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?

Numerous changes get made to DC’s budget between the time that the Mayor releases his proposal and the time the Council takes the final vote.  In fact, it was reported Friday that Chairman Kwame Brown is considering a new revenue source — eliminating the tax exemption on interest from out-of-state bonds — as a way to remove the proposal to raise income taxes on residents earning more than $200,000.  There also are important discussions over cuts that may get restored, such as in homeless services.

No one will know for sure if the new tax proposal will be considered or how much homeless services will be restored, until Chairman Brown releases the Council’s budget proposal. However, in the past, the budget has often been released in the middle of the night, just hours before the Council takes its vote.  That leaves residents in the dark about potentially significant changes to services or to taxes.

That is why on Friday, over 40 organizations and individuals sent a letter to Chairman Brown, asking him to release the final budget proposal that will be voted on by the Council at least 24 hours before the scheduled vote.  This would give DC residents and Council a chance to review the changes being made to the Mayor’s proposal and weigh in on any changes that were made.

You can read a copy of the letter below.  We haven’t heard from Chairman Brown yet, but we’ll be sure to update this post when we do.

The Honorable Kwame Brown                                                                        May 20, 2011
Chairman, Council of the District of Columbia
1350 Pennsylvania Avenue, N.W.
Washington, DC  20004
Dear Chairman Brown,

We the undersigned organizations and individuals are writing to ask that you release the final budget proposal that will be considered by the full DC Council at least 24 hours before the May 25 budget vote.  This would give both DC residents and other Council members the time needed to review and understand the final budget proposal.

As you know, the budget passed by the DC Council impacts every District resident.  The Council typically makes significant changes to the Mayor’s proposed budget, and many of the most important decisions are made after the final public hearings on the budget.   In recent years, the final budget that comes before the Council has not been released to the public or even to the DC Council until just a few hours before the vote.  This leaves residents little time to understand and respond to important issues on how limited resources will be used to meet a diverse set of needs in the District.

This year, more than most, the District’s leaders face a number of decisions over how to preserve services in the midst of a serious revenue shortfall.   Because the Council votes just one time on the Budget Request Act — the main legislation dictating how funds will be spent — the reality is that almost nothing can be changed to the budget you will be voting on after the vote on May 25^th.

We ask that all FY 2012 budget documents that will be reviewed and/or acted on by the full Council be made available to the public at least 24 hours prior to the start of the May 25^th legislative meeting to take action on the budget.  This includes, but is not limited to, the Committee of the Whole Budget mark-up report, the Budget Support Act, and the Budget Request Act.

The public deserves the right to review how the Council plans to allocate resources that affect important services more than just a few hours before the vote is taken.

Sincerely,

Organizations
Arc of DC
Back on My Feet
Bread for the City
Capital Area Asset Builders
Children’s Law Center
Coalition for Nonprofit Housing and Economic Development
DC Alliance of Youth Advocates
DC Behavioral Health Association
DC Coalition Against Domestic Violence
DC Environmental Network
DC Fiscal Policy Institute
DC for Democracy
DC Hunger Solutions
DC Jobs Council
DC Learns
DC LISC
DC Open Government Coalition
DC Statehood Green Party
DC Women’s Agenda
District Alliance for Safe Housing, Inc. (DASH)
Foster & Adoptive Parent Advocacy Center (FAPAC)
Greater Greater Washington
Healthy Families/Thriving Communities Collaborative Council
Homeless Children’s Playtime Project
Jews United for Justice
Legal Aid Society of the District of Columbia
Miriam’s Kitchen
Nonprofit Roundtable
Sasha Bruce Youthwork
Save Our Safety Net DC
SOME, Inc. (So Others Might Eat)
Positive Force DC
Quality Trust for Individuals with Disabilities
Think Twice Before You Slice
Washington Legal Clinic for the Homeless
We Are Family
Whitman-Walker Health
Wider Opportunities for Women

Individuals
Miriam Savad, Ward 1
Robert Vinson Brannum, President, D.C. Federation of Civic Associations, Inc.
Robert Bettmann, DC Advocate for the Arts
Mary McCall, Ward 1
Marina  Streznewski, Ward 2
Kathryn Baer, Ward 6

We’ve all done it before – shifted money between different accounts in order to make ends meet.  Mayor Gray hopes to ultimately end this practice in DC government.  His proposed budget shifts $47 million in expenses from the District’s capital budget, where costs are funded by issuing bonds, to the operating budget, where expenses are paid directly with tax dollars.  Mayor Gray has taken these steps because he believes that certain costs have been inappropriately charged to the capital budget.  However, this reform creates short-term difficulties because it leaves the city with $47 million less to spend on services in 2012, in a year when many critical services are being cut.

Now the Council wants to keep $21 million of this money in the capital budget, at least for a year.  This would free up $21 million in funds for vital services and programs.

While we agree with the Mayor’s commitment to pay for the city’s day-to-day expenditures out of its operating budget, it is not a problem that has to be fixed all at once.  The Council’s more gradual approach toward shifting money from the capital to the operating budget would enable the District to maintain a number of critical public investments that keep the city moving forward.

This step can be taken without endangering the city’s fiscal health.  Even if this $21 million were kept in the capital budget for all four years of the District’s financial plan, an unlikely scenario, the added borrowing needed would not cause the District to hit its debt ceiling, and no projects would need to be cut from the capital budget.

The city’s capital budget is generally reserved for long-term investment in capital projects, which are financed through bonds, and limited by the city’s debt cap.  In recent years, there have been various expenses placed on the capital budget that would be more appropriately paid for through the operating budget, such as $20 million in maintenance costs related to DC Public Schools.

Mayor Gray’s desire to address this issue entirely in 2012 is one reason why his budget has $195 million in cuts, two-thirds of which come from human services.  Slowing this transfer could help the Council limit these cuts.  Some of the cuts currently on the table include:

• $17 million to homeless services
• $18 million to affordable housing
• $4.8 million to interim disability assistance
• $5 million to TANF

Through citywide polling, rallies, and personal testimonies, District residents have indicated in resounding fashion that they want the Council to protect the critical investments that the city has made in human services, education, and public safety.  Given that, it makes sense to consider shifting capital money onto the operating budget more gradually than the Mayor has proposed.

Ultimately, all expenses that are really operating expenses should be accounted for in the operating budget put in its rightful place.  That could happen sooner rather than later, even if the Council votes for now to slow down the shift.  There is widespread belief within the Wilson Building that next  revenue forecast, expected in June, will show revenues are coming in above previous expectations.  If this does in fact occur, new revenues ought to be used to maintain services and then to complete the shifting of all costs back onto the operating budget.

In recent days, some confusion has surfaced about the FY 2012 budget proposal for homeless services and the size of the funding shortfall.  Given the complexity of the issue, this is understandable. There are many moving parts at work – including increasing need for shelter in the recession, DC efforts to support permanent housing initiatives for the homeless, and now-expired federal stimulus funds.  

Amidst this complexity, though, one thing is clear: the budget now before the DC Council is $20.5 million below the level needed to maintain already-strained services. Here are five facts to help sort out the confusion. 

1. The District has committed to Permanent Supportive Housing in recent years.  In FY 2010, DC began ramping up Permanent Supportive Housing (PSH) units as part of the Strategic Action Plan to employ a highly successful tool to address chronic homelessness. Housing for individuals increased from 213 units to 941 units from FY 2009 to FY 2011, and family units increased from 71 to 230.   
2. DC has seen a dramatic increase in homelessness, despite new permanent supportive housing.  The number of people in homeless families increased from 1,800 in 2008 to 2,700 in 2011 – even as 150 new families were placed in permanent housing during that time. And yet funding for homeless services increased just 18 percent from 2009 to 2011– far less than the increase in need. This disconnect has created a severe strain on homeless services – for the first time ever, the District’s largest family shelter began turning away families with children and no other place to go on April 1. Under the Mayor’s budget, total funding for homeless services other than PSH would fall below the 2009 level, despite the increase in homelessness. 
3. The District has used federal funds to maintain services in the recession.  Use of federal funds for homeless services jumped this year, but most of that money will not be available in 2012 (see the next fact).  The District received $17 million in Federal “seed” money for PSH across FY 2010 and FY 2011. It was always expected that these dollars were meant to be replaced with local dollars after this time period.   For other homeless services, the District faced a large potential shortfall in 2011, due to rising need, and the city chose to devote flexible stimulus money under the TANF program to maintain operations in homeless services.  If those TANF funds had not been available, the District would have faced large cuts in homeless services and the need to increase local funds.  The use of stimulus funds did not create the problem we now face for 2012, but instead delayed the problem for a year.  
4. Both stimulus money and Federal “seed” money for PSH have dried up, leaving a $20.5 million funding gap. Homeless services will lose $30 million in federal funds in 2012: $18 million in stimulus funding and $12 million for PSH. And yet, the total restoration of local funds amounts to just $10 million. This leaves a gap of $20.5 million. 
5. The budget fully replaced stimulus money with local money in other budget areas, but not in homeless services. Other areas – like Education – also benefitted from stimulus money during the recession, and just like in homeless services, that money is now gone. For Education, the Mayor was able to find local dollars to maintain total funding, since education is a priority. Basic shelter for the District’s residents should be a priority, too.

What should the District do if the city’s next revenue forecast, slated to be released in June after the budget is passed, reveals tens of millions of dollars of additional revenue for the coming year?  That issue received a good deal of attention at Monday’s DC Council meeting on the FY 2012 budget.   Chairman Brown offered a somewhat surprising plan, to devote half of the additional revenue to  DC’s fund balance — essentially its savings account — one-fourth for programs that help vulnerable residents, and one-fourth for areas like police, public infrastructure or rolling back taxes and fee increases.

That proposal would make building up DC’s fund balance the number one priority.  While a healthy fund balance is critical to the District’s finances, so are areas like homeless services, public sanitation, and libraries— all of which would face cuts under the 2012 budget.  There are several reasons, described below, why it would make more sense to use any additional revenues first to restore cuts to services.

DC built up a significant fund balance during the boom years of the past decade and, just like nearly every other state, it used part of that fund balance over the last four years to help close budget gaps in the midst of one of the worst recessions on record.  With the economy recovering, now is the right time to start thinking about building DC’s savings back up.  But Monday’s debate over how to spend the anticipated new revenue missed several key points about DC’s fund balance.

• The District already has a solid plan to replenish the fund balance. The DC Council adopted legislation last year, at the urging of then-Chair Vincent Gray, to put half of all undesignated end-of-year surplus aside as a special reserve, until it equals 8.33% of expenditures which would be roughly $600 million.  Moreover, the FY 2012 proposed budget would add $12 million to DC’s fund balance in FY 2012.
• To protect DC’s bond rating, the city must stop dipping into reserves, but it is fine to spend revenues that are collected in 2012. Standard and Poor’s, a bond rating agency, recently stated that DC’s financial management practices are “strong,” but that DC should stop the recent trend of using reserves to balance the budget.   Dr. Gandhi, DC’s CFO, sent a letter to the Mayor and Council this year echoing this point.  He noted that it is important in 2012 that “current-year revenues equal or exceed current-year expenditures.”  While Dr. Gandhi would love to see our fund balance built up quickly, his letter – and Standard and Poor’s — effectively said it was fine to spend whatever revenues are collected, as long as the city doesn’t dip into reserves.  The budget before the DC Council wouldn’t use any reserve funds.
• DC’s fund balance remains larger than most states, despite use during the Great Recession. Based on expected use of the fund balance in FY 2011, DC’s fund balance is estimated to be $690 million at the end of FY 2011 — equal to 12 percent of expenditures and higher than in 40 other states.[1] By FY 2012, DC no longer plans to use fund balance and would actually add $12 million.

Given all this, further replenishment of the fund balance beyond current plans should not be the number one priority for new revenue, particularly when those funds could be used to preserve services that help make the District stronger.  The Council should consider these facts before designating so large a share of new revenue toward something they are already working to rebuild.

DC Council Chairman Kwame Brown and his 12 colleagues met yesterday for a public discussion of Mayor Gray’s budget proposal for next year. As District Dime readers know, Mayor Gray released his proposal April 1, and the DC Council is set to vote on it May 25.

So what did we learn about the changes the Council might make to next year’s budget?

Honestly, not a whole lot.

Most of yesterday’s discussion involved reviewing actions taken by the 12 DC Council committees. Many of the changes involved small transfers of funds within agencies, though a few garnered significant discussion. The Committee on Human Services eliminated 19 positions in the Child and Family Services Administration and reallocated those dollars to mental health and substance abuse services for youth, as well as to the Grandparent Caregiver program. The Committee on Public Works and Transportation’s proposal to increase the residential parking permit fee to fund Metro and other projects met concern from several councilmembers. The Committee is proposing to increase the fee for a parking permit from $15 to $35, and to even higher amounts for a family’s second or additional cars.

What about Mayor Gray’s proposal to raise the income tax on high earners? It was not discussed in depth. It was listed within a table of “Council Wide Priorities” to be either ELIMINATED or altered to a bracket starting at $500,000, which would raise less revenue to fund critical services.

Were any other revenue proposals discussed? Once again, not in detail though several were listed within the Council Priorities table. The list included:

• One or more furlough days for DC government employees
• Expanding the sales tax base to include armored cars, investigation services, and security services
• Elimination of the tax exemption on interest earned on out-of –state bonds or reduce the exemption by 50%
• Reduction of Mayor Gray’s proposed shift of capital budget expenses to the operating budget from $47 million to $20 million

What does DCFPI think of some of these proposals? First, we remain strong proponents of Mayor Gray’s income tax proposal, which also has the broad support of DC residents. DC’s top tax bracket starts at $40,000 even though median income is much higher. Also, when all of DC’s taxes are considered, middle class families pay the highest percentage of income in taxes. Mayor Gray’s proposal helps level the playing field.

DCFPI has been a strong voice in advocating that DC should act like every state in the country and eliminate the tax exemption on interest earned on out-of-state bonds. It will encourage investors to put their money in DC-related projects. It is a smart move to make in addition to the income tax rate increase, but DCFPI believes it should not be a substitution for the income tax.

DCFPI also encouraged the Council to consider shifting the $47 million back to the operating budget incrementally rather than all at once. It is good budgeting practice to keep only big infrastructure, capital project-related costs in the capital budget, but this fix does not need to happen all at once. This proposal, which would modify the Mayor’s budget, would free up resources to restore some of the most serious budget cuts, such as a large cut in homeless services that many Council members have expressed concern about. Some councilmembers also spoke about the need to restore funding to critical programs like Temporary Assistance for Needy Families and Interim Disability Assistance.

Councilmembers also discussed how a potential increase in the June revenue forecast might impact the budget. As District Dime readers know, DC Chief Financial Officer Natwar Gandhi releases a revenue forecast every quarter. Many expect his June forecast to show additional tax dollars but it is not certain. The Council did not make specific decisions for use of these funds, although Chairman Brown suggested that fully half should be used to build up DC’s savings.

Check in to tomorrow to see why DCFPI thinks there are better ways to use additional revenues.

As of today, it is unclear whether the council will hold additional meetings on the budget. Stay tuned!

DC residents overwhelmingly support a proposal to raise income taxes on households with incomes above $200,000, yet DC Council Chairman Kwame Brown wants to reverse it and is working to identify $21 million in other resources to do so. 

But if Brown and other policy makers are able to identify savings, those same resources could be used instead to restore deep budget cuts that would hurt thousands of DC residents — such as homeless services, disability assistance, and mental health services.  

DC’s income tax means a lot to all of us.  While many think about what we pay in income tax, it also important to remember what it buys.   The income tax brings in $1.2 billion a year, supporting almost one-fifth of DC’s locally funded budget.  That means DC’s income tax is working throughout the city — in school classrooms, in health clinics, in parks and libraries, in fire stations, and more — to support services residents want and need. 

Mayor Gray’s 2012 budget would increase DC’s income tax rate from 8.5 percent to 8.9 percent on income above $200,000 —  or $400 for a family making $300,000 — to help preserve services in face of a large budget shortfall.  That move matches the approach DC residents want their leaders to take:  In a recent poll, a majority said they support increasing taxes to avoid making deep cuts to programs and services, and 85 percent specifically support Gray’s income tax proposal.  

Despite this widespread support, several DC Council members, including Chairman Brown, say they want to undo the tax increase.  Brown has indicated that he may have identified $21 million in other resources to do so, perhaps without making cuts to other services. 

Yet whatever funds are found to undo an income tax increase could be used instead to restore some of the most serious cuts in the proposed budget.  The budget before the Council would cut $190 million, with two-thirds falling on programs serving DC’s low- and moderate-income residents.  The cuts also affect police, libraries, public works, and more.  

The District can support more of what DC residents want if we keep the revenue increases.  Here is what $21 million could buy: 

• $21 million could fully restore cuts to DC’s homeless services.  The FY 2012 budget would cut homeless services at a time when families with children already are being turned away from homeless shelters with no safe alternative.     
• $21 million could fully restore cuts to housing programs.  The budget would take away $18 million from the only local source of funding to build affordable housing and help tenants buy their buildings.  DC’s locally funded housing programs helped create nearly 10,000 affordable units in the last decade, but that has ground to a near-halt in the recession due to falling resources. 
• $21 million could fully restore cuts to cash assistance for residents with disabilities and families with children.   Mayor Gray’s budget would cut off the only source of income for 1,000 DC residents with disabilities who cannot work and who have applied for federal disability benefits.  It also would reduce assistance to nearly 7,000 families with children to just $257 a month.   

Preserving revenues in the proposed budget also would make it easier to address other gaps, such as the desire by some policymakers to increase the police force, keeping DC’s main library branch open on Sunday, and maintaining the staff that keeps DC’s streets clean. 

Starting today, the full DC Council will meet to hash out the final details of the budget for 2012.  It is very likely that they will identify some resources to make changes to parts of the budget that concern them the most.  The question is:  will they use those resources to undo a tax cut that has very little opposition or to restore cuts to services that residents say they want? 

You can watch the council’s budget discussions live at www.dccouncil.us or at www.octt.dc.gov, or in room 412 of the John A. Wilson Building.

What kind of city would the nation’s capital be if homeless shelters closed their doors? How would such a move be seen by District residents, businesses, and neighborhoods? Unless the council restores a minimum of $17.4 million to the homeless services budget, we will find out – as soon as next spring. 

Under Mayor Gray’s proposed budget, funding for homeless services would fall by 26 percent.  According to recent DHS estimates, this cut would put more than 150 homeless District families with children and 1,500 single adults currently housed in shelters out on the streets. The District is legally required to provide shelter during hypothermia season, which runs from November through March, but the proposed cuts are so deep that on April 1, 2012, many shelters would be forced to close their doors. 

A recent public outcry has raised awareness about the severity of the issue. Some councilmembers have said they will try to find $4 million for shelter for families with children.  However, this figure would not fully restore family shelter, and would not even begin to address the funding gap for single adult shelter space. In his testimony at the Department of Human Services budget hearing last week, Director nominee David Berns stated that fully restoring family shelter for FY 2012 would cost $7.1 million, and that preserving 1,500 single adult beds would require a further restoration of $10.3 million. An additional $1.7 million would be needed to provide transportation, meals, and other core services. 

Some councilmembers have said that feel it is necessary to cut the budget, because our government is too big. Yet two out of every three dollars cut in next year’s budget proposal comes from services that house the homeless, provide cash assistance for residents with disabilities and provide critical mental health services. Certainly we need to be efficient and effective with our limited resources. But our most vulnerable residents shouldn’t pay the price.

Have you heard about the Hart Research poll on DC taxes? Too busy to read through the poll and the results?

Check out the latest episode of What Can Brown (& Graham, Evans, Cheh, Bowser, Thomas, Wells, Catania, Mendelson, Orange and Michael Brown) Do For You?

In short, DC residents overwhelming say that maintaining critical public services is more important than holding down taxes. They also said by wide margins that they found the proposed income tax increase acceptable, and support for the proposal crosses race, class and even ward boundaries.

What did voters find unacceptable? Cuts to education, homeless services, public safety and services for residents with disabilities.

Read the Hart poll here.
Read the Hart poll memo here.

DC residents strongly support increasing income taxes on individuals making over $200,000 a year as part of an effort to preserve funding for necessities like education, human services, and public safety according to a new Hart Research poll, commissioned by DCFPI.

The poll, conducted by Peter D. Hart Research Associates, was taken on April 20-22 of 504 likely voters and has a 4-point margin of error.

When asked about the best way to approach DC’s $322 million budget shortfall for the fiscal year that starts October 1, the largest group of DC voters said they support a balanced approach that includes a mix of tax increases and spending cuts instead of an approach that relies only on cuts. 

A large majority – 70 percent – of poll respondents said it is more important to preserve services than to hold down taxes. When presented information on the specifics of the proposed budget for next year, voters were more likely to agree that Mayor Gray’s plan goes too far in cutting programs, particularly services for “those most in need of help.” Support for a balanced approach was District-wide, and included higher income residents. The poll showed support for other revenue measures as well. 

A large majority of DC voters express concern about cuts in Mayor Gray’s budget.  More than two-thirds find specific reductions to be unacceptable, with the greatest objections to cuts in programs for people with disabilities, mental health services, education, and public safety. The poll divided the District into four ward groupings — combining wards 1 and 6; wards 2 and 3; wards 4 and 5; and wards 7 and 8— and voters in all four areas of the city said they found cuts in these services to be unacceptable. 

The poll found DC voters support the tax increases in Mayor Gray’s proposed budget.  A large majority of DC voters support the proposal to create an 8.9 percent income tax bracket for individuals above $200,000 —  85 percent for, to 14 percent against. Seventy percent support a proposed increase in the parking garage tax, with 25 percent against. Voters also expressed support for an effort to tax multi-state corporations, 87 percent to 8 percent.  Support for tax increases, particularly the income tax increase, is strong across the city and even among those who would have to pay the income tax.  Among voters with incomes of more than $100,000, 90 percent say that they find the tax increase on individuals earning more than $200,000 to be acceptable. 

To read a summary of the poll findings from Hart Research, click here.
To read a copy of the poll, click here.

Happy Budget Monday District Dime Readers,

Here’s a look at the week ahead…

Monday, May 9^th

10:00am: Committee of the Whole. Budget Support Act hearing

Location: John A. Wilson Building, Room 500.

Tuesday, May 10^th

10:00am – 12:00pm: Committee on Housing and Workforce Development Mark-Up

Location: John A. Wilson Building, Room 500.

12:00pm – 2:00pm: Committee on Libraries, Parks, and Recreation Mark-Up

Location: John A. Wilson Building, Room 500.

2:00pm – 4:00pm: Committee on Public Services and Regulatory Affairs Mark-Up

Location: John A. Wilson Building, Room 120.

Wednesday, May 11^th

10:00am – 12:00pm: Committee on Public Works and Transportation Mark-Up

Location: John A. Wilson Building, Room 500.

12:00pm – 2:00pm: Committee on Economic Development Mark-Up

Location: John A. Wilson Building, Room 500.

2:00pm – 4:00pm: Committee on the Judiciary Mark-Up

Location: John A. Wilson Building, Room 500.

4:00pm: Committee on Government Operations and the Environment Mark-Up

Location: John A. Wilson Building, Room 500.

Thursday, May 12^th

9:00am – 10:00am: Committee on Finance and Revenue Mark-Up

Location: John A. Wilson Building, Room 500.

10:00am – 12:00pm: Committee on Aging and Community Affairs Mark-Up

Location: John A. Wilson Building, Room 500.

12:00pm – 2:00pm: Committee on Health Mark-Up

Location: John A. Wilson Building, Room 500.

2:00pm – 4:00pm: Committee on Human Services Mark-Up

Location: John A. Wilson Building, Room 500.

4:00pm: Committee of the Whole Mark-Up

Location: John A. Wilson Building, Room 500.

The question of whether raising state or local income taxes leads some residents to move out is a legitimate one.  The answer to that question, backed by a growing body of research, is a pretty clear “no,” as noted in a recent report aired on NPR.  The story, which cited numerous studies that find no evidence that high-income residents high-tail it when  modest tax increases are adopted, is  further evidence that Mayor Gray’s decision  to include an income tax  increase as part of his FY2012 budget was reasonable.

Mayor Gray’s proposal would create a new tax bracket of 8.9 percent for taxable income above $200,000 (The current top rate is 8.5 percent and starts at just $40,000).  This proposal, combined with a limit on itemized deductions for high-income households would raise $35 million in much-needed revenue in FY2012.  The tax increase would average $400 a year for households making $200,000 to $350,000, or less than 0.2 percent of income.

Yet the Mayor’s income tax proposal has been met with resistance from some Councilmembers, who fear the flight of higher-income residents.  The researchers quoted by NPR find that this concern is not backed by real-life experience: “[T]axes [have] essentially no impact on causing people to leave a state,” according to Jeff Thompson of the Political Economy Research Institute at the University of Massachusetts, Amherst.  This is because high-income residents, like all residents, have ties to their communities — jobs, family and friends, investments — that are unlikely to be shaken by a modest change in taxes.  In the case of DC, residents are drawn by employment opportunities, the District’s amazing cultural amenities, and the desire to live in a city environment, among other reasons.

When these studies are considered alongside the fact that DC residents pay the lowest taxes in the region (when property taxes and income taxes are considered) and that high-income residents pay a smaller percentage of their income in taxes than middle-income residents, Mayor Gray’s income tax proposal seems all the more reasonable.

Kudos to Mayor Gray for recognizing that attempting to close a $322 million budget gap with cuts alone, at a time when the needs of District residents remain substantial as a result of the recession, would have had serious consequences.  It would have led to even greater reductions to programs that help District families get back on their feet, thereby threatening the critical investments the city has made in education, public safety, and human services.  The City Council should not undo this modest income tax proposal on little more than a hunch.

What can Brown do for you? We’re not referring to the worldwide package delivery service, but to DC Council Chairman Kwame Brown, as well as his 12 colleagues on the DC Council.

Over the next three weeks, Kwame Brown and his colleagues have the ability to modify Mayor Gray’s proposed budget, including taking a more balanced approach to the cuts made to address the budget shortfall. In Mayor Gray’s proposal, two out of every three dollars cut would come from human services. These are programs that provide basic necessities, such as housing, as well as work supports such as child care.

Is that proportional to the size of human services in the overall budget? Not at all. Human services and other programs that aid low-income families comprise 26 percent of the budget.

Chairman Brown and the 12 members of the DC Council can take a balanced approach and make better choices. Watch “What Can Brown Do For You?” here.

And if you are interested in a more in depth analysis of the numbers, read DCFPI’s budget report here.

As an intern with DCFPI this semester, I have diligently read the District’s Dime blog each day, finding it an excellent way to gain insight into the key issues and debates surrounding DC’s budget. Yet, it wasn’t until recently that I noticed the District Dime’s subtitle: “Going Beyond the Budget Book.” The concept of “going beyond the budget book” is a great descriptor of the work I have seen DCFPI accomplish over the past semester — and of what it takes to understand the real meaning of cuts in the DC budget.           

Take these facts and figures, for example: The budget book tells us that the DC Public Library has had $6 million cut from its budget since 2008, while the Department of Public Works has lost one-fourth of its funding. These cuts seem serious, but as isolated budget book statistics, it is unclear what they have actually meant for District residents. 

Exploring cuts to areas such as the DC Public Library and the Department of Public Works reminds us that funding losses during the recession have impacted the city’s ability to provide fundamental services that all residents rely upon. (Of course other cuts highlighted by DCFPI this spring, in areas such as disability services and cash assistance, have affected the ability of many DC residents to meet their most basic needs.) 

Public Works Statistics: The Department of Public Works lost one-fourth, or $29 million, of its overall funding, between 2008 and 2011. 

Public Works “Beyond the Budget Book:”  In the fall of 2010, DPW ran out of 32-gallon garbage cans, larger Supercans, and recycling bins, affecting 4,400 District residents who submitted requests for new or replacement containers. Due to its tight budget, DPW will now charge residents for the 32-gallon cans and recycling bins, which used to be free. In addition, the number of workers who collect trash has been scaled back drastically, with 200 fewer full-time positions now than there were in 2008. With resources for DPW spread thin, the agency has had to make tough choices that impact its ability to provide services to residents and keep the city clean. 

The DC Public Library Statistics: $6 million has been cut from the Library’s budget since 2008.

The DC Public Library “Beyond the Budget Book:” The Library’s summer reading program  served 27,674 pre-school and elementary school students in 2009 but only 9,440  in 2010. Budget shortfalls also led the Library to halt its Teens of Distinction Program, which provides teens the opportunity to work in the library, cultivate customer service skills, and receive training in college prep, money management, and resume writing. This past summer, budget cuts led to 40 layoffs within the library system. The same budget cuts caused Library hours to be reduced twice in the past three years, and the FY 2012 budget calls for the only library in the District open on Sundays — MLK — to be closed as well that day. 

It is increasingly clear that budget shortfalls caused by the recession have affected all public services, both those which people rely on to survive and those which make DC an attractive city to live in. While facts and figures like a one-third cut here and a 50 percent reduction there tell an important story, the human impact of the cuts adds a necessary dimension. 

As I’ve learned through my experience this semester, “going beyond the budget book,” a task that DCFPI accomplishes here in its blog and through its work every day, is essential for informing the public and shaping debates about the District’s budget. 

Thanks for a great semester, DCFPI!

It turns out that the DC Fiscal Policy Institute is not the only one to have problems with the Washington Post editorial board’s take on DC’s budget.  Last weekend, the District’s Chief Financial Officer, Natwar Gandhi, blasted a Post editorial which had suggested that DC’s tax system is stifling business activity in the city.  Dr. Gandhi’s letter, printed in the Post, came a couple weeks after DCFPI penned a response focused on other aspects of the same editorial.

Dr. Gandhi’s letter is well worth reading.  It makes several common-sense points that challenge those who think taxes are choking DC’s economy:

If DC taxes are a problem, why is the city booming? Gandhi points out that DC has gained jobs at faster than the national average, added millions of square feet of office space, and has the lowest office vacancy rate in the region.

A “narrow focus on taxes” doesn’t make sense when assessing DC’s competitiveness. Dr. Gandhi notes that that the District is home to the federal government, has a highly educated population, and is full of amazing amenities.  All of these combine to give the city an envious competitive advantage, making taxes far less important.

We should look at what businesses and residents pay, instead of looking at tax rates: A simple comparison of tax rates between jurisdictions is misleading because it ignores other elements of a tax code that affect what businesses and individuals actually pay.  Dr. Gandhi notes that most businesses pay DC’s minimum tax — just $100 — and that taxes paid by DC residents are basically in the middle when compared with the largest city in each state.  A simple look at the business income tax rate or DC’s top income tax rate would give a totally different — and wrong — picture.

The CFO’s letter is important for several reasons, but mostly because it attempts to bring rational analysis to a topic — taxes — where debates often are irrational or at least highly driven by emotion. It suggests that assessing the impact of taxes is important but should be based on real-world data.

While this may not have been his intent, we think Dr. Gandhi’s letter also is a challenge to those who say that a modest increase in DC’s taxes would hurt the city’s competitiveness, even if the revenues are used to fund services such as schools, police, and affordable housing.  Those naysayers should not be able to simply make assertions but should offer evidence to back it up.

Thanks, Dr. Gandhi!

Happy Budget Monday District Dime Readers, 

Here’s a look at the week ahead… 

Tuesday, May 3^rd    

10:00am: Ninth Legislative Meeting.  Location: John A. Wilson Building, Room 500.  

2:00pm: Committee of the Whole.  Public briefing on DC Public Schools (Government Witnesses Only).   Location: John A. Wilson Building, Room 500.  Meeting notice can be found here. 

2:00pm: Committee on Housing and Workforce Development.  Budget hearings on Housing Finance Agency, Department of Housing and Community Development, and DC Housing Authority.  Location: John A. Wilson Building, Room 412.  Meeting notice can be found here. 

Wednesday, May 4^th  

10:00am: Committee of the Whole.  Public briefing on Office of Public Education Facilities Modernization.  Location: John A. Wilson Building, Room 412.  Meeting notice can be found here. 

11:00am: Committee on Human Services.  Budget hearing on Child and Family Services Agency.   Location: John A. Wilson Building, Room 120.  Meeting notice can be found here. 

2:00pm: Committee on Aging and Community Affairs.  Budget hearing.  Location: John A. Wilson Building, Room 120.  Meeting notice can be found here. 

2:00pm: Committee on Health.  Budget hearing on the Not-For-Profit Hospital Corporation and the Deputy Mayor for Health and Human Services.  Location: John A. Wilson Building, Room 123.  Meeting notice can be found here. 

Thursday, May 5^th  

9:00am: Committee on Health.  Budget hearing on the Department of Health.   Location: John A. Wilson Building, Room 500.  Meeting notice can be found here. 

11:00am: Committee on Human Services.  Budget hearing on DYRS and Children and Youth Investment Trust.   Location: John A. Wilson Building, Room 123.  Meeting notice can be found here. 

2:00pm: Committee on Government Operations and the Environment.  Hearings on B19-143, the “Workplace Wellness Act of 2011” and B19-144, the “Healthy Schools Amendment Act of 2011”.    Location: John A. Wilson Building, Room 500. 

 Friday, May 6^th    

10:00am: Committee on Human Services.  Budget hearing on the Department of Health and Human Services.  Location: John A. Wilson Building, Room 500.  Meeting notice can be found here.

All this week, the District’s Dime blog is featuring entries that highlight some of Mayor Gray’s proposals to raise revenue in the FY 2012 proposed budget.   

Mayor Gray’s budget proposes to apply the District’s 6 percent sales tax to live theater performances, a small part of the $160 million in revenue increases in his FY 2012 budget.

As we have discussed throughout the week, the desirability and adequacy of a revenue measure should be based on three important criteria: 

• Would it provide sustainable funding?
• Would it make the DC tax system more progressive?
• Would it strengthen DC’s tax system? 

In the case of the theater tax, the answers to these questions are “yes,” “yes,” and “yes, but not enough.” 

Efforts to broaden the city’s sales tax base make sense because a the sales tax can remain a reliable source of revenue only if it matches how money is spent and keeps up with changing consumption patterns.  A broad sales tax also is a matter of fairness, making sure that some parts of our economy (theaters) don’t have an advantage over others (movies) by not being taxed.  However, this proposal does not go far enough.  Rather than hone in on one specific industry, the District would be better served by expanding the sales tax to cover a wide array of the services that residents and visitors purchase. 

Does the revenue proposal provide sustainable funding for DC’s budget?  Yes.  A tax on live theater performances would provide a revenue stream that the city can reasonably project into the future.  

Does the revenue proposal make DC’s tax system more progressive?  Yes.  Sales taxes generally are regressive, because low-income residents spend a greater portion of their income on goods and services than do high-income residents.  However, attending the theater is more discretionary than many other purchases, such as clothing or laundry detergent, which suggests that applying sales tax to theater tickets would be more progressive than the sales tax overall.  

But the main goal of broadening the sales tax is not to cover “luxury” purchases or make the tax system more progressive.  The real goal is to strengthen the tax system.  Which brings us to… 

Does the revenue proposal strengthen DC’s tax system?  Yes, but not enough. For decades, the national and DC economies have been increasingly dominated by services, as opposed to goods.  This means that a sales tax limited to goods will become increasingly irrelevant over time.  Broadening the sales tax to theater helps to more accurately reflect the District’s economy and better enables the city to better meet its future needs.  It is unfortunate, though, that Mayor Gray chose to take such a small, piecemeal approach to reforming the sales tax.  That opens this proposal to criticism that it is arbitrarily and unfairly targeting a particular industry for taxation.  A better approach would have been to identify a broader array of services that should be covered by the sales tax.

All this week, the District’s Dime blog is featuring entries that highlight some of Mayor Gray’s proposals to raise revenue in the FY 2012 proposed budget.   

In his FY2012 budget proposal, Mayor Gray took a fairly balanced approach to closing a $322 million budget gap, using a mix of revenue measures (40%) and spending cuts (60%).  (The nature of the cuts, however, were highly unbalanced).  

One of the major sources of new revenue would come from increasing the amount of income tax withheld from the paychecks of DC residents and from residents with other sources of income raising $65 million in the coming fiscal year.  If this would result in having more tax withheld than the worker ultimately owes, the additional withholding would be returned as a refund when the worker files a tax return in 2013.  For workers who have too little tax withheld, the proposal would mean that the worker would owe less when they file a tax return. 

This week we laid out three important criteria to consider when assessing any revenue-raising measure: 

• Would it provide sustainable funding?
• Would it make the DC tax system more progressive?
• Would it strengthen DC’s tax system? 

In the case of additional withholding, the answers are “no,” “no,” and “maybe.”  The additional withholding is not justified in most cases, since three-fourths of DC households already get a refund, which means their withholding is adequate.  For some workers with low-incomes, the added withholding would make it even harder to pay their bills, even if they would ultimately get that money back. 

Does the revenue proposal provide sustainable funding for DC’s budget?  Nope.  The proposal would raise $65 million in 2012 but only $7 million in 2013 and only $3 million per year after that, since any added withholding in one year would be offset by families getting larger tax refunds (or owing less when they file the next year).  That makes this proposal really just a one-time revenue source, even though a large share of the funds would be used to support ongoing services.   Basing the District’s budget on a revenue source that will only be available in one year and not the next is not how budgeting should be done, as Gray has said many times himself.    

Does the revenue proposal make DC’s tax system more progressive?  No, it does not.  Withholding would be increased by $160 for each working resident, whether they make $30,000 or $100,000.  A resident making $100,000 may not notice this loss, but working-class residents who already live paycheck-to-paycheck most certainly would.  While workers would get the money back a year later (through a refund or owing less in taxes), the impact of this policy is regressive, because it holds back a greater share of income for those earning the least. 

Does the revenue proposal help modernize or strengthen DC’s tax system?  Maybe. Some residents, who owe substantial taxes, including back taxes, do not file a tax return.  DC finance officials have noted that an increase in withholding would help collect more of the taxes owed by these non-compliant residents.  This amount is rather small, however – just a few million per year.  Moreover, a policy to withhold more income tax from everybody to help collect a small amount of unpaid taxes from others is not very desirable.  

While we welcome the Mayor’s attempts to include new revenues as part of the solution in balancing the budget, we would prefer that he focus on long-term, progressive revenue solutions that do not place an undue burden on working-class residents.

All this week, the District’s Dime blog is featuring entries that highlight some of Mayor Gray’s proposals to raise revenue in the FY 2012 proposed budget.   

“Combined Reporting.”  If you follow DC budget issues at all, you know this topic has seen its share of discussion in the last year.  Now, Mayor Gray’s budget would turn the discussion into reality.  Gray’s proposed FY 2012 budget includes $160 million in new revenue increases — including implementation of combined reporting — as part of a balanced approach to address a $322 million budget gap. (The cuts are a different story which we wrote about last week.)  

Yesterday, the District Dime laid out three ways to assess any proposed revenue increase: 

• Would it provide sustainable funding?
• Would it make the DC tax system more progressive?
• Would it strengthen DC’s tax system? 

In the case of combined reporting, the answers are “yes,” “yes,” and “yes” 

Before explaining why, some background. Combined reporting is intended to prevent multi-state and multi-national corporations from sheltering income and avoiding DC’s corporate income tax. It would raise $23 million in 2012.  The DC Council passed combined reporting in 2009, but implementing legislation had not been introduced — until now.

Without combined reporting, many national and multinational companies create subsidiaries to artificially shift profits out of jurisdictions where profits are earned into states where the business tax rate is lower—or where there is no corporate income tax  at all.  Some major retailers, such as Walmart and Toys R Us, have shifted profits earned into subsidiaries as a tax-avoidance strategy. 

Combined reporting addresses this practice by treating the parent company and its fully-owned subsidiaries as one corporation for state income tax purposes. 

Here’s how Combined Reporting rates on our three key questions: 

Does the revenue proposal provide sustainable funding for DC’s budget?  . The District’s business climate is thriving, and large multi-state retailers – like CVS and Walmart – continue to move in to the city’s neighborhoods and business districts. Mayor Gray’s proposal to implement combined reporting meets the sustainability test because it would permanently close tax shelters.  It would raise $23 million in 2012 and $19 million per year after that. 

Does the proposed revenue increase make DC’s tax system more progressive?  Without combined reporting, a locally-owned hardware store could pay more in tax than Home Depot. Combined reporting – which requires that large multi-states pay taxes at the same rate as their small, home-town neighbors – allows the District’s local businesses to stand on more equal ground with their larger, multi-state competitors. This is certainly a progressive move.

 Does the revenue proposal help modernize or strengthen DC’s tax system?  Revising the tax code to prevent large multi-state corporations from sheltering income for tax purposes is an important way to modernize and strengthen the tax system in the District. Combined reporting is widely recognized as the most comprehensive way to meet this goal. 

Stay tuned tomorrow for a look at the proposed increase in income tax withholding . . .

All this week, the District’s Dime blog is featuring entries that highlight some of Mayor Gray’s proposals to raise revenue in the FY 2012 proposed budget.   

Mayor Gray’s proposed FY 2012 budget includes $160 million in new revenue increases as part of a balanced approach to address a $322 million budget gap. (The cuts are a different story which we wrote about last week.)  The revenue proposal getting the most attention would add a new tax bracket to DC’s income tax and limit itemized deductions for those with income above $200,000.  The proposed changes would raise $35 million to help prevent even deeper cuts to programs and services that keep our city moving forward. 

The proposal to raise income taxes on high-income earners is a reasonable way to raise revenues to address the budget shortfall. It would help make DC’s tax system more progressive, provide a steady stream of revenue to help meet the city’s growing needs, and help modernize DC’s income tax to keep up with changes in the city.  

The Mayor’s budget proposes to make two changes to DC’s income tax system: 

• The addition of a new income tax bracket of 8.9 percent for taxable income (income after deductions) above $200,000.  DC’s current top tax rate of 8.5 percent starts at $40,000 of taxable income. It’s important to keep in mind, however, that Mayor Gray’s proposal only makes changes to the way DC taxes income above the $200,000 bracket. So, for example, if you earn exactly $200,000 you will pay no additional tax under the plan.  Moreover, not even all families above $200,000 would be affected, because DC allows two-earner households to split their income on their tax return — allowing each person to be taxed on their individual earnings and not at their combined earnings.   In fact slightly under half of DC families with income between $200,000 and $350,000 would see no tax increase from the rate change.  
• A limit on the amount of itemized deductions that can be claimed by those with incomes above $200,000.  The disallowed amount would be equal to 5 percent of the income above $200,000.  DC had a similar provision in place until just a few years ago, as did the federal income tax code.  President George W. Bush eliminated limits on itemized deductions as part of the tax cuts he passed and since DC was coupled to this part of the federal tax code, the limits were also eliminated for DC.   

The overall impact of these changes is relatively modest.  Those who earn between $200,000 and $350,000 , for example, would  pay about $400 in additional taxes a year as a result of both changes — or less than one-fifth of one percent of income.   

When considering a revenue increase, three key issues should be addressed: 

Does the revenue proposal provide sustainable funding for DC’s budget?  It is important for DC’s long-term fiscal health that any proposed revenue increase is sustainable and that it provides some increase in funds year after year so that DC can keep up with growing needs.  Recent Census data showed that DC is growing, and that means that each year we have more public school students, restaurants that need food inspections, residents who need drivers’ licenses issued or renewed, and on and on. Mayor Gray’s proposed changes to the income tax meet this goal because it would provide additional resources each year for our growing, dynamic city. 

Does the proposed revenue increase make DC’s tax system more progressive?  Some argue that creating a new high-income tax bracket and limiting itemized deductions unfairly targets one group of residents. If this sounds convincing to you (and even if it doesn’t!) let’s take a look at how much different groups pay in DC taxes right now.  According to the recent DCFPI analysis, DC residents who earn between $33,000 and $57,000 pay the most taxes in combined DC taxes as a percent of their income. These folks, who are DC’s middle-income earners, hand over 10.5 percent of their income in local sales, income and property taxes. What about those who make up the top five percent of District earners? Well, they pay an average of 7 percent of their income in taxes. And if you make above $1.5 million, putting you in the top 1 percent of earners? You pay only 6.4 percent.  

You might conclude that DC unfairly targets middle-income earners right now.  It’s also worth noting that recent tax increases passed in DC – general sales, gas, cigarettes, and soda taxes — fall squarely on the middle class. 

Mayor Gray’s proposal not only helps level the playing field but also moves the District toward a more progressive taxation system. In a progressive system, the tax rate increases with ability to pay. So those who earn more pay a bit more. 

Does the revenue proposal help modernize or strengthen DC’s tax system?  DC’s current top income tax bracket starts at $40,000 of taxable income (income after deductions) which is way out of line for where we are today as a city.  DC’s median income is just over $60,000 and the city is adding more and more high-income households.  In fact, according to a Brookings Institution analysis of Census data, from 2000 to 2009, DC added 39,000 households with incomes of $75,000 or higher but lost nearly 38,000 households with incomes below $50,000.    These proposed changes to our income tax system would better reflect where we are as a city and help to better capture the true range of DC residents’ incomes. 

Stay tuned tomorrow for a look at Combined Reporting…..

Good morning District Dime readers, 

It’s election week, the Council is on recess this week, and department budget briefings are all but wrapped up. Here’s a rundown of what’s in store: 

Tuesday, April 26 

At-large DC Council special election. Don’t forget to go vote! Polls are open from 7am to 8pm. To find your polling location, click here. 

Thursday, April 28 

5:30pm: Department of Health budget briefing at the DC Department of Health, 899 North Capitol St NE, 4^th Floor Conference Room. RSVP by April 26 to reed@dcfpi.org.

All this week, the District’s Dime blog is featuring entries that highlight program areas experiencing significant cuts in Mayor Gray’s proposed budget. Stay tuned next week for a rundown of key revenue initiatives.

Mayor Gray says he wants more DC families to move from welfare to work.  Who can argue with that?  Unfortunately, the proposal in his budget wouldn’t do that at all.  It would make deep cuts to cash assistance — but without providing parents the job training or supportive services needed to achieve better welfare outcomes. It could cause massive harm to thousands of families with children.

Under the Mayor’s budget, benefits for families in DC’s TANF program— which were $428 a month for a family of three at the start of this year — would fall to $257 for those who have received aid for 60 months or more.  It is difficult to imagine how a family could survive on income this low, especially since only one-third of TANF families are in subsidized housing.

That’s what Gray’s TANF proposal would do.  What it would not do is stunning:

No new job training or education: DC’s Department of Human Services lacks the capacity to offer employment services to all welfare recipients, and there is widespread acknowledgement that the current TANF employment services are of very poor quality.  Efforts are underway to change that, but new employment services will not be in place before benefits would be cut.

No new assessment for employment barriers: Most long-term TANF recipients face serious personal challenges – depression, low literacy, domestic violence – and DC officials acknowledge that parents have not been assessed well or directed to the right supportive services.  DHS plans to improve assessments, but it will take 18 months to assess all long-term TANF recipients.

No time to prepare: Welfare time limits should give time for recipients to prepare for work. But under Gray’s budget, families would be subject to a 60-month limit for time already on welfare, even though they had not been told before of a time limit.  DC families would have just a few months to prepare for the large cut, with no additional help — at a time when unemployment in the city remains high.  By contrast, when Michigan set a welfare time limit in 2008, it set the clock going forward for all families.

Limited exemptions and extensions: All states exempt some families from time limits, such as those fleeing domestic violence or those caring for a relative with a disability.  And most states extend time limits under certain circumstances.  Maryland, for example, does not cut families off at the time limit if parents are complying with work preparation requirements.  Mayor Gray’s budget offers no new exemptions and would cut benefits even for those complying with all program rules.

The goal of welfare reform should be better employment outcomes for parents, and this may mean investing more in the short-term to get better results in the long-term.  The Mayor’s plan to cut benefits would achieve short-term savings, but it is hard to see how it will lead to better outcomes for families with children.  Instead, it is likely to push many vulnerable families deeper into poverty, with serious long-term consequences.  Recent research confirms that poverty hurts educational outcomes for children, especially young children.

This is troubling not only for families affected by TANF cuts, but for the city as a whole.  There is widespread agreement that DC’s future depends on improving our education system. Cutting assistance to families with children, without supports to help parents move to work, will make the job of DC’s school reformers even harder.

All this week, the District’s Dime blog is featuring entries that highlight program areas experiencing significant cuts in Mayor Gray’s proposed budget. Stay tuned next week for a rundown of key revenue initiatives. 

Those who question whether there is any real pain in the Mayor’s FY 2012 proposed budget need look no further than the proposal to eliminate the Interim Disability Assistance program. IDA offers a modest amount of cash assistance to DC residents with a disability who are awaiting approval for federal Supplemental Security Income benefits.  The federal SSI process can take months or years, and IDA offers  $270 per  month to help these individuals get by – take the bus to doctor’s appointments, buy some toothpaste, or offer a friend a little money for staying on the couch.  The feds pay the District back when a resident ultimately gets on SSI.                    

But this could all end in October. 

Under the Mayor’s proposal, IDA would be completely eliminated, which not only means that no new individuals would be helped, but also that all individuals receiving benefits at the end of FY 2011would be cut off.  Some 1,500 residents have received IDA assistance in recent years, and even with efforts to phase it down this year, 600 residents are expected to be cut off in October. Without the stabilizing effect of IDA, many of these residents – who cannot work and have no other income – would be forced to rely on more costly emergency services, such as emergency rooms and shelters. 

By ending the program in this manner, the District also would forfeit the opportunity to recoup IDA payments made in the past – local expenditures that are reimbursed by the federal government when an individual is approved for SSI. Historically, the District has recovered more than 40 percent of IDA payments through the federal reimbursement process.  Mayor Gray argues that the recovery rate should be higher, even though it is in line with original expectations when IDA was created and matches the performance in other states. By eliminating IDA, the District loses this mechanism to get federal funds to help residents while they wait for SSI approval.. 

The Mayor has said repeatedly that this is a difficult budget, and that sacrifices need to be made. The District is not alone in the world of pain. Most states are still trimming budgets due to the recession.  . And yet, 37 states – including Maryland and Virginia – have recognized their IDA-type programs as essential, and found a way preserve them. We hope the District finds a way, too. 

But homeless services, affordable housing, and IDA are not the only areas of concern for low-income District residents. Stay tuned tomorrow for a look at cuts in the Mayor’s budget to TANF . .

All this week, the District’s Dime blog will feature entries that highlight program areas experiencing significant cuts in Mayor Gray’s proposed budget.  Stay tuned next week for a rundown of key revenue initiatives. 

One of the areas hardest hit by Mayor Gray’s proposed FY 2012 budget is affordable housing.  Despite the fact that rents in DC have risen faster than in most major cities — and faster than the incomes of most DC households — and that many families are still reeling in the wake of the Great Recession, Mayor Gray’s proposed budget would make significant reductions and changes to some of DC’s main affordable housing programs.  The result would be to significantly weaken the District’s capacity to respond to the affordable housing needs of DC’s low- and moderate-income residents.     

The District has created a variety of affordable housing tools, each serving a specific purpose and each critical to make housing available all along the continuum of affordable housing needs — from homelessness to homeownership — for DC’s low- and moderate-income residents.  

These tools include: 

• The Housing Production Trust Fund which finances affordable housing construction and renovation, and also provides financial support to tenants who want to purchase their building when it goes up for sale.   
• The Local Rent Supplement Program which provides a rental subsidy to help very low-income residents, those making less than $30,000 a year — live in affordable homes.   
• The Permanent Supportive Housing Program which provides supportive housing for chronically homeless individuals and families.  

Because DC’s coffers have been hit hard over the last four years, the city’s affordable housing tools have been largely dormant and funding has been used to maintain most programs at their prior-year levels.  The exception is the Housing Production Trust Fund —  supported by 15 percent of DC’s deed recordation and transfer taxes — where resources fell significantly when the recession hit and have remained low for some time.  In FY 2012, as a result of several large commercial property sales and an increase in single family home sales, total resources for the HPTF would jump higher.  However, this expected increase would be wiped out by the Mayor’s proposed FY 2012 and in future years, and would leave the HPTF with almost very little funding for its core purposes — affordable housing construction, renovation, and tenant purchase.    

Furthermore, the proposed budget would use funding for some parts of the housing continuum to fulfill another program’s purpose.  In fact, the Mayor’s FY 2012 budget proposes to use all of increased funds flowing into the HPTF to replace existing funding for the Local Rent Supplement Program (LRSP).  In addition, LRSP and federal vouchers would be used under Gray’s budget to cover part of the existing expenses of Permanent Supportive Housing Program.  

Lastly, the budget proposes to phase out the practice of providing housing vouchers to low-income families, by not allowing new families to participate once a family leaves.  This would remove one of the main tools the District has to move people off of the DC Housing Authority’s waitlist — currently at 28,000 households. 

The result of these cuts and changes is to weaken the robust set of tools DC has to respond to the affordable housing needs of the District’s low-income residents.  To learn more about these cuts and changes, see DCFPI’s in-depth analysis of the FY 2012 budget for affordable housing. 

And affordable housing is not the only area of concern for District residents facing homelessness. Stay tuned tomorrow for a look at cuts in the Mayor’s budget to interim disability assistance . . .

All this week, the District’s Dime blog will feature entries that highlight program areas experiencing significant cuts in Mayor Gray’s proposed budget.  Stay tuned next week for a rundown of key revenue initiatives. 

Mayor Gray’s FY 2012 boasts a “One City” approach, in which all District residents pull ahead and rise out of the recession together. If you are a homeless family in the District, however, you are likely to be left behind. 

The annual Point-in-Time Enumeration, conducted this January, revealed that homelessness continues to rise, despite signs that the recession is over.  There are 858 homeless families in the District, including more than 1,600 children.  This represents an astounding 46 percent increase in homeless families since 2008, or 271 new families. 

Stacked against these families is a FY 2012 budget proposal that would shrink the homeless services budget by up to a quarter and dramatically cuts other services needed to help these families back to their feet, including cash assistance and affordable housing. 

Under the Mayor’s FY 2012 budget proposal, the District’s homeless services would have to shrink by as much as 25 percent, due to rising fixed costs and a loss of federal stimulus funding that was used to fund a large chunk of the homeless services budget in FY 2011.  The budget partially restores the stimulus dollars, but still leaves a gap of up to $18.4 million.  It is unclear how the Department of Human Services intends to handle this cut, but it is likely that a large share of  shelter space beds would have to be closed between April and November (the non-hypothermia season),  and that services such as meals and case management would be scaled back.  

The 2012 cuts would come even though the District doesn’t have enough resources this year for homeless services.  Until recently, the District has had a long-standing practice  of placing into shelter all “priority-1” families  —  those with no safe place to stay, such as families who are sleeping on the street or fleeing domestic violence —  but as of April 1, the District stopped accepting families into its largest shelter with family space, DC General. Under the Mayor’s proposal for 2012, the shelter system could see even more cuts, this time to shelter beds and services for single men and women, and even further reductions in family space. 

And shelter space is not the only area of concern for District residents facing homelessness. Stay tuned tomorrow for a look at cuts in the Mayor’s budget to affordable housing . . .

In the two weeks since Mayor Gray released his proposal for next year’s budget, we here at DCFPI have been examining the documents, asking additional questions and analyzing the numbers.  In our new analysis released today, we break down the FY 2012 budget request from Mayor Gray to see what cuts were made, what revenues were raised, and how has DC’s budget changed since the Great Recession took hold of the economy.  

As Mayor Gray worked to develop the FY 2012 budget proposal, the city faced a substantial gap — $322 million — between expected resources and the cost of maintaining city services.  Mayor Gray’s FY 2012 proposed budget includes notable revenue increases, yet it also contains sizable budget cuts and leaves the District government far smaller than just a few years ago. While FY 2012 represents the first time in four years in which the District experienced an increase in revenue —a welcome sign that some parts of DC are starting to recover — total tax collections are still well below pre-recession levels.   

Mayor Gray’s proposal largely keeps in place cuts that have been made since 2008—in areas ranging from libraries to child care—in addition to making significant additional reductions in human support services. The disproportionately large cuts proposed to human service programs—two out of every three dollars cut in Mayor Gray’s proposal come from these programs which include homeless services and aid to people with disabilities—were largely made to protect areas like education and public safety (see figure 1).  However, these cuts cannot be viewed in isolation. City leaders’ hopes of improved educational outcomes and public safety could be undermined if residents lack shelter, economic opportunity, and basic support for children and other vulnerable family members. 

Highlights of DCFPI’s analysis of the FY 2012 proposed budget are below. (The complete analysis can be found here.) 

• The proposed FY 2012 general fund budget of $6.3 billion is about $105 million higher than the approved FY 2011 budget, after adjusting for inflation—an increase of 1.7 percent over last year.  Yet this modest boost in local spending is largely needed to; replace federal stimulus dollars that were available for 2011 but will not be for 2012, rising enrollment in public schools and Medicaid, and staff and maintenance expenses that Mayor Gray has proposed moving out of the capital budget to the yearly operating budget.  When these are taken into account, funding for most services in the FY 2012 budget is less than the amount available for FY 2011.  
• Mayor Gray’s proposed budget includes sizable budget cuts and continues the trend since the recession began of making investments in education, but makes cuts to all other areas of the budget, particularly human services. In fact, two out of every three dollars cut from the budget come from human support services and other low-income programs.  (See Figure 1)  
• The FY 2012 proposed budget includes $158 million in new revenues. Just under half would come from increases in taxes and fees and the remaining half from other policy changes — primarily from a proposal to increase income tax withholding from DC residents.  Notable tax increases include a proposal to increase the income tax, from 8.5 percent to 8.9 percent, for income over $200,000 a year and to limit the amount of itemized deductions that can be claimed by families with incomes above $200,000.  In addition, the FY 2012 budget implements a provision adopted in 2009 — known as combined reporting — to close corporate tax shelters used by multi-state corporations.

Happy Monday District Dime Readers, 

Budget oversight hearings continue this week.  See below for an abbreviated listing.  A full listing of the current budget hearing schedule can be found here. 

Monday, April 18^th  

11:00am: Community on Human Services.  Child and Family Services budget hearing.  Location: John A. Wilson Building, Room 123.  Meeting notice can be found here. 

Tuesday, April 19^th  

10:00am: Committee of the Whole.   Location: John A. Wilson Building, Room 500. 

11:00am: Council Legislative Meeting.  Location: John A. Wilson Building, Room 500.   

3:00pm-5:00pm: Roundtable on the Tenant Opportunity to Purchase Act.  Hosted by Councilmember Michael Brown.  Meeting notice can be found here.

Thousands of Residents in the District have become homeowners through Tenant Opportunity to Purchase Act (TOPA), preserved their affordable housing, and have taken control over the future of their housing.  On Tuesday, residents and advocates will urge the Council to protect this vital tool for preserving affordable housing.  Location: John A. Wilson Building, Room 500.   

Wednesday, April 20^th  

10:00am: Committee of the Whole.  Office of the State Superintendent for Education.  Location: John A. Wilson Building, Room 500.  Meeting notice can be found here. 

Thursday, April 21^st  

9:00am: Committee on Housing and Workforce Development.  Department of Employment Services budget hearing.  Location: John A. Wilson Building, Room 120.  Meeting notice can be found here. 

9:30am: Committee on Finance and Revenue.  Public Hearing.  Location: John A. Wilson Building, Room 500.   

9:30am-11:00am: Department of Human Services FY2012 Budget Briefing.  Hosted by the DC Fiscal Policy Institute.  RSVP and submit questions in advance to gajdeczka@dcfpi.org.  Questions must be submitted no later than April 19^th.  Location: DCFPI, 820 First St, NE, 4^th Floor.   

10:00am: Committee on Human Services.  Department of Disability Services budget hearing.  Location: John A. Wilson Building, Room 412.  Meeting notice can be found here. 

12:00pm-2:00pm: Department of Housing and Community Development/DC Housing Authority Budget Briefing.  Hosted by the Coalition for Nonprofit Housing and Economic Development and the DC Fiscal Policy Institute.  Please RSVP here.  Location: DCFPI, 820 First St, NE, 4^th Floor. 

A 15-year property abatement for a proposed 5-star hotel in Adams Morgan. A $2 million tax subsidy to build a CVS near the Georgia Avenue-Petworth Metro station.  A property tax exemption to bring a Whole Foods to the ballpark area. 

Are these subsidies — the first two have passed and the third has been proposed — a good use of DC economic development funds?  The answer to this most basic question actually is hard to come by, because the District lacks a process to assess the costs and benefits of business tax breaks. 

Until now.  Mayor Gray’s budget includes a provision to require a thorough analysis of all proposed property tax breaks in the future.   It is called the “Exemptions and Abatements Information Requirements Act,” and it is based on legislation that was first introduced two years ago by Councilmember Michael Brown but not adopted.  

It would require the District’s Chief Financial Officer to conduct a financial analysis of any proposed tax break to assess whether the subsidy is critical for a project to move forward.  That way we could find out if Whole Foods really would not be able to make it near the ballbark without special tax treatment from the city.  The new provision also would require the CFO to compile information on the full costs of the tax subsidy and of the benefits to the city, such as jobs and affordable housing.  And it would require that this information be available before a tax break is considered. 

What would this all mean?  A lot, in fact. 

It would help dispel legitimate concerns that the city is lavishing tax breaks on favored developers or companies, by making clear when a worthwhile project really does need help to get moving. 

And it would help policymakers and the public make judgments about the best use of tax subsidies.  A $5 million tax break for a company that would create 20 minimum-wage jobs would not look so good compared with a $2 million subsidy for a project that would create 50 living- wage jobs, for example. 

Take the subsidies mentioned above.  CVS wasn’t asked to do anything in return for its tax break, and so far neither has Whole Foods.  The Adams Morgan hotel deal started off that way but ended up with some fairly sizable community benefits, including training for area residents and promises of jobs during construction and in the completed hotel – with a “clawback” to take away the tax break if these are not met.  It still may not be a great deal for the city — at a cost of $46 million — but it highlights the importance of understanding the benefits of a tax break before considering it. 

The Exemptions and Abatements Information Requirements Act holds great potential for bringing more accountability to the practice of offering tax breaks for business development.  We hope it survives review by the Committee on Finance and Revenue and the full DC Council this spring.

Our own mayor, Vincent C. Gray, was the lead subject in a New York Times editorial today. The headline? “Budget Battles: The Price of Ill-Conceived Cuts.” The Gray Lady used Gray’s civil disobedience and arrest in protest of local spending restrictions placed on the District by Congress as a way to highlight the lack of outrage over other spending cuts in the federal budget compromise. 

Here’s what the Times says: “It ushers in a denuded era of loss to vital government services, mostly at the expense of the most vulnerable.” 

The Times was referring to the federal budget, but the commentary also applies to DC’s budget. If the editorial board of the New York Times examined Gray’s own spending plan for DC, they might be disappointed to find that their analysis of “ill-conceived cuts” applies to decisions Mayor Gray has made about the use of our own tax dollars. 

Mayor Gray’s budget proposal contains close to $190 million in cuts, most of which would fall on human services and other low-income programs.  Two out of every three dollars in cuts comes from human services, even though that part of the budget makes up only one out of every four dollars overall. This area of the budget has been hit hard during the last three years as numerous budget gap closings have relied heavily on cuts to these areas.  

The Times editorial emphasized that many of the proposed cuts in the federal budget compromise will put our economic recovery in jeopardy.  Many of the cuts proposed in Mayor Gray’s budget would do the same.  They might have short-term savings but potential long-term costs and jeopardize our forward movement as well. 

Take, for example, homeless services. Mayor Gray’s proposal cuts an additional $11 million from an area that is already so strained that the District stopped taking in new families with children at the DC General shelter as of April. What will happen to these families if they do not have a place to live? Will children have to go into foster care, which will cost the District as well? It’s also important to keep in mind that the costs of destabilizing a family cannot only be measured in dollars. 

Or take the mayor’s proposal for Temporary Assistance for Needy Families. The proposed $8 million cut would reduce monthly cash assistance – which for most TANF families is expected to cover housing, transportation, clothing, and other basic needs – to just $257 per month for a family of three, affecting about 7,000 families.  It is not clear how these families, many of whom face low literacy and other barriers to work, will manage to make ends meet. 

The Times urges Gray’s fellow Democrats to realize that these cuts run counter to investments in education they fought for. We hope Mayor Gray and the DC Council will think about this as well.

Reasonable people can disagree on important issues, particularly something as complex as the DC budget.  But a recent Washington Post editorial on Mayor Gray’s proposed 2012 budget makes me wonder if we are looking at the same document. 

The Post editorial board argues that the budget is growing too fast and doesn’t cut enough.  The editorial quotes Councilmember Catania’s comment that it is a “joke” to suggest that the budget creates “a world of pain.”  The Post also opposes proposed tax increases, particularly a provision aimed at multi-state corporations that often pay little in taxes on the profits they earn in DC. 

Yet a DCFPI review of the 2012 budget finds just the opposite — that the overall budget would grow modestly in 2012, and that within it there are numerous cuts that would cause pain to thousands of DC families.  The lean 2012 budget follows three years of shrinking resources and budget cuts following the aftermath of the Great Recession.  The proposed revenue increases in the 2012 budget are generally reasonable, and closing corporate tax shelters makes particular sense.   

A Lean Budget for 2012:   The proposed locally funded budget is $6.3 billion.  After accounting for new local dollars needed to replace expiring federal Recovery Act funds and $50 million in existing DC employees whose salaries are being shifted from the capital budget to the operating budget, the budget is 1.5 percent higher than in 2011. That is basically an inflation increase.  Yet some areas of the budget would grow faster than inflation — for example, funding would grow $100 million beyond inflation for DC Public Schools and Public Charter Schools alone — which means that other areas of the budget face significant cuts. 

Painful Budget Cuts:  Two of every three dollars of budget cuts proposed by the Mayor would affect housing, health and basic supports for low-income residents.  The budget would, for example, eliminate Interim Disability Assistance, which helps residents with disabilities whose application for federal disability benefits is pending.  Some 37 states offer this aid, because the wait for federal benefits can be up to two years and because all applicants have disabilities that prevent them from working.  Oddly, the Post editorial lauds the elimination of IDA — which helped 2,900 DC residents in 2008 — as reducing “long-term dependency on government support.”  

Mayor Gray’s budget also would cut homeless services next year, even though funding is so tight this year that the city is closing its largest shelter for families with children and turning families away.  Gray’s budget also would cut eviction prevention assistance – some 2,000 fewer families would get help next year than were getting help at the start of the recession. 

For these families, the cuts will mean a world of pain. 

Reasonable Revenue Increases:  Mayor Gray proposed implementing “combined reporting,” a corporate income tax provision that prevents large multi-state corporations from being able to avoid paying taxes in their DC earned profits.  Half of all states with a corporate income tax require combined reporting, and both Dr. Gandhi, DC’s CFO, and Jack Evans, the DC Council Finance Chair, support combined reporting.  The Post editorial board does not, worrying about its effect on DC’s business climate, even though it offers no evidence that combined reporting would hurt it.  The editorial refers to a multi-state corporation-backed study saying DC has a bad business climate, but common sense suggests otherwise. The Washington Business Journal reported earlier this year that the District is the second most popular city in the world this year for real estate investment among foreign investors. 

The Post also seems to oppose Mayor Gray’s proposal to raise income taxes, even though they are relatively modest.  The combined effect of these income tax provisions would mean an average tax increase of $391 for families between $200,000 and $350,000, according to the CFO.  That is less than one-fifth of one percent of income.  

The reality is that the District, overall, is recovering from the recession and that investment in areas such as schools and transportation are making our city a more attractive place to live.  The real challenge facing the District is managing the needs of a growing population and making sure that all residents can recover with DC’s economy and can continue to afford to live here and take advantage of the city’s progress.   Meeting those challenges requires public investments. 

The Washington Post editorial can be found here.

First, the District Dime would like to congratulate Mayor Vincent C. Gray, DC Shadow Representative Mike Panetta, and the six members of the DC Council who got arrested on Capitol Hill yesterday for protesting our city’s lack of budget autonomy. 

As many readers know, the District—unlike any other city or state in the country—cannot spend even its own tax dollars raised through the local income or sales tax without Congressional approval. After the Mayor and DC Council agree to a budget, it is sent to Congress and our tax dollars then need to be allocated through the federal budget appropriations. That makes our city’s budget a political pawn and subject to meddling, as was demonstrated during last week’s last-minute wrangling over the federal budget and a possible government shutdown. 

The compromise on the current year’s federal budget and the deal to keep the government open included two provisions that directly contradicted policies decided upon by our locally-elected leadership. In the end, the federal budget included a provision that prohibits the District from spending LOCAL—not federal—tax dollars on abortion and related healthcare for low-income women, as well as funds a controversial private school voucher program. 

DCFPI supports the efforts of DC Congressional Delegate Eleanor Holmes Norton and others to give the District budget autonomy from the federal government and make officials elected by the District’s residents the ultimate deciders on how the city spends its money. The budget is a statement of our city’s priorities, and it should be decided by leaders from DC—not from the 8^th Congressional district of Ohio.

Happy Monday District Dime Readers, 

Here is an abridged listing of the various budget hearings going on this week as well as a notice on a few bills being having hearings in the Committee on Finance and Revenue.  A full listing of the current budget hearing schedule can be found here. 

Monday, April 11^th  

10:00am: Committee of the Whole.  DC Public Schools budget hearing.

Location: John A. Wilson Building, Room 412.  Meeting notice can be found here. 

Tuesday, April 12^th  

10:00am: Committee on Health.  Department of Mental Health budget hearing.

Location: John A. Wilson Building, Room 123.  Meeting notice can be found here. 

Wednesday, April 13^th  

10:00am: Committee on Finance and Revenue.  Bill 19-0020, “New Issue Bond Program Tax Exemption Act of 2011”; Bill 19-0021, “The Washington Ballet Equitable Real Property Tax Relief Act of 2011”;  Bill 19-0156, “KIPP DC – Shaw Campus Property Tax Exemption Act of 2011”; Bill 19-0163, “Vendor Sales Tax Collection and Remittance Act of 2011”.

Location: John A. Wilson Building, Room 120.   

Thursday, April 14^th  

10:00am: Committee on Health.  Department of Health Care Finance budget hearing.

Location: John A. Wilson Building, Room 412.  Meeting notice can be found here. 

Saturday, April 16^th   

10:00am: Committee of the Whole.  Youth Issues budget hearing.

Location: John A. Wilson Building, Room 500.  Meeting notice can be found here.

As we wrote about yesterday, the Mayor’s proposed budget cuts are deep, painful, and highly concentrated in the human services. Under the proposal, affordable housing development would be ground nearly to a halt, despite DC’s widespread gentrification and rising housing costs. 7,000 vulnerable families with children would see TANF benefits reduced to just $257 a month. The District’s homeless services system – so strained already that the largest shelter for families has stopped accepting new families, even if they have no other place to go – would be cut even further. 

Even harder to imagine is what these cuts would look like in the absence of a few key revenue measures that the Mayor has proposed – including a relatively modest income tax increase on income over $200,000. The new 8.9 percent rate, compared with the current top rate of 8.5 percent, would apply only to income over $200,000. This means that for an individual earning exactly $200,000, the change in income tax is zero.  Income tax for someone earning $300,000 would increase by $400, or one-eighth of one percent of income.  At $500,000, the increase would equal one-fourth of one percent of income. 

 This new tax bracket will help protect District services against even deeper cuts, and it just good, sound tax policy. Here’s why: 

• It would make the District’s tax system more progressive. DC earners making $40,000 currently pay approximately 10 percent of their income in combined property, income, and sales tax. In contrast, those earning above $1.5 million pay just 8 percent. As new high-income earner bracket would make this contrast less stark.  To learn more about who pays, check out this report.
• It would raise much-needed revenue while keeping rates below 2000 levels. DC’s income tax rates have been cut over the past decade, and income tax collections as a share of household income have fallen as well. With the new 8.9 percent rate, high-income households would still pay a lower rate than a decade ago.  
• It would not hurt the local economy. Prominent economists have shown that raising revenue during a recession is better for the local economy than an over-reliance on budget cuts, since cutting services takes money out of the economy. Small tax increases on high-income households, by contrast, are unlikely to affect consumer spending much.
• It would preserve the District’s attractiveness as a place to live and work.  In recent years, the District has made investments in schools, libraries, and neighborhoods – the types of services that attract residents from other jurisdictions and keep them around.  Studies have shown that the concept of “rich flight” – in which wealthy residents flee to surrounding jurisdictions after a tax increase – is a fallacy.  On the contrary: people decide where to settle based on a combination of convenience, lifestyle, and services. The District’s ability to continue attracting and retaining high-income earners rests upon its ability to continue to make smart investments.

Mayor Gray’s proposed FY 2012 budget took an important step forward with a balanced approach that included revenue increases in addition to program cuts recognizing that a cuts-only approach would have undermined the critical investments DC has already made to services that make our city a better place to live.  However, when it came down to the budget cuts, Mayor Gray’s budget was not the least bit balanced. 

Instead, two out of every three dollars cut from the budget were from programs that protect our most vulnerable neighbors and communities.  Mayor Gray’s FY 2012 budget proposes to cut another $130 million from human services and other programs that support low-income residents.  Although human service programs make up 26 percent of the locally funded budget, they accounted for 67 percent of the Mayor’s cuts.  

These severe cuts come in spite of the fact that this area of the budget has been hit hard during the last three years of budget gap closings.  In fact, since FY 2008, human services and other low-income programs have been cut by $340 million.  These cuts come during an especially difficult time for many DC families as the Great Recession has led to large increases in unemployment, child poverty, and the number of homeless families.  

When people lose their jobs and are unable to provide for themselves and their family, it’s not surprising that they turn to the government for help.  Yet at the very same time that families needs have risen, the District has for three years now cuts programs that help get families back on their feet.  Since 2008, budget cuts have fallen heavily on programs that serve many of the Districts most vulnerable residents.  Some of those cuts include: 

• Affordable Housing.  Funding for the Housing Production Trust Fund, DC’s main source for affordable housing construction and rehabilitation, fell dramatically in the recession — from $73 million in FY 2008, to just over $14 million in FY 2011.  The FY 2012 budget proposes to cut $18 million in new revenue from the Trust Fund.  This means that little progress will be made on the many housing projects stuck in DC’s development pipeline. 

The FY 2012 budget also proposes to begin phasing out part of the Local Rent Supplement Program, the tenant-based side, by not issuing new vouchers when a family turns theirs in.  This weakens the strength of DC’s main affordable housing tool for very low-income families, or those making around $30,000 a year for a family of four.   

• Cash Assistance for Vulnerable Families.  Since 2008, the District has cut cash assistance for low-income grandparents caring for their grandchildren, low-income families with children, and residents with disabilities.   

The Grandparent Caregiver program provides cash assistance to low-income grandparents caring for about 700 children.  This assistance helps keep children with relatives and out of foster care.  In FY 2011, the District cut funding for the Grandparent Caregiver program by one third, reducing assistance by over $200 per month per family.  The FY 2012 budget keeps these cuts in place.  

The Temporary Assistance for Needy Families Program (TANF) provides cash assistance and job readiness training to low-income families with children.  In FY 2011 TANF benefits were cut by 20 percent – to $342 (28 percent of the poverty line) – for any family that has received assistance for more than 60 months.  This is despite the fact that it is widely known that TANF employment services are not adequate and that the District does not have the capacity to serve all eligible families.  The FY 2012 budget proposes to cut benefits further for approximately 6,500 families, reducing monthly benefits to just $257 a month.  

The Interim Disability Assistance (IDA) program provides $270 a month to residents with disabilities who have no other income and are applying for federal Supplemental Security Income (SSI).  Cuts in recent years have decreased the number served from 2,900 per month in FY 2008 to a 600 this year.  The FY 2012 budget officially suspends the program, likely meaning that current IDA participants will continue getting benefits until they receive a final SSI decision, but no new residents will be helped.  Over time, the program will end as current participants leave and their IDA slots are permanently closed. 

• Emergency Assistance Programs.  The Emergency Rental Assistance program (ERAP) helps low-income families with children, elderly residents and residents with disabilities stay in their homes.  ERAP provides one-time assistance for overdue rent if a qualified household is facing eviction.  In many cases ERAP allows vulnerable families to avoid becoming homeless and is much more cost-effective and humane than emergency shelter.  The FY 2012 budget would cut this program down to $2.7 million, a nearly 70 percent cut in the program since FY 2009.  This means hundreds of DC families will not have access to available emergency rental assistance. 

In order for the District to truly be “one city rising to the challenge”, as the Mayor’s budget calls for, it is critical that the Council take a balanced approach on the budget cuts in addition to balanced approach towards revenue. At the same time that the recession has increased the needs of DC residents, cutting the very services that keep residents afloat will just end up costing the city more in the long-run.  We’ll have more on the long-term costs of making these cuts on Friday.

Is unemployment in Ward 8 really the highest in the US, as Bloomberg recently reported? Nope. In fact, it isn’t even the highest in D.C. , if we use the most up to date data.

The unemployment rate, a common shorthand for economic health, is one of the ways we know that the Washington region weathered the recession better than most metropolitan areas.  It also shows that some areas of the District and the region are struggling.   Yet the Bloomberg claim that Ward 8 is worse off than the El Centro, Calif. metropolitan area is wrong for two reasons. 

First, the claim suffers from an apples to oranges comparison problem. Comparing one ward, a very small part of our region, to entire metropolitan areas simply doesn’t make sense.  

The second problem is that the official ward-level unemployment rates are calculated using old data. 

Currently, the District calculates these rates thusly:  Every month, the U.S. Bureau of Labor Statistics (BLS) samples D.C. residents and estimates unemployment for the District as a whole.  Then the D.C. Office of Labor Market Research and Information takes the BLS numbers and, using ratios derived from Census 2000, estimates the unemployment rate for each ward.  

Of course, the District has changed in some pretty significant ways over the last decade.  Using outdated ratios obscures the actual distribution of employed and unemployed residents across the District. 

Ward-level unemployment estimates can be made using more recent figures – specifically the  2005-2009 five year averages  from the Census Bureau’s American Community Survey(ACS), the most recent available  (unfortunately, the 2010 census does not cover employment status).  Using more recent data reveals some new insights on unemployment in DC, especially east of the Anacostia River. 

Two points jump out.  First, the unemployment rate in every ward is different from official estimates, particularly in wards 7 and 8.  Second, unemployment is worse in Ward 7 than in Ward 8, a reversal of our previous understanding that Ward 8 has had the highest unemployment in the city.  

The new  estimates of 20.7 percent unemployment in Ward 7 and 18.6 percent unemployment in Ward 8, while lower than previously thought,  show that those two wards are still in crisis, and Mayor Gray was right to highlight the need to work together to make sure all residents experience the revitalization of the District.   

The first step to addressing a problem is to understand the context.  We encourage the city to use this method, or something similar, to take advantage of the availability of new data from the Bureaus of Labor Statistics and the Census Bureau.

Happy Budget Monday District Dime Readers,

Now that Mayor Gray has released his budget proposal for FY2012, budget season has officially begun.  Stay tuned for analyses of what the budget means for DC residents as well as news on a slew of Council budget hearings and advocate budget briefings.

Monday, April 4^th

1:00pm: Committee on Government Operations and the Environment. Bill 19-77 “Pension Protection and Sustainability Act of 2011”.

Location: John A. Wilson Building, Room 500.  Meeting notice can be found here.

Tuesday, April 5^th

10:00am: Committee of the Whole

Location: John A. Wilson Building, Room 500.

11:00am: Seventh Legislative Meeting

Location: John A. Wilson Building, Room 500.

Wednesday, April 6^th

10:00am: Committee of the Whole. Public briefing on the Mayor’s FY2012 Proposed Budget.

Location: John A. Wilson Building, Room 500.  Meeting notice can be found here.

Thursday, April 7^th

10:00am: Committee on Human Services. Department of Youth Rehabilitation Services budget hearing

Location: John A. Wilson Building, Room 500.  Meeting notice can be found here.

10:00am: Committee on Economic Development. Deputy Mayor for Economic Development, DC Small and Local Business Opportunity Commission, and Department of Small and Local Business Development budget hearings

Location: John A. Wilson Building, Room 412.  Meeting notice can be found here.

2:00pm: Committee on Aging and Community Affairs. Budget hearing

Location: John A. Wilson Building, Room 500.  Meeting notice can be found here.

3:30pm-5:30pm: Department of Disability Services budget briefing. Co-hosted by the Arc of the District of Columbia and DCFPI.  RSVP to: advocacy@arcdc.net or 202.636.2963.  RSVP is preferred, but not required.

Location: True Reformer Building, 1200 U St NW.

6:30pm-8:00pm: Briefing on DC Public School Budget. Co-sponsored by the Senior High Alliance of Parents, Principals, and Educators (SHAPPE) and DCFPI.  Guest speaker: Ms. Linda Ruda, Chief of Staff to Acting Chancellor Kaya Henderson.

Location: Roosevelt High School Library, 4301 13^th St NW.

Friday, April 8^th

9:00am-10:30am: Department of Mental Health budget briefing. Hosted by DC Behavioral Health Association.  Seating is limited, so please RSVP to reserve your space.

Location: DC Department of Mental Health, 64 New York Ave NE, 4^th Floor.

10:00am-11:30am: Department of Health Care Finance budget briefing. Hosted by DHCF, DCFPI, and DC Primary Care Association.  Space is limited so please RSVP to reed@dcfpi.org by Wednesday, April 6^th.

Location: DC Department of Health Care Finance, 899 North Capitol St NE, Room 6130.

10:00am: Committee on the Judiciary. Budget hearing

Location: John A. Wilson Building, Room 500.  Meeting notice can be found here.

Mayor Gray took an important step toward a balanced approach to next year’s budget by proposing several sensible revenue raising proposals that help our growing city move forward. Yet the budget the Mayor presented to the DC Council today takes a less balanced approach when it comes to cuts, with a disproportionate amount of money being taken out of programs that help keep families stable and healthy.

We commend Mayor Gray for his revenue-raising proposals, which will help pay for the wide array of services DC provides — from teachers to police officers to housing for homeless families – to support  our dynamic city. Due to the devastating impact of the Great Recession, DC tax collections are hundreds of millions lower than they were only three years ago. Mayor Gray clearly understood a cuts-only approach would have jeopardized the District’s ability to invest in a prosperous future by making further reductions in areas that have already suffered through three years of budget cutting.

While we applaud Mayor Gray for a more balanced approach to revenue, we believe the same balance should apply on the cuts side as well.  Two of every three dollars cut from the budget would affect programs that serve low-income and vulnerable DC residents, even though these programs only make up about one quarter of the budget.  By reducing services that keep families stable – such as mental health services and eviction prevention — these cuts would undermine efforts to improve public education outcomes, reduced crime, and tackle unemployment. The DC Council should work to restore money for these important efforts, including proposals to further increase revenues if necessary.

Revenue

The mayor’s proposed budget includes $135 million in new revenue, including a number of tax proposals that represent sound public policy and mirror measures taken in many other states. The major revenue proposals include closing a large corporate tax shelter, broadening the sales tax to cover additional services, an increase in the off-street parking tax from 12 to 18 percent, and a new tax rate for high-income residents.

The new income tax bracket already has been the subject of much discussion, but it is important to note that it is a modest measure with limited impact on the District’s highest-earning residents — who represent about 5 percent of all DC households.  The new 8.9 percent rate, compared with the current top rate of 8.5 percent, would apply only to income over $200,000. This means that for an individual earning exactly $200,000, the change in income tax is zero.  Income tax for someone earning $300,000 would increase by $400, or one-eighth of one percent of income.  At $500,000, the increase would equal one-fourth of one percent of income.

Budget Cuts

The Mayor’s budget also contains close to $190 million in cuts, most of which would fall on human services and other low-income programs.  Human services programs make up roughly 26 percent of the locally funded budget, yet they account for 67 percent of the cuts, or just over $130 million.  This area of the budget has been hit hard during the last three years as numerous budget gap closings have relied heavily on cuts to these areas.  Some of the programs that have been hit hard in this proposed budget include:

• Homeless services.  Homeless services funding is so strained already that the District will stop taking in new families with children at the DC General shelter starting today (April 1^st),which means that many families with no safe alternative place to go will be turned away. The FY 2012 budget makes even deeper cuts to the already strained homeless services budget.
• Cash assistance for families with children. The Mayor proposed further cuts, $8 million, to nearly 7,000 families with children participating in the Temporary Assistance for Needy Families program (TANF) – those who have received assistance for more than 60 months. The proposed cut would reduce monthly cash assistance – which for most TANF families is expected to cover housing, transportation, clothing, and other basic needs – to just $257 per month for a family of three.  It is not clear how these families, many of whom face low literacy and other barriers to work, will manage to make ends meet.
• Affordable Housing.  The Mayor proposed taking $18 million in new revenue from the Housing Production Trust Fund (HPTF) — DC’s main source for affordable housing construction and renovation. This cut means that no progress will be made in building back up HPTF resources that can help it move forward with the more than $75 million of affordable housing projects stuck in DC’s development pipeline. 
• Health care coverage for low-income DC residents.  The Mayor’s budget proposes to save $12 million in DC’s locally funded health care insurance program by limiting program eligibility and requiring more face-to-face re-certifications.  Not enough details are available at the moment to determine what the impact of those changes will be. 

DCFPI will be working over the next few weeks to issue more detailed analyses of overall changes made in the FY 2012 budget, on both the revenue side and the budget cuts side.  Please check our website, www.dcfpi.org, next week for more details.

Tomorrow, April 1^st, Mayor Gray will release his proposed FY 2012 budget.  Here, District Dime readers, are some important dates and resources to help you get a handle on the upcoming budget season, including a DCFPI-sponsored budget overview presentation on Friday April 8 (more details to follow). 

The Budget Is Released 

Press Conference, Friday April 1:   The Mayor typically holds a press conference to release the budget.  As of “print” time, it had not been announced, but it is likely to be Friday morning.  DCFPI will be there, tweeting the details as they become available. 

Mayor’s Budget Briefings Around Town:  Mayor Gray plans to hold budget forums in each ward of the District.  We will be sure to share the details when they become available. 

Budget Documents:  These will likely be available online on Friday, April 1 or within a few days.  There are two main places to look: 

• The CFO’s website, where you will  find the proposed 2012  budget , as well as budgets for 2011 and prior years   
• The Mayor’s budget website, http://www.budget.dc.gov (note: this site won’t be live until around mid-day on April 1^st) should have links to all of the proposed FY 2012 budget documents, including the “Budget Support Act”, an often overlooked, but critical, budget document.  The budget support act is the legislation that includes all of the statutory changes reflected in the budget, such as changes to the DC public schools per-pupil formula or changes to taxes or fees. We encourage District Dime readers to take a careful look through the budget support act because it often includes major policy initiatives.   

The DC Council Conducts Its Budget Oversight Process & Votes on the FY 2012 Budget 

Council Initial Budget Review Hearing: On April 6^th, the DC Council will kick off the budget oversight process with a hearing in which the Mayor, Chief Financial Officer, City Administrator and Budget Director will be invited to testify and answer questions about the just-submitted budget.  While the hearing does not include public witnesses, it is a good way to learn more details about the FY 2012 budget. 

Committee Budget Hearings: From April 7^th-May 6^th each committee of the DC Council will conduct budget oversight hearings for the DC agencies they oversee.  The public is invited to testify at these hearings, making them a great time to advocate for programs and services you care about.  The detailed schedule of hearings can be found here. 

Council Vote on the Budget: On May 24^th, the DC Council will take the lone vote on the budget, and the first vote on the budget support act.  The second vote on the budget support act is set for June 7^th.  

Resources to help you understand what is in the FY 2012 Budget 

DCFPI Presentation on the FY 2012 Budget and Budget Process:  On Friday April 8^th, DCFPI will hold a presentation to highlight the key issues in the Mayor’s proposed budget and to walk through elements of the Council budget process, featuring speakers from the DC Council staff on budget advocacy tips. Stay tuned for more details.  

DCFPI’s Budget Toolkit:  The FY 2012 toolkit will contain an overview of the FY 2012 budget, detailed budget analyses in key issue areas (such as housing and child care) and a massive budget spreadsheet that tracks funding from FY 2000 – FY 2012 so you can make your own budget comparisons.  Our “first glance at the budget” will be available the week of April 4, with most other analyses available within two weeks.  Check out DCFPI’s website for more details. 

Budget Briefings with DC Government Agencies:  DCFPI and other nonprofits are working with a number of DC agencies to hold briefings on their FY 2012 proposed budget.  These briefings give the public a chance to hear directly from the agency directors and their senior staff about the key changes to their budget for 2012.  Here are the briefings scheduled so far.  We will be sure to let readers know as soon as other dates have been set. 

• Department of Mental Health, hosted by the DC Behavioral Health Association.  Thursday April 7^th, 9:30-11am.  Petworth Public Library (4200 Kansas Ave NW). Seating is limited, so please RSVP to reserve your space.
• Department of Disability Services, co-hosted by the Arc of the District of Columbia and DCFPI.  Thursday April 7^th, 3:30-5:30pm.  True Reformer Building, 1200 U Street, NW.  An RSVP is preferred, but not required.  RSVP to: advocacy@arcdc.net or 202-636-2963.
• Child and Family Services Agency, Monday April 11^th, 4-6pm at CFSA, 400 6th Street, SW, Room 5133
• District Department of the Environment, Thursday, April 14^th,  10:00am-12:00pm at DDOE, 1200 First Street, NE, Conference Room 718. 

As always, feel free to contact any of us at DCFPI with any questions on the DC budget or budget process.

Hungry? Forgot to pack your lunch or a snack today?

Today the District Dime tackles a very delectable topic: food trucks.  Like many in this city, we at DCFPI have become fans of these cafés on wheels — in fact, we could use a few more visits from them to 1^st Street NE! These small businesses are important to the vitality and economic strength of our city.

And that’s precisely why we think that food trucks should start to collect DC’s restaurant sales tax, as would be required under legislation recently introduced by Councilmember Jack Evans (D-Ward 2). Very simply, the bill would make our sales tax more fair and would help ensure that DC’s tax system keeps up with the needs of a growing population.

Right now, mobile food vendors pay a $1,500 payment per year in lieu of sales taxes.  That’s the equivalent of tax on sales of about $60 a day, clearly well below the amount most food trucks sell.  Evans’ bill would take away this fee, and instead, require the vendors to apply the District’s 10 percent sales tax to all prepared food items sold, just as restaurants do.

The sales tax is designed to be a broad, stable tax on consumption. Yet it has become less broad and less stable in the last few decades because our economy has become more serviced- based.  A few examples:  We might go to the dog groomer instead of buying clippers and shearing Fido ourselves. We might hire a housekeeping service instead of purchasing cleaning supplies and washing the floors and windows ourselves.

The sales tax also has not kept up with our eating habits.  Nowadays we are just as likely to check Twitter to find the nearest food truck  — and then go stand in line for a slice of pizza, burrito, or lobster roll  — as we are headed to lunch at a traditional brick-and-mortar eatery.

Under current law, when we make the purchases in these ways we do not pay sales tax to the District. This is problematic for several reasons. Number one, it deprives the District of revenue that helps pay for everything from street repairs that food trucks rely upon to teachers to Supercans to police officers. It also creates a distortion in our tax system by giving a competitive price advantage to businesses where purchases are not taxed.   Why should a sandwich from the lobster roll truck have no sales tax when a sub from, say, Taylor Gourmet, is taxed?

DCFPI has been on record that the District needs to modernize its sales tax to reflect our modern economy. And in dynamic cities like DC, that includes mobile food vendors. Some vendors have expressed concern over Evans’ bill, but it’s important to remember that the bill is simply trying to level the playing field. Revenue from the sales tax helps pay for road maintenance, business licensing and other government services important to all businesses – whether on wheels or not.

“All options should be on the table.”   That’s what Mayor Vincent Gray and Council Chair Kwame Brown said a few months ago about DC’s large budget shortfall.  They meant that both spending cuts and revenue increases should be considered as solutions.  In the last two weeks, however, both Gray and Brown have suggested that the city should not raise either income or property tax rates. 

Yet a budget without notable new revenues is likely to include deep cuts to services that have helped make the District a stronger, growing city, as well as to services that provide basic support for DC’s low-income residents. 

Raising taxes is never politically easy, and recent news of expensive car leases and high-salaried government appointees undoubtedly has fueled the sentiment that there is too much waste in DC government, that city leaders should be focused on eliminating that rather than raising taxes. 

But while these scandals have received a massive amount of attention, their impact on DC’s finances is small.  The real culprit behind DC’s huge budget woes is the recession, which has depressed the city’s income, property, and sales tax collections for three years in a row.  Even with recent news of the start of a rebound, revenues next year will remain hundreds of millions below pre-recession levels. 

That is too large a problem to be fixed by eliminating waste, fraud, and abuse.  Due to budget cuts, DC government agencies have been looking for all kinds of efficiencies, but recent reports show that the cuts have gone well beyond this.  Due to limited resources, DC has a shrinking police force and has run out of Supercans.  New libraries have reduced hours, and new rec centers don’t have enough money to provide recreation programs.  And the District’s largest homeless shelter for families with children will start shutting down as early as this Friday. 

Even more cuts are expected to be announced this Friday, when Mayor Gray submits a budget for 2012 to the DC Council.  For several reasons, an increase in taxes, particularly income taxes, would make sense as part of a balanced approach to the shortfall: 

DC has cut both income and property taxes in past decade.  For someone earning $500,000, the income tax cuts alone amount to more than $5,500 in savings.  

DC is now the low-tax leader in the region. Combined income and property taxes for most families are lower in DC than either suburban Maryland or Virginia.

DC residents have benefited from federal tax cuts:  Just the federal income tax cuts for DC families above $250,000 – recently extended by President Obama and Congress – add up to nearly $260 million! 

An increase in revenues, combined with targeted spending cuts, would be a balanced approach to meet the needs of DC’s growing population and to preserve services for residents still reeling from the recession.  Passing a budget without an increase in income or property taxes may be popular in the short term, but the District would pay for it in the long-term.

Good morning District Dime readers, 

In anticipation of the Mayor’s budget release at the end of the week, it will be a relatively quiet week for the Council.  Be sure to follow us on twitter for budget updates on Friday and beyond! 

On the agenda: 

Monday

State of the District Address by Mayor Gray. Eastern High School, 1700 East Capitol St, NE. Doors at 5:30pm, program starts at 6:45. Invitation here. 

Thursday

2pm: Committee on Workforce Development roundable: The Affordable Continuum of Housing.  Wilson Building, Room 500.

What can DC do to make sure a possible Walmart entry into the District benefits DC? 

Many of you probably know that Walmart, the world’s largest retail chain, has proposed opening in four locations in the District.  Some welcome the stores for the jobs and competitive prices they will bring, but others worry the jobs will have poverty-wages, that this will lead to downward pressure on wages at other retailers, and that the company’s giant market influence may put smaller, local retailers out of business. 

However you may feel about Walmart, there are things the District can do to make sure if Walmart opens stores here the District and its residents will benefit.  First, DC can insist that Walmart pay a living wage to its employees.  A DCFPI report last fall showed that low-wage jobs do little to lift families out of poverty.  In fact, 57 percent of DC’s low-income residents live in working families.  (We define low-income to include residents below 150 percent of the federal poverty line or less than $25,000 for a family of three).  Raising wages for heads of households to $12.00 or $15.00/hour would be enough to lift most of these low-income families out of poverty. 

A bill was recently introduced in the DC Council to help accomplish this: The “Large Retailer Accountability Act of 2011,” introduced by At-Large Councilmember Phil Mendelson, would mandate that all stores larger than 75,000 square feet pay their employees a “living wage”, which the District currently has set at $12.50/hour.  The term “living wage” correctly implies that the District’s actual minimum wage of $8.25/hour is inadequate to support a family in the DC region.  

Another way DC can benefit is for Walmart to negotiate a community benefits agreement with the city and Walmart’s neighbors in the areas where the company wants to locate.  Councilmember Mendelson also introduced a bill to encourage Walmart to do this.  A community benefits agreement can include wage and job targets for DC residents, as well as other contributions Walmart can make to District and its neighbors. 

Councilmember Mendelson’s bills will go a long way towards helping ensure that Walmart’s presence in the District does not have an undue effect on the city’s labor market.  Rather than allowing Walmart to drag wages down, the legislation may ultimately force even more retailers to pay their employees a living wage.