DC Government Faces New Budget Gap

As reported, the Chief Financial Officer for the District of Columbia has issued a revised revenue forecast. The news is not good. He now estimates a further $190 million drop in revenues for this fiscal year and a Fiscal Year 2010 shortfall that’s $150.2 million greater than the one used to develop the budget.

The Mayor can tap the “rainy day fund” to cover the current deficit. But that leaves the FY 2010 deficit, plus the need to replenish the “rainy day fund.” So the Mayor and the City Council have to go back to the drawing board because the District must, by law, operate with a balanced budget.

Programs that serve low-income people are highly vulnerable in situations like this. Last November, for example, the Council closed a projected budget gap with cuts that hit these programs hardest. Councilmember Jack Evans, who chairs the Finance and Revenue Committee, now talks of having to look for funds in the education and human services areas.

For FY 2010, the Mayor and the Council closed the then-projected budget gap with a mix of program cuts and revenue raisers. Perhaps they can find some further savings that won’t undermine critical services. But I think it’s time they revisit the revenue side of the ledger.

They’ve already frozen the cost-of-living adjustment for the homestead property deduction. More of the same will only work further hardship on low-income residents. Councilmember Jim Graham has proposed an alternative that would shift more of the tax burden to the wealthiest residents–a new top income tax rate for filers with taxable incomes above $500,000.

As I wrote awhile ago, the proposal was all but DOA in April. But that was then and this is now. And the DC Fiscal Policy Institute’s arguments in favor still make good sense.

States across the country are grappling with similar–and, in some cases, much larger–revenue shortfalls. The Center on Budget and Policy Priorities reports that at least 23 have enacted tax increases. Several have adopted new top tax rates and/or other changes focused on high-income filers, e.g., a reduction in the capital gains exemption. At least three others are considering similar measures.

As CBPP says, many prominent economists have concluded that raising taxes during a recession–particularly those that affect only high-income families–is generally better for a state’s economy and its citizens than deep budget cuts.

Evans thinks otherwise. “Tax increases,” he says, “only delay the inevitable.” But why? Can’t a sustainable revenue raiser avert needs to cut funding not only now, but later?

Let’s hope that the Mayor and other Councilmembers look carefully at all their options. Because there’s no need to balance this budget on the backs of the poor.

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