DC Government Faces New Budget Gap

June 23, 2009

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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How to Balance the DC Budget

March 7, 2009

Like state and local governments across the country, the District of Columbia is confronting a large budget gap for FY 2010. The Chief Financial Officer now says that revenues will fall $800 million short of earlier projections. Even if the city uses what will remain in federal stimulus funding, it will still have an estimated $425 million gap to close.

When a shortfall in the current budget was first projected, the City Council addressed it solely by reducing expenditures. Nearly 50% of the reductions were cutbacks in programs that serve the District’s homeless and other low-income residents.

These essential safety net programs are highly vulnerable to further cutbacks. They will be especially so if the Mayor and City Council choose to balance the FY 2010 budget by cutbacks alone. They have another option–a prudent mix of cutbacks and revenue expansions.

This is what the Coalition for Community Investment recommended in its principles for collaborative budget decision-making.

Now CCI has followed up by offering D.C. policymakers a range of savings and revenue-raising options that would not overly burden hard-pressed residents, businesses or the local economy.

They include:

  • Actions that will generate savings or additional revenues without any changes in tax rates or fees
  • Changes in tax legislation that would not increase rates
  • Expanding the base of existing taxes to capture additional revenue from high-income residents and out-of-town visitors
  • Increasing select fees that are disproportionately low compared to those in neighboring jurisdictions
  • Raising taxes on cigarettes, commercial parking and/or alcohol sold for off-premises consumption
  • Establishing a new top income tax rate for high-income families–here again aligning District revenue raisers more closely with those in nearby communities

CCI has given the Mayor and City Council thoughtful, expert advice on how to balance the budget while preserving critical investments in programs that expand local economic opportunity and support D.C. families–including those whose hardships are greatest.

What’s needed now is grassroots support to make sure the decision-makers listen. CCI has a suggested message on its website, along with the Mayor’s e-mail address. Contact information for City Council members is in the Council’s online directory.