DC Council Chairman Rethinks Taxes

August 25, 2011

So DC Council Chairman Kwame Brown thinks that maybe a new top income tax bracket would be okay after all. As Washington Post reporter Tim Craig tweets, “BIG Change.”

Yet, as Brown explains it, the income tax increase he has in mind comes with strings attached.

The first string — and undoubtedly most important to him — is that the new bracket would replace the tax on out-of-state bond interest the Council passed in mid-June and then backtracked on a couple of weeks later.

Mayor Gray wouldn’t go along with the alternative the Council passed. So now it has to find about $13 million.

One option, of course, is to start collecting the out-of-state bond interest tax next year, as originally planned. But some bondholders have reportedly raised a ruckus.

All of a sudden, the new income tax bracket, which Brown staunchly opposed, looks more attractive. Also perhaps more attractive to Councilmember Mary Cheh, who was against it but strongly objects to the bond interest tax.

Now for the second string — one that, so far as I know, has no history or analysis behind it. All the revenues raised from the new tax bracket would have to be dedicated to maintaining city-owned properties — or perhaps to maintaining only schools, parks and community centers.

Craig says that Brown’s new-found openness to the tax bracket “could represent a major break through for progressive advocates, who have long argued the city needs a more progressive tax structure.”

Well, yes, we have. But I, for one, have reservations about Brown’s trial balloon.

First off, the Gray administration estimated that the new tax bracket would raise $10 million next year. So it looks as if the Council would still be short some $3 million.

Where will the extra money come from? Might the Council whittle down funds it restored to some key safety net programs that Gray’s proposed budget had cut?

Call me paranoid, but programs that serve low-income residents have repeatedly been tapped when revenues were short.

The second and larger issue is the restriction. Why should property maintenance get an indefinitely large revenue stream, untouchable for any other priority?

No question that schools, recreation centers and the like should be kept in good repair. But what much would that cost per year?

Surely the Council should have a good fix on the figure before it votes to dedicate the entire new bracket’s revenue stream. Also a plan for the millions I suppose would be freed up, since I assume the budget already makes some provision for maintenance.

And what about future years? Even with a slow economic recovery, we should expect revenues from the new tax bracket to rise — maybe more than essential maintenance requires. Yet the excess couldn’t be used for anything else — unless the Council “undedicated” it.

Meanwhile, there’s every reason to believe that other vital programs and services will need more local funding.

The Council, for example, has agreed to large cuts in funding for key affordable housing programs — unless next year’s revenues prove many millions of dollars more than projected.

Seems to me it would want to undo the damage in future budget cycles. Also to anticipate increased needs for homeless services, precipitated in part by the affordable housing cuts.

Cash benefits under the Temporary Assistance for Needy Families program have been cut for long-term participants. For the rest, they’ve been frozen since 2008, pushing families who depend on them further and further below the federal poverty line.

Our unemployed and under-employed residents need more and better job training. And whatever comes of the Gray administration’s outreach to Wal-Mart and other corporations won’t yield either funds or the types of training needed to move a significant number of people into jobs that pay enough to cover the high costs of living here.

We read that Mayor Gray is calling for more federal help. But the end result of the deficit reduction deal will almost certainly be less — not only for job training, but for a wide range of other critical needs.

Seems to me then that it would be extraordinarily imprudent to do anything that would limit funding choices now.

DC Council Looks To New Revenue Estimate As Answer To Conflicting Priorities

May 18, 2011

Monday’s DC Council budget discussion answered my question about where the money’s going to come from to restore cuts Councilmembers don’t like while also rejecting revenue raisers they really, really don’t like.

Or rather, it answered the question of where Councilmembers think it will come from. They’re banking on the next revenue estimate from the Chief Financial Officers.

Council Chairman Kwame Brown says the estimate will show at least $20 million — maybe as much as $60 million — more than the estimate the Gray administration used for the proposed budget.

Councilmember Jack Evans, who chairs the Finance Committee, says it could be as much as $90 million more.

But the Council’s apparently not going to use much of the found money to restore the deep cuts the mayor’s budget makes in affordable housing or key safety net programs.

Council Chairman Brown’s plan would allocate just 25% for the entire range of programs that “assist District residents in need.” Assuming his hopeful $60 million projection, that could still mean cuts totaling at least $116 million.

So it seems that homeless families may get year-round shelter. But judging from the discussion, homeless individuals will still be on the streets, except during the winter season.

Families that the Temporary Assistance for Needy Families program hasn’t helped to achieve self-sufficiency will probably, as one Councilmember remarked, be punished for the program’s failures.

Low-income individuals with severe disabilities will be on their own for the many, many months they wait to get approval for Supplemental Security Income.

Under the Chairman’s plan, another 25% of the additional revenues would go to investments in the District. Given the cryptic description and the heated discussion, a portion could, in effect, substitute for revenue raisers that some Councilmembers find gravely offensive.

At least four take out after the notion that the residential parking fee for a second car would go up to $50. How, Councilmember Evans asks, can his family get along without two cars when he and his wife have six kids?

And, as Greater Greater Washington reports, Councilmembers Mary Cheh and Muriel Bowser join him in arguing for a rollback in current downtown parking rates — though Cheh half-retracts later.

But I’m guessing that top priority will be given to building up the police force. Councilmembers spent at least twice as much time on how much bigger it should be than on the impacts of the cuts to safety net programs.

What about the remaining 50% of the future found money? Brown’s plan would allocate it to replenishing the general fund reserve balance.

Note that the Council has already passed legislation to do this, using funds agencies haven’t designated for spending by the end of each fiscal year.

Very different from creaming off revenues that are urgently needed to shore up core programs for the fiscal year ahead. And besides, tweets the DC Fiscal Policy Institute, the fund reserve has got at least $890 million now.

In any event, Councilmembers are counting chickens that haven’t been hatched. They’re scheduled to vote on the Budget Request Act (the actual budget for next fiscal year) and the Budget Support Act (the legislation needed to implement it) on May 25.

If past is prologue, the revised revenue estimate won’t be issued until some time after the Council must cast its second and final vote on the BSA.

And it must vote for a budget that’s balanced on the basis of the latest revenue estimate. So the best it can do is write into the BSA how any additional revenues that materialize will be used.

Will it use this option to kick the hard, divisive decisions into the future? Guess we’ll find out next Wednesday.

UPDATE: After I posted this, DCFPI published its own posting on the next revenue forecast and Council Chairman Brown’s plan to commit half of any additional revenues to building up the fund balance. It says the balance is expected to be $690 million by the end of this fiscal year.

UPDATE #2: I just saw the complete set of PowerPoints distributed to Councilmembers. It shows that the second vote on the BSA will be June 14 — later than the schedule I used to predict that the vote would occur before the Council get the next revenue estimate.

If Not Tax Increases, What?

May 14, 2011

Spent a good part of last Monday watching the DC Council hearing on Mayor Gray’s Fiscal Year 2012 budget. None of the six Councilmembers participating was ready to go along with all the proposed revenue raisers that would help close the $322 million budget gap.

Much has already been written about the split over the proposed income tax increase. What was news, at least to me, was that even Councilmembers in favor of that balk at extending the sales tax to live performances.

Bad for the cultural vitality that makes the District an attractive place to live.

So there goes an estimated $2.3 million — not much, but it has to be made up somewhere.

Then there’s the matter of $22 million or so that the mayor’s budget would shift from two special accounts established to fund neighborhood development projects. “Not fair,” says Councilmember Jack Evans. “Disingenuous,” in fact.

And the matter of the large funding reduction for homeless services. Council Chairman Kwame Brown repeatedly expresses concerns about impending shelter closures.

Says he intends to look for a way to restore the lost funds. That’s at least $7.1 million, since he seems committed to sheltering only homeless families and victims of domestic violence.

Also to addressing the perceived need for more police officers. Another $10 million there.

So where are these millions going to come from?

Not from an income tax increase, it seems. Council Chairman Brown and participating colleagues Bowser, Evans and Catania all reiterate adamant opposition.

Brown since has said he’ll accept the deduction limit, but not the rate increase, which accounts for the larger share of the $35.4 million the mayor’s proposal would raise. Questionable whether he can corral a majority for this.

Catania rails against “the tired old notion of tax increases” — apparently referring to the idea that high-income residents should pay higher rates.

Seems he’s again holding out the possibility that he’d support a uniform across-the-board rate increase. “Whether people can afford to contribute” is something he “doesn’t care about.”

But this is merely a rhetorical flourish. He repeatedly insists that spending cuts versus tax increases is a “false either/or.”

When he became chairman of the Health Committee, he reviewed every item the departments the committee oversees spent money on. Found a lot of excess expenditures. Would that other committee chairs had done the same.

The answer, Catania says, is to go after our “gout-ridden government” — shrink “the bureaucracy that continues to feed itself.” This apparently would not qualify as a spending cut.

We heard a less florid version of the same from witness Barbara Lang, President and CEO of the D.C. Chamber of Commerce. She, on behalf of members, objects to all tax increases. Also wants the funds cut from small business technical assistance restored.

The local government, she says, isn’t operating efficiently. Implies that eliminating unnecessary and redundant functions would allow the government to deliver all essential services without raising either taxes or fees.

Now, I’m the last one to say that the District government — or any government for that matter — is as efficient as it could be. Surely some functions are duplicative, unnecessary or of such low priority that they could, in theory, be eliminated.

But let’s get real. Virtually every function — indeed, every significant expenditure — has supporters that would make meaningful reductions politically difficult. Recall, for example, what happened when former Mayor Fenty tried to fold the Office on Asian and Pacific Affairs into a larger unit.

More importantly, the Gray administration and the Council would have to find — and agree on — some $127 million in “efficiencies” in order to balance the budget with no tax increases or yet deeper cuts in core services.

Also somehow to accommodate the cost impacts of a large increase in unemployed residents — not only government employees, but those employed by contractors and the many local retailers that would come up short on revenues.

And they’d have to do it before May 24, when the Council is scheduled to vote on the budget.

All this efficiencies business is just a distraction from the very real choice between adopting even more significant revenue raisers than the mayor has proposed or creating even greater hardships for low-income District residents.

NOTE: Just as I was finishing up this posting, Councilmember Evans marked up the Finance Committee’s share of the proposed budget. Under his leadership, the committee majority rejected virtually all the revenue raisers. This reportedly leaves the budget shy nearly $119.5 million.

Like Catania, Evans claims that revenue raisers versus deep cuts in social services is a “false choice.” No hint as to what the real choice is.