1.
Seattle is not falling—yet. That is the central message of “Seawall: Building a Resilient Seattle Economy,” a 127-page independent study commissioned by the City of Seattle and released at a moment of real fiscal anxiety. The report’s title is borrowed from the city’s rebuilt waterfront seawall, which was designed to hold back the sea while creating habitat for marine life. That is exactly the model the researchers from the economic consulting firm Formation propose for Seattle’s economy: build a hard protective barrier around what already works, but use that stability as a foundation for new kinds of growth. The overall verdict, in their words, is that Seattle “may not be in decline, but it is in danger.” For a decade, Seattle grew in way that lifted wages at almost every income level, a distinction shared by few U.S. cities. The boom pulled people up and made the area more diverse in its prosperity. But it also made the city dramatically more expensive, especially for families. Since then, the picture has become harder to read. The city has produced astonishingly concentrated strengths: almost a quarter of the nation’s AI engineers live here, and Seattle tech workers generate more than twice the national average output per worker. It combines tech and manufacturing in ways few regions can. And yet the report says that same economy is now dangerously concentrated, far more exposed to AI disruption than the country as a whole, running short of electricity, and no longer creating the kinds of mid-sized companies that once made a local economy self-renewing. Danger does not come from losing its place in tech. It comes from the possibility that tech—or one or two giant tech companies—may change suddenly and sweep all the city’s eggs along with it.
2. The sharpest issue the report identifies is Seattle’s tax code. Local business taxes are mostly in line with rival cities, the report says, but Seattle is unique in one specific way: its tax structure directly punishes employers who hire senior, high-compensation workers, and that penalty falls overwhelmingly on large technology companies. This is the JumpStart payroll tax, passed by the City Council in 2020 and effectively a payroll expense tax that grows with salaries. The report includes stark comparisons. A company hiring a software engineer at $650,000 in total compensation pays about $17,000 more per hire in Seattle than in nearby Bellevue. For an employee earning more than $1 million, Seattle tax exceeds Bellevue by more than $33,000. San Francisco has no per-employee tax like, and New York City’s equivalent is less than $6,000. Two features make Seattle’s tax oddly punitive, according to the report: the rate rises with each employee’s compensation, and a firm that crosses a certain payroll threshold pays the higher rate on all qualifying workers, not just the next one. “No other comparison city has a tax with both of these features,” it says. The report also captures a less tangible but perhaps more important reaction among business leaders. They describe JumpStart as a problem not primarily because of the dollar figure, but because the political process that created it sent the message that the city’s governing “orientation is fundamentally extractive.” Even if that perception is unfair, the report acknowledges, perception lowers location decisions. Yet the report notably does not recommend eliminating the tax. Tax effects on firm location are modest, and in any case Seattle is unlikely to lose its biggest employers to some other region: the alternatives are either more expensive or have weaker talent pools. The true danger, the authors write, lies only one direction: “The Eastside is the only real threat in that regard.” And in a line that captures their full sentiment: “If they leave, Seattle won’t become more equal, it will just become poorer.”
3. The report digs further into how dependent Seattle’s City Hall itself has become on a handful of giant firms. Three-quarters of the entire payroll tax collected from large employers comes from just ten companies, and nine of those ten are in tech-related sectors. To make it more dramatic, the report observes that a single tech employer moving 10,000 workers out of Seattle would cost the city approximately $50 million per year in JumpStart revenue. That is more than a quarter of the gap in next year’s projected $175 million deficit. What makes this even more dangerous is the fact that much of the taxed compensation is stock that vests only after time, so its value fluctuates with stock market. This means Seattle’s revenue is tied to what the report calls the most volatile aspect of these companies, and the city has no way to forecast it or influence it. “In that way,” the report says, “much of the city’s financial future depends on the marginal location and compensation decisions of a handful of employers.” The report pushes back on the doomsday narrative that Seattle is becoming “the next Cleveland,” a phrase that was made famous by tech investor Charles Fitzgerald in a GeekWire column. That comparison is “likely hyperbolic,” the authors write, even as they acknowledge it caused quite a stir. They more relevant warnings signs have Seattle look at Portland, which has simply piled tax on tax roughly no economic effect, and Los Angeles, which has radically deep talent pools but struggled to turn them into a broad set of employers. Interestingly, however, no large tech employer was among the institutions interviewed for the report. The report acknowledges dozens of civic and business groups, but no Amazon, no Microsoft, no big tech firm directly. Fitzgerald, in a response blog post, said that Seattle “has finally admitted there is an economy,” but complained about “no businesses involved” in the city’s thinking on economic matters. The lead person who did the tax and cost analysis,according to the report’s coauthor, formerly ran human-based “HQ2” recruiting at the Virginia Economic Development Partnership, so she knew how large employers decide location.
4. So what is Seattle supposed to do? The headline recommendation is to accept the city cannot rely forever on a handful of giant elephants, and to start building an economy more like a diversified ecosystem. The report identifies five industries worth focusing on: artificial intelligence, cleantech, maritime, life sciences, and space. Among those, AI is the biggest existential question, but the report grants that Seattle has almost no ability to shape the AI industry’s future. Cleantech, however, is the place where the city has unique levers. “The city should be most concerned about AI but most active in cleantech,” the report says, cleanly summarizing its strategy. Cleantech means not just solar panels or windmills, but a broad field of clean energy generation, energy efficiency, sustainable forms of production and new materials. The city controls many of the entry points to that industry: Seattle City Light electricity utility, the building codes, permitting, and large amounts of land. If the city wants to grow something, it can actually move from paper to results. The report points out that local investor funding for clean energy has already begun accelerating; close from 3% of all venture capital from 2016 to 2020, and booming to 20% from 2021 to 2025 due to three standout companies, TerraPower, Helion and Group14. But Seattle can also do buying-power tricks. The report notes that New York City sparked two cold-climate heat producers to build in the district and be fulfilled with public housing based in new markets by ordering it through the city’s own purchasing power. In order to reach the top tier of cleantech ecosystems, the report says the city should create a dedicated entity spending at least $5 million a year, with funding from ratepayer charges, philanthropy, corporate sponsorship, and new public federal grants. The larger point is not for the city to pick winners so much as to build the environment that multiple kinds of companies can survive big shifts. The “seawall” is exactly that: stabilize the existing base of tech, but create a multi-layered foundation under it.
5. The report lands in the middle of a political storm, and Mayor Katie Wilson is its main point of focus. Wilson helped design JumpStart before she was mayor; her campaign website once proudly said she “played an instrumental role in designing and passing” it. Now, as mayor, she released this report with an executive order that runs a “working group” of business, labor, community and civic leaders, directs city departments to improve permitting pathways, and calls for the eventual creation of a Seattle Strategic Initiatives Fund. Wilson called the report “super nuanced” and “fantastic” in a radio interview, but her office emphasized that the findings are independent and not city policy. In her public appearances she has had a more valiant stance toward the tech community. In May, she acknowledged the core problem that “I don’t think it is good that it is less expensive to do business in Bellevue than in Seattle. We’re going to take that into consideration.” But in June, she defended JumpStart, crediting it with helping the city recover from the pandemic and warning against painting downtown’s troubled recovery as “one single cause.” In April, when asked whether wealthy taxpayers being taxed by a new state millionaire tax, Wilson said jokes that concerns were “overblown” and then said if they leave, “bye.” That moment went viral and edgy tech investors. The report was particularly sobering in that context: it does not recommend reducing the JumpStart rate, but it does say that pushing too far into a new state’s 9.9% income tax on earnings above $1 million will leave Seattle households facing a combined state and local marginal rate of 10.5%, beyond which further taxation would be a “high-stakes tax experiment.” In other words, if the city wants to guard against concentration, it may have to find new revenue outside a purely “tax the rich” approach.
6. At the end of the day, the report is not a list of simple fixes; it is a warning mixed with hope. On taxes, it says outright that other local options under discussion—such as vacancy taxes, wealth taxes, background taxes above JumpStart, and expanded gross receipts schemes—would either be illegal under state law or push out vulnerable firms and workers who are exactly what Seattle must retain. It does not, in the end, say whether to raise or lower the JumpStart top rate. That rate applies to only two or three companies, and one of them is by far the most dominant. The report says this is fundamentally a question about how that single firm will react, and “it is not a question the report, or the literature it draws on, is equipped to answer.” For that reason, the report’s primary recommendation goes beyond Seattle City Hall. It suggests Wilson should team up with other mayors and county executives around the state to build a cross-partisan coalition, put pressure on Olympia and demand new revenue tools, including reforms to Washington State’s 1% cap on property tax growth. There are also some very practical first-year actions: create a business-led commission on fiscal risk and AI, make a senior mayor’s office staff member responsible for the city’s AI and make it cheap enough for workers to do AI, help life sciences and AI business get started, and become now a lead customer for cleantech startups. It includes a childcare cost-sharing pilot paid partly by employers, partly by employees, and partly by JumpStart revenue. As for the overarching philosophical question of whether Seattle should just stop growing, Wilson was asked about a radio question about whether there is a limit to how much Seattle should grow. She said she shared the concern, but the report makes it clear that there is “no graceful path” for the city to cool down growth. “We can’t go back to the ’90s,” she says. That may be the report’s message in one sentence: the city is loved, but burdened; mature, with specific vulnerabilities; and in danger—not failure—but the kind that only comes from being too strong in some dangerous ways. The study is not a call to arms; it is a more human, more urgent version of the old warning: the floor can hold for you now, but not forever. It’s time to build the seawall while the water is still at a distance.
