In a city still reeling from a series of school closures under the Fenty administration, education leaders in the District are abuzz over a controversial report on the school system released last week. Commissioned by the Deputy Mayor for Education, “Quality Schools: Every Child, Every School, Every Neighborhood,” also known as the IFF study, recommends that the city close or turnaround 38 traditional public schools and three public charter schools and encourages the replication of high-performing charter schools in  neighborhoods with  the greatest need. DC officials have issued reassurances that there will not be any dramatic transfer of the city school system to public charter schools, but the study has sparked tensions between advocates of traditional public school and public charter schools.

The study analyzes supply and demand for “performing schools” in DC and provides data on the ten neighborhoods that have the largest gap in education service. This is defined as the difference between the number of students living in the neighborhood and enrolled in K-12 public schools (the demand) and the number of seats available in high-performing schools as defined by IFF (the supply). The study relied on DC-CAS test results to measure the number of “performing seats” at each school. IFF developed a four-tier system to rank schools from highest performing (Tier 1) to lowest performing (Tier 4) across 39 neighborhood clusters in the city. Not surprisingly, the need for performing seats was highest in DC’s poorest neighborhoods and for elementary school grades. Over half of the Tier 4 schools are located in Wards 7 and 8 and out of the additional 39,758 Tier 1 seats needed to meet demand across neighborhoods, 21,164 are for kindergarten to fifth grade.

One of the report’s main recommendations is to close or turn around Tier 4 DCPS schools and replace them with high-performing public charter schools. The researchers go as far as to suggest an incentive to maximize existing building capacity – “With cooperation and coordination between DCPS and PCSB [Public Charter School Board], PCSB can use the buildings as incentives to recruit the highest performing charter school operators into the Top Ten priority neighborhood clusters.”

DCFPI’s take? Policymakers should take the analysis with a grain of salt. There have been numerous criticisms of the study, from the rigor of the supply and demand analysis technique to IFF’s ties to charter school funders. For example, the researchers base their definition of quality on a school’s test scores rather than on student achievement growth from year to year, a better predictor of how well equipped schools are at teaching at-risk student populations over time. IFF also did not make the link between performing seats and schools serving large numbers of special education or English language learner students or poverty rates across neighborhoods. Ignoring these critical factors when making policy decisions regarding school closure, turnaround, or expansion would be short-sighted.

The Fair Budget Coalition has kicked off its advocacy efforts on the fiscal year 2013 budget.  A new report from Fair Budget challenges Mayor Gray to “Make One City Possible” for all DC residents by targeting resources on DC’s two most pressing challenges: reducing unemployment and helping residents remain in the city amidst sharply rising housing costs.

Although DC is beginning to rebound from the recession, economic growth is uneven, as in the nation as a whole.  The District’s downtown commercial market is strong, yet record numbers of residents are looking for work.

The Fair Budget Coalition’s recommendations center on these two themes: Creating opportunities to live in the District and to find meaningful work. The coalition urges Mayor Gray to restore deep cuts that have been made in the recession, and in some cases, to make new investments in these areas.

Creating Opportunities to Live in the District: The Fair Budget Coalition’s recommendations to help residents afford to live in DC focus on creating opportunities for better housing and health outcomes. They include re-investing in core housing programs, like the Housing Production Trust Fund and the Local Rent Supplement Program, and maintaining the Home Purchase Assistance Programs. The recommendations also branch out to include health concerns, such as ensuring that DC residents maintain health insurance and protecting victims of domestic violence.

Creating Opportunities to Work in the District: With hopes that the District will tackle its high unemployment rate, the Fair Budget Coalition recommends investments and policy changes that will help resident build skills and create prime environments for employment.  The coalition recommends restoring cuts to adult literacy and child care, and creating a new pilot program to provide housing to homeless families in job training — making it more likely that the training can be completed.  Fair Budget also suggests that DC focus job training efforts on growth industries that offer higher wages.

The Fair Budget Coalition notes that making these investments is critical to DC’s future, and that policy makers should be open to raising revenues, if needed, to support these goals. They offer several revenue-generating ideas, such as requiring two-earner families to report their income together on their tax return, and raising penalties for violating worker protection laws.

The Fair Budget Coalition’s report can be found here.

District Dime readers should have received their W-2 by now. The W-2 form summarizes both your wages earned and your federal, state and local taxes withheld in 2011.  While the thought of tax season officially being upon us may raise some people’s blood pressure, it is also a very important time for low-income families.  

Why? Tax season is the time when families can access one of the most effective anti-poverty programs around, the Earned Income Tax Credit (EITC).  And it is also the time that the DC Earned Income Tax Credit campaign ramps up, helping low-income families learn if they are eligible for this program and help them file their taxes for free. 

The EITC is a refundable tax credit designed to encourage work while also offsetting the payroll and federal taxes that take a huge bite out of low-income working families’ paychecks.  In 2010, the EITC lifted 6 million people out of poverty nationwide, half of them children.  Without the EITC, the national poverty rate would have been one-third higher.  

The EITC was started as a federal program in 1975. Since then, 25 states, including DC, have adopted their own state level EITCs.  The DC EITC is equal to 40 percent of the federal credit and is one of the largest refundable state-level EITC’s in the US.  In 2008, approximately one in six DC tax filers received the EITC. 

The EITC can provide a significant boost to low-income families’ earnings.  For example, a single parent with two children who had $10,000 in taxable income would be eligible for a $4,000 federal EITC and a $1,600 DC EITC, boosting their earnings by 56 percent.  

The DC EITC Campaign not only provides free tax preparation services to low-income families in the DC metro region but also works to provide outreach and awareness of the tax benefits that low-income families are eligible to claim. This is important because DCFPI estimates that as many as 11,000 DC residents who are eligible for the federal and DC EITC did not claim it. 

I volunteer as a tax preparer with the DC EITC campaign, and I see the difference the EITC can make for low-income families.  If you’re interested in joining the effort to help low-income families access the EITC and other low-income tax benefits, visit the DC EITC’s campaign website and sign up today.

DC’s Certified Annual Financial Report, or CAFR, for Fiscal Year 2011 (FY 2011) was released today and came with some good news: The District ended FY 2011 with a $240 million surplus.  The surplus reflects a combination of higher revenues (some of which had been anticipated in previous revenue forecasts) and below-budget spending in some agencies.

While clearly this is good news, several questions about the surplus have been raised, including whether this means DC didn’t have to increase revenues for FY 2012, what will happen with the surplus, and how this news impacts the FY 2013 budget.

Here’s a quick Q&A. We’ll have more to say about the CAFR soon.

Does this mean the District should roll back the tax changes made last spring and fall? DCFPI agrees with Mayor Gray, who said at the CAFR press conference this morning that the District’s finances remain fragile. It’s important to keep in mind that the CAFR is for FY 2011, and that revenue changes such as the increase on high income earners were made to balance the budget for the current fiscal year, FY 2012, and beyond. District leaders construct the budget based on quarterly revenue projections from the Chief Financial Officer. Again, the surplus announced today only covers FY 2011. Dr. Gandhi’s next projection will arrive sometime in February, but the projections last December showed a loss of revenue in FY 2013 and beyond due to potentially significant cutbacks in the federal government.

In other words, right now it appears that the surplus in Fiscal Year 2011 was a one-time gain. As Mayor Gray said, it would not be prudent to make policy changes now based on funds that cannot be projected for FY 2013 and the four years beyond that DC is required to budget.

What will happen with the $240 million? Under current law, the funds will be sent to DC’s savings account, often referred to as the fund balance. Right now, any end-of-year surplus funds are devoted to two separate accounts in the city’s fund balance: Half goes to a “Working Capital” fund, helping ensure that DC has enough cash-on-hand to pay its bills without extensive short-term borrowing. The other half of any surplus goes to a budget reserve that is available to meet unanticipated needs, but—as credit card commercials often say—certain restrictions apply.

What could be done with the surplus? Mayor Gray and the DC Council have made clear that building up DC’s savings is a high priority, and Mayor Gray seemed to indicate that he favors keeping it in the fund balance. The mayor could propose to use some of the surplus funds, but this may not be prudent at this time for these reasons:

• Surplus funds are one-time and impact only FY 2011. If program funds are increased or taxes are lowered, it would impact FY 2012 and beyond.
• DC is facing spending pressures this year. Just four months into FY 2012, a number of agencies have spending needs that exceed their budget. Other spending pressures may arise as the year continues.
• We won’t have a clear sense of the city’s finances until the February revenue forecast.

For these reasons, it makes sense, for now at least, to let all of the surplus stay in the fund balance.

What does this mean for FY 2013? This may be a sign that agency spending is on a trend that is lower than expected and that revenues are on a higher than expected trend.  This could be good news for FY 2013, but we won’t know for sure until the revenue forecast is released and the CFO issues a “current services” baseline budget for 2013.

Stay tuned to the District Dime!

Should DC try to recruit talented teachers to low-performing schools though financial incentives? A teacher incentive bill introduced in November by Chairman Kwame Brown, The Highly Effective Teacher Incentive Act of 2011, would do just that on a pilot basis. It was discussed this week in a public hearing, drawing valuable feedback on the structure and rollout of the program.

Too often, urban school districts like DC face the challenge of attracting and retaining high quality teachers to public schools plagued by high poverty rates and limited resources. Brown’s bill proposes a three-year pilot program to place a maximum of 20 teachers in four high-need schools with the following incentives:

• A bonus of $10,000 per year each year that the teacher remains in the high-need high school (in addition to any IMPACT bonuses);
• Homebuyer and other housing assistance;
• Tuition assistance;
• Loan repayment assistance; and
• Income tax credits.

Both DCPS and public charter schools would be eligible for the program, if passed.

The Office of the State Superintendent for Education reported that 38 of the 218 DC schools are currently identified as high-need, which is defined as schools of 200 or more students that have been in existence five or more years, where less than 40% of their students meet reading and math proficiency and more than 75% of students qualify for Free and Reduced Price Lunch. Earlier this week, Bill Turque noted the uneven distribution of effective teachers – of the 663 teachers deemed highly effective on the latest IMPACT evaluations, only 71 work in the 41 schools in Wards 7 and 8, while 135 teach in the 10 schools in Ward 3.

IMPACT, DC’s existing teacher evaluation system does reward highly effective teachers with bonuses up to $25,000 and base salary increases up to $20,000, but does not directly address the distribution of high quality teachers. DCPS Chancellor Kaya Henderson expressed support for the pilot program, after a provision to exempt participating highly effective teachers from IMPACT evaluations was removed. She and other witnesses pointed out that incentives alone do not cut it — that teachers also need a supportive environment with good principal leadership and parent engagement. Henderson also noted DCPS’ recent efforts to lure effective principals back from Montgomery County by adjusting their pay scale.

Some witnesses expressed concern that the IMPACT system is being used as the basis to identify highly effective teachers for the program, given its controversial nature in DC; others thought the timeline for the pilot program may be too short to see results in student performance.

It is becoming increasingly clear that effective teachers play a critical role in bridging achievement gaps and that the lack of a high quality teacher can adversely affect student success when stacked against poverty and other socio-economic factors. Whether or not financial incentives alone are the answer remains unclear, but it is good that DC’s leaders are thinking about how to address this important issue.

Today, the DC Council held a roundtable on Mayor Gray’s proposed supplemental budget for this year. Why are we looking again at this year’s budget? Two reasons: Chief Financial Officer Natwar Gandhi reported $42 million in additional revenue for this year, and certain programs need more money to operate, in what some like to call a “spending pressure.”

DCFPI’s take? Let’s not make rash spending decisions. We’re only four months into our fiscal year. Let’s put the additional money aside until we get a clearer picture of what our spending pressures will be for the entire fiscal year.

Our complete testimony is below:

Chairman Brown and members of the committee, thank you for the opportunity to testify today. My name is Jenny Reed, and I am a policy analyst with the DC Fiscal Policy Institute. DCFPI engages in research and public education on the fiscal and economic health of the District of Columbia, with a particular emphasis on how policies impact low-and-moderate income families.

I am here today to testify on the Mayor’s FY 2012 Supplemental Budget request, more specifically to ask several questions that the mayor’s supplemental budget proposal raises and suggest an alternative to the Council.

Budgeting is not an exact science. Unexpected expenses occur over a fiscal year that cannot be anticipated, which makes it necessary to add and subtract funds to make the budget balanced.  From the information provided in the Mayor’s supplemental budget, the majority of these appear to be true spending pressures and amount to less than 1 percent of the District’s $6.4 billion local budget.

However, we are concerned that only four months into Fiscal Year 2012, the Mayor’s proposed supplemental budget would use the entire $42.2 million of additional FY 2012 revenue projected by Chief Financial Officer Natwar Gandhi.  This raises several important questions that the Council should consider:

1. Is this the full picture of the District’s spending pressures? Are there other spending pressures that are not being addressed in the Mayor’s proposed supplemental budget?
2. How would using all of the additional FY 2012 revenue now, impact the District’s ability to address future spending pressures?
3. How will this additional spending impact the budget gap already identified for FY 2013 and the remainder of the four-year financial plan?

First, is this the entirety of spending pressures for Fiscal Year 2012? I raise this question because when making decisions about scarce public resources it is important to make sure that we have as much information as possible.  It would be helpful to know if there are other spending pressures that are not covered in this supplemental budget, why they were not chosen to be funded with additional revenues, and how agencies plan to address them.  This would help the public and the Council assess whether these are the highest priority pressures to address.

Second, it is very likely that other spending pressures will arise since we are only one-third of the way through the current fiscal year.  If all of the additional revenue is devoted to the eight programs identified in this supplemental budget, it is unclear how the District would address other equally urgent spending pressures that arise later in the year.  Moreover, the CFO is expected to release another revenue forecast in late February, and if that reflects a downward revision of projected revenues, the District may no longer have the $42.2 million in additional funds for FY 2012 announced in December.

Third, how will the added spending on ongoing programs impact the budget in fiscal year 2013 and beyond?  In the most recent revenue estimate, Dr. Gandhi projected a revenue decline for FY 2013 when compared with the projections made at the time the current budget was adopted.  Any additional ongoing services funded this year would add to the anticipated budget gap in FY 2013.

Mr. Chairman, the DC Fiscal Policy Institute would like to propose an alternative approach to the current supplemental budget.  We recommend that the Mayor and Council set the $42 million in additional revenue for FY 2012 aside and wait until later in the fiscal year, perhaps three months from now, when the District can have a better sense of what spending pressures remain and what our revenue picture looks like.  In the meantime, the Mayor could work with agencies to address urgent needs through re-programming, and the Mayor and CFO could work with agencies to address some of the spending pressure internally.  DCFPI suggests that at that time, the Mayor provide an update of the spending pressures to the Council and public, as well as a plan for how to use any additional revenues to cover those urgent spending pressures that cannot be covered internally.

Lastly, the Mayor and Council should work to restore the operating reserve in each year’s annual budget.  Until a few years ago, the DC budget had a $50 million operating budget reserve to help cover these kinds of spending pressures that arise after the budget is adopted.  In order to make the use of the reserve more transparent, the Council could require that the proposed uses of the fund come before the Council for approval.

Thank you for the opportunity to testify, and I’m happy to answer any questions.

Happy Monday District Dime Readers.  Here’s a look at a handful of events going on in upcoming weeks.

Monday January 23^rd

• 10:00am, Committee of the Whole, hearing on B19-0576 Highly Effective Teacher Incentive Act of 2011, Room 500. Click here for the witness list.

Tuesday January 24^th

• 10:00am, Committee of the Whole, public roundtable on B19-0654 Fiscal Year Revised Budget Request Emergency Adjustment Act of 2012, Room 500. The vote on the bill will be held on Tuesday, February 7^th.

Wednesday January 25^th

• 5:30pm, Next meeting of the Public Education Finance Reform Commission (PEFRC). Petworth Public Library, 4200 Kansas Ave, NW. For more information, visit www.pefrc.org.

Saturday February 11^th

• 9:30am, Mark your calendars to attend Mayor Gray’s “One City Summit”, a citywide town hall meeting, that will bring together 1,000 residents to discuss how to improve quality of life in the District for residents across neighborhoods, income levels, and backgrounds. Register here.

Good morning, District Dime readers.  We hope you had a nice MLK, Jr. weekend. 

As you know, one of DCFPI’s wishes for 2012 is that the District fully implement its re-designed TANF program to help more families with children prepare for work and find jobs with good wages and benefits.  Today’s column highlights the indicators of progress we hope the District will measure and share on this new endeavor.  Given Dr. King’s focus on economic rights — the need to give poor families the tools to succeed — in addition to civil rights, this topic is especially relevant today. 

The District’s re-designed TANF program aims to do a better job identifying the barriers to work faced by DC’s families, and then provide a set of services tailored to the each family’s needs.  In return, all families will be expected to make progress on their “Individual Responsibility Plan.” 

So, how will we know how things are going?  The District’s Department of Human Services can let us know by sharing information in a timely way on different aspects of the new effort.  Some of the indicators are outputs — such as the number of families assessed and referred to new services.  Later on, it will be good to get information on outcomes — such as the number of parents completing training and getting jobs. 

 Here are some key indicators: 

• Number of families assessed and referred to services:  The starting point for the new program is a thorough assessment of every family’s strengths and employment barriers.  No one will be referred to new services before going through an assessment.  So it will be critical to know how many TANF families are being assessed and referred, on at least a quarterly basis. 
• Major types of needs identified:  How many TANF families are ready to look for work, how many need education or training, and how many have other barriers, such as mental illness?  Knowing the needs of DC’s TANF families is critical to designing an effective welfare-to-work program. 
• What kinds of services are families getting?  The District should provide information on the number of families referred to specific service providers, to get a sense of how the re-design is playing out on the ground level. 
• Are families getting jobs?  What kind?  Ultimately, the success of welfare reform will be measured by the number of parents who successfully move to work and keep their jobs.  Knowing how many parents find work — and the wages, hours, and fringe benefits of those jobs — is critical. 

This would be a great start. We look forward to learning more from the District on the success of its TANF re-design.

This week, the District Dime is focusing on DCFPI’s new “resource map” of services and funding for workforce development in the District of Columbia. On Tuesday we went over some basics of the map and how it was put together. Yesterday we reviewed some of the main sources of federal funding that help DC residents enter and re-enter the workforce. Today we’ll examine sources of local funding. 

As the resource map shows, the District makes both large and small investments in workforce development through local dollars. By local dollars, we are referring to monies allocated from the General Fund, which come from sales, income, and property taxes and fees, among other sources. 

What is the largest single allocation of local tax dollars in workforce development?  The District’s Summer Youth Employment Program, which is run by the Department of Employment Services (DOES). Though the program has been significantly downsized over the last few years, it still receives the largest appropriation of local dollars for workforce development. The program provides a six-week subsidized job for District youth ages 14 to 21. 

Another DOES program that receives a large investment is the Transitional Employment Program. It is designed to help some of the hardest-to-employ District residents such as ex-offenders successfully enter or re-enter the workforce through job readiness, training and subsidized employment. 

As we mentioned in previous blogs, DOES isn’t the only game in town. The District also deploys significant dollars through the employment training program in TANF, Temporary Assistance for Needy Families. The Department of Disability Services also has a substantial employment readiness and placement program to help residents with disabilities. 

How successful are these programs in helping residents get and retain jobs? Unfortunately we don’t know as much about that as we should. We hope the collection of this kind of data and a focus on outcomes in determining how to use our precious local dollars will be a focus of our elected and appointed leaders. 

Want paper copies of the resource map? Contact Elissa Silverman at silverman@dcfpi.org or 202.325.8816.

Yesterday, DCFPI released a “resource map” of workforce development in the District of Columbia. The map is a visual snapshot of services and funding to help DC residents get and retain jobs. 

In its efforts, the District uses both federal and local funds. So what are the main sources of federal funding? 

The Workforce Investment Act (WIA) is responsible for much of the federal workforce funding to the District. WIA, as it is known, was put in place to consolidate many of the services the federal government funds. Title I of the act funds training for adult workers, dislocated workers, seniors and youth. You can see where the funds land in DC by looking at the “Federal Grants” line in the map. For example, WIA adult funding goes toward DC Works! Career Centers— One-Stops, in the government lingo— as well as toward Employer Services and Program Performance Monitoring in within the Department of Employment Services. What is program performance monitoring? It is a catchall category in the local Department of Employment Services budget which includes federal as well as local monies for adult job training. 

WIA youth money funds the city’s year-round program for youth, and the Senior Community Service Employment grants helps low-income residents 55 and older find work. Once again, you can see this by looking in the “Federal Grants” line. 

Yet the Workforce Investment Act goes beyond adult and youth job training. Title II of the act authorizes funding for adult and family and literacy programs. The funding for this is found within the Office of the State Superintendent and comes through the U.S. Department of Education.                                                                                                                  

Title IV addresses training for adults with disabilities. The federal funds come through the Rehabilitation Act and fund work readiness and job training services within the District’s Department of Disability Services. 

Another source of federal funding is in the human services cluster. The employment program within the Temporary Assistance for Needy Families (TANF) uses some federal monies, though a majority is done with local dollars.  There is also a federal match for the employment program within the Supplemental Nutrition Assistance Program, formerly known as food stamps. 

Tomorrow we’ll go more in depth on how we spend local dollars on workforce development here in DC.

Today, DCFPI is releasing a “resource map” of workforce development services in the District of Columbia. This project, a culmination of nearly two years of effort, offers a visual way to see how our city spends its resources on services to help residents get and retain jobs. We hope it’s a policy brief that would make the character Rod Tidwell—“Show Me The Money”—in the 1996 film Jerry Maguire proud.

Many states assemble similar resource guides every few years to help elected and appointed officials set strategic workforce policy. The map shows what the District spends on workforce development, what services are offered and who is served. Accompanying the map is additional information—where it was made available by agencies — on grantees including non-profit organizations, colleges and for-profit training providers.

A copy of the map is here. Over the next few days, we will go into some detail to explain it.

Today, we’ll share a few general notes on the map and how it was put together. The map reflects spending in Fiscal Year 2010, the most recent year in which we could obtain accurate information, though we include Fiscal Year 2011 dollars for the University of the District of Columbia Community College to reflect its evolving size and mission. We contacted every DC agency we thought is likely to have workforce development services, in our effort to obtain the most accurate picture of services offered and money spent. We also worked with the Office of the Chief Financial Officer, the mayor’s budget office, and various advocates involved in workforce development.

The map is intended to be a snapshot of funding and services not a precise audit of dollars.

What are a few big takeaways from the map? First, the Department of Employment Services isn’t the only agency involved in workforce development in DC. The map shows that there are a dozen agencies involved in helping residents enter and re-enter the workforce. The Department of Employment Services plays a big role, but agencies including the Department of Human Services and the Office of the State Superintendent also have significant funding.

What doesn’t the map speak a lot about? Very simply, outcomes. How many residents get employment after engaging in these programs and services? There is very little information available on that. Given our limited resources, it is valuable to know what services are most effective. We hope our elected and appointed officials will improve the data on outcomes and build in accountability measures in upcoming years.

Tomorrow we’ll talk about the major federal funding sources in workforce development and how they are deployed to help DC residents.

Legislation now before the DC Council would update a property tax deduction for seniors that has not been adjusted for inflation for 20 years. It sounds like the kind of proposal the DC Fiscal Policy Institute normally would support – and indeed we support the concept behind it. But DCFPI testified this morning that the bill should not be the top priority for tax relief.

Currently, DC law gives homeowners age 65 and older, with incomes of up to $100,000, a 50 percent property tax break on their principal residence. Today, the Council’s Finance and Revenue Committee held a hearing on legislation that would increase the income eligibility for this deduction to $125,000 per year.  

DCFPI believes that it makes sense to adjust tax benefits regularly to account for inflation. Without periodic adjustments to income eligibility and the size of tax benefits, the value of those benefits decrease over time as the cost of food, utilities, and everything else we buy increases. Failing to adjust income thresholds also means that the number of residents eligible for them will decrease. 

We thus support the intent of updating the senior property tax deduction, but it is not so clear why this particular tax benefit is a top priority for a makeover. There are several prominent parts of the tax code that are not adjusted for inflation, and many of these affect low and moderate income District residents. The legislation to update the senior property tax deduction on the other hand, would benefit residents with incomes between $100,000 and $125,000. Yet half of all DC households headed by an elderly resident have incomes below $40,000, and 80 percent have incomes under $100,000. 

If the DC Council wants to focus on addressing tax benefits that have diminished due to inflation, we recommend focusing on “Schedule  H”, which offers a tax credit to households with incomes below $20,000 when property taxes are high relative to income. The Schedule H income eligibility limit has not been adjusted for 35 years, and neither has the maximum credit amount. DCFPI testified last fall at a hearing on legislation to update Schedule H. 

Tax benefits such as the personal exemption and standard deduction in the income tax also are not indexed for inflation. These tax benefits affect a broad range of District residents, but have remained stagnant for several years. 

The issue of how and when to index tax benefits for inflation may be best addressed by the forthcoming Tax Review Commission, which has been tasked with making comprehensive changes to the District’s tax system. While the problems with Schedule H clearly warrant immediate change, the issue of indexing a broader range of tax benefits for inflation merits further study, in order to set priorities and determine their costs, which could be substantial.

So we read in the Washington Post Style Section that wonks are out, and tradesmen are in. We have a few other beefs with this year’s “The List,” so if DCFPI’s wonk-dom is headed out of fashion, we plan on taking a few others out with us. So here’s our version…. 

OUT: SCHOOLS BUDGETS NO ONE EXCEPT MAYBE MARY LEVY CAN UNDERSTAND
IN: SCHOOLS BUDGETS EVERYONE CAN UNDERSTAND

Will 2012 be the year that parents, teachers and anyone else interested in school reform can finally read and understand the District of Columbia Public Schools (DCPS) budget? We hope so, and we’ll be working collaboratively to help bring about needed transparency in this large and important area of our budget. The good news is that DCPS is aware of the public’s desire for more clarity and is working on changing how information is presented in the upcoming FY2013 budget. We’re also eagerly anticipating the recommendations of the Public Education Finance Reform Commission, which is chaired by our own Ed Lazere. The commission is taking on a range of critical issues facing DC’s public education system, including the rules and rationale behind the Uniform Per-Student Funding Formula and its impact on both DCPS and DC public charter schools. 

OUT: SEEING THOUSANDS OF REASONABLY-PRICED HOUSING UNITS VANISH
IN: AN UPDATED COMPREHENSIVE HOUSING STRATEGY TO KEEP DC AFFORDABLE TO ALL 

It’s been six years since DC last outlined a housing blueprint to tackle how to preserve affordable housing for low-income and longtime residents while still welcoming newcomers to our city. This year would be a good time to update our plans. Time is of the essence, given that the District is expected to add over 150,000 new jobs over the next two decades and could need nearly as many new housing units for workers that will fill them. At the same time housing costs continue to soar making it harder for low- and moderate income residents to stay or move into the District. 

OUT: NOT KNOWING HOW WE SPEND OUR TAX DOLLARS
IN: USING TECHNOLOGY TO IMPROVE DC BUDGET TRANSPARENCY

It’s always good to know the who, what and why’s of spending our public dollars, right? CFO Info is the CFO’s newest resource for online budget information. And while it is off to a promising start, it could be improved by providing additional spending details that cannot be found in published budget documents—namely, the ability to look at local and federal spending at the ‘activity level’ over time. This is where most of the programs and services that DC residents use are found.   

OUT: SUBSIDIES ANYWHERE AND EVERYWHERE
IN:  INCENTIVES TO JUMPSTART DEVELOPMENT IN AREAS WHERE IT IS MOST NEEDED 

Our New Year’s wish for economic development is that the Tax Review Commission will take a comprehensive look at the effectiveness of DC’s “tax expenditures” — including exemptions, deductions, abatements, credits, and rebates —  and develop frameworks for determining which should continue, which should be altered, and how and when new ones should be instituted. According to the most recent tax expenditure report by DC CFO Natwar Gandhi, DC currently has more than 100 tax expenditures that cost the city roughly $2 billion in foregone revenue each year. 

OUT: TALKING ABOUT THE NEED FOR JOBS
IN: EFFECTIVELY USING RESOURCES TO TRAIN OUR RESIDENTS FOR JOBS NOW AND IN THE FUTURE 

Mayor Gray’s One City One Hire is a good start, but this year we need to start tackling how we can best use our resources to help prepare our residents for the jobs that will be available in the future. We plan on working with the executive and legislative branches to review programs like our DC Works! Career Centers to effectively deploy local and federal monies to help our neighbors get and keep jobs.

Our second 2012 wish is for the successful rollout of the Temporary Assistance for Needy Families (TANF) redesign. 

The District is in the midst of implementing a new approach to education and training in TANF, the welfare-to-work program that assists one in three families with children in DC.  The reforms result from a recognition that prior TANF services were not adequately helping parents move towards employment.   Early results are very promising; a pilot of the new program resulted in a ten-fold increase in the share of TANF recipients participating in work activities.  

The new approach — referred to as “universal engagement” — is built on the expectation that all parents on TANF should either prepare for work or address problems that may interfere with employment.  Universal engagement recognizes that these expectations need to be tailored to the parent’s education level, work experience, and challenges.  Some parents have the skills to immediately seek employment.  Others need job training or education first.  Some need to address other employment barriers such as mental illness, low literacy, or a substance abuse problem before they can enter training.  

Some key components of the new program include: 

• Assessment of Client Skills/Barriers: The starting point is an in-depth individual assessment of skills, barriers, education, and goals to best match clients with needed services. 
• Program Orientation: Parents receive a comprehensive orientation to help them understand options available to them for education, training, and supportive services, as well as their rights and responsibilities.    
• Development of Individual Responsibility Plan:  Each parent works with the Department of Human Services to develop a customized “Individual Responsibility Plan” (IRP) to specify what the parent is expected to do to make progress toward employment.   
• Parents who have reasonable levels of job skills and work experience and limited personal barriers to work will receive job placement services to help connect quickly with employment.  Parents who have limited job skills or work experience, but who otherwise face little or no personal barriers to work; will be offered “work readiness” services to help them prepare for employment, including education or training.  Finally, parents with barriers, such as low literacy or domestic violence — will be expected to address those barriers before preparing for work.

These reforms hold much promise but there are major implementation challenges.  DHS will need to assess more than 11,000 TANF families currently required to participate in work preparation activities before these families will be allowed to access these new services.  There is an added time pressure as thousands of families are slated for a reduction in benefits to just $257 a month in October 2012.  In many cases, the parents will not have had the opportunity to take advantage of the new, improved services prior to this reduction. 

Our wish for 2012 is that every family will have adequate time to benefit from these improved services and make progress towards stability and self-sufficiency.  

Check back in with the District Dime tomorrow to see our comprehensive 2012 wish list and perhaps a few fun predictions for the coming year.

Happy New Year District Dime readers!

Like many of you, we here at the District Dime also have some resolutions for the New Year — which we plan to keep, of course — and some wishes as well. This week we will discuss a variety of budget-related developments that we would like to see transpire in 2012 to ensure that the District remains an attractive place to live and work.

Our first wish for the New Year is for the success of the Tax Review Commission.

What is the Tax Revision Commission?

The Tax Revision Commission was authorized by the DC Council last year and given 9 months to study and make recommendations for changes to DC’s tax system.  It will be made up of 11 members, including five appointed by the mayor, five appointed by the DC Council, and one from the Office of the Chief Financial Officer.

What is the status of the Tax Revision Commission?

Although money was set aside in the FY2012 budget to fund the commission, it has yet to get up and running, as both the Mayor and the DC Council continue to deliberate on their choices for commissioners. We agree that it is important to get the selection of commissioners right, which is why it is good that he commission legislation calls for 6 of the 11 members to be tax experts.

However, we also believe that it is important for the commission to get rolling sooner, rather than later.  DC’s economy has changed substantially since the last commission in 1998, while many of DC’s taxes have not kept up with these changes. For example DC’s property tax credit for low-income residents has problems that result in very few residents claiming it, the standard deduction in the income tax has not kept pace with inflation, and the sales tax has not been modernized to reflect the changing spending patterns of consumers, who spend much more money now on services than in the past.

Our wish today is that the next time we write about the Tax Revision Commission, we will be able to comment on its progress and its ultimate success.

Check back in with the District Dime the rest of this week to see what else is on our wish list for this 2012.

The District’s Dime is going on vacation and will resume posting in the new year.  We wish everyone Happy Holidays.

Happy Holidays District Dime readers!

Let’s start with the good news. On Thursday afternoon, DC Chief Financial Officer Natwar Gandhi gave DC residents some holiday cheer, announcing a $42 million revenue surplus in the current fiscal year (FY 2012). But it turns out that that good news ill be short-lived, because Gandhi also said that expects large revenue shortfalls over the next three years.

The increase in revenue collections in the current fiscal year is driven primarily by higher than expected income and sales tax revenues. But that uptick is expected to slow down significantly in future years because of the impact to the District’s economy from significant across-the-board cuts to federal programs, slated to take effect in early 2013. Gandhi notes that the significant cuts in federal funds will likely result in reduced wages and cautious spending in the District, leading to lower income, sales, and deed tax collections.

In FY 2010, 60 percent of the District’s economic activity came from federal spending. Gandhi projects the reduced federal spending will contribute to a deficit of $46 million in FY 2013, which is expected to increase to $130 million by FY 2015. Gandhi noted that the outlook could change, depending on how and in which program areas Congress decides to make the cuts.

As for the $42 million surplus in the current fiscal year, it is not clear at this point how those funds will be used. Prior revenue surpluses were required to be spent on a contingent list of priorities passed by the DC Council in the spring, including funding for mental health services, health care, and police officers. That contingency list no longer applies to current or subsequent revenue forecasts.

The $42 million surplus will likely be one of the first topics the Council and Mayor take up when they return from the Holidays. Tune in to the District’s Dime after the New Year for more details on what the most recent revenue report will mean for the District’s budget.

The District has a great opportunity to access federal job training funds to help DC residents who are eager to go to work or get a better job.  It comes, of all places, from the federal food stamp program, now known as SNAP. 

The SNAP Employment and Training program provides federal funds to cover half of the costs of a wide array of employment-related services for people who get food stamp benefits.  It can support programs operated directly by the DC government, but it even can bring federal funds to non-profit training providers to enhance their services.  SNAP E&T can support education and training for a large share of DC’s low-income population, because most low-income residents receive SNAP food benefits. 

Until recently, the District has barely made use of this resource.  This year, the city started to take greater advantage of SNAP E&T, but it could be doing even more.  For example, the Fiscal Year 2102 budget includes $4.6 million in local funds for adult job training. If that were made part of SNAP E&T, it could be expanded to as much as $9.2 million with federal funds.

A new policy brief from the DC Fiscal Policy Institute highlights ways the District can use the SNAP Employment and Training Program to expand workforce development.  With DC’s unemployment still higher than in the peak of the official recession, accessing more federal funds for job training should be at the top of the city’s New Year’s resolutions list.

SNAP E&T doesn’t require the city to re-invent the wheel by creating new programs.  The city can incorporate or coordinate existing workforce development programs into SNAP E&T — by identifying participants who receive SNAP benefits and making sure the education or training program is part of an employment plan for that person — and then accessing federal funds to support program costs.  To be sure, doing this creates new administrative requirements, but it seems worth it. 

DC already is taking some steps in the right direction.  Last spring, the District provided SNAP employment and training funds to a number of non-profit training providers for the first time.  The city also has raised the possibility of partnering with groups getting workforce development funds from Wal-Mart, bringing SNAP E&T funds to enhance the private funds.  And the DC Department of Human Services has initiated efforts to coordinate some programs operated by the Department of Employment Services through SNAP E&T. 

These efforts are promising and should be pursued fully.  At a time when it is hard to look to the federal government to expand important services, the SNAP Employment and Training program is a precious gift. 

DCFPI’s policy brief can be found here.

If improving the transparency and equity of DC school financing are on your wish list this holiday season, you will be pleased to know the District of Columbia Public Education Finance Reform Commission is on the case. The Commission, an independent body established as a result of legislation adopted in 2010, is charged with examining and making data-driven recommendations for revising the methods used to fund DC Public Schools and public charter schools: the “Uniform Per Student Funding Formula.”  The Commission is specifically required to explore issues of “equity, adequacy, affordability, and transparency” faced by both traditional public schools and public charter schools. The legislation text can be found here: DC Code § 38-2914- Public Education Finance Reform Commission. 

The Commission will hold four meetings between now and January 31^st – an aggressive timeline that will allow them to deliver recommendations to Mayor Gray as he develops his Fiscal Year 2013 budget. The next meeting will take place this Wednesday, December 21^st from 6:00 to 9:00 pm at the Friendship Chamberlain Charter School (1345 Potomac Ave SE 20003).  Background documents, including agendas, notes, and audio recordings of the past three public meetings can be found on the Commission website at http://www.pefrc.org/. 

In addition to attending meetings to offer public input, you can offer feedback to the Commission in the following ways:

• E-mail: info@pefrc.org.
• Call: 1-202-688-5438. Note: you must dial 1+202 in order to place the call successfully.
• Engage with social media: Like the Commission on Facebook and follow or mention @dcpefrc on Twitter.

Background documents for each meeting are posted in advance, so that the public can comment, and materials from the proceedings of each meeting are posted afterwards. 

In full disclosure, DCFPI’s executive director, Ed Lazere, serves as the Commission Chair, but DCFPI would be following the proceedings carefully in any case. We hope you look forward to the work of the Commission as we do.

In 2010, the District spent $15 million on business property tax breaks, despite a recession that had reduced tax collections and led to sharp cuts in a number of programs. Also in 2010, the DC Council approved new abatements which will, over time, reduce city revenues by $166 million. Yet despite the large dollar amount and tight fiscal times, very little analysis was done by the District to determine how much bang DC was getting for its tax abatement buck.

Today, DCFPI issued a new report with guidelines for how to weigh the costs and benefits of business tax subsidies. The report, “Making Sense of the District’s Tax Abatement Dollars: Nine Questions to Consider”, raises critical questions that DC’s leaders and the public ought to ask when considering any tax abatement proposal:

1. How much subsidy is required, at this point in time, to enable a project to move forward?
2. Have the developers sought private financing before seeking a public subsidy?
3. How much will the abatement cost in terms of lost revenue?
4. What are the community benefits of the abatement?
5. Does this project address an economic development priority for the city?
6. Are any costs of the abatement hidden?
7. Does this abatement have a clawback provision?
8. Is the cost of the abatement capped?
9. Does an abatement have a sunset and subsequent review process?

This report builds off of two efforts from last year that will improve tax abatement accountability: the CFO’s Unified Economic Development Budget Report, which catalogues economic development spending, and the Exemptions and Abatements Information Requirements Act, which requires businesses seeking tax subsidies to provide cost and benefit information. The new law will help ensure that questions 1-4 are answered before any abatement can be voted on. There is no standard process in place for answering the remaining questions, however.

DCFPI’s new report goes a step further in addressing additional issues that a critical to ensuring that resources allocated to economic development are used more wisely and efficiently.

To view the full report, click here

Ever wonder how the District stacks up to other states when it comes to economic development subsidies (we at the District Dime certainly do)? Well, a new report released today sheds some light on this question. The report by Good Jobs First, entitled “Money for Something: Job Creation and Job Quality Standards in State Economic Development Subsidy Programs,” rates all 50 states and the District on the question of what each state requires of developers in exchange for the subsidies they are awarded.

Unfortunately, the District earned the dubious distinction of ranking dead last in the report. Our score: 4 out of 100.

The GJF report measures three main criteria of state economic development subsidy programs:

1)      Job Creation Requirements: Do programs require subsidy recipients to meet job-creation or performance standards?

2)      Wage Standards: Do programs require businesses getting subsidies to pay workers above a certain wage level?

3)      Health Benefits: Do programs require subsidy recipients to provide workers health coverage or other employee benefits?

According to the report, the only District subsidy program that requires developers to meet any performance benchmarks is the New E-Conomy Transformation Act of 2000 (NET 2000). The report finds that in most states, economic development programs at least have job creation requirements to ensure that subsidies will create more jobs. DC’s main economic development programs, like TIF and tax abatements, by contrast, do not make such demands.

It should be noted that this study was initiated prior to the passage this year of the Exemptions and Abatements Information Act. This law will for the first time require developers seeking property tax abatements to spell out the community benefits their projects will provide, including the number of affordable housing units and jobs created by the project. While this act still does not mandate that developers meet specific job creation targets or other community benefits, before receiving an abatement, it is certainly a step in the right direction.

The bottom line is that, particularly in an era of tight budgets, when District residents are being asked to do more with less, the District should do a better job of getting more bang for its economic development bucks. We should follow the lead of other states that use subsidies to get tangible benefits for DC residents and neighborhoods.

The DC Fiscal Policy Institute staff is expanding! This week, we’d like to introduce District Dime readers to our three newest staff members. 

Soumya Bhat is DCFPI’s new Education Finance and Policy Analyst. A DC resident for the past six years, her work will focus on fiscal transparency and equity issues facing public education in the District. She joins us from The Finance Project, where she conducted state fiscal mapping studies and provided research and technical assistance to state leaders on the strategic financing of early education and out-of-school time systems.  Soumya likes to bake, travel, and practice yoga. She can be reached at bhat@dcfpi.org.

Kate Coventry joins us as a Policy Analyst working across a range of issues affecting low-income residents of DC, particularly TANF policy.  Her professional background is rooted in working with community organizations in the Washington area. Kate is an avid knitter in her spare time.  She can be reached at coventry@dcfpi.org.

Jessica Fulton is DCFPI’s new Outreach Coordinator, where her work will focus on maintaining and building connections with the community and gaining support for policy campaigns. She is joining DCFPI following an internship with the Office of Congressman Tim Ryan (D-OH).  She previously worked as a Policy and Research Associate with the Chicago Urban League, focusing on issues of inequality in education, income, and juvenile justice. Jessica enjoys cooking, going to concerts, reading and doing yoga. She can be reached at fulton@dcfpi.org.

Please help us welcome them to the DCFPI team!

Last month, Walmart announced that it was increasing its DC expansion from 4 to 6 planned stores. Walmart now plans to construct stores in Skyland and Fort Totten to go along with the four that were previously planned for Wards 4, 5, 6, and 7.

Reactions from elected officials and residents have varied widely. The debate over Walmart thus far has focused on the increased access to retail, particularly groceries, for many DC residents. But there has been less attention to another important question: if Walmart brings its low prices to the District, what will be the cost to District residents?

Walmart says the average salary at its District stores will be around $11 per hour. What would this mean for a DC resident trying to make ends meet? Most retail jobs are part-time, so assuming a DC resident worked 32 hours per week, he or she would earn about $17,000 per year, less than the federal poverty line for a family of three. A 2010 report from DCFPI shows that the city’s working poor earn about $9 per hour. Walmart’s wages won’t be much above that.

Walmart further claims that each store will employ 300 people. But this figure does not take into account the number of jobs that will be lost at other DC retail businesses, which studies from across the country suggest will happen. So if, for example, a new Walmart brought 300 jobs led to a drop of 100 jobs in other businesses, the real jobs gain would be a lot less. This is not a hypothetical issue. Some of the proposed new stores, such as the Skyland and Ward 6 stores, will be very close to one or more grocery stores. The real jobs figure is what should be weighed against the potential costs of Wal-Mart’s arrival.

Finally, Walmart’s has touted a “community partnership initiative” that may sound like more than it really is because it is non-binding. Walmart has offered some notable benefits, such as support for job training programs and giving preference to District contractors and job-seekers, even though they are not asking DC for any subsidies. But this agreement is merely a promise; none of the commitments are binding. The District has no way of holding Walmart accountable to its promises.

There is no doubt that Walmart would bring inexpensive retail to DC, particularly in some neighborhoods that could use expanded retail options. However, the current debate is overlooking the fact that these low prices may come at a real cost to DC residents.

Today, the DC Council will consider legislation that would alter a program that helps businesses affected by streetscape construction. The changes would make the program more expensive and limit the number of businesses that can get help. That’s not a good business plan.

The Streetscape Relief Fund, which was funded last year to help affected businesses weather a temporary decline in revenue, offers no-interest loans to businesses for the duration of streetscape construction. That’s potentially big help to businesses in Adams Morgan, H Street Northeast, and other parts of town where major street projects have made it hard for customers to get to their favorite restaurant, bar, or music shop for now.

Today’s emergency legislation would change the program from one that provides loans to include grants, tax abatements, and other forms of assistance. There are a number of reasons why the DC Council should resist this change.

This legislation should not be approved as emergency legislation. Given the unprecedented nature of this change, and potential long-term cost, it should be done with the normal hearing and voting processes.

The current program, a 5-year no interest loan, already offers business generous help. Access to low-interest credit is a real premium to any business. The structure of DC’s loan program allows businesses to finance all sorts of things with no money out of their pocket for years.

Streetscape work in the long-run is a benefit to businesses. Just like a home remodeling project, it may be hard to endure in the short-term, but is very positive in the long-term. Why should these be the areas getting small business help, as opposed to areas NOT getting streetscape work?

The current loan program is sustainable for the long term and helps more businesses. When a loan gets repaid, the funds are available to lend to businesses in the next areas getting streetscape work. If funds are given away as grants or tax abatements, on the other hand, new funds would have to be found every year. With 18 streetscape projects in the works now, and more planned for the future, the District should make the most efficient use of limited resources in the Streetscape Fund.

Regardless of loan or grant, DC needs a process to make sure funds go to businesses that are struggling only due to construction. There is no such process in the law now to distinguish between businesses that are simply failing and those that are suffering due to construction right now, the funds are awarded based solely on the discretion of the Mayor.

Affected businesses rightly point out that the Streetscape program has not yet delivered any relief. While this is a valid concern, it merely highlights the fact that the problem with the Streetscape Relief Fund as it stands is one of implementation. The DC Council and the Mayor ought to focus on improving the program already in place, rather than dramatically altering it in ways that could impose even more costs on the District.

Hello District Dime readers and welcome back from Thanksgiving!

The District Dime is taking a break from blogging this week. Did all the tryptophan in our turkey dinners get to us? Perhaps. But we are also attending the annual State Fiscal Analysis Initiative conference this week, meeting our fellow state budget analysts from across the United States.

So we’re taking a bye week, and we’ll be back in full effect next week.

Here at the District’s Dime, we’ve been reporting for the last few years on how the number of DC residents in need of help to put food on the table has jumped sharply in the recession. So we were a little surprised to see an article last week in the Examiner that said the number of DC households receiving food stamps dropped from 2009 to 2010.  

Why the difference? 

Well, it turns out the different accounts all come down to the source of the data, and unfortunately the Examiner did not rely on the best available data on use of food stamps (now known as SNAP, or the Supplemental Nutrition Assistance Program) .  The best figures, from the program itself, confirm that food stamp participation is up sharply in DC. 

The Examiner relied on a Census Bureau brief based on data from the American Community Survey (ACS).  While the ACS is a great source for data on incomes, poverty status, health insurance coverage and demographic data, it is not the most authoritative source on the number of people receiving public benefits, like food stamps.    

Instead, researchers typically go straight to the US Department of Agriculture, the agency that runs the program, for direct administrative data on food stamp usage.  The USDA aggregates reports from state and local food stamp offices across the country for a more authoritative look at how food stamp use varied from state to state and year to year.  

USDA figures show a 17 percent increase in the number of DC households receiving food stamps from 2009 to 2010, not a decrease.  It shouldn’t be much of a surprise that the number of families in DC seeking help from the food stamp program has risen in the last few years.  Both unemployment and poverty have worsened in DC over the last few years, making it harder for families to make ends meet and take care of their basic needs. 

With Thanksgiving just around the corner, it is important to remember how many residents are at risk of going hungry — and what an important role the food stamp program plays in fighting hunger.

As we learned over the weekend, the much-talked about congressional “Supercommittee” will likely end with less than super results, and its failure could trigger staggering cuts that will be felt right down to state and local budgets including DC’s. 

Meanwhile, there is also a local effort shave DC’s budget dramatically that – led by a supercommittee of one rather than 12 – that has been much less talked about even thought it could have an equally big impact. 

What’s that?

The District of Columbia “One City Performance Review” was announced by Mayor Vincent Gray with much fanfare earlier this summer as a top-to-bottom review of DC government finances. The effort is being spearheaded by former District Chief Technology Officer Suzanne Peck, who said she would do the work pro-bono and has done similar studies for the governors of Pennsylvania and Delaware. 

According to sources, Peck has asked each city agency to identify how they can reduce their budget, reportedly by 10 percent, as well as identify untapped sources of revenue.  The suggested cuts and revenue will all be combined into a binder for Mayor Gray to review. The submissions are expected to be sent to Peck soon. 

What impact will this have on the Fiscal Year 2013 budget? It is unclear right now.  Given that DC agency budgets have been scrubbed for inefficiencies and cut over multiple rounds during the recession, it is not clear how they will fins substantial additional savings without significantly affecting services.  A 10 percent cut would mean more than $40 million to the Metropolitan Police Department and $65 million to the Department of Health Care Finance. 

In fact, there are many other unanswered questions about the “One City Performance Review.” The effort has received little attention, save a few media reports that revealed city employees involved in the project were asked to sign confidentiality agreements. 

We hope that the final product of the “One City Performance Review” will be available to the public for review and comment.   A one-person effort to cut from every corner of the DC budget is something the public deserves to be brought into, particularly with a mayor who expresses such strong support for transparency.  We hope to hear more from Peck and Mayor Gray about the effort and how its findings will impact the FY 2013 budget.

Tomorrow, the Committee on Housing and Workforce Development will hold a hearing on a bill that aims to increase affordable housing opportunities for certain groups of DC residents.  The bill identifies an important problem, because the targeted groups — such as residents with severe mental illness — have some of toughest affordable housing challenges in the District. But the bill would rely on an affordable housing program, Inclusionary Zoning, that is not best suited to solve it. 

DC’s Inclusionary Zoning program was passed in 2006, but has only recently gotten underway. The program works by giving residential housing developers a “density bonus” that allows them to build 20 percent more residential units than zoning regulations would typically allow.  In exchange, the developers are required to set aside between 8-10 percent of the total housing units as affordable to people who make between 50 percent and 80 percent of area median income, or between $36,000 and $58,000 for a single individual.  

The Inclusionary Zoning (IZ) Amendment Act of 2011 would restrict all housing built under the IZ program to  the chronically homeless, people who have severe mental illness, people with HIV/AIDS, people with developmental disabilities, and people who are victims of domestic violence. 

While the goal of helping these groups get housing is important, IZ is not the most effective solution: 

• Many residents with these special needs have incomes too low to qualify for IZ. For example, about four-fifths of clients of DC’s Department of Mental Health receive Medicaid, meaning that they have income under $22,000.  Homeless residents have incomes on average of less than $8,000 per year.   
• Many of the groups targeted in the bill have better outcomes when their housing is combined with supportive services.   A number studies have found that the chronically homeless spend less time in shelters, hospitals, and utilizing emergency services when placed in housing that connects them with case management and supportive services. IZ housing does not include any supportive services.   

But there are programs the District could look to that would be more effective at providing affordable housing opportunities for the groups identified in this legislation: 

• Expand Permanent Supportive Housing (PSH) and the Local Rent Supplement program (LRSP).  PSH is specifically geared towards the chronically homeless while LRSP is used to create affordable housing for very low-income residents.  Non-profits who utilize LRSP often also provide the crucial link to supportive services.   
• DC can leverage the value of its public land to create affordable housing opportunities.  The District could pass legislation to require that public land used to develop housing should have a certain percentage set aside as affordable.  The value of the public land would provide the subsidy needed to support the affordable housing. This approach was used was by the District in the past, on parcels of land belonging to the Anacostia Waterfront Corporation. Legislation could require that nonprofits providing case management and additional services for populations such as chronically homeless would get preference for any affordable units created.   

There are many residents who need help to afford DC’s extremely high housing costs, and residents with special needs often need more aid to navigate DC’s housing market.  DCFPI supports the intent of the proposed legislation and looks forward to working to support efforts that will meet these goals most effectively.

DCFPI will be testifying this Wednesday in support of legislation that would ease housing burdens for thousands of DC residents affected by gentrification and its impact on their property taxes or rent. 

The hearing is on legislation to modernize a tax credit — known as “Schedule H” —  that is intended to help lower- income residents facing high property tax bills.  Schedule H has been around for 35 years, but while times have changed, the credit has not.  The rules are now so restrictive and complex that very few DC households actually get help from Schedule H.  That would change if the legislation introduced by councilmembers Jack Evans, Michael Brown and Phil Mendelson is adopted.  

The property tax is tied to what your home is worth —  not what you earn — which means there can be times when someone’s property taxes are high relative to their income.  Think about a retiree whose home is in the middle of a gentrifying neighborhood, or a homeowner who lost her job and is having trouble paying bills.  

Property taxes affect renters, too, since landlords pass on their expenses to tenants through the rents they charge.  Given DC’s incredibly high and rising rents, property taxes add to the challenges low-income residents face paying rent each month. 

Schedule H is supposed to help both homeowners and renters by offering a tax credit of up to $750 when property taxes are high relative to income.  (Under Schedule H rules, 15 percent of rent is considered a property tax equivalent.)   But the credit’s design has been neglected for decades and simply doesn’t work well now.  The income eligibility limit was set at $20,000 almost 35 years ago and has not been adjusted once since then.  There’s a requirement that two people sharing housing must combine their income when applying, which means that a young parent who moves in with her mother cannot get Schedule H if she and mom earn as little as $10,000 each. 

The legislation would address these and other problems with Schedule H.  It would raise the income eligibility level to $50,000 —  and adjust for inflation annually after that —  and it would allow adults living together to apply for Schedule H based just on their income.  It would increase the maximum credit —  which also has not been adjusted since the 1970s —  to $1,000. 

The price tag for these changes is significant.  But as the District climbs out of the recession — and as gentrification and rising rents continue — taking steps to help residents struggling with property tax bills should be a priority.

Two weeks ago, DC Mayor Vince Gray took a quick trip down to Tampa, Florida, accompanied by DC Council members Jack Evans and Michael Brown. It wasn’t to escape the chilly temperatures here in Washington. The three were there to look at the training facility for the Tampa Bay Buccaneers of the National Football League. 

According to press reports, Gray is thinking about trying to build a similar facility for the Washington Redskins near the team’s old home at RFK Stadium. The Redskins currently have a practice facility in Ashburn, Va., and play homes games in Landover, Md. 

Building this type of facility would likely involve some use of public dollars, ranging from infrastructure needs like roads, lights, and storm water runoff to direct subsidies for the facility.  

The decision to use city resources to convince the Redskins to move their training camp to the District should be considered through the lens of economic development. And like any other economic development project, there are important questions to ask before deciding whether this is a worthwhile project: 

• Is the project an economic development priority for the District?
• Is some type of public subsidy needed for the project to move forward?
• What are the costs?
• What are the benefits?

1. Is the project an economic development priority for the District?   Right now, that remains unclear. Many neighborhoods across the District are in need of economic development, yet with limited public dollars, the District has yet to set priorities.  One big question is: How would putting in a Redskins training facility impact the planned economic developments underway or in the pipeline in other neighborhoods?  Another question is whether  putting an NFL training facility at the location known as Reservation 13 is a higher economic development priority than what the District has so far envisioned for the land, a mixed use development which would be an extension of the Capitol Hill East community.   
2. Is some type of public subsidy needed for the project to move forward?  Again, this is unclear right now. Professional sports teams often request financial assistance from cities and states to defray costs, but it is not always clear that they need them. 
3. What are the costs?  Again, unclear. Nationals Park was built with taxpayer dollars. The former Wizards and Capitals team owner Abe Pollin did not ask for public dollars to build the Verizon Center, though the city did pay a substantial amount to upgrade infrastructure around the facility.
4. What are the benefits?  Many DC residents and Redskins fans would like to see the team return to playing within its namesake. There is a hometown pride to attending games inside the District line.  But it also is important to know what other community benefits there might be, such as jobs for DC residents, if this proposal becomes more serious. 

DCFPI hopes that if such a proposal does move forward, city officials will take a transparent approach to informing residents about plans and addressing these important questions. Unfortunately, city officials got off to a bad start by not making the trip a part of the mayor’s public schedule. We look forward to move information on this project.

DC’s elected leaders are showing signs that they understand the critical importance of helping DC residents find jobs and that DC government can also take steps to make work pay. Just last week Councilmember David Catania introduced two pieces of legislation that recognize that there is still plenty of work to be done in ensuring that the opportunity to earn a decent living is available in all parts of the city. 

There is no doubt the need is great. While some District residents are doing quite well, many more in the District struggle to get by. As we noted last week, the District has one of the widest income gaps in the nation.  DC’s current unemployment rate – over 11 percent – is higher than during the official recession in 2009 and the highest in 30 years. In some areas of the city, the unemployment rate is estimated at upwards of 30 percent, due to lack of adequate education and training as well as other barriers to the workforce. And among employed District residents, many struggle to make ends meet in one of the highest cost-of-living areas in the country. 

The first bill, the Worker Assistance and Gainful Employment Support (WAGES) Act of 2011, expands eligibility for the District’s earned income tax credit (EITC). The EITC, a tax credit targeted on low-income workers, plays a critical role in reducing poverty among residents in low-wage jobs. Councilmember Catania’s bill would expand eligibility to all working residents aged 18 and older. Currently, working residents between the ages of 18 and 24 without children are not eligible for the EITC. The WAGES Act would also provide a tax credit to employers that provide training to certain DC residents, including those who qualify for the EITC, recently incarcerated residents, TANF recipients, and those who have been unemployed for more than 6 months. 

The second bill, the District Workforce and Business Fairness Act of 2011, cosponsored by Councilmember Mary Cheh, gives preference in the District’s procurement process to businesses that maintain a workforce that is composed of at least 50% District residents. Currently, a business located in DC can be certified as a Local Business Enterprise simply by being based in the District, regardless of how many District residents they actually employ. 

These pieces of legislation, like all legislation, deserve scrutiny. For example, previous efforts to provide tax credits to employers who hire low-income residents have had mixed success, and the EITC changes should be examined to assess whether they would add a lot of complexity to the current credit. But the bills deserve credit for raising new ideas and offering tangible ways to help unemployed DC residents get back to work and afford to live in the city where they work.

Many people are surprised to find out how many DC households are struggling to get by.  As we reported on the District Dime just a few weeks ago, DC’s combination of low-wage jobs, highly competitive job market, and high cost of living means that many families have a hard time finding year round, full-time work with wages that can support a family.  And in the wake of the Great Recession, it has become even harder.  

But sometimes even these dire statistics can be overblown or misinterpreted, including a recent presentation from DC’s Department of Human Services that nearly 40 percent of DC residents receive Medicaid, food stamps, or TANF — or some combination of the three.  While this figure was shocking to some, it is really important to understand the factors behind it and the impact of the recession on program participation.  

The biggest contributor to this figure is the 32 percent of DC residents who receive Medicaid, which covers adults up to 200 percent of poverty ($37,000 for a family of three) and children up to 300 percent of poverty ($56,000 for a family of three).  Many of these are working households who cannot get adequate coverage through their job.  DC’s Medicaid eligibility is the key reason that our uninsured rate is one of the lowest in the nation.  That’s something to embrace, not run away from. 

About 21 percent of DC residents get food stamp benefits, now known as SNAP.  SNAP is a food assistance program for low-income residents, from the elderly to the unemployed to the working poor.  Since SNAP is available to people with incomes below 130 percent of poverty, it is not surprising that our SNAP participation rate is about the same as the city’s poverty rate – which is now 19 percent.  

Finally, just 8 percent of DC residents are in our basic welfare program — TANF — and two-thirds of those enrolled are children.  TANF provides cash assistance and job training to very low-income families with children.  

And it is no surprise that enrollment in these programs rose significantly in the recession.  In fact, many of these programs continue to see participation rise as unemployment is now higher in DC than at any time during the recession.   Participation in SNAP has grown the most since the recession began – by nearly half over the past three years – while TANF participation has risen 38 percent, and Medicaid enrollment has grown by 17 percent.  

When the private market doesn’t provide access to health care and a weak economy leaves thousands of residents unemployed, it is reasonable for the District to have programs to help families meet their basic needs like medical care, food, and job training.  Ensuring residents can find jobs with pay and benefits that can support a family is rightly Mayor Gray’s number one goal.  But DC shouldn’t limit access to these vital programs before that is done.

Hello District Dime readers, and welcome to a new week!

This morning, we want to call your attention to the newly redesigned DC Council website, www.dccouncil.us. The site has several new features we are excited about:

*An on-line form to sign up to be a public witness at DC Council hearings. Now, a few clicks of the keyboard can put your name on the list to testify. We hope it will make it easier for residents to have their voices heard!

*An easy to use and navigable calendar of official legislative events at the DC Council. You can even sign up for alerts that let you know when the time or location of meetings or hearings of interest have changed.

*Quick access to the legislative history for bills introduced after September 15, 2011. As the website notes, the Council’s main legislative archive, LIMS or the Legislative Information Management System, remains a bit, well, archaic. Hopefully it can be updated soon.

*A more comprehensive public hearing or roundtable record.  The new site allows for hearing notices, witness lists, committee prints and other important hearing information to be located all in one place.     

DCFPI thanks the Council for making local government more accessible and high tech. We also thank the Council for listening to us! Along with other interested people and organizations, DCFPI submitted a list of suggestions to the Council on how to improve the site earlier this year. Here’s what we had to say. 

Let us—and the Council—know what you think of the changes!

If you stopped anyone with a stroller to tell them that child care in the DC area is among the most expensive in the country, they’d look at you as if you had told them the sky is blue: “Tell me something I don’t know,” their eyes would say.

Last month, Forbes magazine found that the DC metro area is the 9^th best region for working mothers. Contributing to the District’s high ranking are its level of women’s earnings (1^st) and its unemployment level (2^nd).

But the DC area also was rated as having the 4^th highest cost-of-living and the most expensive child care. Forbes is not alone in coming to this conclusion. The Economic Policy Institute finds that a “basic family budget” for a family of three in the DC area is over $63,000, including $18,000 for child care for two children (which many parents would tell you is too low). Yet fewer than half of DC households earn this much.

As the District strategizes on how to reduce record levels of unemployment by better educating and training residents, policymakers should also pay attention to supports that enable parents to go to work, knowing that their children are being cared for.

The District supports early childhood education, including a child care subsidy program that provides vouchers to low-income working families. Many DC Public Schools and public charter schools offer classes starting at age three.

While eligibility is generous, covering families up to 250 percent of poverty, funding for the child care subsidy program has fallen by a quarter over the past four years. While this was partly offset by expansion of pre-K programs in DCPS and DCPCS as part of the “Pre-K for All” program, begun in 2009, the child care subsidy program is facing strain. Reimbursement rates paid to service providers have not been adjusted since 2004, resulting in fewer and fewer qualified child care providers, and advocates have identified unmet demand for services for infants, children with special needs, and care during non-traditional work hours. In 2009, 10,000 children under age three were on a waiting list for a child care provider.

Soon, the mayor will begin to turn his attention to the FY2013 budget. It is critical that policymakers recognize that modest economic gains that have occurred over the past year are not being shared by all. Unemployment in DC, for example, is now higher than in the midst of the official recession in 2009. As discussions begin on next year’s budget, the mayor and Council ought to ensure support for early childhood education, child care subsidies, and programs like these that help low-income families work towards self-sufficiency.

The District of Columbia is sometimes described as a tale of two cities: One city is thriving and affluent, another is struggling and poor. Last week, the U.S. Census offered confirmation of this split: A new report shows that income inequality in our city is one of the highest in the nation.

What is income inequality? Income inequality measures how income is distributed in a society, i.e. whether it is concentrated in a small percentage of households or it is spread evenly among a large portion of the population.

When comparing DC to cities with population greater than 100,000, the District came in third in overall income inequality. Using this measure, known as the Gini index, Atlanta had the highest inequality followed by New Orleans.

Income inequality is an important measure because it shows how a society—whether that be a neighborhood, city or nation—is economically structured. It also helps explain, for example, why the District has one of the most vibrant economies in the country yet still has a very high unemployment rate. There are some District residents who are doing very well, but there are some who are doing very poorly.

This can be seen in other economic indicators as well. As noted in the DCFPI report, Packing a Punch, the employment gap between black and white residents of DC is the largest it has been in 30 years.  Hourly earnings for high-wage earners increased nearly 30 percent while those at the bottom grew by just 11 percent.
For those with a high school diploma, median wage for someone with a high school degree increased just one percent over last 30 years. Contrast that with the median wage for a college graduate, which has risen nearly 30 percent in last 30 years.

DC’s high cost of living, and little growth in wages for low-wage earners means they have an even harder time getting by in DC.  Earnings for low-wage workers cover just half of a ‘basic family budget.’ This gap is higher than in every other large US city except Honolulu and NYC.

Happy Monday District Dime Readers.  Here’s a look at what’s going on this week at the Wilson Building.

Tuesday November 1^st

• 10:00am, Committee of the Whole, 23^rd Legislative Meeting, Room 500. Click here for the agenda.

Saturday November 5^th

• 10:00am, Committee of the Whole, hearing on Youth Perspectives on Middle Grades Education in the District, Room 500.

You may have read last week that the DC metro region — which includes DC as well as neighboring counties in Maryland and Virginia — has the lowest poverty rate in the nation at just over 8 percent. But DC itself has a poverty rate of 19 percent. Why the big difference? 

It may seem like a simple question, but it is worth exploring.  

In metropolitan areas, typically the pattern has been that greater concentrations of wealthier households live in the suburbs. That’s certainly true in DC’s metro region, where the District is surrounded by some of the wealthiest counties in the nation. But more recently, there has been an urban renaissance with more and more people, including higher-income individuals, moving back into cities across the US.  That’s certainly true in DC where our population has grown over the last decade, and the city has been adding more high income households. But despite this, DC’s median income for a family of four, meaning half of the families have incomes above and half below, is $68,600.  

Meanwhile the DC metro area median income for a family of four is still much higher, roughly $103,500.     

But DC’s high poverty rates also have a lot to do with DC’s very competitive job market and the mismatch between the skills DC residents have and the skills the jobs being created here in DC require. Most jobs in the District that pay a living wage require, at a bare minimum, a college degree.  In Wards 7 and 8, a significant number of residents lack even a high school diploma. Last year, DCFPI reported that residents without a high school diploma are more than seven times as likely to be low-income as those with a college-degree. And an even greater proportion of jobs created in the past few years are requiring advanced degrees or specialized training of some sort, further widening the gap between the haves and the have-nots.  

While the record unemployment levels in the city are also contributing to higher poverty rates, even many residents with jobs are falling behind. A single-parent with two children working a full-time, minimum wage job, still does not earn enough to lift his or her family above the poverty line of $17,570.  Furthermore, the federal poverty line does not give the full picture of the depth of poverty in the District because $17,570 can go much further in places like Omaha, Nebraska than it can in the District.  DC is one of the most expensive places to live in the country.  For a working parent in DC, the cost of housing, food, transportation, and child care, can quickly eat up an entire paycheck. 

Lastly, while the DC metro region has some of the lowest levels of income inequality compared to other metro regions, the District has some of the highest levels of income inequality.  In fact, new Census data show that DC has the third highest level of income inequality when compared with other cities. A DCFPI report last year showed that wage gains for high-wage earners far outpaced the gains for middle- and low-wage earners in DC over the last 30 years.  In fact, the report showed that in 2009, the gap between high-wage and low-wage earners in DC was one of the highest on record.

Happy Monday District Dime Readers.  Here’s a look at what’s going on this week at the Wilson Building.

Monday October 24^th

• 11:00am, Committee on Aging and Community Affairs, hearing on B19-0017 Human Rights for Ex-Offenders Amendment Act of 2011, Room 500.

Tuesday October 25^th

• 1:00pm, Committee of the Whole, hearing on PR19-0250 DC Auditor Yolanda Branche Appointment Approval Resolution of 2011, Room 500.

Wednesday October 26^th

• 10:00am, Committee on Finance and Revenue, hearings on PR19-368 FY12 Income Tax Secured Bond and General Obligation Bond Issuance, B19-164 Schedule H Property Tax Relief, B19-188 Combined Condo Real Property Tax, B19-257 Real Estate Broker Licensure, B19-279 National Capital Revitalization, and B19-0280 Streetscape Corridor Taxation Relief Act of 2011, Room 412.

Thursday October 27^th

• 3:30pm, Committee on Health, oversight roundtable on Youth Perspectives of District Health Programs, Room 500.

Yesterday, Amber Harding of the Washington Legal Clinic for the Homeless (WLCH) offered testimony at the Committee on Human Services’ roundtable on DC’s “Winter Plan” for protecting the lives of homeless residents this upcoming winter. 

Amber was kind enough to share her testimony with the District Dime.  Her testimony highlights how the District’s Winter Plan places far more barriers to homeless families seeking shelter than on homeless individuals.   You can find the full text of Amber’s testimony on WLCH’s blog.  The remainder of this blog post is excerpted from Amber’s testimony. 

For individuals, the Winter Plan presumes that there will be nights that all beds will be filled and that overflow single adult shelters will be on standby.  There is no overflow commitment in the Plan for families, despite the fact that DC General fills up every year. While DHS has verbally committed to place families in hotels or motels if DC General fills up, it has not communicated any details to the community regarding how quickly the hotels will be brought online or how food, case management and transportation will be provided to these families. 

For singles, the intake process for severe weather shelter is simple, operates 24 hours a day, 7 days a week and presumes eligibility. The person states that he is homeless and needs shelter. No verification or documentation is required. For families, the intake process is onerous, operates 6-7 hours a day 5 days a week, and presumes ineligibility.  Families…are often told there is no space in shelter and to try back another day—despite their desperation and despite their legal right to shelter that night. 

Severe weather shelters for individuals are low barrier and easy to access for a very good reason—as a community we have decided that we should not erect bureaucratic barriers to shelter when the risks of even discouraging shelter are so significant. Our community would not possibly support taking that risk when small children are in danger of freezing—yet that is how our system runs and how it has run for years. 

The Washington Legal Clinic for the Homeless believes that DC is running a shelter program that is outside of the law. In order to come into compliance with the law and reduce the risks to the lives of DC families, DHS must do the following: 

1. Be ready to implement a back-up plan for families the moment DC General fills up.   
2. Beginning today, reach out to all families experiencing housing crises to make sure they are encouraged to enter shelter this winter if they have no safe place to go.   
3. Prepare written directives to hotline workers and DC General staff instructing them to facilitate transportation and entry to DC General or hotels/motels immediately if a family applies for shelter after FRC is closed. Families should be placed into shelter immediately and then referred to receive a full assessment, including eligibility, on the next business day. 
4. Prepare written protocol/script for intake specialists at the Family Resource Center to reduce the number of unlawful denials of shelter to families and to clarify that families should be placed even if they do not present with documents to verify eligibility factors.  
5. Provide written notice of eligibility to all families.  The Homeless Services Reform Act and its regulations require that written notice of eligibility or placement denials are provided to every applicant.  DHS has agreed to do this, but families are not receiving such notice.
6. Exempt families from the residency requirements of the Homeless Services Reform Act during Hypothermia Season. 
7. Use Office of Shelter Monitoring to test the compliance of the Family Resource Center and the hotline throughout the season.  DHS should regularly test compliance and enforce its directives and the law through additional focused training, personnel disciplinary recommendations and contract penalties or termination, if necessary.

The Week Ahead

Happy Monday District Dime Readers.  Here’s a look at the week ahead.

Monday October 17^th

• 2:00pm, Committee on Aging and Community Affairs, hearing on Long-Term Care Ombudsman Program & Human Rights Service of Process, Room 412. 
• 3:00pm, Committee on Aging and Community Affairs, oversight roundtable on J.B. Johnson Nursing Center and Washington Center for Aging Services, Room 412. 

Tuesday October 18^th

• 10:00am, Committee of the Whole, meeting, Room 500.
• 11:00am, Committee of the Whole, legislative meeting, Room 500. View the legislative meeting agenda here. 

Thursday October 20^th

• 10:30am, Committee on the Judiciary, hearing on B19-371 Recordation Tax on Refinances of Security Interest Instruments Clarification Act of 2011, Room 500.
• 2:00pm, Committee on Human Services, oversight roundtable on Winter Plan: Protecting the Lives of Homeless People in the Winter of 2011-2012, Room 500.

The neighborhood now known as NoMa has a lot going for it, but there’s one big thing missing: public parks. In recent years, this area has been booming with new development spurred by the addition of the New York Avenue Metro Station and several federal and DC agencies, but green space is in short supply. Of course great public spaces help shape great communities, but the supporters of a DC Council bill to advance this goal in NoMa are going about it in the wrong way. 

What could be wrong with parks in NoMA? The devil is in the details. 

While the idea of bring more parks to NoMA is fine, the way that the NoMa Reinvestment Act of 2011 would go about it has three colossal flaws. The legislation would dedicate over $50 million in DC tax collections and turn it over to a private organization to spend. Strike One. There would be little public accountability for the spending decisions. Strike Two. And the bill deceptively hides the costs of the bills so that $50 million of spending on parks would officially have no impact on DC’s finances. Strike Three. 

The legislation creates a private fund, where a portion of the money that would otherwise go to the District’s general fund would be deposited. This would be used towards the development of parks and other infrastructure projects in NoMa. The amount deposited in the fund would be based off projections made by the Office of the CFO on the amount of revenue expected to be generated within NoMa from three sources: 1) deed and recordation taxes; 2) property taxes; and 3) sales taxes.   Revenue in excess of these projections would be deposited into the fund. 

Hiding the Costs  

If someone gave you a free lunch, you would eat it, of course. But what if it turns out that they bought that lunch with money that they already owed you? Doesn’t sound so appetizing now, does it? 

That is what is happening with financing in the NoMA parks bill. When the legislation was introduced earlier this year, the funding was fairly straightforward, and the CFO confirmed that the sponsors would need to find tens of millions in revenue or budget savings to meet the expected costs. 

Rather than rolling up their sleeves to do this, the proponents took the easier route and found two ways to make the official costs of the bill disappear. One is a bit hard to explain but the other is not. All legislation passed in DC must show that it will not put DC’s budget out of balance, but only for a 4-year window that the CFO must use to assess the fiscal impact of legislation. To get around this, much of the costs of the NoMA park bill would occur starting five years from now. This allows supporters to claim that the bill has no fiscal impact, but like any magician’s trick, this is just an illusion. Spending $51.5 million on parks will of course have an impact on DC’s finances. 

Public money to a private organization

The NoMa Reinvestment Act would establish a troubling precedent where taxpayer money would be turned over for the use by a private organization. 

The legislation would give the NoMA Business Improvement District, a private nonprofit, control of the funds. The legislation would create an advisory board to review the NoMA BID’s proposals, but three of the seven members of this board would be appointed by the NoMa Improvement Association BID, giving a private organization significant power in deciding how significant sums of taxpayer dollars ought to be spent. The city already has a Department of Parks and Recreation, which looks at the city holistically, on a yearly basis, and comes up with a budget which determines how much should be spent on parks throughout the city. The rationale for having a private organization do the same thing in a specific area of the city with public money is unclear.  

Very little accountability 

It is a significant step for public funds to be directed to a private organization which then takes on the same functions that the District government is already responsible for, in deciding how those funds ought to be spent. If this is to occur, there should be a lot of Dc government oversight. Yet the board created by the legislation would need to give only three business days notice in advance of a meeting to determine how to allocate the funds. Furthermore, once the board has made a decision and submitted it to the Council for approval, the Council only would have only ten days (not 10 business days even) to review the decision. If the Council fails to act within those ten days, the decision of the board will be deemed approved. 

The NoMa Reinvestment Act is the epitome of poor fiscal policy because it directs public money to a private organization, requires very little accountability, and deceptively hides the fiscal impact of the bill. For these reasons, bill 19-23 should be voted down by the City Council.

CFO Info is a website developed by the Office of the Chief Financial Officer that allows people to access information on spending by DC government agencies on programs and services.  The site presents a valuable opportunity not only to improve DC’s budget transparency, but also to make budget information easily accessible to the general public.  

But while CFO Info is off to a promising start, it could be greatly improved by the CFO by making the site more user-friendly and adding additional spending details. 

As an online source of information, CFO Info does not have the space constraints that published budget books have.  This means greater spending detail can be placed online.  The CFO’s office has used the CFO Info site to expand the information available in some areas, particularly on expenditures of “special purpose” funds — funds financed by fees and fines and dedicated to specified uses — and the capital budget, giving users up-to-date progress on spending on capital projects.  

But in other areas, CFO Info falls short of its full potential.  By adding spending detail in two key ways, CFO Info could improve the transparency of these funds: 

• Greater spending detail at the activity level.  Currently, the DC budget allows users to see how DC government agencies have combined local, federal, and other funds to support services, but only at a high level — the major divisions within each agency.   This information is not available at the budget’s most detailed level — the “activity” level — where most programs and services that DC residents use are found.  The budget does not show, for example, local and federal funding for energy assistance over time, so it is not clear if the program’s funding decline in recent years is due to a drop in local or federal funds, or both. Adding spending detail at the activity level to CFO Info would allow users to track spending at the activity level, by funding type, over time.   
• Greater detail on expenditures of federal funds.  Many agencies, like the Department of Health, rely heavily on federal dollars to deliver critical services to DC residents.  Yet the DC budget currently provides little information on how specific federal funds are spent. The budget includes a list of federal grants the agency is expected to receive in the coming year, but it does not show actual amounts of specific federal sources spent in prior years, and it does not connect specific federal grants to particular programs and services.  For example, the FY 2012 budget shows that the ‘Perinatal and Infant Health’ program, within the Department of Health, will receive $5.8 million in federal funds, but it does not indicate which federal grants will fund this program in 2012 or which federal grants supported the program in prior years. 

CFO Info already has addressed a similar issue with special purpose funds.  CFO Info could also provide similar information for federal funds — spending detail that would allow users to see how particular federal grants were spent on specific programs and activities.     

The CFO Info website also could be made more user-friendly.  In many areas of the website, it is difficult to tell how to get from one area to another and a lack of a glossary or description of terms could make it hard for some users to really understand what they’re looking at.  The following changes could help improve CFO Info’s overall user-friendliness:

• Easier, and consistent navigation within CFO Info.  Right now, navigation on every section of CFO is different, making it harder to determine how to navigate within the site.  CFO Info could be made much more user-friendly by using consistent navigation throughout the site —  of all the different sections, the navigation in its ‘Financial Status Reports’ section is the easiest to use and it should be the model for the whole site. 
• Include a glossary of terms.  Many users may not know what terms like “pre-encumbrance” mean and/or they may not know what a particular division or activity is responsible for within an agency.  Including a glossary of terms and descriptions of the main functions of each agency, divisions, and activity would help improve the user-friendliness of CFO Info.     

CFO Info has the ability to be a one-stop shop website for DC’s financial information.  If the CFO’s office can work to make the site more user-friendly and continue to add spending detail, the site could be a very useful tool — from the DC resident wanting to know what has happened to his or her library’s funding to the most serious budget wonks — who want to learn more about DC’s budget.

Welcome back from the long weekend District Dime Readers.  Here’s a look at the short week ahead. 

Tuesday October 11^th

• 12:00pm, Committee of the Whole, roundtable on the Implementation Plan for the Department of General Services, Room 500. 

Wednesday October 12^th

• 9:30am, Committee on Finance and Revenue, roundtable on PR19-385 Options Public Charter School Revenue Bonds Approval, Room 412.
• 10:00am, Committee on Finance and Revenue, hearing on Recordation Tax on Refinances of Security Interest, Room 412.
• 12:30pm, Committee of the Whole, roundtable on Progress of Development Projects in DC, Room 123.
• 2:00pm, Committee on Government Operations, hearings on B19-479 Board of Elections and Ethics Electoral Process Improvement, B19-356 Comprehensive Military and Overseas Voters Accommodation, and PR19-392 Precinct Boundary Changes, Room 120.

District Dime readers, welcome to Fiscal Year 2012! As many of you know, the fiscal year in which we budget revenue and expenditures differs from the calendar year.  DC follows the federal government fiscal year, which begins October 1 and ends September 30.   Most other states, including Maryland and Virginia, begin their fiscal year July 1. 

So happy new fiscal year, DC! 

Why is this significant?  Well, for a few reasons.  First, it means that the budget for FY 2012 that was detailed in the FY 2012 Budget Request Act is now the spending plan.  As well, the additions and changes to DC Code that were part of the FY 2012 Budget Support Act are now law.  For example, the income tax on DC residents with taxable income greater than $350,000 will rise from 8.5 percent to 8.95 percent. 

It also means that we have the opportunity to perform really diligent oversight over our spending.  Usually the public debate about how we can be more judicious and efficient with our spending occurs in April, when the mayor releases his budget proposal for the next year and we’re more than half-way through with the current fiscal year.  But right now is an even better time to start that discussion, when we’re just getting going. Some council members, such as At-Large Council member David Catania, have suggested that the Council needs to consider the budget a year-round exercise, not just a two-month endeavor.  We agree. 

There’s sound logic to thinking this way, because planning for next year’s budget is already starting.  Last week, the mayor’s budget team held the annual budget kickoff to begin the shaping of the Fiscal Year 2013 budget submission.  Performance and oversight hearings don’t happen until this spring, but now’s a perfect time to take a microscope to programs and services we care about.  While it is too early to tell what fiscal conditions the city will face in Fiscal Year 2013, weakness in the global and national economies suggest that the District will not have lots of extra resources – if any – to address its long list of policy priorities and needs. 

The District Dime will keep you informed about updates and hearings on areas that we focus on, including Temporary Assistance for Needy Families (TANF), Affordable Housing, Economic and Workforce Development.  Let us know how we can help you understand the budget better. 

Let Fiscal Year 2012 be a happy, healthy and prosperous year for the District of Columbia!

After starting to fall in 2010, DC’s unemployment rate is on the rise again in 2011.  As of August, the unemployment rate had reached 11.1 percent, up from 9.6 percent at the end of 2010. Unemployment among DC residents is now even higher than in the peak of the recession in late 2009.

Who are the District’s unemployed residents?  An analysis of monthly data from the Census Bureau’s Current Population Survey shows that the increase in unemployment in DC has been widespread, but that DC’s most economically vulnerable residents continue to be hurt by the recession and weak economy.  The residents most likely to be unemployed have low levels of formal education and are in low-wage occupations.

DCFPI will be tracking changes in unemployment on a quarterly basis, looking at how the rate has changed overall but also among groups of DC residents.   We will look at unemployment by education, race/ethnicity, age, and occupation. This analysis focuses on unemployment between June and August 2011, the most recent three months for which data are available.

Recent increases in unemployment rates have been concentrated in minority groups, low-wage occupations, and the older population.

• The unemployment rate in the District is now higher than during the official recession. DC’s unemployment rate peaked at 10.4 percent in December 2009, before starting to fall modestly in 2010. The recent rise in unemployment — to 11.1 percent in August 2011 — has surpassed even that rate.
• Unemployment among Black residents has risen notably. The unemployment rate for Black residents has increased sharply in 2011, on top of large increases in the recession. The recent unemployment rate for Black residents — 20.4 percent in June-August 2011 — represented a one-third increase since last year.
• Low-wage workers have seen a sharp rise in unemployment. This group has consistently faced higher unemployment than medium and high-wage workers, but the rate has increased substantially in the past year.  Unemployment among workers in the lowest wage occupations rose from 16.1 percent in 2010 to 18.9 percent in June-August of this year.
• Older workers have seen a large increase in unemployment recently. Unemployment for 45 to 64 year old workers jumped from 8.2 percent in 2010 to 11.9 percent in the June-August 2011 period.

The recent increase in unemployment in the District has affected vulnerable populations who are having special trouble enduring these difficult economic times. The economic recovery is far from complete, so it is important to consider policies to support these populations with high unemployment rates – like income supports and job training.

Earlier this year, it looked like DC might eliminate a critical program that provides temporary cash assistance to disabled residents who cannot work, but we are happy to report that the program has gotten a well-deserved reprieve. DC’s Interim Disability Assistance (IDA) program provides modest cash benefits to residents with disabilities while they wait — for as long as two years — for their application for federal disability assistance to be approved. In fact, IDA now has enough resources to serve as many as 1,000 disabled residents this year, including new funds devoted to the program just a few weeks ago by the DC Council.  

IDA is a lifeline to DC residents who are unable to work due to disability and are in limbo awaiting approval for federally-funded assistance from the Supplemental Security Income (SSI) program. The modest cash benefit is sometimes what keeps a disabled resident from becoming homeless and even worse circumstances. 

Mayor Gray’s proposed budget for the current year called for “suspending” IDA starting in October 2011, which meant that all current recipients would have lost benefits and no new applications would have been taken.  But the DC Council acted to maintain funding for IDA in the budget process and additional resources have been identified recently.  

It now appears that IDA will have $3 million or more in Fiscal Year 2012: 

• The DC Council appropriated $1.5 million for Interim Disability Assistance in the budget.
•  IDA expects to receive $900,000 in federal reimbursements in 2012, all of which can be re-invested in the program. When an IDA recipient gets approved for federal benefits, the feds reimburse DC for the local cash assistance it had provided.   
• The DC Council voted in September to modify a proposal that would have taken all Fiscal Year 2011 federal reimbursements into DC’s general treasury rather than back into IDA.  Under the new plan, any 2011 reimbursements above $2.4 million will go to IDA.  This is likely to provide $600,000 or more, enough to provide benefits to 200 residents.  

Even with this reprieve, DC’s Interim Disability Assistance will be smaller than in recent years, when the number of recipients was as high as 2,800. 

Maintaining Interim Disability Assistance makes sense for the residents affected and for the city as a whole. First, it’s important to note that most states have a program like IDA, because the federal disability assistance application process is so cumbersome and takes time for approval. DC’s reimbursement rate of 40 percent is on par with the national average. As well, providing a modest amount of aid to residents with disabilities limits the risk that these residents will become homeless or face other crises as they wait for federal benefits to be approved. 

IDA is a good investment for the city, and the DC Council made the right move in restoring it.

What is the best way to move families from welfare to work? The District is preparing a new policy that would terminate cash assistance to families when parents do not comply with work requirements in the Temporary Assistance for Needy Families (TANF) program.  The new policy stems from legislation adopted in 2010. 

DCFPI disagrees with this strict “full-family sanction” approach, and we recently submitted comments on these proposed rules along with Bread for the City, the Legal Aid Society, and the Washington Legal Clinic for the Homeless.*  The comments are intended to make sure that DC’s sanctions policy includes protections for TANF families, which include one of three children in the city. 

Why do we oppose full-family sanctions? Research shows that cutting off parents and their children from cash assistance doesn’t lead to increased program participation and help get parents to work. Instead, full-family sanctions tend to fall on families with serious personal problems that make compliance difficult, such as parents with depression. In the end, cutting off parents and their children from critical resources makes it even harder for families to move toward a self-sustaining future. 

Despite these objections, the DC Council passed legislation in 2010 requiring the Department of Human Services (DHS) to add new penalties for parents out of compliance with TANF work rules, and DHS submitted a proposed new policy this August.  The District has long had a policy to reduce benefits, but not eliminate them, for non-compliance. To its credit, DHS is also rolling out major reforms to improve TANF services focused on education and training. The agency’s director has made it clear that he hopes the improvements will mean that full-family sanctions will be used rarely. 

That said, sanctions will be imposed in some cases, which makes it important that the new rules are designed to minimize the possible harm to families with children.  Here are some highlights from our comments.  

Don’t impose full-family sanctions until new TANF employment services are in place:   Many families don’t participate in TANF work activities because they don’t lead to sustainable employment.  A pilot program this year showed parents will participate when meaningful work preparation services are offered.  Families should not be subject to full family sanctions until they have been offered services under the re-designed TANF employment program.  

Create clear interim “warning” steps before families are entirely cut off: Under the proposed policy, a family that falls out of compliance would see a partial cut in benefits – as they do under current rules – and then would have benefits entirely eliminated 90 days later.  We propose an interim step – cutting benefits in half – to serve as a wake-up call that DC is serious about families complying with TANF.  

Allow families to work with DHS to modify work preparation plans:  Some families may face sanctions because they were asked to engage in services that were not appropriate for them – such as expecting someone with low literacy skills to go straight to work. DHS should allow families to point out when their “individual responsibility plan” is difficult or impossible to comply with, and work with families to create a more achievable plan.  

Allow families to participate in education and training while under sanction:  Families could face elimination of cash benefits for six months, and the proposed policy also would cut these families off from any education or training program they had been participating in.  We believe families under sanction should be allowed to continue participating in services that ultimately will help them succeed, even in periods when their cash has been cut off.  

The full set of comments can be found here. 

* Professor Lisa Martin of the Catholic University School of Law also signed on to these comments.

The criteria used by rating agencies to determine a city or state’s bond rating are not always transparent.  However, when Moody’s issued its recent update on DC’s long-term bond-rating outlook, the investment adviser company offered a window into their thoughts on how DC can shore up its economy and finances.  It’s not surprising that Moody’s hopes the city will put more money in its savings account, or fund balance.     

It was a little unexpected, however, that Moody’s also noted concern about DC’s high poverty rate, and that reducing poverty could help DC’s improve its bond rating.  Moody’s recognizes that poverty not only puts a strain on families and individuals — but the District as a whole too.  Research shows that poverty, especially deep poverty, has particularly harmful effects on young children leading to lower educational achievement and reduced earnings as adults. In the District, two-thirds of the recent increase in poverty reflects residents living in deep poverty.  

In addition to lower educational outcomes and reduced future earnings, poverty is also associated with poor nutrition and health, child neglect, and increased neighborhood crime — all of which cost the city more in the short-run in terms of increased health and crime costs and in the long-run with lost productivity of future workers. 

While the recession has had a negative impact on both DC’s fund balance and poverty, there is currently only a plan to fix one — DC’s fund balance.  Plans to add more than $650 million to the fund balance have been put into law.  In fact, $115 million will likely be added to the fund balance before FY 2012 is over. 

But we haven’t seen a plan from elected officials to reduce poverty, even though nearly 17,500 DC residents have fallen into poverty in the last three years.  One in five DC residents lives on less than $22,314 for a family of four.  The poverty rate among DC children is even higher — at over 30 percent — meaning that nearly one on three children lives in poverty. 

Moody’s understands the value of investing.  They advise investors on where to put their money, and they advise governments and companies on how to remain financially healthy.  Their latest outlook report for DC confirms that DC’s economic future depends on more that building up solid reserves.  It also depends on investments in DC residents.

Harry Jaffe’s column has an accounting problem.

In the Washington Examiner yesterday, Jaffe published erroneous numbers that greatly inflated how much high income earners would pay under DC’s new income tax structure. In all fairness, Jaffe got those numbers from an information request from a city agency.  We hope a correction or clarification on the numbers will be printed soon.

We feel it is important to highlight what the accurate numbers show, namely that the tax increase the DC Council passed last week is very modest.

To quote President Obama: “It’s not class warfare, it’s math.”

What the Council decided to do is create a marginal tax rate for residents who earn more than $350,000. A marginal tax rate means that the increased rate is only paid on income that exceeds the new threshold.

So a quick quiz:

• How much more do residents who have less than $350,000 in taxable income pay under the new law? Zero. Zip. Nada. These residents pay the same amount they paid under the old law. The new income tax only applies to taxable income greater than $350,000.

• What about a resident who has $500,000 in taxable income, which is calculated as earned income minus deductions? Here’s how to calculate. Just as we noted above, up to $350,000 is taxed at the same rate as before, which is 8.5%. What changes is that any taxable income exceeding $350,000 is now taxed at a higher rate of 8.95%. Now grab your calculator.

The income that will be taxed at the higher rate is $500,000-$350,000=$150,000.

The new rate taxes $150,000 at the 8.95% rate: $150,000X.0895=$13,425

The old rate taxes $150,000 at the 8.5% rate: $150,000X.0850=$12,750

So how much more will a half millionaire pay under the new law? $13,425-$12,750=$675. Yes, you read right: $675.  That is 0.14% of income.

• So how much more does a resident who has $350,000 in taxable income pay? Zero. Yes, it’s kind of a trick question in that the tax kicks in for income that exceeds $350,000.

Does $675 from a half millionaire sound to you like “soaking the rich?”

Jaffe said he checked with his high-income friends about the tax, but he could not directly find anyone bothered by it.  DCFPI decided to go beyond our circle and checked with 504 randomly selected DC residents. The Hart Research poll found that an overwhelming majority of high income earners supported an income tax increase at $200,000, which is a lower income threshold than the tax that was passed. These residents—and a majority of residents overall—said that their top priorities were funding for education, public safety and social services—NOT holding down taxes.  The poll results have been out for months, and we think it shows that high-income residents by and large do not see a tax increase on them as class warfare.

Somewhat lost in the recent debate was that the fact that the Great Recession impacted our city finances. In order just to maintain services, we needed to fill a $322 million budget gap. Our city’s leaders decided to take a balanced approach to filling that gap by making some cuts and adding some revenue. The income tax, in the end, was part of that balanced approach that helped preserve education funding, homeless services and other programs that help out city and its residents grow.  Even with the modest tax increase, the budget includes cuts to libraries, assistance for people with disabilities, public sanitation, housing, and more.

Most DC households have low or moderate incomes, according to new Census data, even though DC is known as a city with substantial wealth.  While the share of DC residents with high incomes is larger than in US as a whole, it still is a relatively small share of the city’s population.

Figure 1: TWO-FIFTHS OF DC HOUSEHOLDS HAVE INCOMES BELOW $50,000

DC’s median income in 2010 was $60,900.  This means that half of all DC households had income below this amount and half were above.    Recent research has shown that over the last decade, the District has gained a significant number of households with incomes more than $75,000 while at the same time experiencing a significant decrease in the number of households making less than $50,000.  Yet despite the gain of higher-income households, more than two-fifths of all DC households had income below $50,000 in 2010.

In addition, the new Census data reveal that:

• Many DC households are very low income.  Nearly a quarter of households had income less than $20,000 a year, and 43 percent were below 50,000 a year.  With a quarter of DC households living close to the poverty line, it should come as no surprise that nearly one in five DC residents lived in poverty in DC in 2010.

• Only a small share of DC households are high-income.  Some 10 percent of households had incomes above $200,000 in 2010.

This income distribution has implications for policy issues in DC.  When Mayor Gray proposed raising income taxes on families with more than $200,000 in taxable income, some suggested that this level was too low and would impact too many households and small business owners.  Yet the data show that in fact a small share of DC households — less than 10 percent — would have been impacted by this modest increase.   The income tax increase ultimately passed by the DC Council earlier this month, on taxable income above $350,000, will impact an even smaller share of households.

New data released from the U.S. Census Bureau show that while the recession may officially be over, it hasn’t yet loosened its grip on tens of thousands of District families.  In fact, poverty has been on a steady climb here in DC, with an additional 17,500 DC residents falling into poverty since 2007.  Nearly one in five DC residents lived below the poverty line, or $22,314 for a family of four, in 2010.

What’s worse is that two-thirds of the growth in poverty reflects residents living in deep poverty — or below half of the poverty line.  One in nine DC residents lived on less than about $11,000 for a family of four in 2010.  And just over a quarter of those living in deep poverty, are children.   Research shows that deep poverty in particular has a significant impact on a young child’s school achievement and future earnings as an adult.

At the same time, the new data show that income for other DC households is rising.  Median income – the income of the household in the middle of the distribution — rose from $57,100 in 2007 to $60,900 in 2010.  The fact that both incomes were rising for some while poverty was getting worse means that the recession is hitting some groups in DC harder than others.  The data show huge jumps in poverty among children, single-parent female headed households and Black DC residents since the start of the recession.  In 2010, one in three kids, two in five single parent female households, and one in four Black DC residents lived in poverty.

The data also show that poverty remains highest in Wards 7 & 8, but the biggest jumps in poverty were seen in other parts of the District, particularly Wards 4, 5, and 6.  In fact, in the Census-defined geographic area that largely includes Ward 4 (and some of Ward 1), poverty jumped by more than four-fifths, rising to just over 16 percent in 2010.  And in the Census-defined geographic area that includes mainly Wards 5 and the eastern side of Ward 6, poverty jumped by more than three-fifths, rising to just over 20 percent in 2010.

Looking ahead, it doesn’t appear that 2011 will be any better for poverty, and it may in fact be worse.  Leading indicators for poverty changes — like food stamp participation and employment — show that more people are struggling.  In the first half of 2011, food stamp participation in the District is up by 13 percent when compared to 2010, and employment levels have been steadily falling since January.

In addition, poverty rates always take a long time to recover after a recession ends; research shows that poverty often does not fall until at least one year after unemployment drops. Given that the unemployment rate in DC is rising in 2011, poverty will likely remain high in DC for some time.

Because poverty is likely to remain high for some time and associated with negative outcomes for both families and neighborhoods, the District should be making poverty reduction a top priority.  This means making investments to keep more families from falling into poverty and help families move out of poverty through a strong safety net and connection to employment with decent wages.

Tuesday, the DC Council voted to increase income taxes on residents who earn more than $350,000, while restoring an income tax break to residents who have invested in out-of-state bonds. The move essentially was a swap, replacing one revenue source with another.   

The debate was especially heated, and in some ways it lost sight of the rationale for a tax increase in the first place. The District faced its fourth consecutive bad-news budget as a result of the recession, and residents were faced with cuts in public safety, social services, and public works. The income tax increase helped preserve some of these important services, a balanced approach to budgeting in tough times that is consistent with the views of most DC residents, according to a Hart Poll. 

While the Council voted for the income tax, they decided to make it only temporary. It will expire at the end of the city’s required financial plan in four years, resulting in a $30 million revenue loss in future years. This is fiscally unwise, because it is not clear how the city will be able to maintain funding for education, health care, and other services, when the tax expires. 

As many in the press have noted, the debate on and off the dais yesterday was especially, ah, colorful. Here are a few important points to keep in mind: 

The income tax rate increase was largely revenue neutral, because it was a swap for the tax on out-of-state bonds. The Council vote yesterday created a new income tax bracket, but it also largely reversed the Council decision in June to eliminate DC’s income tax exemption for interest earned on out-of-state bonds. Under the new law, residents will retain the tax break for bonds they already own, but out-of-state bonds purchases starting next year will be taxed. The net effect of the Council’s actions is largely revenue neutral; over four years, the income tax raises an additional $8 million. 

The tax increase is modest.  The new law increases the tax rate from 8.5% to 8.95% on income above $350,000. The tax increase passed yesterday differed from Mayor Gray’s initial proposal, which would have started an 8.9% rate at $200,000. Anyone with income below $350,000 will see no change in taxes. Here’s an idea of the impact on those who earn greater than $350,000:  A DC resident with income of $400,000 will pay $225  — 0.06% of income — more per year, while a family at $500,000 will pay $675 more — 0.14% of income. Once again, pretty modest. 

Combined income and property taxes are lower in DC than in the Maryland or Virginia suburbs.  DC’s residential property taxes are far lower than in either the Maryland or Virginia suburbs, while our income taxes are comparable with Maryland’s but higher than Virginia.  Put together, DC’s combined income and property taxes are the lowest in the region, and the modest tax increase on high-income households will not change this trend noticeably. 

Revenues were needed in the DC budget to help maintain services.  The District faced another year with a large budget gap, due to the recession and the drop in expected city revenues.  Even with the income tax increase and other revenue measures, the adopted FY 2012 budget still includes cuts in areas such as child care, disability assistance, permanent supportive housing, and libraries.  If the income tax increase had not been adopted, it is likely that even deeper cuts would have been needed.

DC Chief Financial Officer Natwar Gandhi released his September revenue forecast Friday. Here’s what he said:

•For Fiscal Year 2011, our current fiscal year which will end September 30, there is $89 million in new revenue. The money can be spent—though it is unclear whether it needs to be a supplemental budget from the Mayor or can be allocated by Council. If it is not spent, it likely will contribute to a surplus when the books for Fiscal Year 2011 are closed. Under rules adopted last year, all undesignated end of year surplus funds must go into the fund balance, into two accounts: half to the fiscal stabilization fund and half to the cash flow reserve fund.

•For Fiscal Year 2012, the next fiscal year which begins October 1, the revenue forecast shows virtually no change over the last estimate.

•For Fiscal Years 2013, 2014, 2015, the years that are part of our financial plan, Dr. Gandhi forecast declines in revenue from his June prediction. Specifically, Gandhi said FY 2013 is $52.6 million lower than previously expected; FY 2014 is $57.7 million lower than previously expected; and FY 2015 is $38.9 million lower than previously expected.

Gandhi’s revised numbers will likely be part of the discussion Tuesday, when the DC Council meets for a legislative session and considers changes to the FY 2012 budget.

Right now, it seems there are two big questions the Council will face:

a. Should the additional $89 million for FY 11 be spent?

b. Should the Council address the out-of-state municipal bond tax, which remains in place for FY 2012 given Mayor Gray’s veto?

First Question A: Given the lower than projected revenues forecast in future years, DCFPI supports putting the one-time $89 million revenue gain for FY 11 into the fund balance. Even though we have a one-time revenue gain this year, the city is looking at less money — $149.2 million—between FY2013 and FY2015. This means that the new revenue forecast does not give the District the capacity to fund new services or new tax breaks that have an ongoing cost. This is why the best option may be to use these revenues to build up DC’s fund balance.

Now Question B: The budget must balance, so the removal of the bond tax must be replaced with another revenue source. One possibility for restoring this tax break for current bondholders would be to offset the revenue loss by creating a new income tax bracket for individuals with incomes above $350,000. This idea was floated in July but not voted upon. Another possible proposal would be to pay for the tax break with the $89 million in FY 2011 unanticipated revenues that Chief Financial Officer Natwar Gandhi announced. It is important to keep in mind this is one-time money, so the new revenue could not be used to grandfather current bondholders in perpetuity.

DCFPI has supported eliminating the bond tax break as a progressive way to raise revenue. That said, we agree that the bond tax did not get a full public vetting, and we understand concerns of bondholders in this regard. Therefore, we believe it is reasonable to grandfather current bondholders as long as the revenue loss is replaced with another progressive form of revenue, such the high income earners tax. DCFPI would oppose a proposal to tap into the unanticipated revenues.

Council member Mary Cheh (D-Ward 3) considered such an amendment in July, but opted not to introduce it at that time. This will bring in less revenue than the Mayor’s initial proposal that DCFPI supported, which would have raised the income tax rate to 8.9% for income above $200,000. We were also supportive of eliminating the bond tax break, but we were concerned that this would impact some lower-income residents who may rely on this income source. Our preferred solution would be to preserve the out of state bond tax exemption for lower-income residents, but we will support the replacement of one progressive source of revenue for another.

This is consistent with results of a DCFPI poll this spring which found that DC voters think it is very important to protect education, social service, and public safety programs, and nearly all support moderate increases in taxes to help preserve services.

In summary: Do not use the additional FY 11 revenue for the bond tax. And stay tuned to the District Dime later today on this important issue!

Here at DCFPI we’ve started to nickname the Fiscal Year 2012 budget “Freddy Krueger,” because just like the infamous horror movie character it keeps coming back to life.

The next iteration may come as early as Tuesday, when the DC Council considers changes to the FY 2012 Budget Support Act. Though much of it is technical in nature, one possible addition may be more than procedural: Some council members want to reverse previous votes to tax income from out –of-state municipal bonds. That’s not a small matter, and it deserves serious consideration. If a majority of the Council wants to “grandfather” the tax exemption for current bondholders, that will cost $13 million in reduced revenue for FY 2012 and more in later years.

The budget must balance, so the removal of the bond tax must be replaced with another revenue source. As of today, no proposals have been circulated. One possibility for restoring this tax break for current bondholders would be to offset the revenue loss by creating a new income tax bracket for individuals with incomes above $350,000. This idea was floated in July but not voted upon. Another possible proposal would be to pay for the tax break with unanticipated revenues that may be announced by Chief Financial Officer Natwar Gandhi in his September revenue forecast.

DCFPI has supported eliminating the bond tax break as a progressive way to raise revenue. That said, we agree that the bond tax did not get a full public vetting, and we understand concerns of bondholders in this regard. Therefore, we believe it is reasonable to grandfather current bondholders as long as the revenue loss is replaced with another progressive form of revenue, such the high income earners tax. DCFPI would oppose a proposal to tap into projected revenue growth to restore the bond tax break, since that would make it harder to restore a number of services that were cut in the FY 2012 budget, including child care, disability assistance and housing.

A brief recap of how we got to this point: In its initial May budget vote, Chairman Kwame Brown replaced Mayor Gray’s proposed income tax with elimination of the bond tax. DCFPI supported eliminating the tax exemption for non-DC bonds, as DC is the only jurisdiction now to give such a blanket tax break for investing in infrastructure outside its borders. The Council considered several proposals that would partially restore the tax break in one way or another, but they were either defeated by the Council or vetoed by the Mayor.

Given this, it is possible a proposal to raise DC’s top income tax rate from 8.5% to 8.9% on income above $350,000 may surface again. The additional revenues would be used to bring back the bond tax break for current bondholders. Council member Mary Cheh (D-Ward 3) considered such an amendment in July, but opted not to introduce it at that time. This will bring in less revenue than the Mayor’s initial proposal that DCFPI supported, which would have raised the income tax rate to 8.9% for income above $200,000. We were also supportive of eliminating the bond tax break, but we were concerned that this would impact some lower-income residents who may rely on this income source. Our preferred solution would be to preserve the out of state bond tax exemption for lower-income residents, but we will support the replacement of one progressive source of revenue for another.

This is consistent with results of a DCFPI poll this spring which found that DC voters think it is very important to protect education, social service, and public safety programs, and nearly all support moderate increases in taxes to help preserve services.

For that reason, DCFPI does not support restoring the bond tax with growth in revenues. We do not know if there will be additional revenue until Dr. Gandhi’s announcement, but if there are funds the Council has already decided how to allocate those resources. According to the FY 2012 Budget Support Act, affordable housing programs are next on the list to benefit from this revenue.

In summary: Do not put grandfathering bondholders at the top of the contingent revenue list or reorder the list. Replace progressive revenue with progressive revenue. And stay tuned to the District Dime Monday on this important issue!

The District’s TANF program has been in the spotlight in recent months, with concerns about low work participation rates and families receiving benefits for long periods of time. But new research shows that District families jump at the chance to participate when the program is working well and services are helpful and appealing.  Information released last week highlights that a well-designed welfare-to-work program can engage families and help them move forward. 

A new white paper on TANF from the Department of Human Services showcased very encouraging results from a pilot program conducted by the agency in the spring, in which a sample of TANF families test drove substantial changes to DC’s  TANF system that are being rolled out this fall. During this pilot, 164 families went through the new TANF orientation, in-depth, received customized assessments with special attention to the identification of barriers and resolvable issues, and were connected to education, training, and work activities especially chosen to suit their unique situations. 

The five week pilot program yielded the following results: 

• The number of families participating in some TANF work activities – including job training, education, barrier remediation, or other activities agreed-upon during the assessment stage – more than tripled, from 18 percent to 56 percent; and
• The number of families meeting 100 percent of required hour—a figure set by federal guidelines, usually around 20 to 30  hours per week—grew from just three percent to 35 percent. 

This type of improvement in participation is especially impressive because of the very short time period of the pilot program – just five weeks. The results confirm that the city’s plan for new TANF system are a big step in the right direction , and they highlight the urgency of fully and quickly implementing the redesign so that all TANF families may be connected with the services they need to move forward. 

The results of this pilot are similar to those another pilot welfare-to-work project this year.  DC’s new “Sweat Equity” program, highlighted last week in the Washington Post, put a small number of homeless TANF participants into jobs rehabbing vacant housing, which they will  be able to live in when the work is done.  The Post story highlighted how eager the participants were to succeed. 

The results of these two pilot programs also reinforce another critical point: that past low participation rates in TANF activities were in many ways to result of the low quality and effectiveness of the program’s components. The pilot program’s results show that TANF families will quickly become engaged when offered a good orientation, an in-depth assessment, intensive case management, and high-quality vendor programs that match their needs.

The US Census Bureau released new data that paint a somber picture for the nation’s economic recovery, with news that  the share of U.S. residents  in poverty climbed to its highest level in 17 years and the deep poverty rate  — the share of people living below half of the poverty line — reached record levels.    

The data paint a less clear picture for what happened to poverty here in the District because of limitations with the data — mainly a small sample size for states.  More reliable and detailed information for states, and DC, will be made available on September 22. 

Nevertheless, a look at leading indicators of poverty —  food stamp participation and employment changes —  provide clues that point to a likely increase in poverty in DC in 2010. 

• Participation in the food stamp program rose by 15 percent in 2010 with an average monthly participation of 103,300 residents in 2009, up to 118,500 residents in 2010.  The food stamp program is a good indicator for poverty because it is one of the broadest safety net programs, open to families with incomes below 130 percent of poverty. 
• Employment levels also fell in the District from 2009 to 2010.  The percent of DC adults employed fell from 61.7 percent in 2009 to 60.6 percent in 2010, a statistically significant decrease.  It’s no surprise that falling employment levels are also tied to changes in the poverty rate.    

The data released by the Census Bureau also provided a preliminary look at health insurance coverage trends over the last few years and poverty trends over the last decade in the District. 

• Over 19,000 DC residents joined the ranks of the uninsured during 2009-2010.  The percent of non-elderly DC residents without health insurance coverage rose from 10.3 percent from 2008-2009 to 13.7 percent from 2009-2010.  Not surprisingly, this occurred because many residents lost employer-sponsored coverage, with 22,400 losing their employer-sponsored coverage in 2009-2010. 
• DC’s Medicaid program helped to cover some of the uninsured and now covers more than one out of every two children in the District.  Close to one out of every four non-elderly DC residents, or 103,900, were enrolled in Medicaid in 2009-2010, up from 22 percent in 2007-2008.  Medicaid covered 52 percent of DC kids in 2009-2010, up from 47 percent in 2007-2008. 
•  Poverty is back on the rise in DC.  After rising sharply in the mid-2000’s, then falling, poverty is starting to rise again in the District — and is now only modestly lower than the decade-high peak reach in 2005-2006. 

You can read DCFPI’s complete analysis of the data here.  And check back with us on September 22^nd for an analysis on the more authoritative and detailed data that will allow us to look more clearly at what happened to poverty and income levels in DC, including changes in poverty and income by race and ethnicity, educational attainment, geographic area, and age.

The DC Council returns from recess this week, just in time to catch up on DCFPI’s three-part series on the District’s fund balance — an important — but often misunderstood— fiscal tool for cities and states.  Last week, the District’s Dime spent some time walking through what the fund balance is — essentially DC’s savings account — and how DC officials used the very  large surplus built up during boom times on important items like school modernization and preventing deep cuts to critical services during the Great Recession.

Now, we turn to the key questions of how and when the District should begin to build back up its savings account.  Like nearly every other city and state across the US, DC’s fund balance has gotten to a point where we can no longer use it to help balance our budget.  Indeed, Dr. Gandhi and other DC officials have highlighted the need to replenish the fund balance.

But from recent debate, you probably wouldn’t have known that there are not one, but two processes recently put in place to do just that.

• Each year, 100% of any end-of-year surplus are required to be sent to DC’s savings account.  The plan, adopted in 2010 and introduced by then-Council Chairman Gray, requires monies to be deposited in two special funds–one that provides money solely for working capital and another that is essentially another rainy day fund– in the fund balance until they total more than $620 million.
• The second plan, passed in 2011 and introduced by current Chairman Brown, requires that half of any increase in revenues, beyond the level assumed in the adopted FY 2012 budget, must be deposited into the fund balance.  (This plan only applies to FY 2012 and not future fiscal years.)  That plan already has resulted in a $26 million deposit into the fund balance, with the potential to add even more when the next revenue forecasts are announced.  [Chairman Brown did attempt to amend his plan, but as of now, the original plan is in effect.]

There have been some calls lately to go beyond this, but it’s important that rebuilding the fund balance be, well, balanced against the other critical needs of the city at the same time.  Just as having a healthy fund balance is important, so is maintaining schools, libraries, homeless shelters and other critical city services.  The FY 2012 budget includes a number of cuts to services — for example, to areas like child care, assistance for people with disabilities, libraries and housing.  If revenues continue to grow, some of that revenue should be devoted to these services as well.

The current  plans to build back the fund balance require the District to save substantial amounts but also give the city flexibility to respond to ongoing budget needs now and in the future.  That’s good fiscal policy and good for the city.

As DC finances stabilize and recover from the recession, it is important that the District settle on fiscal choices — like how to rebuild the fund balance — that it can live with.  Once rules about how much to save are set in place, they can’t be undone without looking fiscally irresponsible and risking an unfavorable view from Wall Street.

The steps the District has taken in recent years have established a balance between building up savings and maintaining flexibility to respond to pressing budget needs.  They are sound rules that not only can the city live with but that set a path for a strong city in the future.  They should be left alone.

Happy Friday District Dime readers!  Yesterday, we reintroduced you to the District’s “fund balance” and explained why having a healthy fund balance is part of any city or state’s balanced fiscal diet.  

Given that, it is not surprising that DC finance officials and some policymakers have expressed concern that DC’s fund balance has declined in recent years, after rising significantly in the early 2000s.  

Yet it is important to note that fund balances are meant to be drawn from at times.  DC’s fund balance essentially is its savings account and serves, in part, as a cushion against unforeseen needs.  It should be built up in good times, so that it can be used during bad times.  

This is precisely what occurred over the past 10 years.  District officials made conscious decisions to spend some of DC’s very large fund balance on various critical needs.  Despite this use, the District’s fund balance is still greater today as a percentage of the city’s budget than in 41 states. 

DC’s fund balance grew at a healthy pace throughout the economic boom of the 2000s, as budget surpluses and higher-than-expected revenue projections were deposited into the city’s savings account.  Ultimately the fund balance grew to $1.6 billion, or nearly 40 percent of DC’s budget, far exceeding the informal rule-of-thumb benchmarks for adequate savings recognized by organizations like the National Association of State Budget Officers.  

DC’s elected officials chose to utilize the bulging fund balance to finance important needs.  A significant amount was used as “paygo capital,” supporting school modernization and other construction projects without having to borrow.  The fund balance also has been used to set aside funds towards the cost of health benefits for retired DC government workers, which increased substantially as a result of a change in accounting rules.  Once the recession hit, city officials used resources from the fund balance to help prevent even deeper cuts to public services than were made over the past three years.  

As the debate over the dwindling fund balance began to unfold over the past year, Washington Post columnist Mike DeBonis accurately framed the debate last year by asking “Why do we keep these reserves if not to spend them in times of need?  And is this not a time of need?”  

While serving as fiscal cushion is a key function of the fund balance, there’s certainly a point at which spending down the fund balance could go too far.  That said, the District’s fund balance will be around $700 million by the end of FY11 under worst-case projections, including over $300 million in “emergency and contingency” rainy day reserves.  That fund balance, would still exceed 11 percent of the DC budget, a level that is higher than in 41 states. 

Dr. Gandhi and other District officials are right to highlight the need for the District to build its fund balance back up.  Just as it is ok to use the fund balance when times are bad, the District needs a plan for building it back up when times are good.  Fortunately, key elements of just such a plan are already in place.  We will have more to say on this plan and what the city can do to build the fund balance back up in next week’s blog.

Hello District Dime readers, and welcome to our post-Labor Day blog!

This is a time when we turn away from the carefree days and thoughts of August (Hmmm, for us that meant writing about out-of-state municipal bonds) and make a return to more serious matters like the District’s fund balance. You might not have noticed, but over the last few weeks there’s been some debate about what DC should do about this part of our budget. This week, the District’s Dime will help you understand exactly what the fund balance is, how we have used it, and what we should do with it moving forward.

What is the fund balance and why should you care about it?

You can think of the fund balance as the District’s savings account.  It holds our emergency and contingency reserves, which are not-so-technically known as our “rainy day funds”; escrow funds to pay back the city’s bond payments; dedicated taxes for certain budget priorities; and any end of year surplus that is left in the city’s general fund after the bills have been paid.  So how much is in there right now? At the close of our last fiscal year, FY 2010, DC had $890 million in its fund balance, which is roughly 15 percent of the FY 2010 budget.  The balance will be somewhat lower as of the end of FY 2011 – which ends on September 30 – but the exact amount won’t be known for months until an audit is completed.

A healthy fund balance also is an important fiscal tool  because it is used to provide “working capital,” or funds that can be used to help pay  the city’s  operating expenses when revenues don’t come into DC’s coffers at the same time that certain bills are due.  A stable supply of working capital helps avoid the need for short-term borrowing.  

What does it mean to have a healthy fund balance?

That’s a good question.  As we noted above, the fund balance is an important financial tool for states not only because it holds funds to repay bondholders and reserves, but it provides needed monies so that when taxes don’t come in at the same time bills are due the District can pay them without putting the budget out of whack.  That is why the fund balance is often used as a common measure of a city or state’s fiscal health.

Nearly all cities and states total fund balance levels dropped during the great recession, and DC is no exception.   States, including DC, had saved during good times and used those savings to help cushion the blow to state coffers during the bad times.  This allowed many states, including DC, to weather the storm and maintain their investments in schools, libraries and roads as well as help meet the rising needs of families.

As noted,  DC’s fund balance at the end of FY 2010 equaled 15 percent of our city’s local budget. That percentage is better than 42 of the 50 states, according to the National Association of State Budget Officers.  Some city officials now are concerned that our fund balance has gotten too low, and that we need to designate funds to build it back up. There’s no dispute we need to maintain a healthy fund balance. How much money we put toward that goal – and how fast — are the key questions.  But before we get to the how we build it up and when, the District’s Dime will first explore how DC has used our fund balance.  Stay tuned tomorrow for the details.

Welcome to September, District Dime readers! For many of us, this means heading back to school, a five-day work week and a more routine daily schedule.

But this also means that our DC Council will soon get back from recess and possibly resume discussions about the Fiscal Year 2012 budget, which starts Oct. 1. A quick recap: The Council approved the budget earlier this summer, replacing Mayor Gray’s proposed rate increase on residents who earn more than $200,000 with a different type of income tax increase. Instead of new tax rate for high-income households, the Council decided to eliminate a tax break for DC residents who invest in out-of-state bonds. At its last meeting in July, the Council attempted to reverse course somewhat to keep the tax break in place for 2011, and it proposed paying for the revenue loss from the city’s savings account, known as the fund balance. Mayor Gray vetoed that change, citing concerns about dipping into the city’s reserve fund.

DCFPI agreed with Mayor Gray’s decision. For those who might have been in at the beach, the mountains, or just decided to take a summer break from DC politics, the District Dime wrote in detail about the issues surrounding out-of-state municipal bonds exploring the who, when, and how.

Some elected officials have mentioned reviving an income tax proposal when the Council comes back from recess — and possibly restoring the tax break for out-of-state bonds in some fashion. Back before Memorial Day, DCFPI commissioned Hart Research to do a poll on how residents felt about tax and budget issues, including an income tax.  You can read the poll, Hart’s memo on the poll here, and watch our video.

Others have mentioned alternative proposals. If the DC Council decides to make another change to the budget, it should do so with public input and participation. We will do our best at the District Dime to keep you informed!

Should the McDonald’s and Victoria’s Secret in Union Station get special tax benefits for operating in the historic rail station? The managers of Union Station think so, but both DC government and DCFPI think these businesses should be treated the same as other businesses in our city. 

So now the answer is up to DC Superior Court Judge Judith Macaluso, as a result of a lawsuit filed by the Union Station Redevelopment Corporation earlier this summer. 

At issue is the District’s possessory interest tax. This tax is a way for the city to tax businesses operating within federal buildings in the same way that DC assesses a commercial property tax on businesses in privately owned buildings. This is a big issue for our city, because so much of our property tax base is owned by the U.S. government or other non-profit institutions such as universities. Yet the days of going to the office cafeteria or dining hall have gone the way of the Betamax, and now federal government buildings and campus halls are filled with private, for-profit businesses such as Starbucks, Potbelly and other commercial chains. The District has argued that a Starbucks inside Union Station should be taxed in a similar way to Sidamo Coffee & Tea a few blocks away on H Street or any of the dozen Starbucks in and around Dupont Circle. DCFPI agrees. 

Yet the managers of Union Station have refused to pay the possessory interest tax. Union Station Redevelopment Corporation says that the tax violates the District’s Home Rule Act and is unconstitutional, because they claim it violates the prohibition on taxing federal properties. For several years they have sought, unsuccessfully, special legislation making them exempt from the tax. DCFPI disagreed with that approach. Remember our video? 

Now the issue has made its way to court, where the constitutional issues can be decided. DCFPI looks forward to Judge Macaluso’s decision. The refusal of Union Station’s managers to pay the tax may be an issue though, as the law generally says that a party must pay a tax to have standing to sue over it.  

Several of the arguments in the lawsuit revolve around the District’s ability to tax a business within a federal building and whether that action is a tax on the federal government itself. As mentioned above, this is an important issue to iron out in court because of the impact on the District’s finances. According to the city’s Office of Tax and Revenue, there are approximately 215 properties subject to the possessory interest tax. Many of these are in buildings owned by the federal government. In the case of Union Station, the historic building is owned by the U.S. government but managed by a nonprofit known as the Union Station Redevelopment Corporation. The redevelopment corporation then leases the building to a for-profit management company, which executes leases with tenants like Chipotle and Chop’t. The tax would be on the commercial lessees of Union Station, not the nonprofit redevelopment corporation or the U.S. government. 

Aside from the constitutional issues, Union Station’s managers claim that the tax puts a tremendous financial burden on them and might inhibit redevelopment plans. That doesn’t seem plausible, given that commercial development near Union Station is booming.  The development of the streetcar line on H Street NE along with plans for increased residential, office, and commercial space around Union Station make it highly likely that the businesses within Union Station will continue to thrive. 

The District will respond to the lawsuit by late September, and we hope that a ruling will clear up any questions about the tax so we can move forward.

Last week, the Department of Human Services proposed a new TANF sanctions policy — one part of its comprehensive redesign of the TANF system. While most elements of the TANF redesign focus on creating better access to individualized services that address recipients’ unique needs, the sanctions are the “stick” element of the program, creating strict financial consequences for families when they do not participate in the program’s requirements. DCFPI is optimistic about the TANF redesign and its ability to better help residents move toward stability, but we believe that the sanctions policy should be carefully considered – and potentially revised – to ensure that it is designed in a way that helps more than it hurts.

Under the new TANF program, all participants will undergo an in-depth assessment of needs, skills, and barriers, and create an Individual Responsibility Plan (IRP) that dictates what activities must be completed in order to remain in good standing with the program. These activities may include program cornerstones such as job training programs and educational components, but might also include time for addressing barriers, caring for children, or other agreed-upon activities.

The new sanction policy will penalize TANF families for failing to comply with their IRPs. The sanctions will have three steps, and become increasingly punitive with each successive step:

• Level one – the head of household is removed from the benefit amount. Under this sanction, a family of three would instead receive the benefit amount for a family of two. This sanction is applied after one month of noncompliance.
• Level two – the family receives a full-family sanction for one month. Under this sanction, the family receives no cash benefit for one month, and may not participate in TANF activities during that period. This sanction is applied if a participant is noncompliant again at any time within 90 days of the level one sanction.
• Level three – the family receives a full-family sanction for six months. Under this sanction, the family receives no cash benefits for six months, and may not participate in TANF activities during that period. This sanction is applied if a participant is noncompliant for a second time within twelve months of the level two sanction.

This proposed policy represents a major shift from the prior sanctions policy, which did not include a full-family sanction, and allowed a family to have their benefits reinstated as soon as they came back into compliance. According to DHS, one aim of the new policy is to discourage a “revolving door” approach, in which families come in and out of compliance regularly. However, the consequences of creating a mandatory sanction period could be severe, especially for the families who rely on their TANF benefit to be able to afford basic necessities. Further, a minimum sanction time (one month for levels one and two, six months for level three) may be counterproductive in DHS’ stated goal of helping families move swiftly toward self-sufficiency by connecting them to appropriate services. Many other states, including Maryland, allow families to reengage in services – and receive reinstated benefits – as soon as the family is ready, with no minimum sanction period.

The sanctions policy is currently undergoing its 30 day public comment period, and will have to be approved by Council before implementation. The sanctions policy is available here. DCFPI will be making comments and will share those suggestions with District Dime readers in the coming weeks.

We’re Hiring! 

The DC Fiscal Policy Institute is hiring a policy analyst! Come September’s end, I will be dusting off my Old Gringo cowboy boots and heading back to Austin, Texas. And while that’s bittersweet news for me – leaving a job and coworkers I love to go back to a city that stole my heart – it could be good news for you. 

Here’s our job announcement for DCFPI’s next Policy Analyst. If you have been looking for your next step – something that combines policy analysis, advocacy, research, writing, and a whole lot of good fun – you will want to check this out. A previous Policy Analyst wrote a great summary of this job’s perks, and each of these has proven true for me. 

Know somebody who might be a good fit? Encourage them to check us out!

Today the District’s Dime takes a final look at DCFPI’s three-part series about the issues surrounding the elimination of a tax break for income earned from non-DC municipal bonds.  

A quick refresher: The DC Council voted to eliminate the tax break on out-of-state bonds to help close a $322 million budget shortfall for FY 2012.  Yet this proposal was raised just days before the Council’s budget  vote — giving little time for its effects to be considered —  and it has generated a lot of controversy since it was passed.  This has resulted in two proposals to restore the exemption in some way, shape, or form — both of which have failed. 

There is broad agreement among DC policymakers that the city should join every other jurisdiction* in the country and end the blanket tax break for investing in out-of-state bonds.  But how that should happen is more complex.  WHO should be impacted? WHEN it should happen? And HOW should the city address the revenue loss that would occur from restoring the tax exemption for some residents?  

Previously we wrote about the WHO and the WHEN, and now we turn to the HOW.  As discussed below, DCFPI thinks that the Council should largely keep in place its plans to eliminate this tax break.  However, if policymakers wish to restore it substantially, they should offset the revenue loss with another revenue source, particularly an increase in income taxes on higher-income residents. 

The DC Council has considered two significant changes to the way the city phases out the tax break for out-of-state bonds.  This includes a grandfather clause for all current bondholders — meaning current bondholders would be allowed to keep their tax exemption — and delaying implementation of the tax change by one year.  

However, any changes to the elimination would result in a considerable loss of revenue for the District, throwing the FY 2012 budget out of balance.   Overall, this tax break costs DC upwards of $30 million each year at a time when funding for libraries, homeless services, and assistance for people with disabilities has been cut due to the Great Recession.  

DCFPI suggests that the District move forward in eliminating the tax break on out-of-state bonds as adopted by the Council, with one modification.  Low-income households and households that get a large share of their income from out-of-state bonds should be exempted from the changes, because they could be substantially impacted by the elimination of the exemption.  

If policymakers wish to restore even more of the out-of-state tax break – such as maintaining the exemption for all current bondholders — the District should replace the foregone revenue with revenue from another source.  The alternative would be to dip into the District’s savings account or cut programs even further.  Both of these approaches have been rejected this year. 

The best revenue alternative would be a modest increase in the tax rate for higher-income residents, as has been proposed by Mayor Gray and by some DC Council members.  This has broad public support and would help preserve important public services, another goal that is important to residents.

*Utah taxes out-of-state bonds, but provides an exception for Utah residents who invest in out-of-state bonds from states that do not levy an income tax and/or do not tax their residents on out-of-state bonds.  This includes the District of Columbia.  Once DC starts to tax interest on out-of-state bonds, Utah residents who invest in DC bonds will also have to pay tax to Utah.

Today, District Dime readers, we take up Part II of the DC Fiscal Policy Institute’s three-part series that aims to bring clarity to the issues surrounding DC’s tax break for out-of-state bonds. 

Mayor Gray and a majority of the Council agree that the city should stop offering a blanket incentive for residents to invest in bonds from other jurisdictions, as we have noted. What is up for debate, however, is how the tax change should occur: WHO should be impacted, WHEN it should happen, and HOW the city should pay for it. 

Today, we will examine “when” the elimination of the tax break should go into effect. (Last week, we addressed the issue of “who” should be impacted.) 

The budget adopted by the DC Council ended the out-of-state bond tax exemption as of January 2011.  That means that anyone who earns interest in 2011 from non-DC municipal bonds will pay income tax on it when they file an income tax return for 2011. 

Because the tax applies to income earned throughout 2011 but was not passed until mid-2011, some argue that this tax change is unfair, that it is wrong to change tax treatment of income already earned.  Mary Cheh proposed moving the date for ending the tax break to January 2012 in response to this concern, but it was vetoed by Mayor Gray because the proposal would have dipped into savings that the Council had committed to set aside. 

While there is some legitimacy to this claim — in general, it is better for any change in law to go into effect after the law is passed — it is worth considering that changes to the tax treatment of income are often passed during the year in which they will take effect. 

For example, New York and Wisconsin adopted “combined reporting,” a corporate tax reform in the middle of the year, but it went into effect for the whole year.  This spring, Connecticut increased income tax rates and had them go into effect for the entire year.  Vermont, Kentucky, Kansas, and Idaho also have passed taxes in recent years in this manner. 

Often times, this happens because state budgets are passed in the middle of the year, while the income tax operates on a calendar year basis, starting in January.  As tax collections tanked from the recession, many states have had to implement tax changes sooner than they might have otherwise, in order to avoid massive cuts to programs and services.  That is the case in DC as well. 

One of the bigger factors contributing to the current concerns over this tax change is the lack of public discussion before it was adopted.  The change to the out-of-state- bonds tax break was announced just days before the Council voted on it, leaving little time for policymakers to understand its full implications and little time for stakeholders to weigh in on its implementation.   

And because the DC Council eliminated of the tax break for out-of-state bonds, including an effective date of January 2011, to replace the Mayor’s proposal to create a new income tax bracket, any change to the “who” or “when” aspects of the out-of-state bonds tax break will cause the District a significant loss of revenue.  

Stay tuned later this week for Part III of this series which will address how the District could find revenues needed to alter the “who” or “when” of eliminating the tax break on out of state bonds.

Confused about the controversy surrounding out-of-state bonds? You aren’t alone. In May, the DC Council eliminated the city’s tax break for income earned from non-DC municipal bonds. This was done as part of next year’s budget, but it received little public discussion. Since then, two proposals to partially restore this tax exemption have been raised, including one that drew a veto from Mayor Gray. Amidst this back and forth confusion, it is clear that many policymakers are frustrated with the situation. 

So what’s really going on? 

To be clear: Right now, DC is the only jurisdiction* in the country that gives a universal tax exemption on out-of-state municipal bonds. The Mayor and a majority of the Council seem to agree that the city should get on the bandwagon and stop offering a blanket incentive for residents to invest in bonds from other jurisdictions. 

What is up for debate, however, is how the tax change should occur: who should be impacted, when it should happen, and how should the city pay for it. 

Who Should Be Impacted by the Out-of State Bond Tax Change?  Some people believe the tax exemption should be eliminated for new investors, but should remain in place for DC residents who currently hold non-DC bonds, because they might have made the investment choice due to the tax exemption. This would “grandfather” current bondholders under the old tax exemption policy.  The provision adopted by the Council did not include a grandfather clause. 

When Should the Tax Break Be Eliminated?  The Council voted to eliminate the tax break starting January of this year.  Some argue that it is unfair to make a “retroactive” tax change, and want to move the elimination date to January, 2012. 

How Will Any Modifications Be Paid For?  Grandfathering existing bondholders or moving the implementation date would reduce city tax collections. In July, the Council voted to use $13 million in savings to cover the revenue loss from moving the implementation date to January 2012.  But Mayor Gray vetoed it, arguing that it would be fiscally irresponsible to renege on commitments to build up reserves. DCFPI agrees with Mayor Gray’s position. This means another revenue source is needed to partially maintain the out-of-state bond tax exemption. 

Today, we’ll write about the “who.” We’ll address the “when” and “how” in future posts. 

Should all current bondholders keep their tax break? 

The DC Council eliminated the out-of-state bond tax entirely, meaning that current bondholders would lose their tax break, and anyone buying new bonds would not get a tax break from DC. (For both groups, a federal tax exemption still would apply.) 

Most tax increases are made this way — the change applies to everyone, even though that may upset someone’s financial plans. An increase in property taxes, for example, may throw the budget out of balance for someone who scraped to buy a house. Yet jurisdictions that raise property taxes apply the new rate to all homes, not just new homeowners. 

That is why it is important to understand who will be impacted by any tax change, and how they will be affected.  Data provided by the CFO show that two-thirds of the revenue raised by eliminating the out-of-state bond tax exemption would come from households earning $200,000 or more, and 87 percent would come from households with incomes above $100,000.  Closing this tax break largely would affect higher-income residents.

Given that most tax increases do not have a grandfather clause and that the out-of-state bond tax break largely benefits higher-income residents, it was reasonable for the DC Council to eliminate the tax break for everyone.

That said, there may be some households that currently invest in out of state bonds who would be substantially affected by eliminating the tax exemption. This includes lower-income households and households that get a large share of their income from out-of-state bonds.  The District could act to protect these households by maintaining their tax exemption, while eliminating the tax exemption for other current bondholders and future bondholders. 

Efforts to grandfather the out-of-state bond tax exemption for families who would be most affected would address the most serious concerns that have been raised, while also limiting the revenue that would be lost.

Stay tuned to the District Dime tomorrow for more!

*Utah taxes out-of-state bonds, but has an exception for Utah residents who invest in bonds from  states that do not tax interest earned on Utah bonds. These states include the seven states without an income tax, as well North Dakota and the District.  Once the DC provision to eliminate this exemption goes into effect, Utah will start taxing income earned by its residents on DC bonds.

Hi District Dime readers! Well, it’s another indication that we’re in August: We face another empty week ahead calendar.

Not that there aren’t things happening: The Ward redistricting process is in full swing, so you might want to check in on that as well as the goings on of your neighborhood groups and associations.

We’re on a reduced blog schedule too, but we’ll have a few items for you to read and respond to this week. Stay tuned!

This blog has been changed to reflect two clarifications. Please see bold highlights below.

Mayor Gray made the right decision this week to veto an amendment that was added to next year’s budget just before the DC Council’s summer recess. That amendment would have maintained, for one more year, a tax break for residents who have invested in non-DC municipal bonds, even though the Council voted to eliminate this tax break in its first budget vote of May 25th and reaffirmed that decision on June 14th. More important, the amendment would have funded this tax break by dipping into city reserves, reneging on a provision just adopted by the Council to start rebuilding our cash reserves. That would be fiscally irresponsible and could threaten DC’s bond rating, as indicated in strongly worded warnings from DC’s Chief Financial Officer.

DCFPI supports eliminating the tax break on interest earned on out of state bonds for several reasons. The District is the only state* in the country to give a tax break to residents who invest in municipal bonds outside home borders. Making bonds from other cities and states tax-exempt creates an incentive to invest in other places rather than home. Some have suggested that removing the tax break hits retirees harshly, but data indicate that only one-in-four households with tax-exempt bond interest had retirement pension income, and approximately 70 percent of residents who hold out-of-state bonds have incomes over $100,000. (There are likely to be some retired residents who do not have pension income, but these households were not identified in the CFO data. The full number of retirees with out-of-state bonds is likely to be higher than indicated from the CFO data, but it cannot be determined precisely.)

The Council decided in this budget season to set a priority to rebuild the city’s savings. To that end, the FY 2012 budget passed on May 25^th and affirmed on June 14 included a provision that 50 percent of any increase in revenue from the June and September revenue forecasts would be used to replenish the city’s Cash Flow Reserve Account. Dr. Gandhi and Mayor Gray supported that approach.

For the Council to now ignore its concerns over the District’s reserve fund in the name of a tax cut primarily targeted towards wealthy residents is fiscally irresponsible.  Dr. Gandhi indicated in a fiscal impact statement that reversing a just-adopted savings plan puts DC’s bond rating at risk.

The amendment adopted in July that Mayor Gray vetoed would have eliminated the tax break, beginning in January 2012 rather than January 2011, making the tax change prospective rather than retroactive.  While this is a reasonable policy issue, the manner for addressing it was not.  The Council could have considered another approach to making this tax change prospective.  Indeed, an amendment to create a new income tax bracket for high-income households was slated to be considered by the Council in its July legislative session.  That tax change would have allowed the District to eliminate the bond interest exemption solely for new investments, protecting all current investors.  But the lead sponsor for that amendment, Council member Cheh, ultimately did not bring it up for a vote.

That was unfortunate, unlike the elimination of the out-of-state bond tax break, which was discussed only toward the conclusion of the budget debate, the high income tax was debated widely and received widespread support from residents. A  Hart poll found that 85 percent of DC voters supported the tax, including 91 percent of residents from Wards 2 and 3.

DCFPI agrees with the large majority of DC residents that our elected leadership needs to take a balanced, judicious approach to our budget. In order to move forward out of these difficult economic times, the District needs to maintain key investments in our residents and our infrastructure. The Mayor and Council need a budget that provides for our critical investments, rather than pay for tax breaks that threaten our city’s fiscal health.

*Utah taxes out-of-state bonds, but has an exception for Utah residents who invest in bonds from states that do not tax interest earned on Utah bonds. These states include the seven states without an income tax, as well North Dakota and the District. Once the DC provision to eliminate this exemption goes into effect, Utah will start taxing income earned by its residents on DC bonds.

During this time of record heat waves, two critical DC programs that provide emergency rent and utility assistance, have run dry.  Funds for emergency utility assistance ended July 15^th and funding for emergency rental assistance ran out near the end of June.  And while the emergency rental assistance program has additional budgeted funds, those funds have yet to get out the door to families who need the help immediately.  And at the same time, the shelter system is nearly at capacity and new families without any place to stay are still being turned away.

The Low-Income Home Energy Assistance Program, or LIHEAP, provides a one-time benefit to low-income DC households who need help paying their utility bills.  The program also provides emergency assistance to households who have received a disconnection notice.  Unfortunately, LIHEAP funds ran out on July 15th — just days before DC began to experience the first of its two major summer heat waves.  DC has a law on the books, thanks to Councilmembers Cheh and Alexander, which prohibits electric companies from disconnecting utilities on days when the heat index is predicted to be 95 degrees and above.  But it doesn’t prevent one’s electricity from being shut off before then.

Without additional LIHEAP funds, low-income households are left without emergency utility assistance through the end of FY 2011, or September 30^th.  And with FY 2012’s LIHEAP funding down by 23 percent (largely from cuts in federal funds) and winter heating costs expected to reach their highest levels over anytime from 2000-2010, DC households struggling with utility costs may find it even harder to access emergency utility assistance throughout the next fiscal year.

The District’s rental assistance program is in a similar situation. The Emergency Rental Assistance Program provides a one-time payment to eligible low-income DC households facing housing emergencies.  Assistance is available to households facing eviction or for a security deposit and first month’s rent for a new home.  ERAP is one of the more cost-effective programs the District has to prevent homelessness.  The average ERAP payment in 2010 was $2,500.   The average cost of a stay in a family shelter in DC is $2,500-$3,700 a month.

ERAP was awarded a total of $7.3 million for FY 2011.  Through June, $5 million had been awarded and spent on emergency rental assistance.   But since the end of June, the additional $2 million has yet to be released.   The Department of Human Services states that they are working to make $700,000 available this week, and then the remaining $1.3 million by August 15^th.  But that is of little relief to the families that have been looking for emergency rental assistance for more than a month already.

Emergency assistance can help keep families in their homes, stable, and healthy.  Without available emergency assistance families run the risk of displacement, homelessness, or suffering through extreme weather conditions.  This has consequences for both the family and the District.  DC should work to ensure that it has year-round emergency assistance available to families that need it.

Hello District Dime readers! August has begun, which means that there is little to put in the week ahead.

As all of you know by now, it appears we have averted a default on the national debt.  In response, Chairman Brown cancelled his emergency meeting with our elected leadership to discuss the impact on DC finances that was scheduled for today.

Given the blank schedule, check out your local neighborhood civic association or ANC! Or perhaps take a rest. It’ll be a busy fall!

Finding affordable housing in Washington, D.C. continues to be difficult for many residents; even five years after the Comprehensive Housing Strategy Task Force (CHSTF) released its plan to address the issue.  Today, the Brookings Institution has released a new report that takes a look at DC’s housing policy, in light of recent housing and economic trends, and how much — or how little — progress the District has made on the recommendations laid out by the CHSTF. 

The report finds that the District has not implemented many of the CHSTF’s recommendations, but has made progress in several important areas.  The national housing crisis and great recession have had a significant impact on DC’s progress, putting the brakes on many of DC’s affordable housing programs while at the same time increasing the need for it.  The report lays out five ways that the District can better position itself to build more affordable housing as the economy recovers and also suggests that given the new economic environment, DC use this report as an opportunity to reexamine its overall housing policy. 

What progress has DC made on the CHSTF’s major recommendations? 

• Recommendation #1: Double expenditures on housing.  As frequent readers of the District’s Dime no doubt know, funding for housing programs has not doubled.  The District did manage to increase funding by $46 million in the two budgets following the CHSTF report.  However, funding quickly fell back to roughly the same level as in FY 2006. This is primarily due to the disastrous effect of the decline in property sales on the Housing Production Trust Fund which is supported by a portion of deed recordation and transfer taxes. 

• Recommendation #2:  Preserve 30,000 existing affordable housing units and produce 19,000 new long-term affordable units.  It is clear that there has been some preservation and production of affordable units over the last five years, yet it is impossible to tell exactly how much (an upper limit estimate is around 11,000 units).  The Office of the Deputy Mayor for Planning and Economic Development is developing a database to help answer this question.  Unfortunately, it is not yet ready for primetime due to ongoing issues with the data it receives. 
• Recommendation #3:  Increase homeownership rate to 44 percent and provide additional assistance for tenant purchase.  The District has succeeded at raising the homeownership rate to almost 45 percent.  However, homeownership has only increased among households making more than $75,000 annually.  The Tenant Opportunity to Purchase Program, which helps low-income tenants purchase their buildings, has had its funding cut in the FY 2012 budget. 
• Recommendation #4: Support an additional 14,600 extremely low-income renters by adopting a local rent supplement program.  The District did create the Local Rent Supplement Program in 2007.  However, funding has not been sufficient for it to reach the goals set by the CHSTF.  Last year the Council estimated that LRSP was roughly $60 million and 4,000 families behind. 
• Recommendation #5: Target existing and new neighborhoods with the potential for sustained improvement and coordinate investments.   Most large projects (Anacostia Waterfront, St. Elizabeth’s, the New Communities program, etc.) all struggled due to lack of financing during the recession.  As financing unlocks these projects will get off the ground.  Inclusionary Zoning took effect late 2009 after some delay, with the first units expected this year.
• Recommendation #6: Integrate housing for persons with special needs into all types of housing throughout the city.  Data on special needs housing is lacking, but progress seems mixed.  There has been a focus on permanent supportive housing in recent years, though some argue that this has been at the expense of interim and transitional housing.  The literally homeless population grew 14 percent in the last four years, due to high unemployment and the housing crisis.  A recent report by the U.S. Commission on Civil Rights found that accessibility and unequally geographic distribution of affordable housing are still problems. 

Given the city’s challenging budget picture, Brookings’ recommendations focus on short-term, relatively low-cost actions that can be implemented quickly and will put the city in a better position to move aggressively on affordable housing as funding becomes available.

1. Upgrade the affordable housing pipeline database maintained by the Office of the Deputy Mayor for Planning and Economic Development (DMPED). The database is an important tool which continues to improve, but it does not yet reliably describe affordable housing activity in the District.
2. Develop a unified application process for affordable housing subsidies among DCHA, DCHFA, and DHCD. This would ease the process for developers, reduce redundant or conflicting information on affordable housing developments and allow agencies to engage in a coordinated review of the application.
3. Charge DMPED with taking a more forceful role in coordinating among housing agencies. If the District does not want to appoint a Chief of Affordable Housing (one of the recommendations in the 2006 report), it must find another staffing or organizational configuration to ensure that the office effectively coordinates housing policy across agencies.
4. Consider options to diversify the funding sources for the Housing Production Trust Fund.  For example, the District could dedicate a third of total property taxes collected due to increased property values to affordable housing programs, measured against some baseline year or years.  Or it could increase property taxes by 5 percent and dedicate half of new revenues collected to affordable housing.  Fixing the Schedule H Tax Credit should also be a priority.
5. New economic conditions require that the city rethink its housing policy and strategy. After five years of housing policy informed by the CHSTF report, and facing a different type of economic environment, the city should refine and redefine its housing strategy. We hope that this paper serves as a jumping off point this discussion.

We are delving into the world of education policy and finance issues in the District of Columbia, and we’re looking for an experienced analyst to lead the way.  

Will you be the next person to join the DC Fiscal Policy Institute’s “rapid-response wonk team,” as our dynamic team of policy analysts was described by the Washington City Paper?   Here’s the job announcement.  We hope you’ll consider applying — and that you will forward our announcement to anyone you think might be interested.  

There is little doubt that K-12 education remains the top public policy issue in the District.  And there are many reasons for DCFPI to get involved. The city spends over $1.3 billion in local operating funds each year on public schools, public charter schools, and private-school placement of students with special education needs.  Education finance issues are complex — such as adequate per-pupil funding in DC public and public charter schools, allocation of funding to local schools, and efforts to bring down the high costs of special education.   

Moreover, DC’s education budget is sorely lacking in transparency, making it hard for parents and others to get involved in fighting for an education budget that is both adequate and allocated to meet the most important priorities.  

Finally, a large share of students in DC’s public and public charter schools come from low-income families, live in low-income neighborhoods, or both.  DCFPI has highlighted research showing the challenges that poverty creates for efforts to improve educational outcomes.  We intend to examine policies that are geared toward improving the educational success of low-income students, and we’ll be pointing out how improving the economic success of DC families will contribute to better school outcomes.  

Sound exciting and up your alley? Please apply.

Federal funds make up nearly 30 percent of DC’s budget and provide funding to support critical services to our city such as transportation, HIV/AIDS care, and job training.  Yet there is very little information in DC’s budget about how these funds are used. Increased information on federal funds could support better decision-making on how DC will use federal funds to help fund critical programs and services for DC residents.

Federal dollars make up a significant portion of the budgets for many DC agencies.  For example, 43 percent of what the Department of Employment Services spends comes from the federal government. The Department of Health gets 62 percent of its funding from federal sources and the Department of Housing and Community Development’s budget is 55 percent federal dollars.

Yet, there is no way to connect the dots between the federal grants an agency is awarded and how that grant might be spent on specific programs and services. For example, the budget for the Department of Health provides a listing of all of the federal grants DOH is expected to receive, but it does not lay out how each of those federal funding sources will be allocated among DOH programs and services.

Also, federal grants awards sometimes cover a number of years and many times the agency does not spend the entire grant award in one year.  There is no way from DC’s current budget to determine what the carryover amount is and where that money might be spent.  Nor is there a specific accounting of what has been spent in prior years.

The lack of transparency in federal funds can have serious consequences too.  Remember in 2009 when funds for homeless services were suddenly cut by 30 percent?  No one had any idea that homeless services were being supported with the federal Temporary Assistance for Needy Families block grant funds — and that the carryover money from that block grant that was being used to fund homeless services had run out.  Greater transparency would have helped shed light on this issue.

There are a number of steps DC could take to help shed light on this important part of the budget.  Maryland, for example, has a detailed report of federal grants the state uses that includes a description of the grant, the grant formula, the program and population served and an estimate of the amount to be spent within an agency.  DC could also include a table in the budget books, or separately in its online budget tool, CFO Info, that would list this type of information (an example can be found here).

And lastly, federal funds can also be made a more visible part of the annual budget oversight process.  The Committee on Health, for example, asks the agencies under their purview to report which federal grants they were awarded, the purpose of the grant, the effective dates, and any carryover funds that there might be.  This should become a standard part of every Committee’s oversight process during budget season and the information should be easily accessible to the public.

Efforts are actively underway at the District’s Department of Human Services to thoroughly revamp the way that the city addresses the education and training needs of families on welfare. This week, DHS begins reviewing proposals from non-profit and for-profit companies that will be tasked with providing services under the District’s new TANF Employment Program, starting  in October. New vendor contracts are just one piece of the larger TANF reform that DHS has embarked upon, and will play a central role in the program’s improvement and evolution. 

The District’s new TANF service delivery model will look like this: 

• New Orientation and Assessment:   Focus groups with TANF families have shown that the District has not done a great job of assessing TANF parents’ barriers to work or in letting parents know about education and training options available to them.  Under the new plan, DHS will conduct a comprehensive assessment of skills, barriers, and other issues, and it will conduct an orientation that covers the full range of newly available services.   
• Customized Employment Plans :  Each TANF family will be placed in one of two tracks – a” job placement” track for those  who are essentially ready to work and mostly need help searching for a job, and a “work readiness and placement” track for those with more significant barriers who would benefit from education or training. Service providers will be expected to develop a detailed plan for each client, provide comprehensive case management, connect clients with appropriate services, and place clients in jobs.  
• Pay for Performance:  The compensation structure for the new contracts will be largely performance-based – meaning that contractors will be paid based on their ability to achieve the outlined goals: clients completing training and education programs, getting and maintaining a high-wage job, and completing all required participation hours, among others.  Hopefully, that performance data will be made available to the public by the Department of Human Services.  

DHS had originally planned to have new providers ready to start offering services this summer, but its effort to solicit bids was just announced in early June..  While DHS expects to have new providers in place by the start of the fiscal year in October,  the delay means that clients may be affected by the new TANF time limits before they have the opportunity to benefit from TANF reform. 

The District’s TANF reform holds much promise. Tight timing of key program components pose some risk to families who will be affected by already-in-place punitive measures before they are able to participate in the new program, but with skillful, timely execution, many more families will soon be receiving meaningful services that help put them on the path toward stability and self-sufficiency.

Recent unemployment numbers show that one in ten D.C. residents looking for a job can’t find one. So it’s good news that the D.C. Council took an important step before breaking for recess to help residents get back to work.   On Tuesday, the Council passed emergency legislation to create a task force that will help launch a “workforce intermediary”— an organization to act as a broker between employers, workers, and training providers.  

So how do intermediaries work?  First, workforce intermediaries interact with employers to understand their hiring needs.  Next, they work with training providers and community-based organizations to develop or fine-tune programs to meet those specific needs.  Intermediaries then help employers fill job openings by presenting them with program graduates or other qualified candidates.  Finally, intermediaries help workers keep the jobs they get by addressing issues that make work challenging, like child care.   

Workforce intermediaries in other cities have been a win for both businesses and residents.  They help residents who need to upgrade their skills participate in training that leads directly to a job — which addresses a common complaint that residents who receive training often have no job offer at the end  —  and help those who already have skills find jobs.  Intermediaries also help employers recruit and retain qualified workers.  A workforce intermediary in D.C. would help ensure that our residents benefit from the city’s job creation efforts – some of which were highlighted by Mayor Gray at a June 27^th press conference. 

In a policy brief  co-authored with DCFPI and the DC Employment Justice Center last fall, DC Appleseed urged the Mayor and Council to establish a workforce intermediary, and to start by convening stakeholders to guide its creation.  The task force called for in the newly passed legislation will do just that.  Leaders from business, philanthropy, organized labor, workforce development, and government will review successful workforce intermediaries in other cities and provide the Mayor with recommendations for starting a program here.  Support from these stakeholders at the outset will provide a strong launching pad for the intermediary.   

But the hard work won’t end with the task force’s recommendations.  Getting the workforce intermediary up and running will require continued commitment from the city and the communities with which it works.  We look forward to the task force being the first of several steps taken toward creating a successful workforce intermediary here in the District.

Yesterday, the DC Council took action to address a number of “spending pressures” — areas of the budget with unanticipated increases in costs — and on ways to use a recently identified increase in revenues.  The Council largely approved a proposal submitted by Mayor Gray last week, which addressed the spending pressures and used new revenues to start funding budget priorities that had been identified in the approved 2012 budget.

However, the Council also approved a fiscally irresponsible move to use $13 million from DC’s fund balance, or savings account, to maintain until next January a tax break for investors in out-of-state bonds, even though the Council had voted just one month ago to eliminate the tax break. That move was opposed by DC’s Chief Financial Officer because it could put DC’s bond rating at risk.  It also put restoring this tax break ahead of restoring cuts to critical programs and services such as libraries, assistance for people with disabilities, and affordable housing.  This is exactly the opposite of what DC residents want.

So, what happened in yesterday’s vote?  Some $76 million in additional revenues will be used to cover spending pressures in the current fiscal year, in areas like public safety and health care.

The additional revenues in FY 2011 and FY 2012 also will fund a number of programs from the Council’s priority restoration list (passed June 14^th) including:

• $1.8 million for a commercial revitalization program (including ‘green teams’ and ‘clean teams’)
• $30 million for a re-negotiated managed care contract for Medicaid and Alliance health care
• $12.5 million for school nurses
• $10.8 million to hire more police officers
• $3.5 million for mental health services

The final significant change came from efforts to put back a tax exemption for residents who currently invest in out-of-state municipal bonds.  District Dime readers know that the DC Council had voted to remove this tax exemption — twice — and that it was not included on the priority restoration list included in the approved FY 2012 budget.  Despite this, two proposals to roll back the exemption for out of state bondholders were discussed.

The first, sponsored by Councilmember Cheh, would have created a new income tax bracket of 8.9 percent for those who make more than $350,000 (or $700,000 for two-earner families).  This would have raised nearly enough revenue to cover the cost of the maintaining the tax exemption for current bondholders, while still eliminating the exemption for future investments.  It also would have helped make DC’s tax system more progressive.  This was a reasonable approach to addressing a tax change that some Councilmembers find troubling.  But this amendment ultimately was not introduced.

Instead, Councilmber Cheh introduced an amendment to take $13 million from DC’s fund balance to delay the implementation of the out-of-state bond tax by one year.  This amendment was adopted.

This effort to draw funds from DC’s savings is fiscally irresponsible. DCFPI has argued in the past that DC’s fund balance is in reasonably strong shape and that the Council didn’t need to set half of new revenues in 2012 into savings, as was approved in the 2012 budget.   We noted that such rules can often unnecessarily constrain the Mayor and Council’s ability to budget over time.  This is largely because once a rule is set in place, it can’t be changed without looking fiscally irresponsible.  And that is exactly what this amendment did.  It changed the law passed just one month ago, that required half of future revenues to be set aside in DC’s fund balance and instead, used a portion of those planned savings to reinstate a tax break.

Dr. Gandhi, DC’s chief financial officer, has warned the Council of the potential consequences of making changes to fiscal policies such as these.  In a fiscal impact statement he issued on this amendment he wrote, “As a cautionary note, rating agencies and potential investors in the District’s bonds may view the reduction in the amounts previously approved for the Cash Flow Reserve as a lack of willingness and commitment to rebuild the General Fund balance and increase liquidity.”  He went on to say that this could potentially impact DC’s bond rating.

Unfortunately, the Council chose to prioritize limited resources to delay the implementation of a tax increase over funding critical programs and services like libraries, assistance for people with disabilities, and affordable housing — and did so in a fiscally irresponsible way that could end up costing DC more in the long run.

Good day, District Dime readers! It’s time for all of us to turn green with envy over the two-month recess that our esteemed Council begins this Friday. This means a monster legislative meeting on Tuesday, and then a very slow rest of the summer. Our Week Ahead feature will also go on recess, only surfacing on an ad hoc basis. This week:

Tuesday, 10am: Legislative meeting. The meeting will include the final final vote on amendments to the FY 2012 Budget Support Act and Budget Request Act related to the June revenue forecast, the confirmation of Department of Human Services Director nominee David Berns, and a slew of other legislation.

Today, the DC Council is holding a roundtable to discuss Mayor Gray’s proposed plan to use additional revenues announced by DC’s Chief Financial Officer just two weeks ago.  The Mayor’s plan focuses on the $107 million in additional revenue announced for FY 2011.  Between additional revenues in FY 2011 and FY 2012, the new funding would help cover significant spending pressures in health care, provide additional funding to hire more police officers, and offset cuts in a commercial revitalization program, among others.  It would also put aside funding in DC’s fund balance, or savings account, and move personnel out of the capital budget and into DC’s operating budget. 

DCFPI largely supports the Mayor’s plan.  It helps fund a number of important services that were not funded in the FY 2012 budget.  Yet, even with the promising uptick in revenues, the revenue growth is not sufficient enough to fund all of the critical programs and services on the priority list including housing, libraries, and assistance for people with disabilities, just to name a few.  And with a provision that half of all new revenues in 2012 will be deposited in DC’s savings account, revenue estimates will need to grow another $70 million in order to cover these critical services. 

DC residents strongly prefer maintaining services over holding down taxes.  This suggests that the Council should not adjust the priority restorations list to re-instate a tax break for people who currently invest in out-of-state bonds, as has been suggested by some Councilmembers.  Until the Council removed this tax break, DC was the only state to offer such a break.  All other states offer a break to their residents who invest in their states bonds, but not out-of-state bonds, to encourage investment in their states infrastructure.  And data show that most DC residents with out-of-state bonds are not low-income or retirees, despite claims to the contrary.  

DCFPI’s Ed Lazere is testifying on the Mayor’s proposal today.  You can read a copy of his testimony here.

It’s been a tough budget season in the District, and even the unanticipated revenue announced last month will not be enough to cover the all the critical priorities outlined by the DC Council in the FY 2012 budget. In times like this, when resources are strained and even the most basic of government functions – schools, police, and public health – are competing for limited dollars, it is all the more imperative that the District take a judicious and thoughtful approach to allocating its scarce resources.

So District leaders should be applauded for approving legislation to create a new process for evaluating proposed tax breaks to help the District responsibly determine how best to support economic development.

The Exemptions and Abatements Information Act, included as part of the 2012 Budget Support Act, does two major things. It requires that projects seeking city assistance be subject to a rigorous fiscal analysis by the Chief Financial Officer. It also requires reporting on the community benefits the project will provide, such as affordable housing units and/or jobs created. This will help our elected officials make better decisions by detailing whether projects need financial help from the District to be successful and what these projects will offer the city and its residents when completed.

Right now, policymakers and residents get little information about project finances or benefits when legislation to abate or exempt a property from taxes is placed before them for a vote.

Take, for example, a controversial abatement that was considered last year to give Union Station a tax break worth at least $34 million. The developers who manage Union Station sought to permanently exempt commercial businesses such as Starbucks and McDonald’s who operate at the shopping center from paying the possessory interest tax, which operates much like the property tax. The loss to the city, according to the Chief Financial Officer, would be at least $34 million over 20 years. Yet the legislation was not subject to a rigorous fiscal analysis to explain whether or why a bustling commercial center would need tax subsidies.

In the end, legislation for the Union Station tax break was tabled, in large part over doubts that a subsidy was warranted. That was the right decision.

Starting October 1, projects that seek tax exemptions or abatements assistance will be subject to much greater analysis. That’s good for all. Thanks to Mayor Gray and the DC Council for including this important law in the FY 2012 budget.

Yesterday, Mayor Gray and DC Council members met to discuss how to use the unanticipated revenue for Fiscal Years 2011 and 2012. Last week, DC Chief Financial Officer Natwar Gandhi announced that the city will collect $107 million more than previously expected in the current fiscal year (FY 2011) and $77 million next year (FY 2012). While the Council created a spending roadmap for additional revenues within the just passed FY 2012 budget, $77 million of increased revenue wasn’t enough to cover a recently announced $32 million spending pressure in health care costs for next year.

At the meeting, Mayor Gray proposed to use the majority of the FY 2011 revenue increase to address spending pressures, i.e., programs that will have expenditures that exceed dollars allocated in the FY 2011 budget. Yet the mayor also proposed to use some of the additional FY 2011 revenue to cover the remaining costs of the health care contract and fund several programs on the Council’s priority restoration list for next year, including additional police officers and mental health services.

The next steps are as follows: The Mayor will send a FY 2011 supplemental budget to the Council tomorrow (Friday), a public roundtable will be held on the plan July 7th, and a DC Council vote on the supplemental budget legislation is tentatively set for July 12th.

Here is a run-down of the major points covered at yesterday’s meeting:

Increased FY 2011 Revenues

Gray proposed that $74 million of the $107 million in additional FY 2011 revenue be used to cover current spending pressures in areas like public safety and health care. The remaining $33 million will be carried over into FY 2012 and used to cover the remaining $6 million the mayor said is needed to pay for renegotiated contacts to Alliance and Medicaid health care providers, as well as for several programs from the Council priority restoration list. The allocations include $12.5 million for school nurses, $10.8 million for police, and $3.5 million for mental health services.

Where would programs on the Council’s priority list stand?

Given the mayor’s proposal and the spending map outlined in the recently passed FY 2012 Budget Support Act, the unanticipated revenue will be used to fund a number of items on the Council’s priority list including:

• $22 million to move employees from the capital budget to the operating budget
• $28 million to add to DC’s fund balance, or savings account
• $1.8 million for green teams and clean teams
• $32 million for the renegotiated health care contract
• $12.5 million for school nurses
• $10.8 million for additional police officers
• $3.5 million for mental health services

The $3.5 million for mental health care would actually bump other Council priorities such as funding for the Local Rent Supplement program and Housing Production Trust fund down the list. If the Mayor’s plan passes as proposed, these programs would now be first in line for additional revenues that may be available when CFO Gandhi issues his next revenue forecast, in September.

Mayor Gray will send his supplemental budget down to the Council tomorrow, and the Council will likely hold a roundtable on the supplemental budget on Thursday, June 7. Following this hearing, we can expect a final vote on Tuesday, June 12, which would finally close the books on the FY12 budget process — that is, until the next revenue forecast comes out.

The Mayor took an important step by prioritizing program restorations with the additional FY 2011 dollars. Many critical programs and services still remain underfunded as DC begins to climb slowly out of the recession. Moreover, the Council should continue to prioritize new revenues to restore programs and not use our limited resources for tax breaks. Twice now the Council has voted to remove the tax exemption on interest earned on out-of-state bonds. DCFPI supports that decision and urges the Council to keep that in place.

Today’s focus on how Internet gambling, or I-gaming, became District law highlights a reform DCFPI and others have been strongly advocating for over the years: That there should be a mandatory 48-hour examination or “waiting period” between the time DC Council members receive final budget documents and when they cast votes on this important legislation.

Putting a legally-binding examination period in place allows Council members and staff—as well as the public—time to read and digest budget documents. It gives members as well as the public a chance to weigh in on changes made to the budget between the time the Council has finished its round of public hearings and the vote on the budget.

Over the years, there have been several examples of a major public policy matter that made its way into the budget with little public notice. In the last few budget cycles, major policy changes in human services, economic development and transportation were placed into the budget at the last minute without public hearing or discussion.

In fact, only a few weeks ago, when the Council was considering the second vote on the Budget Support Act — legislation that includes all the legalese to enact the budget and requires two votes — a provision impacting parents who receive Temporary Assistance for Needy Families was inserted into the bill. The provision, which would have tied assistance to mandatory attendance of parent-teacher school conferences, made its way into the legislation without any hearing, testimony or public input. Luckily, it was pulled at the last minute.

It’s true: Budget documents aren’t exactly as scintillating a read as a John Grisham novel. Yet the budget is a statement of our public policy priorities, and legislators and the public should be given the chance to examine and understand and changes made to it before it is voted upon.

The Council and Mayor should work together to make the 48-hour examination period a standard part of the budget process.

Yesterday, Mayor Vincent C. Gray visited Yards Park, where he gave an update on his economic development agenda and announced several new businesses opening in the District. Between the new City Center DC mixed-use complex on the Old Convention Center site in Ward 2, retailers such as Harris Teeter and Potbelly opening in Yards Park along the Anacostia River in Ward 6, and government contractor MVM Technologies moving its headquarters and ink jet manufacturing facilities to Ward 8, Gray estimated upwards of 4,500 permanent new jobs will be created in the city. And the construction work involved with building these sites account for at least for another 1,400 temporary jobs.

The big question is: Will DC residents benefit from this job creation?

Even though there are far more jobs than working adults in the District, about one out of ten District residents searching for work cannot find a job. There are many factors why this is the case, but one big issue is that many residents searching for work are not prepared for the jobs that are available in our labor market.

Certainly job training needs to take place. But how do we assess the skills of applicants, the training needs of employers, the capacity of training providers and other factors—like, for example, if it’s necessary for workers to be able to drive and/or own a vehicle—in the most fluid, coordinated way to make the best job match possible?

A solution several other cities have tried with success is to create what’s known as a workforce intermediary. Mayor Gray announced at yesterday’s event that his administration supports the creation of a workforce intermediary, and, in fact, there is legislation to create a workforce intermediary currently being considered by the DC Council.

So what is a workforce intermediary?

A workforce intermediary is a broker or matchmaker in the jobs market. An intermediary works with employers; job seekers; training providers such as community colleges and nonprofit organizations; and government workforce agencies such as DC’s Department of Employment Services and Office of the Deputy Mayor for Planning and Economic Development to create a stronger workforce development pipeline. The intermediary helps match workers to employers by assessing, preparing and forecasting what’s needed for jobs that are available—and even better, for jobs that will be available in the future. It is not separate from other workforce development efforts, such as One-Stop Centers and Community College programs, but an additional tool to further enhance these programs.

One important clarification: Workforce intermediaries are commonly confused with training providers. Actually intermediaries contract with training providers and act as a neutral broker between training providers, job seekers in search of skills, and employers. As a result, workforce intermediaries are able to help businesses recruit and retain qualified workers and help workers who need skills participate in training that ends in employment.

In other words, a win-win for everyone.

DCFPI, along with DC Appleseed and the DC Employment Justice Center, authored a policy brief on the workforce intermediary last fall. We encourage both Mayor Gray and the Council to work together to start an intermediary here in DC, and we hope the process will begin with creating a task force as soon as possible to work on bringing an intermediary to our city. DC can’t pass on the opportunity to help connect its residents to 5,900 jobs.

Hello District Dime readers, and welcome to the first full week of summer. DC pools are now open all week (www.dpr.dc.gov) and Ke$ha looks like she’s got the undisputed summer jam, but our elected officials are not on vacation. Mayor Gray spoke about jobs and economic development in Yards Park this morning, and the DC Council has a pretty packed schedule of hearings all week.

Here’s what we’re tracking: First, Mayor Gray and the DC Council will have to decide how to allocate the unanticipated revenue the District is scheduled to collect for Fiscal Years 2011 and 2012. We wrote about that last week.

The Council also has a busy week:
It can be found at www.dccouncil.us.

Tuesday, noon, Room 120: The Committee on Human Services will vote to confirm David A. Berns as Director of the Department of Human Services

Wednesday, 10 am, Room 120: The Committee on Finance and Revenue will hold a hearing on Igaming.

Yesterday, DC Chief Financial Officer Natwar Gandhi announced the revenue forecast that our elected officials and many other budget-watchers have been eagerly anticipating. Dr. Gandhi said the District will collect an additional $107 million in the current year, FY 2011, as well as see an increase of $77 million in revenue for next year, FY 2012. The revenue boost comes from better-than-expected collections of property, income, and deed recordation and transfer taxes. 

The June forecast was the subject of much speculation over recent weeks, and the source of some spirited debate among Council members during last week’s final FY 2012 budget vote. As District Dime readers know, two out of every three dollars cut in Mayor Gray’s budget came from critical human services programs, and though the Council made some key restorations, many important programs and services — in areas like public safety, affordable housing, and libraries — did not get funding restored. As an alternative, council members decided not to wait for actual revenue numbers and included in the final Budget Support Act a lengthy list of priority restorations for any additional revenue Dr. Gandhi determined in his quarterly forecast.

Yet as the list is currently structured, not many critical programs will benefit from the additional revenue boost. For the current year, FY 2011, the $107 million in additional revenue will likely all be gobbled up by spending pressures in various agencies. In May, it was reported that there were at least $70 million in spending pressures in areas like health care and settlements and claims, and it has been discussed that there are likely more spending pressures that will result by the end of the fiscal year.  

For next year, FY 2012, the $77 million in additional revenue isn’t enough to fund all of the priorities on the Council’s restoration list. In fact, it would only fully fund the first priority and partially fund the second. Here’s why: Based on the final Budget Support Act vote taken last week, the first $22 million in additional revenue would be used to move employees from the capital to the operating budget. Of the remaining $56 million in additional revenue, half would be put into DC’s fund balance, or savings account. The remaining $28 million would be used to fund programs on the Council’s priority restoration list.  

However, the $28 million is only enough to get to two programs on the list— funding for a commercial revitalization program ($2 million) and funding for additional costs in the managed care system ($26 million) — and it would leave the funding needed for the managed care contracts about $6 million short. It also would not be enough to fund other priorities such as police officers, affordable housing, and assistance for people with disabilities.  

So, what happens next? Right now, it’s unclear. It’s likely that the Mayor and Council will meet later this week ( hopefully in a televised discussion) to talk about how to best use the increased revenue.  

Mayor Gray and the Council should consider several options moving forward. Overall, our elected leaders should prioritize using the additional revenue to fund programs and services that help residents as we try to keep positive momentum out of the difficult economy of these past few years. 

One option to consider is slowing down the shift of capital expenditures to the operating budget and completing it in FY 2013. Doing this shift incrementally over two years will allow District leaders to allocate $22 million to critical priorities next year, in FY 2012. 

A quick explanation: Mayor Gray and his budget team determined about $47 million of expenditures in next year’s capital budget, which finances our big infrastructure projects, should actually be in our yearly operating budget. The District pays interest on the capital budget, so it is good budgeting practice for all yearly, recurring expenses like salaries not directly related to a specific project to be paid for in the operating budget. Yet the shift does not need to happen all at once. Dr. Gandhi told the city’s elected leadership that about $21 million in these expenses need to be moved immediately. That has already been done. The other half should be moved soon, but it does not need to happen all next year. Delaying the shift to FY 2013 can devote $22 million to police, affordable housing, and other critical needs. 

Our elected leaders could also prioritize critical program needs by changing the percentage of additional revenue we put toward the city’s fund balance. The council approved 50 percent, yet several Council members supported an amendment putting one-third of the additional revenue into the reserves. It is certainly important for the city to have a healthy reserve fund, which it does. Going with one-third rather than one-half would help put critical dollars immediately into use to help District families. 

As well, Mayor Gray and the Council should remain steadfast in putting dollars into services and not restoring tax breaks with these additional funds. The Council has voted twice to remove the tax break on interest earned on out-of-state municipal bonds and make it permanent. That is the right decision, and the Council should keep it in place. 

Stay tuned to the District Dime for more updates!

DC’s Temporary Assistance for Needy Families (TANF) program has been the subject of much discussion over the last year. While the driving force for these discussions is a desire to improve outcomes for TANF families and reduce long-term participation in the program, a number of recently-adopted policy changes will end up putting the cart before the horse. These changes could end up penalizing families before they have had a chance to participate in improved services within the TANF program — services than can help improve the outcomes for families. 

The District has long recognized a need to redesign its TANF program, and many advocates agree that making quality improvements to the program in order to better support families is the best way to improve outcomes. A study co-authored by So Others Might Eat and DCFPI pointed out some major areas for improvement, including the need for a detailed orientation, comprehensive assessments, broader educational and employment services, and improved accountability standards for TANF vendors. While each of these components is on the DHS agenda for this year, none has been implemented to date. 

Instead, two punitive measures have been put into law through the FY 2012 budget.  By implementing these measures before any positive program changes have had a chance to take effect, the District could end up doing more harm to poor families with children than good. Here is a look at the upcoming changes: 

• New time limits: In December, the Council voted to reduce benefit amounts, for families receiving assistance for more than 60 months, by 20 percent in April 2011. The Mayor’s FY 2012 budget proposal included an additional 20 percent cut this October and a complete phaseout of benefits to long-term recipients by FY 2014. The final approved budget shifted these time limits back by one year. 

The one-year delay of TANF time limits represents a small improvement, but the plan is still worrisome. DHS has stated that just completing assessments of all TANF recipients who would be immediately affected by the time-triggered reductions will take some 18 months. This means that at the time of the next round of benefit cuts in October 2012, many families will not even have had an official assessment to determine their skills, barriers, and needs. 

• Full-family sanctions: The FY 2012 budget assumes $3 million in savings from a new sanctions policy to impose a financial penalty on families not complying with program requirements. However, the policy has not been drafted and approved yet, which indicates that budget savings may drive the development of the sanctions policy rather than effectiveness and outcomes.

Other changes to the TANF program have been floated but not adopted, including a last-minute proposal to require participants to attend at least 50 percent of parent-teacher conferences as a condition of program eligibility.  This proposal would have not only been administratively difficult, but would also single out TANF families for increased parental engagement via a mechanism that has little support in national research for any effectiveness in improving student outcomes.

DC is beginning to make progress in the TANF program— progress that can help improve the outcomes for low-income families with children.  However, for many families on TANF, these improvements — in areas like screening for barriers and job training programs — may not happen soon enough.

Monday June 20^th 

• 1pm, Committee on Housing and Workforce Development, Public Roundtable on District Government Home Foreclosure Prevention Programs, Room 412 

Tuesday, June 21^st  

• 10:00am, Committee of the Whole meeting, Room 500.  The agenda will be added when it becomes available.
• 11am, additional Legislative Meeting, Room 500.  The agenda will be added when it becomes available. 
• 3-5pm, The Mayor’s Health Reform Implementation Committee (HRIC) is hosting its second public meeting on Tuesday, June 21^st at 3 p.m.  The topic of this meeting is “GOVERNANCE OF THE EXCHANGE.” Cleveland Park Library, 3310 Connecticut Ave NW 

Wednesday, June 22^nd 

• 1:30-2:30pm, DC Department of Human Services, Income Maintenance Administration, discussion of the key program changes to the District’s Temporary Assistance for Needy Families (TANF) program and roll out of the Universal Services Delivery Model starting in October 2011. Watha T. Daniel/Shaw Neighborhood Library , 1630 7th St. NW 
• 2pm, Committee of the Whole & Committee on Health, Public Roundtable on the Implementation of the Administrative Services Organization to Improve Medicaid Billing, room 500

If you haven’t had a chance, we hope you’ll take a minute to check out this week’s Washington City Paper profile of the DC Fiscal Policy Institute. Lydia DePillis’ Housing Complex column reviews DCFPI’s evolution over the last decade — from its creation in response to DC’s Tax Parity Act, through the battle over DC’s publicly financed baseball stadium, and up to the most recent debates on how to balance DC’s FY 2012 budget. 

DCFPI will be celebrating its 10^th (!) anniversary later this year.  We thank the City Paper, and especially Lydia, for taking an interest in our work and giving us a new nickname: the ‘Rapid-Response Wonk Team’.

Yesterday, the DC Council met to take the final vote on next year’s DC budget. Under consideration was the second vote on the Budget Support Act, which contains the new laws necessary to implement the FY 2012 budget. The legislation that outlines the specific dollars each agency gets — known as the Budget Request Act – had its one and only vote on May 26^th.

The Council made several important changes to DC’s budget yesterday. They added three new programs to the top of a priority restoration list which would be funded with an expected increase in future revenues (more on that in a minute). The Council affirmed laws to tax multi-state corporations that operate in DC, but added a provision that would provide a $35 million tax deduction to those businesses starting in 2016. The Council also removed a last-minute provision that would have required low-income families with children enrolled in Temporary Assistance for Needy Families (TANF) to attend a certain percentage of parent-teacher conferences or risk their eligibility for assistance. These changes are explained in more detail below:

Priority use of future revenue increases. The Budget Support Act includes a priority list of program restorations to be funded with an anticipated uptick in revenue. The list approved on May 26 included funding for police officers, affordable housing, mental health services, and other programs and services for low- and moderate income residents.  However, three new items were added to the top of the priority list at yesterday’s vote:

• Green Teams and Clean Teams.  The Council added $1.8 million to the top of the list for Green Teams and Clean Teams. These programs provide additional cleaning services in several DC wards and often hire ex-offenders.

• Managed Care Contracts. Two health care programs were identified by Mayor Gray late last week as needing additional funding for next year. The first was $32 million in the Department of Health Care Finance to provide health care services for residents enrolled in the Health Care Alliance program. The Gray administration explained that one of two contractors that provide health services has threatened to pull out of the Alliance unless their contact was renegotiated to include these additional dollars. Some council members questioned the expenditure, but the Council decided to add the $32 million to the top of the priority list by a 7-to-6 vote.

• School Nurse Health Program.  The second spending pressure was $12 million for a program that helps place nurses in DC schools. The Gray administration claimed that federal funding DC planned to use for this program is no longer available, and the program now needs to be funded with local dollars.

The remainder of the priority list stayed intact.  However, with the addition of $46 million of programs pushed to the top it makes it very unlikely that any of the remaining programs and services will get funded. In fact, DC’s revenues would have to jump by $114 million just to fund the three programs added to the priority list at yesterday’s vote. That is due to the fact that the Council has already required that $22 million of future revenues be set aside to move employees from the capital to the operating budget and that half of the remaining funds get send to the city’s savings account, or fund balance. The Washington Post’s Mike DeBonis has a nice rundown of how much money is needed to fund various items on the priority list.

Tax Deduction for Multi-State Corporations. The Budget Support Act adopted by the DC Council on May 26 included provisions to prevent multi-state corporations from sheltering profits and avoiding paying taxes on profits they earned in the District. However, the Council approved changes to those provisions that will give multi-state corporations tax deductions that will reduce the amount of taxes they will pay to DC by $35 million over seven years. The provision was structured so that it had no official fiscal impact on DC’s budget by pushing the costs outside of DC’s four year financial plan. This means the Council was able to pass the $35 million tax break for multi-state corporations without having to pay for it.

Elimination of Out-of-State Bond Tax Exemption. In the first vote on May 26, the Council voted to eliminate a tax exemption on out-of-state bonds in lieu of implementing a new income tax bracket for taxpayers earning more than $200,000. The District is the only state in the country to offer a tax break to its residents for buying municipal bonds outside its borders. Yesterday, the council rejected an amendment to use $13 million in unanticipated revenue to restore the tax exemption for current bondholders, thereby reaffirming the decision made in the first Budget Support Act vote to eliminate the tax exemption permanently.

Changes to Eligibility for Temporary Assistance to Needy Families (TANF). The Council voted on May 26 to delay benefit reductions proposed in Mayor Gray’s budget by one fiscal year. The Mayor’s budget included a complete phase out of TANF benefits to families who received cash assistance for more than 60 months by October 2013. Under the final adopted rules, all additional benefit reductions will occur one year later. This means that instead of reducing benefits to $257 for a family of three in October 2011, the reduction will occur in October 2012. Benefits for long-term TANF recipients will be phased out completely by October 2014.

The Council made no additional changes to TANF eligibility rules.  A Budget Support Act draft circulated last Friday included a provision requiring TANF parents to attend a certain percentage of parent/teacher conferences as a condition of eligibility. This provision had not been discussed during the budget process, was not germane to the budget, and did not appear to have strong policy rational. The provision was removed from the BSA in the final version.

Good Afternoon District Dime readers! As you know from Friday’s blog, the second vote on the Budget Support Act (BSA) is tomorrow. Here are some things that we’re tracking before the vote:

Possible $44 million in FY12 Spending Pressures: On Friday, we learned from DC Council sources of two spending pressures for Fiscal Year 2012 that had not been discussed widely to date: $32 million for the Health Care Alliance program to address managed care contracts and $12 million for the school nurse health program. We’re trying to learn some more about these today.

Change in Future Revenue Restoration List: Mayor Gray asked the DC Council to put these two spending pressures at the top of the list of programs that will receive funding if the Chief Financial Officer forecasts additional revenue. The revised Budget Support Act from Chairman Brown circulated Friday reflects these changes.

That also means, unfortunately, that it is going to be much harder to fund the remaining programs on the list. Keep in mind the Council also put two other things at the top of the additional revenue list that were voted on in the Budget Request Act, which was passed May 26, and unlike the BSA, required only one vote: $21 million to move the remaining expenditures from the capital to operating budget and then 50 percent of what’s left in additional revenue toward reserves. DCFPI’s position is that we need to address these new spending pressures, but what was voted on May 26 should otherwise remain intact. The Council should use additional revenue to prioritize restoring programs over lowering taxes.

Out-of-State Bonds: Right now, the District of Columbia is the only state in the country to provide a tax break to residents who invest in municipal bonds outside their state borders. The Council voted on May 26 to eliminate this tax break and join every state in the way it treats out-of-state bonds. Most DC residents that invest in these bonds are not retired, and most have income above $100,000.

Councilmember Jack Evans sent a letter to Chairman Brown discussing his intention to move an amendment that would place restoring this tax break (for current bondholders) at the top of the future revenue list. This means the tax break would come ahead of hiring more police officers, putting money toward building affordable housing, and helping residents with disabilities who can’t work. Once again, DCFPI believes restoring critical programs should be the priority with additional revenue.

Temporary Assistance to Needy Families (TANF): According to a draft circulated Friday, the BSA the Council will vote tomorrow requires TANF recipients to attend a certain percentage of parent/teacher conferences or risk losing their benefits. This provision is procedurally questionable, because it is not germane to the budget, and it was not brought up during the budget season at all – not even during the first budget vote. There also is no evidence to indicate why TANF parents should be singled out in this way, and no evidence that this would lead to better school outcomes. The Council should strike this from the BSA.

Combined Reporting: Mayor Gray’s budget included language to implement combined reporting, widely recognized as the best way to prevent large corporations from avoiding paying taxes to the District. The Council approved this language on the first reading of the budget. Since then, some business groups have promoted several amendments that would weaken combined reporting and the possible revenue gains. Yet according to the draft circulated Friday, Chairman Brown has rejected these proposed amendments. DCFPI agrees with Chairman Brown’s decision and hopes Councilmembers will not try to add these provisions tomorrow, which will weaken our law.

Stay tuned!

Tuesday June 14^th

1pm, Legislative Meeting, final vote on the FY 2012 Budget Support Act of 2011.

Thursday June 16^th

10 am, Committee on Human Services public hearing on bill 19-0087, the “Homeless Services Amendment Act of 2011.”

There’s still one more big vote on DC budget, next Tuesday, June 14^th,  and the DC Council needs to hear from you to hold firm on their commitments to restore funding to critical programs that help move our city forward! 

So you might be thinking: But didn’t the Council already vote on this last month? 

Yes, but there’s one more necessary vote before the budget gets sent to the Mayor and Congress. A quick explanation: On May 25th, the DC Council considered two pieces of legislation related to the Fiscal Year 2012 budget: One bill outlined the allocation of dollars to specific agencies, known as the Budget Request Act (BRA), and one bill detailed the new laws needed to implement the budget, known as the Budget Support Act (BSA). The BRA requires only one vote, so we’re done with that, but the BSA requires two. 

So can anything change between May 25 and next Tuesday? Yes! 

That’s why the Council needs to hear from you. Our legislators made some key decisions in the first vote on the BSA that they should hold firm on. Among other things, the BSA spelled out how multi-state corporations should report the profits they earn in the District; eliminated a tax break on municipal bonds outside DC; and detailed how to restore money to critical programs if the District sees a boost in revenue when the Chief Financial Officer announces his forecast later this month. Financial observers say that DC’s cash receipts indicate the city may collect more tax dollars than previously expected.

After setting aside $22 million of potential future revenue increases to move personnel expenses from the capital budget to the operating budget and another portion for DC’s savings account, the Council voted to use remaining increases in future revenue in the following order:

• $10.8 million to hire more police officers
• $1.6 million for the Housing First program
• $12 million for the Housing Production Trust Fund (partially restoring an $18 million cut)
• $5 million for the Department of Mental Health
• $3 million for Interim Disability Assistance
• $6 million for the Housing Production Trust Fund (to fully restore funding)
• $900,000 for children’s mental health services
• $2.5 million for homeless services
• $300,000 to keep MLK Library open on Sundays
• $1.8 million for the Commercial Revitalization program in the Department of Small and Local Business Development
• $3 million to reduce parking meter rates from $2 an hour to $1
•$1.4 million for DC Public Library book acquisitions$2 million for early childhood educations
•$508,000 for DC Emancipation Day and $500,000 for Lincoln Theater

Tell the Council you support this plan. Some DC Councilmembers have said they want to use the additional dollars to keep the tax exemption on interest earned on bonds outside of DC. Yet that could mean that critical programs and services that help keep our city moving forward don’t get the funds they need while just 6 percent of DC taxpayers get to keep a tax exemption that no other state offers. That’s why on May 25^th, a majority of members decided to prioritize the use of future revenue for programs and services instead of rolling back a tax exemption. We think the Council made the right decision and they should affirm that decision next Tuesday.

On May 25, the Council voted to eliminate DC’s tax exemption for interest earned on out-of-state bonds—a tax incentive offered by no other state. This policy move is a progressive change slated to increase revenues by $13 million in FY 2012 and nearly $30 million per year in subsequent years.  Nevertheless, this proposal has raised some questions about who would be affected. In particular, concerns have been raised about the effect of the new policy on lower-income retirees. 

However, data provided by the Chief Financial Officer reveals that most of the taxpayers affected would be higher-income earners, and few would be retirees. Moreover, the impact of eliminating the tax break would be relatively modest – under 1 percent of income for most taxpayers.

The numbers helps illustrate why this policy move makes good sense:  

• In 2008, about 20,000 DC households – just 6 percent of all taxpayers – held tax-exempt bonds.
• Only one-fourth of households with tax-exempt interest had retirement income.
• Most residents with out-of-state bond income are higher-income.  Among wage earners who hold out-of-state bonds, 72 percent have income above $100,000.  Among retirees with out-of-state bonds, 67 percent have incomes over $100,000.
• In fact, there are only 482 DC lower-income retiree households (below $50,000 adjusted gross income) that earn any income from out-of-state bonds.  This is just 2.4 percent of the DC households with income from out-of-state bonds.

Overall, the impact on tax bills for DC residents would be relatively small:

• For most taxpayers, taxes will increase by less than one percent of income.
• For retirees with incomes below $50,000, the increase would be $276 per year on average, or 0.9 percent of the average income. For retirees at higher-income levels, the increase averages 0.3 percent of income.
• Most of the increased tax would be paid by higher-income residents: among retirees with out-of-state bonds, two-thirds of the additional taxes will be paid by those over $200,000 in income, and 87 percent will be paid by those over $100,000.

There is broad agreement that eliminating a tax break to invest in out-of-state bonds makes policy sense.  States provide such a break only for in-state bonds, to encourage residents to support the state’s infrastructure projects.  With the Council’s recent vote, DC now joins every state in its treatment of income from out-of-state bonds.

The new data confirm that not only is this a sound policy move, but also that the impact for most residents will be non-existent or modest, and that most of those who are affected are higher-income residents.

The Washington Post’s “Capital Business” published an op-ed this week by DCFPI’s Executive Director, Ed Lazere.  That op-ed is reprinted here.

The District’s economic outlook is bright.  More and more people are choosing to live in the city, and many neighborhoods are blossoming.  This growth, which is creating new customers and tremendous opportunities for businesses, is due in no small part to public investments made over the past decade — in areas such as education, transportation, housing and recreation. 

The recession put those investments at risk, however, as tax collections fell by hundreds of millions.  Facing a large shortfall this year, Mayor Gray and the DC Council chose to take a balanced approach, one that relied mainly on spending cuts but also included tax increases, split between businesses and residents.  They did so to keep education reform moving forward, to continue transportation investments like streetcars, and to maintain libraries and parks in tip-top shape.  

These are the things that make a family-friendly and business friendly city — and that allow the District to continue its phenomenal renaissance.  Taking a cuts-only approach would have put these important public investments at risk. 

Moreover, a closer look at the business tax changes show that they generally make policy sense and are designed to protect small businesses, many of which should see no tax changes. 

Three business tax changes are worth noting.  First, the minimum income tax, which has been $100 for nearly three decades, will go to $250. That catches up for ground lost to inflation and is important given that a majority of DC businesses pay just the minimum. The minimum will rise to $1,000 for businesses with more than $1 million in receipts, because it makes sense to set a higher minimum for Giant and Safeway than for the corner grocery store.  

Second, the budget adjusts the business income apportionment formula to put greater weight on a company’s sales in DC than on its DC property or personnel. This will increase taxes for companies that sell a lot here but have a small employment or physical presence, while lowering taxes for businesses located here that sell a lot outside of DC.  That should protect many local businesses. 

Third, the budget implements “combined reporting,” viewed by tax experts as the best way to prevent businesses from sheltering profits.  Consider this example: Toys R Us licenses its logo in Delaware and requires stores to pay a royalty to this subsidiary. This sucks profits out of each store and into Delaware, which has no corporate income tax.  While DC has closed this shelter, combined reporting ends all income-shifting shell games by requiring businesses to report income from all subsidiaries together.  

The companies that pay more under combined reporting tend to be large multi-state corporations, which means that Frager’s or Brookland Hardware will be on a level playing field, tax-wise, with Home Depot.  And combined reporting raises needed tax collections.  Maryland, for example, found that it would have collected more from 2006 through 2008 if it had combined reporting.

These are not blanket business tax increases.  They focus on tax compliance and making sure that multi-state corporations pay their fair share of taxes to DC.  In fact, small businesses that now pay more than $250 in DC income taxes won’t see their tax bill change at all.  And with the District’s economy recovering solidly, the District should be able to pay its bills without further tax increases.   (Before this year, the city did not raise business taxes over the past decade, other than to finance the baseball stadium.) 

The District’s economy is vibrant, with an envious office vacancy rate, a huge amount of foreign investment, and growing neighborhoods that are helping businesses flourish.  Keeping DC’s momentum moving forward should be everyone’s top priority.  That requires public investments in education, public safety, infrastructure and more.  Reasonable increases in taxes to support these investments are better than a simple focus on keeping taxes down. 

The op-ed as it appears in Capital Business can be found here.

Tragedies often bring us together.  That happened last week, as the DC Council held a hearing on the terrible shooting spree on South Capitol Street that is still fresh in the city’s memory.  Everyone at the hearing  — Council-members, the Gray Administration, and numerous public stakeholders  — all agreed that this tragedy was a sign that the District of Columbia must do a better job of meeting the mental health needs of D.C. children.

Yet at the same time the hearing was proceeding, several hundred children were in the process of having to find a new psychiatrist or psychologist following the closure of a mental health agency that had operated under contract with the District’s Medicaid program.  This is the third child-serving provider to close within the last six months.  As a result, families may face increasing challenges in getting mental health services for their children.

The District recently expanded eligibility for  mental health services for adults, and there are proposals to serve more children who need these services.  Yet cuts in payments to  mental health providers make it unlikely that the city can meet these important goals.

The City Needs More Mental Health Practitioners

Eight recent studies have found that the number of Medicaid-funded mental health practitioners is inadequate.   Yet the District has exacerbated this problem by cutting the amount it pays mental health providers to serve DC residents.  Lower reimbursements mean that fewer providers will choose to participate in Medicaid.  This suggests that DC’s mental health provider shortfall will grow worse.

What does worse mean?  At yesterday’s Council hearing, Dr. Adair Parr from Children’s National Medical Center testified that there is a 10-week wait for a child served by Medicaid to see a psychiatrist at Children’s outpatient clinic.  Thus, families who need help for their children already have to wait 70 days – or almost one-third of a school-year – to get their first appointment.

Can Existing Mental Health Providers Expand?

The fact that mental health providers are closing their doors is the tip of the iceberg.  Due to budget cuts, virtually all providers are under financial stress, which means that the agencies still in operation may not be able to pick up the slack from the agencies that have closed.

The D.C. Behavioral Health Association recently reviewed financial statements for six large mental health clinics.  Our findings are alarming; providers’ fiscal health declined precipitously since 2007.

Operating Margins Have Disappeared. By 2010, none of the providers in our survey of the District’s mental health clinics had a positive operating margin.   Instead, providers drew down their assets at the rate of $40,000 per month on average.  Operating margins are necessary to ensure that providers have enough resources to replace capital resources like computer software or absorb new clients.

Cash on Hand Has Shrunk: The amount of liquid assets mental health providers have relative to their liabilities has fallen by 97 percent in four years. This means many providers are wondering each month whether they can meet payroll and other bills on time. Our analysis suggests that mental health providers may face financial limitations on their ability to expand to meet growing need for mental health services.

Access to Treatment Must Be Addressed

The shrinking number of mental health providers has profound implications for the District of Columbia.  First, because of budget cuts, it is not clear whether providers have sufficient capacity to absorb a high volume of new clients.  Second, recent reforms may exacerbate the city’s existing shortage of mental health providers.  In 2010, D.C. expanded mental health benefits for adults, increasing by 30 percent the number of adults eligible for Medicaid-covered mental health treatment.  Yesterday, D.C. Council held a hearing on proposed legislation to expand the number of children referred for mental health services.  If enacted, the bill could increase the demand for mental health services – without ensuring that there are a sufficient number of providers.

The city’s efforts to expand coverage and identification of mental health needs are laudable and desperately needed.  If these efforts are going to be effective, the city must also address access to treatment by ensuring that there are an adequate number of mental health providers.

Tuesday June 7^th

 Thirtieth Legislative Meeting, 10am, room 500.  A copy of the agenda can be found here.  

Thursday June 9^th  

9:30 am, Committee on Finance and Revenue public hearing on bill 19-227, the “Tax Revision Commission Reestablishment Act of 2011.”

DC has an itch for tax commissions, though it doesn’t seem to come every seven years.  The District established a tax commission in 1977, then again in 1996.  And the budget just adopted by the DC Council calls for creation of a new commission that would have 9 months to study and make recommendations for changes to DC’s tax system.

The commission holds promise to help elected leaders and residents better understand the system the city uses to raise revenue, and to develop proposals for strengthening the tax system in a number of ways.  But it also could be a wasted opportunity if not taken seriously.  The 1996 commission was given resources needed to study tax issues thoroughly, including a full-time director and funds for 14 expert studies.  More recent commissions in the city have not matched the depth of analysis of the 1996 tax commission.  With a set of issues as complex and controversial as tax policy, the new commission needs to be a serious endeavor backed by solid research.

Why is a tax commission important?

The new commission will have a smaller number of members than the last one — 11 vs. 17 — but otherwise will have similar structure and goals as in 1996: to analyze the District’s  tax system in terms of stability, efficiency, equity, ease of administration, and effect upon the District’s economy.  The commission is supposed to recommend ways to increase the fairness of the tax system, broaden the tax base, and make DC’s tax system more competitive with surrounding jurisdictions.

A new tax commission makes sense for at least two reasons:

DC’s economy has changed:  In 1996, the District was in the midst of a decade-long economic and financial decline and was managed by a financial control board.  Today, the District is far healthier — its population is growing, many neighborhoods are flourishing, and the city’s commercial real estate market is the envy of the nation — the world, even.

Some DC’s taxes have changed a lot, while others have been stagnant:  Income tax rates have fallen. The city has created the largest state-level earned income tax credit in the nation.  Property tax rates have fallen and the city has capped increases in homeowner assessments.  Commercial property taxes have been adjusted to benefit smaller properties.  Meanwhile, some parts of the tax code have remained static –such as the property tax credit for low-income residents, or DC’s income tax standard deduction, which has lagged behind inflation.  DC’s sales tax hasn’t changed much while consumer spending patterns have shifted increasing to services that are not taxed.

What are the keys to success of a tax commission?

A strong director:  No commission funded by the District in recent memory has had a full-time director to manage its activities and guide its research.

Independent and expert members:    Some recent DC task forces have been made up primarily of representatives of various interested parties, with the the task force turning out to be more of a negotiation among competing interests than an impartial analysis of the issues.  Legislation for the new tax commission calls for 6 of 11 members to be experts in  various fields of taxation.  That is good news.

Research:  The 1996 tax revision commission hired a number of consultants, many of them academic researchers, to study issues such as the effect of taxes on economic development and analyses of each major tax source.

Resources:  A meaningful tax commission will need money to pay a director and for the research it will seek.  Unfortunately, the new budget adopted by the Council does not appear to provide any funding for the new commission.

Will the District take the new tax commission seriously?  We certainly hope so, and we’ll be watching for signs that it gets the resources it needs to do the job right.

THE DCFPI OFFICES ARE CLOSED TODAY DUE TO A POWER OUTAGE, AND STAFF DO NOT HAVE ACCESS TO WORK EMAIL OR PHONES.  BUT THE DISTRICT DIME LIVES ON!

Last Wednesday’s DC Council vote on the DC budget was a victory for advocacy and Democracy.  Almost from the minute that Mayor Gray released his budget on April 1, the Council heard loudly and clearly from constituents concerned about deep proposed cuts to services for the homeless and other vulnerable populations.  The Council responded, making restoration of the safety net its top priority.  The Council even sought additional resources to do so, and it supported a progressive increase in DC’s income tax, even though it differed from Mayor Gray’s income tax proposal.

The DC Council acknowledged the priorities expressed by DC residents, who have indicated that protecting critical services that have made DC a welcome place to live and work is more important than keeping taxes low.  The Council’s action was the product of an aggressive and sustained lobbying effort on the part of service providers and District residents.

Let’s look more closely at what the Council did:

Restored cuts, entirely in the safety net: The Council identified $24 million to restore a number of the cuts initially proposed by Mayor Gray.  Virtually all of these restorations came in human services, which were slated to suffer the brunt of cuts from Mayor Gray’s proposal: homeless services; TANF for families with children; Interim Disability Assistance for residents unable to work who are waiting for federal benefits to be approved; and victims’ services, particularly for victims of domestic violence.

Allocated future revenue to restore more cuts, many in the safety net: The Council voted to use an expected increase in revenues, from the city’s economic recovery, to further restore cuts to low-income programs.  All eyes are on the lookout for the June revenue forecast by the Office of the CFO, which is expected to come in above previous forecasts.  The Council voted to save half of any new revenues that may come from increased revenue forecast, but also to restore funding to a number of services.  This list includes police, housing, and libraries, with the largest restorations to low-income programs.  These restorations will go a long way towards promoting One City and keeping the District moving forward.

Supported a balanced approach of spending cuts and progressive revenue increases: The DC Council achieved these restorations by recognizing the need for a balanced approach towards crafting the District’s budget.  The Council identified new resources by altering Mayor Gray’s proposal to move $47 million in expenses from the capital budget to the operating budget; instead, the Council voted to leave $22 million in the capital budget – for now – which freed up funds to restore services.

The Council also voted to eliminate DC’s tax exemption for interest on out-of-state bonds.  This change makes policy sense, since no state offers tax incentives to invest in another state’s infrastructure.  And it is a progressive change, since most households with these investments have incomes above $200,000.  The DC Fiscal Policy Institute has long supported eliminating this exemption.

The budget is not a done deal, however.  The second vote on the Budget Support Act is on June 14, which means budget advocacy is not over! It’s important to let DC Councilmembers know they did the right thing to restore money to our critical programs to move our city forward and keep revenue measures in place.

Hello District Dime readers! It’s not only the hot temps that might lead you to conclude summer is here. Our local government’s schedule has slowed down as well. There aren’t too many budget and fiscal policy-related events this week, though if you’re interested in redistricting there are some community and council meetings. Check www.dccouncil.us.

But there’s still plenty to do before the DC Council’s official summer recess in mid-July. First up is the second vote on the Budget Support Act scheduled for June 14. As many of you know, there are two legislative pieces to DC’s budget: the Budget Request Act (BRA) and the Budget Support Act (BSA). The BRA allocates the dollars and requires only one vote, so we’re done with that. But the BSA outlines all the laws necessary to implement the budget and that requires two votes. We’ll be writing more about the BSA in the next few weeks as the second vote nears.

The big day finally came: Yesterday marked the climactic point in each year’s DC budget cycle, the day when months of discussion and debate and oversight are tied up into a DC Council vote on two pieces of legislation: the Budget Request Act and the Budget Support Act.

The DC Council made a number of changes to the Fiscal Year 2012 budget proposal submitted by Mayor Gray on April 1, including funding restorations to a number of proposed cuts and modifications to the mayor’s revenue proposals. The Council also adopted provisions to guide the use of any increase in revenues that occurs over the year, as is anticipated.

The Council restored funding to a number of critical services that had been slated for cuts. Among the most notable:

• $17 million was restored to homeless services, addressing most of proposed cuts of about $20 million.

• The Council provided $1.5 million to help residents with disabilities who cannot work, which the Mayor had proposed to eliminate. (The Council also required the Department of Human Services to review the program, known as Interim Disability Assistance, in ways that may increase the success in recovering federal funds as IDA recipients transition to federal disability benefits.) The restored funds will serve fewer than 500 residents, which means that some of the more than 1,000 current IDA participants could lose their cash assistance in October. The Council approved a proposal to add further funding to IDA if allowed by rising DC revenues. (See below.)

• The Council voted to restore $4.9 million to Temporary Assistance to Needy Families, which will allow cash assistance benefit levels for needy families with children to remain at current levels in 2012. The budget still includes substantial benefit cuts starting in 2013.

The Council was able to identify these resources in part through a modification to a proposal from Mayor Gray that would have moved $47 million in expenses from the city’s capital budget to the operating budget, based on an assessment that the expenses were most appropriate for the operating budget. The Council opted to slow that shift, leaving about $22 million in personnel expenses in the capital budget (with a plan to complete that shift to the operating budget soon). This freed up $22 million in the operating budget to restore budget cuts.

The Council also made three major changes to Mayor’s Gray’s revenue proposals. First, the Council agreed to increase a tax on hospital beds, from $2,000 per licensed bed to $3,800, which would raise $7 million in local funds and generate $16 million in federal Medicaid matching funds. The revenues will offset a similar level of cuts to Medicaid hospital reimbursement rates implemented this year.

Second, the Council eliminated a proposal to apply the sales tax to tickets for live performances, replacing it with new provisions to apply the sales tax to armored car, private investigation, and security services.

The third and most notable revenue change adopted by the Council was to eliminate Mayor Gray’s proposed income tax increase on income above $200,000. Instead, the Council voted to eliminate the tax exemption that DC provides for interest earned on out of state bonds. Prior to this vote, the District was the only state to extend a tax break to investments outside its borders. This provision, led by Chairman Kwame Brown, raises slightly less revenue in 2012 than the income tax rate increase it replaced, but about the same amount in future years.

Chairman Brown proposed using additional revenues (we’ll get to that in greater detail below) to restore the tax exemption for out-of-state bonds, but the majority of the council voted to make the bond tax permanent and use those dollars for additional restorations to critical services that had been cut.

As we mentioned above, the Council also added several provisions to address an expected increase in tax collections from a growing economy. Any additional revenues would first be used to move $22 million in personnel expenses from the capital budget to the operating budget. Of any additional funds, 50 percent would be set aside to build up the District’s savings account, known as the fund balance, and the other half would be used to fund a number of programs. The provisions to shift expenses to the capital budget and to save half of remainder were included in the Budget Request Act, legislation that receives only one vote, which means they cannot be changed.

The details over how to use the portion that is not saved were included in the Budget Support Act, which has two votes. This means the allocation of these funds can be changed in the second vote. On its first reading yesterday, the Council voted to use available resources in the following order:

• $10.8 million to hire more police officers.
• $1.6 million for the Housing First program
• $12 million for the Housing Production Trust Fund (partially restoring an $18 million cut)
• $5 million for the Department of Mental Health
• $3 million for Interim Disability Assistance

• $6 million for the Housing Production Trust Fund (to fully restore funding)
• $900,000 for children’s mental health services
• $2.5 million for homeless services
• $300,000 to keep MLK Library open on Sundays
• $1.8 million for the Commercial Revitalization program in the Department of Small and Local Business Development
• $3 million to reduce parking meter rates from $2 an hour to $1
•$1.4 million for DC Public Library book acquisitions$2 million for early childhood educations
•$508,000 for DC Emancipation Day and $500,000 for Lincoln Theater

Is there more? Yes!

The council gave preliminary approval in the budget support act yesterday to a provision that properly taxes multi-state corporations that earn profit in the District, known as combined reporting. And the budget support act also included new rules that require more financial information and reporting on economic development projects seeking tax abatements and other assistance from the District.

The second vote on the Budget Support Act is scheduled for June 14. That means budget advocacy is not over! It’s important to let DC Councilmembers know they did the right thing to restore money to our critical programs to move our city forward and keep revenue measures in place.

The District Dime will keep you abreast of updates in the next few weeks! Thanks for reading!

Can you believe, District Dime readers, that the Big Day — the vote on the fiscal year 2012 budget — will be upon us tomorrow? We are crossing our fingers that Chairman Brown will share his final budget proposal sometime today, giving all of us at least a little time to review it.  (We appreciate that the Council’s budget office is working diligently to meet that goal.)

While waiting for that, you should know that one of the huge issues to be discussed tomorrow is how to use revenues that are likely to be identified after the budget is adopted.  DC’s CFO will release new revenue forecasts in June and September, and it is widely expected that they will show an increase in revenue collections due to an improving economy.  

The decisions over how to use those funds — to restore budget cuts, add to the city’s savings, or reverse tax increases — are incredibly important.  Here’s how the DC Fiscal Policy Institute thinks additional revenues should be allocated:

• Move expenses from the capital budget to the operating budget:  The Council is likely to vote tomorrow to keep some expenses in the capital budget that really belong in the operating budget.  If additional resources are identified in June, the Mayor and Council feel that additional resources should be used first to move all expenses to the operating budget – and we agree. 
• Put aside a little in saving.  DC’s fund balance has fallen in recent years, as the city used reserves to maintain services during the recession.  Dr. Gandhi and the Council Chairman think it is time to start building it back up.  DCFPI agrees, sort of.  We think that there are other more pressing issues right now — like preserving services that have been cut — and we think the city’s fund balance will grow based on plans the Council adopted last year.  Chairman Brown wants to save half of all new revenues, but we think the figure should be much smaller, since any amount will show the city is moving to build savings. 
• Restore budget cuts.  DC residents overwhelmingly say that protecting services is very important to them — and that they are concerned about cuts to services like mental health and disability assistance.  The additional revenues should be used as much as possible to restore cuts to things like Interim Disability Assistance, the Housing Production Trust Fund, victim’s services, mental health services, and child care.  
• If anything is left, cancel the proposal to increase income tax withholding.  Mayor Gray’s budget would require additional income taxes to be withheld from every working DC resident, even though most of us already get tax refunds (meaning that our withholding is already adequate, thank you).  This proposal has received much criticism but has not been addressed due to its $41 million price tag.  If we have the money to fix it, we should.  

This plan promotes fiscal responsibility, protects services that residents want and need, and could even ease the tax crunch for working DC residents. What’s not to love about it?