs, invest in education, fund more affordable housing, and fund working families tax rebate.
Most importantly for local communities most impacted by climate change, the bill includes a provision for “hotspot” mapping that will show how the disproportional impacts of environmental degradation intersects with communities of color and communities with lower incomes. Additionally, the CPAA creates an Economic Justice and Environmental Equity advisory committee, which allows leaders who are the most impacted by pollution to monitor the CPAA and advise the Department of Ecology on how to spend revenue, creating a pathway for the solutions to climate change to be informed by and benefit the communities most impacted.
A City Council Committee just recommended a promising new policy approach to Seattle’s housing crisis, authored by Councilmember Mike O’Brien. Called a “linkage fee,” the policy establishes a reasonable city-wide fee on construction of new buildings that links job growth associated with development to increased demand for affordable housing. Many cities in the U.S. have adopted linkage fees for affordable housing and multiple studies show such a fee can work in Seattle. Listening to critics, you would think that a linkage fee is the scariest thing since Nightmare on Elm Street, and will frighten away the timid investors who have been paying above top dollar for property in Seattle.
The policy was voted out of the Planning, Land Use and Sustainability Committee yesterday and is headed to Council next week. However, it’s only a resolution that directs staff to write the final ordinance for adoption next Spring, which is two seasons away. So, we though it ‘twas the season for a little debunking of scare tactics being employed by critics of anything asking developers to pay their fair share.
MYTH #1: Developers are being unfairly demonized. They pay taxes just like everyone else.
The best part about the linkage fee is that that the City must demonstrate – for both legal and policy reasons – a causal connection between new job growth associated with a project and the need for affordable housing that it creates. In other words, the fee is used to mitigate an impact that can be “linked” back to the developer, hence the term linkage fee. The policy calls on developers to pay their fair share towards the public bill of creating adequate affordable housing for our growing low- and moderate-wage workforce. Yes, developers pay taxes like everyone else, but their impact on affordable housing is basically an “externality” – a cost they don’t have to bear in making a profit. This is also why it is a mitigation fee, and not an illegal tax.
MYTH #2: A linkage fee will result in less affordable housing being built, not more.
This myth is premised on a simplistic explanation of housing markets and why they contract or expand. Even amidst one of the biggest real estate expansions in Seattle history, for-profit developers are simply not building housing affordable to low-wage workers (60% median income and below). Why build at the lower end when so much profit is available at the higher end? How can linkage fees result in less affordable housing when private, unsubsidized production is already near zero?
Furthermore, fees and regulations have a marginal effect on housing markets – market swings drive real change in supply and demand. David Paul Rosen and Associates conducted a study over a twenty year period in California to determine the impact of inclusionary housing programs (which, like linkage fees, require developers to contribute to affordable supply) on housing production. In larger cities, housing production increased, sometimes dramatically, after the passage of similar ordinances.
The report also found that in no case did the adoption of an inclusionary housing program slow housing production. Based on the City’s own economic analysis, Councilmember Mike O’Brien has designed the proposed linkage fee so that developers will still make significant returns on equity. For example, a tiered fee model is built into the resolution so that slower-growth areas will be subject to a lower fee. Also, the fee level will be reassessed regularly and adjusted for market conditions.
MYTH #3: Over-regulation is strangling housing supply. If we got rid of regulations, the private market could build our way out of the crisis.
This “invisible hand” argument assumes that developers and investors would be willing to build in the lower-end of the housing market if only costs were cheaper. However, housing prices in strong markets are mostly determined by high-end demand. Most new market rate buildings target well-off urban professionals, such as Amazon, Google and bio-tech workers, because those consumers are willing and able to pay top dollar for housing. As a result, Seattle’s overall market is skyrocketing, with average rent increases of 33% just since 2010. As long as Seattle continues to attract and sustain high-paid professionals, developers and investors will continue rational, profit-maximizing decisions to cater to their housing needs.
Moreover, developers will never be able to build enough new supply to a point where prices will meaningfully drop. Even if they could build a fictional, unlimited supply of housing, other counter-forces can slow investment just as lower-end housing becomes interesting to investors. For example, interest rates often rise to cool hot markets, making it more expensive for developers to finance new construction. Production of housing is just as likely to slow for reasons unrelated to local regulations and prices will remain high.
As we have most recently seen with the massive housing market crash, a lack of regulation is often the problem, not more regulation. Regulation can act as a buffer to unpredictable and imbalanced markets. In fact, regulatory requirements to protect the environment, workers and consumers have often led to an increase in economic activity.
With a reasonable amount of funds to build affordable housing, the City can provide assistance to those negatively impacted by the swings of financial markets and the gross inequality they create. Even in San Francisco.
MYTH #4: If you increase costs for developers, they will just pass that onto renters.
Suppose there are two developers building identical buildings with the same market-rate rents. All costs are equal, but one developer took a higher interest loan than the other. Will the higher interest loan developer pass the cost onto renters? If she did, her rents would be higher and tenants would go to the second developer. The term “market rent” is precise – it represents the most a landlord/developer can charge for a given product. If a landlord could charge more in a given market, they already would – a City linkage fee will not change market rents or housing prices.
Further, over time, the cost of the regulation is largely absorbed into the price of land, not the cost of development on top of the land. When cities impose new requirements on buildings – such as safety, health or environmental regulation – it puts a damper on the increases in commercial land value. The property owner does end up absorbing the cost; however, landowners in Seattle have been enjoying exponential growth in value and benefit from business expansion, population growth and massive public investment in infrastructure.
MYTH #5: Linkage fees are a tax on density. Developers now have less incentive to build up, resulting in lower-density growth.
Currently, developers can gain bonus density to build higher and bigger through the City’s multiple incentive zoning programs. The linkage fee does not take away any of these incentives – developers would be allowed to continue to access the bonus density. Also, existing incentive zoning ordinances will be amended with a provision allowing for the payment of the linkage fee as satisfaction of the incentive zoning program.
Additionally, the relative cost of a linkage fee reduces as developers build to a greater density. Here’s why: shorter buildings (under 85ft) are built primarily with wood. Above that, much more expensive materials are used – concrete and steel. For example, say that a developer is choosing between a seven story, wood-frame residential project and a 24 story concrete and steel structure in South Lake Union. The linkage fee per square foot would be the same for both buildings. As the developer builds higher, the fee decreases as a proportion of total construction costs per square foot. In other words, the linkage fee becomes relatively cheaper the higher you build.
MYTH #6: Developers did not have time to weigh in. We should slow down.
Developers have not been left out of the discussion or debate. Consultants have been studying how to improve on the City’s Incentive Zoning policy for an entire year with many occasions for public review and discussion. The economic and financial feasibility assumptions forming the basis for the linkage fee have been informed by developers in multiple venues.
More importantly, growth is happening now and we need more affordable housing now. There is no time to wait. City Council should adopt the strongest linkage fee feasible and the fastest timeline possible.
Martin Luther King once said something that is scarier than these scare tactics: “we must learn to live together as brothers or perish together as fools.”