Tax and Revenue Issues In The FY 2009 Budget

| April 7th, 2008 |

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Summary

MAYOR’S BUDGET PROPOSAL

  • The proposed FY 2009 budget included a $15 million reduction in business property taxes and a $5 million expansion of the DC Earned Income Tax Credit.
  • The Mayor’s proposed business property tax cut would have replaced a tax cut adopted in January that had resulted in very large revenue reductions.
  • The proposed budget included $34 million in new fees and anticipated $30 million in revenues from enhanced tax compliance efforts. 

COUNCIL MARK-UP

  • The Council identified $7 million in budget savings that it used to expand the business tax cut.
  • The Council eliminated a proposed increase in the fee on phone bills that funds 911 services

FINAL COUNCIL VOTE

  • The Council adopted a $21 million business tax cut and modified the design of the Mayor’s tax proposal.
  • The Council raised the economic interests tax to help close a last-minute budget shortfall, and it raised cigarette and health insurance taxes to pay for a new health insurance program.

Summary of Tax Issues in the Mayor’s Proposed Budget: Mayor Fenty’s proposed FY 2009 budget included two tax cut provisions — a $15 million cut in business property taxes and a $5 million expansion of DC’s Earned Income Tax Credit for low-income working residents.  It also included a small number of revenue increases totaling about $34 million — including increases in charges for use of city ambulances and in the fee on phone bills that supports the 911 call service.  The budget also included new revenue compliance efforts that are expected to raise revenues by $30 million next year.

Summary of Changes Adopted during Council Mark-ups:  During the week of April 28, each Council Committee marked-up the budgets for agencies under their purview.  During mark-ups, some Council members expressed concern over the structure of the Mayor’s proposed business tax cut and indicated a desire to increase the size of the tax cut, and one committee identified $7 million in expenditure savings that it then devoted to expanding the tax cut.  In addition, one committee eliminated the proposed increase in the 911 fee.

Summary of Changes Adopted during Final Council Vote:  The Council held its final vote on the FY 2009 budget on May 13.  It modified the structure of the commercial property tax cut proposed by the Mayor and set the tax cut at $21 million.  The Council maintained the proposal adopted during mark-up to eliminate the 911 fee increase. In addition, the Council raised the economic interests tax, which is paid when partial ownership of a property is transferred, to match the deed transfer and recordation tax rates, and it adopted several new revenue sources to pay for a new health insurance program for uninsured residents with moderate incomes.

Tax Cuts in the FY 2009 Budget

Tax Cut Proposals in the Mayor’s Budget:  The two proposed tax reductions would reduce revenues by $20 million in FY 2009.

Business Property Tax Reduction

The proposed FY 2009 budget included a business property tax cut that would replace a business tax cut provision adopted in January.  The legislation adopted earlier this year was intended to trigger a cut in the commercial property tax rate — with cuts targeted to some extent on small businesses — under certain conditions.  When this “calculated rate” provision was passed, it was not expected to result in any tax cuts in FY 2009.  Yet based on the CFO’s revenue forecast in February, the new provision triggered a $96 million business property tax cut for FY 2009.

Given the District’s tight budget conditions, implementing this tax cut fully would have thrown DC’s FY 2009 budget out of balance by $96 million — and it could have forced Mayor Fenty to make a number of cuts in the FY 2009 budget. 

The Mayor’s budget proposed to eliminate this tax provision, because it has quickly proven to be unpredictable and to lead to unexpectedly large tax cuts.[i]  Instead, the proposed FY 2009 budget included a $15 million cut in business property taxes, which would more than double an $11 million small business property tax cut adopted by the DC Council in the FY 2008 budget.  The property tax rate for commercial properties worth less than $3 million would fall from the current rate of $1.85 per $100 of assessed value to $1.70.  The tax rate would fall by a lesser amount — to $1.84 per $100 of assessed value — for larger commercial properties.[ii]

Council Mark-Up of the Mayor’s Commercial Tax Cut:   Some Council members expressed concern over the structure of the Mayor’s proposed business tax cut and indicated a desire to increase the size of the tax cut.  The Committee on Public Safety and the Judiciary identified budget savings from a number of agencies under its purview, and the Committee devoted $7 million of those savings to enhance the commercial property tax cut.

Final Council Action on the Commercial Tax Cut:  The final budget adopted by the Council includes a $21 million commercial property tax cut, reflecting the $15 million tax cut proposed by he Mayor and the additional funds devoted to the tax cut by the Council during the mark-up process.   The Council rejected the structure of the Mayor’s commercial property tax cut and instead reduced the tax rate on the first $3 million of assessed value for all commercial properties from $1.85 per $100 of assessed value to $1.65.  In addition, the Council re-instated a trigger mechanism — known as the “calculated rate” — that will automatically trigger a tax cut in FY 2010 and beyond in any year when commercial property tax collections are expected to grow more than 10 percent.

Earned Income Tax Credit

The DC Earned Income Tax credit is a tax benefit for low-income workers in the District, particularly those raising children.  The District and 22 states have state-level EITCs to build on the strength of the federal EITC.  DC’s EITC was first adopted in 2000 and it has been expanded several times.  The Mayor’s proposed budget would expand the DC EITC further, from 35 percent of the federal credit to 40 percent.  This would increase DC EITC benefits city-wide by $5 million, and it would increase the average EITC benefit for the 47,000 households that claim it to nearly $900 per year.  DC’s EITC is the most generous state-level EITC in the nation.

The EITC has proven successful in a number of ways.  The benefits of the EITC highlighted below are explored more fully in a recent analysis by the DC Fiscal Policy Institute.[iii]

  • The EITC Helps Working Families Move out of Poverty:  The federal EITC lifts more children out of poverty than any other social program.  Without the EITC, the child poverty rate nationally would be almost one-fourth higher.[iv]  The EITC also has been shown to support welfare-to-work efforts by helping make work pay better, and many recipients use their EITC refund to improve their social mobility, such as investing in tuition and transportation or setting aside money for savings.
  • The DC EITC Helps Many Working Poor Households:  Some 46,300 DC households received the DC EITC for tax year 2005, or one in six DC households. The EITC helps families throughout the District but receipt is particularly concentrated in some neighborhoods.  For example, 40 percent of EITC recipients live east of the Anacostia River. 

Council Action:  The Council maintained the Mayor’s EITC expansion in the final budget.

 

Revenue Increases in the FY 2009 Budget

Revenue Increases in the Mayor’s Proposed Budget:  Revenue enhancements in the proposed FY 2009 budget totaled roughly $34 million.  The proposed budget also assumed that the city will collect $30 million in additional revenues through enhanced tax compliance efforts.  The revenue increases proposed by the Mayor included the following:

  • Increased Property Tax on Vacant Land:  $8 million.  The budget incorporates legislation adopted earlier this year by the DC Council to double the tax on vacant land, from $5.00 per $100 of assessed value to $10.  This is intended to encourage the development of vacant land and unoccupied derelict properties.

  • Increased Charge for Use of DC Ambulances:  $7.2 million.  Some Council members have raised concerns that this increase may place a burden on lower-income residents who need to use ambulance services.  As noted below, the final budget adopted by the Council modified this proposal.
  • Increased 911 Fee/311 Fee:  $3.8 million.  The Mayor’s budget proposed increasing the monthly fee applied to all phone lines that is used to fund 911 and 311 services.  The fee would increase from 76 cents per month to 99 cents.  In prior years, the DC Council has rejected efforts to increase this fee.  As discussed below, the Council rejected this proposal.
  • Business License Fees:  $4.7 million. The budget would increase the current Basic Business License fee to $200 every two years and would implement a new license fee for general contractors and construction managers.
  • DC Department of Transportation Fees:  $5.7 million.  The budget would establish an “inconvenience fee” charged to private developers who use public space during construction; increase fees for excavation permit and truck permits; and establish a utility marking fee. 

Council Action on Revenue Increases

The Council eliminated one of the Mayor’s proposed revenue increases, and it modified another. The Council also supported one additional tax increase to address a $35 million revenue shortfall a week before the final Council vote, and it adopted other tax increases to support a new health insurance program for uninsured DC residents.

  • Rejection of 911 Fee Increase:  The Committee on Public Safety and the Judiciary voted to eliminate the Mayor’s proposed increase in the 911 fee that is applied to all phone lines in the District.  The Committee found revenue to offset the $3.8 million cost of eliminating this fee through cutting the budgets of various agencies under the committee’s purview.  The full Council approved eliminating this increase when it voted on the final budget.

  • Modification of Ambulance Fee Increase:  The Council modified the budget to require the Mayor to develop a plan to raise these revenues while limiting ambulance fees to no more than insurance reimbursement rates.
  • Increase in Economic Interests Tax:  $9 million.  In 2006, the DC Council increased deed recordation and transfer taxes, taxes paid when a property is bought or sold, primarily with the goal of providing additional support for affordable housing.  At the time, the Council did not alter the economic interests tax, a tax paid when partial ownership of a property is transferred, even though the economic interests tax rate had been matched to the deed tax rate.  The FY 2009 budget raises the economic interests tax to once again match the deed tax rates.
  • Taxes to Support New DC Healthy Families Program:  The FY 2009 budget doubles the cigarette tax, from $1 per pack to $2, and places a new 2 percent tax on health maintenance organizations and on insurance companies.  These revenues will be used to fund the Healthy DC program and extend health insurance to DC residents with incomes up to 400 percent of poverty.

End Notes:

[i] For more information on this tax cut provision, see DCFPI, “Hiding The Costs Of Business Tax Cuts,” January 2008 (http://dcfpi.org/?p=129).

[ii] The Mayor’s budget proposal also includes a goal of reducing these taxes further in FY 2010 and FY 2011, reaching $1.80 per $100 of assessed value for larger properties and $1.40 for smaller properties.  The latter provision would represent a cut of more than 20 percent in the commercial property tax rate for affected businesses.  By 2011, these tax cuts would total an estimated $65 million, $26 million for smaller properties and $39 million for larger properties.  The Mayor’s budget notes, however, that the tax cuts in FY 2010 and 2011 will be implemented only if they will not throw the budgets out of balance in those years.

[iii] “DC’s Earned Income Tax Credit Supports Working Families Across the District,” April 2008 http://dcfpi.org/?p=151).

[iv] Robert Greenstein, “The Earned Income Tax Credit:  Boosting Employment, Aiding Working Families,” 2005, Center on Budget and Policy Priorities, http://www.cbpp.org/7-19-05eic.htm

FY 2008 Budget Toolkit Archive

| April 7th, 2008 |

Toolkit Documents:

The FY2008 toolkit has two main components:

1) The Toolkit contains a summary for the entire budget proposal as well as summaries of some key issues affecting low- and moderate-income families, such as:

  Child Care
  Education
  Employment/Training
  Energy Assistance
  Health Care
  Housing
  Interim Disability Assistance (IDA)
  Temporary Assistance for Needy Families (TANF)

2) Downloadable Excel spreadsheets that show the change in spending by appropriation title and by agency.

DCFPI Budget Testimony:

  Click here to browse DCFPI’s Budget Testimony

Understand the budget and get involved:

  Guide to the FY 2008 DC Budget
  Where Do the Dollars Go? DC’s Largest Agencies

FY 2008 Budget Support Act (PDF)

What’s in the Mayor’s FY 2009 Budget Request?

| April 7th, 2008 |

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On March 21, Mayor Fenty submitted his budget proposal for the FY 2009 budget that starts in October of this year.  The FY 2009 general fund budget request totals $6.4 billion.  The general fund budget includes services supported with local taxes and fees.[i]  It does not include federal funds.

The proposed FY 2009 budget reflects an increase of less than one percent over the FY 2008 budget that was approved last June.  This comparison, however, does not reflect the fact that roughly $200 million in supplemental funding was added to the FY 2008 budget in January 2008, in the middle of the fiscal year.  When compared with this revised FY 2008 budget, the FY 2009 budget actually reflects a one percent decline in spending.  After adjusting for inflation, this is a decline of 3.2 percent from the FY 2008 budget.  (Unless otherwise noted, all figures in this analysis are adjusted for inflation to equal FY 2009 dollars.) 

The tight budget reflects changes in DC’s economic and financial conditions, as the city begins to feel the effects of a national economic slowdown.  Tax collections in FY 2009 will be less than 2 percent higher than in FY 2008, the slowest growth since FY 2002.  It also reflects the fact that the District’s budget rose substantially in FY 2008.  When the FY 2009 budget is compared with FY 2007, the budget has grown at an inflation-adjusted rate of nearly 6 percent per year.

This report reviews the key elements of the Mayor’s proposed budget, including highlights of the major funding changes and proposed revenue increases and decreases.  In addition, this analysis provides special attention to a number of important issues in the budget:

  • Funding for education and affordable housing, which were highlighted by Mayor Fenty in his budget release;
  • A proposal to tap the majority of DC’s $50 million Budget Reserve for expenses that in prior years had received direct appropriations, leaving only a small amount of reserves for unexpected expenses;
  • The lack of transparency in the FY 2009 budget; and
  • The substantial number of earmarked appropriations in the FY 2009 budget.

TABLE 1

Appropriations Title

FY 2007 Actual*

FY 2008 Revised*

FY 2009 Proposed

Change, FY 2008 to FY 2009**

Change,FY 2007 to FY 2009**

Government Direction

$379

$414

$441

0.5%

11.7%

Economic Development

$325

$473

$363

-18.2%

11.7%

Public Safety & Justice

$1,023

$1,066

$1,042

-2.2%

1.1%

Education

$1,309

$1,411

$1,452

-2.5%

5.1%

Human Support

$1,622

$1,647

$1,603

-0.1%

1.4%

Public Works

$457

$612

$613

0.1%

20.0%

Financing

$649

$1,033

$932

-6.5%

41.2%

*in millions; adjusted for inflation to equal FY 2009 dollars.

** Some program functions were transferred from one appropriations title to another, such as child care being transferred from Human Support to Education.  These percentage change calculations take such transfers into account.

This report is part of an online “Budget Toolkit” developed each year by the DC Fiscal Policy Institute.  The Budget Toolkit includes summaries of the proposed budgets for a number of policy issues, such as employment training.  It also includes spreadsheets with funding information on all agencies, and guidance on the DC budget process.  The Toolkit can be found at www.dcfpi.org.

 

Where Would the Budget Grow Under the Mayor’s Proposal?

The District’s budget includes more than 80 operating agencies, with budgets ranging from under $100,000 to more than $600 million in local funds. The budget is divided into seven major functional categories, known as “appropriation titles.” Table 1 shows that the budgets for health and human services (“human support services”), public education, and public safety total more than $1 billion each, and financial services just under $ 1 billion, for FY 2009. These are the largest portions of the DC budget.

As shown in Table 1, the proposed FY 2009 budget reflects declines or only modest increases in each program area.  Because the DC budget expanded notably in FY 2008, it is instructive to look at budget trends over the past two years.  This review shows significant variation in the growth of the different parts of the DC budget.

  • Since FY 2007, the budget for public works has grown 20 percent annually — faster than any program area other than Financing.  Public works includes the departments of Public Works, Motor Vehicles, and Transportation, as well as the city’s payment to the Metro system.  The increase reflects large growth in transportation funding but also in most other agencies in this appropriations title, as well as the creation in 2007 of a new Department of the Environment.[ii]   (A more detailed description of funding changes in each appropriations title is included in an appendix to this report.)
  • The proposed FY 2009 budget for Government Direction and Support agencies reflects 12 percent growth since FY 2007 after adjusting for inflation.  The major funding increases are in the Office of the Chief Financial Officer, the Office of the Attorney General, the Technology Office, and the DC Council.
  • Funding for economic development and regulation also represents growth of 12 percent  between FY 2007 and the proposed FY 2009 budget.  The largest increases in this area are in the District’s employment services department and in local funding support for the DC Housing Authority.
  • The proposed FY 2009 budget for public education programs — including DC Public Schools, Public Charter Schools, libraries, and the University of the District of Columbia — represents 5 percent growth since FY 2007 after adjusting for inflation.  The public safety and Human Support Services budgets have grown about one percent since FY 2007.
  • Proposed FY 2009 funding for Financing and Other functions represents growth of 41 percent since FY 2007.  This reflects increases in payments on the District’s debt issued for capital construction projects, increased costs of equipment leased by the District, and payments to cover health care costs for DC government retirees. This appropriations title comprises a wide variety of agencies and functions.  As a result, the funding changes in this area vary greatly from year to year and are affected by a variety of factors.

Longer-Term Budget Trends

It is worthwhile to place these annual funding changes in a broader, more long-term context.  A comparison of the proposed FY 2009 budget with expenditures in FY 2000 shows the following trends.

  • The proposed 2009 budget for economic development and regulation programs represents average growth of 13 percent per year since 2000, after adjusting for inflation.  This stems largely from the substantial increase in local funding for affordable housing that has been adopted in recent years.  In 2000, there was almost no local funding for this purpose.
  • Funding for public works and government direction have grown at roughly five percent per year between 2000 and the proposed 2009 budget.
  • Public Education funding in the FY 2009 budget reflects average annual increases of roughly 4 percent since 2000, which is somewhat below the average for all program areas.
  • Human Support Services expenditures have grown most slowly since 2000, with an average annual increase of 3.5 percent after adjusting for inflation.

 

Some Issues to Track in the FY 2008 Budget

Mayor Fenty’s proposed FY 2009 budget highlights new investments in public education and affordable housing.  These are described in more detail below.  In addition to these issues, some observers have raised concerns over various aspects of the proposed budget: that it would for the first time rely on the city’s budget reserve to support certain functions; that the budget documents lack transparency, making it difficult to understand proposed funding changes and their impacts; and that the budget includes a substantial number of earmarked appropriations to non-government organizations.  These also are discussed below.

DC Public Schools

The FY 2009 proposed education budget reflects many of the structural changes the Mayor and Chancellor are pursuing as part of their school reform efforts.  These structural changes include the transfer of special education functions to the Office of the State Superintendent of Education (OSSE) and the transfer of facilities maintenance responsibilities to the Office of Public Education Facilities Modernization (OPEFM).

Concerns already have been raised about the transparency and clarity of the Mayor’s proposed FY 2009 budget and the education budget is no exception.  While the Mayor announced at his budget briefing that funding for local schools would increase by $39 million (from $493 million in FY 2008 to $532 million in FY 2009), this increase is not apparent in the budget.  In addition, many of the major education policy initiatives developed in recent months cannot be found in the budget.  There is no line item for projected savings from school consolidation or for increases in art, music, and physical education teachers promised as part of the Chancellor’s enhanced staffing model.      

Another concern is the transfer of funding dedicated to school construction and renovation to OPEFM for use in facilities maintenance.  The transfer of revenue from the Pay-Go capital fund to the new School Maintenance Trust Fund means that there will be $34.5 million less available for school construction and renovation. 

Affordable Housing

The proposed budget for affordable housing in FY 2009 is $146 million, from a variety of sources.[iii]  The FY 2009 housing budget includes several new initiatives, including $19 million for a “housing first” program for homeless residents.  The proposed FY 2009 budget also includes $10 million to finance 37 to72 units of affordable housing through the Land Acquisition for Housing Development Opportunities Program, as well as $1.5 million to provide 96 units of housing for victims of domestic violence and $4 million to provide social services to residents of New Communities projects.

At the same time, funds devoted to the city’s Housing Production Trust Fund are declining precipitously because of falling collections in DC’s deed taxes that are the source of the Trust Fund’s funding.  Total funding for HPTF will be $32 million in FY 2009, far less than the $59 million funding level in FY 2007.  Funding for other major housing programs — including the Local Rent Supplement program and programs under the Department of Housing and Community Development, would remain at FY 2008 levels.

As a result of these conflicting trends, total funding for housing in FY 2009 is slightly lower than in 2008.  (This partly reflects the fact that roughly $40 million in supplemental housing funding was added after the 2008 budget was approved.) At the same time, housing funding is higher than in 2007 and far higher than in 2006.  This is an indication that the District is making some progress toward meeting the goals of the Comprehensive Housing Strategy Task Force, whose report and recommendations were released that year.

Use of the Budget Reserve

Each year, the DC budget includes a $50 million reserve that is intended to address unexpected budget needs, such as increased enrollment in a benefit program, or an increase in the costs of providing certain services.  The reserve, which has been called the “Cash Reserve” in prior years, is described as a “Budget Reserve” this year.

The proposed FY 2009 budget includes proposals that would use the Budget Reserve to pay for legal costs that have in the past been funded through their own appropriations.  While the exact level of these legal costs is unknown, they are expected to total roughly $30 million.  This means that the proposed FY 2009 budget effectively utilizes more than half of the budget reserve, leaving only a small amount for unexpected expenses.

  • Settlements and Judgments:  In recent years, the District has spent between $20 million and $25 million to cover these expenses. The “baseline budget” developed by the CFO recommended budgeting $21.5 million for these expenses in FY 2009.  Yet the proposed budget includes no funds set aside specifically for settlements and judgments and instead indicates that these will be paid using the Budget Reserve.
  • Special Education Attorney’s Fees:  The budget assumes that the District will spend $8 million in FY 2009 to cover the fees of attorneys representing DC residents in special education cases.  Again, instead of appropriating funds for this purpose, the budget proposal assumes these costs will be supported by the Budget Reserve.

If the costs for these services match these estimates, then the District will have only $20 million in reserves for unexpected expenses.

Lack of Budget Transparency

The District’s budget has been dogged for years by a lack of budget transparency, in numerous ways.  Many of the programs as understood by DC residents are part of larger budget categories and therefore do not show up as separate “line items” in the budget. For example, the Summer Youth Employment Program does not have its own line but is instead part of a larger “Youth Programs” line.  This makes it hard to know if specific programs are getting more, less or the same amount of money over time.

In addition, the budget documents often have very limited and vague narrative descriptions of an agency’s programs and services, which makes it difficult to understand what functions are provided under various line items in the budget.  Finally, the budget often lacks meaningful output and performance measures.  In the case of the Summer Youth Employment Program, the budget does not even include information on the number of youth participants over time.

The FY 2009 budget format includes several changes that reflect an attempt to provide more budget detail, including new tables that highlight “cost savings” and “policy initiatives, as well as a new set of “key performance indicators” for every agency. Yet in important ways, these changes have not resulted in greater transparency.

  • The new “policy initiatives” tables do not tie highlighted funding increases to specific line items in an agency’s budget, and the budget document provides no narrative to describe initiatives in detail.
  • The key performance indicators remain inadequate in many cases.  In the Department of Human Services, for example, one performance measure sets a goal of having 20 percent of “single adults receiving homeless services enrolled in centralized Case management services obtain improved housing.”  This measure is not clear and suffers from not providing information on the total number of single homeless adults and the number receiving case management services.

Earmarks

The proposed FY 2009 budget includes a substantial number of “earmarks” — appropriations for specific organizations that are made without competition and are not tied to any specific DC program.  A DCFPI analysis of the budget identifies roughly $40 million in earmarked funds.  (A list of earmarks is posted on the “Budget Toolkit” section of www.dcfpi.org.)  One of the largest earmarks is a $10 million appropriation for Ford’s Theater, but there are many others as well, such as $2 million to THEARC, $1 million to the Washington Ballet, and $150,000 to Cool Capital Challenge.  While in many cases the earmarks serve purposes that generally would be considered worthwhile, earmarking funds in this way raises concerns because it is not a transparent and competitive way to allocate public resources.

 

Revenue Issues in the FY 2009 Budget

Mayor Fenty’s proposed FY 2009 budget includes two tax cut provisions —  a cut in business property taxes and an expansion of DC’s Earned Income Tax Credit for low-income working residents.  It also includes a small number of revenue increases — such as an increase in charges for use of city ambulances and an increase in the fee attached to phone bills that supports the 911 call service.  The budget also includes new revenue compliance efforts that are expected to raise revenues next year.

Tax Cuts in the FY 2009 Budget

The two proposed tax reductions would reduce revenues by $20 million in FY 2009 and potentially by larger amounts in future years.

Business Property Tax Reduction:  The proposed FY 2009 budget includes a business property tax cut that would replace another business tax cut provision adopted in January.  The legislation adopted earlier this year was intended to trigger a cut in the commercial property tax rate — with cuts targeted to some extent on small businesses — when certain conditions are met.  When this “calculated rate” provision was passed, it was not expected to result in any tax cuts in FY 2009 or in the near future.  Yet based on the CFO’s revenue forecast in February, the new provision triggered a $96 million business property tax cut for FY 2009.

Given the District’s tight budget conditions, implementing this tax cut fully would have thrown DC’s FY2009 budget out of balance by $96 million — and it could have force Mayor Fenty to make a number of cuts in the FY 2009 budget. 

In response, the Mayor’s budget proposes to eliminate this tax provision, because it has quickly proven to be unpredictable and to lead to unexpectedly large tax cuts.[iv]  Instead, the proposed FY 2009 budget includes a $15 million cut in business property taxes, which would more than double an $11 million small business property tax cut adopted by the DC Council in the FY 2008 budget.  The property tax rate for commercial properties worth less than $3 million would fall from the current rate of $1.85 per $100 of assessed value to $1.70.  The tax rate would fall by a lesser amount — to $1.84 per $100 of assessed value — for larger commercial properties.  Because larger properties represent such a large share of DC’s business property tax base, however, the modest tax cut for larger business would cost $7 million, or nearly as much as the $8 million cost for the rate cut for smaller properties.

The Mayor’s budget proposal also includes a goal of reducing these taxes further in FY 2010 and FY 2011, reaching $1.80 per $100 of assessed value for larger properties and $1.40 for smaller properties.  The latter provision would represent a cut of more than 20 percent in the commercial property tax rate for affected businesses.  By 2011, these tax cuts would total an estimated $65 million, $26 million for smaller properties and $39 million for larger properties.  The Mayor’s budget notes, however, that the tax cuts in FY 2010 and 2011 will be implemented only if they will not throw the budgets our of balance in those years.

It is worth noting that the DC Council has struggled over the past year to find a way to reduce business property taxes in a way that targets smaller businesses.[v]  The tax cuts in the Mayor’s proposed FY 2009 budget also far short of the goal of targeting small businesses, in two key ways.  First, the proposed budget would cut taxes for large as well as small properties, with roughly the same amount of tax relief to both groups. Second, the proposed tax cut would have little impact on small businesses if they that are tenants in larger buildings.  These small businesses would likely see tax cuts of less than three percent, even if all of the proposed tax cuts are implemented.

Earned Income Tax Credit:  The DC Earned Income Tax credit is a tax benefit for low-income workers in the District, particularly those raising children.  The District and 22 states have state-level EITCs to build on the strength of the federal EITC. DC’s EITC was first adopted in 2000 and it has been expanded several times.  The Mayor’s proposed budget would expand the DC EITC further, from 35 percent of the federal credit to 40 percent.  This would increase DC EITC benefits city-wide by $5 million, and it would increase the average EITC benefit for the 47,000 households that claim it to nearly $900 per year.  DC’s EITC is the most generous state-level EITC in the nation.

The EITC has proven successful in a number of ways.  The benefits of the EITC highlighted below are explored more fully in a recent analysis by the DC Fiscal Policy Institute.

  • The EITC helps working families move out of poverty.  The federal EITC lifts more children out of poverty than any other social program.  Without the EITC, the child poverty rate nationally would be almost one-fourth higher.[1]  The EITC also has been shown to support welfare-to-work efforts by helping make work pay better, and many recipients use their EITC refund to improve their social mobility, such as investing in tuition and transportation or setting aside money for savings.
  • The DC EITC Helps Many Working Poor Households:  Some 46,300 DC households received the DC EITC for tax year 2005, or one in six DC households. The EITC helps families throughout the District but receipt is particularly concentrated in some neighborhoods.  For example, 40 percent of EITC recipients live east of the River.

Revenue Increases in the FY 2009 Budget

The revenue enhancements in the FY 2009 budget total roughly $34 million.  The budget also assumes that the city will collect $30 million in additional revenues through enhanced tax compliance efforts. The revenue increases include the following:

  • Increased property tax on vacant land:  $8 million.  The budget incorporates legislation adopted earlier this year by the DC Council to double the tax on vacant land, from $5.00 per $100 of assessed value to $10.  This is intended to encourage the development of vacant land and unoccupied derelict properties.
  • Increased charge for use of DC ambulances: $7.2 million.  Some Council members have raised concerns that this increase may place a burden on lower-income residents who need to use ambulance services.
  • Increased 911 fee/311 fee: $3.8 million.  The budget would increase the monthly fee applied to all phones lines that is used to fund 911 and 311 services.  The fee would increase from 76 cents per month to 99 cents.  In prior years, the DC Council has rejected efforts to increase this fee.
  • Business License fees: $4.7 million. The budget would increase the current Basic Business license fee to $200 every two years and would implement a new license fee for general contractors and construction managers.
  • DC Department of Transportation fees: $5.7 million.  The budget would establish an "inconvenience fee" charged to private developers who use public space during construction; increase fees for excavation permit and truck permits; and establish a utility marking fee. 

APPENDIX
Summary of FY 2009 Funding Changes by Appropriations Title

Government Direction and Support: The proposed FY 2009 budget for Government Direction and Support agencies is $441 million.  This appropriation title includes funding for the DC Council, the office of the Mayor, and the City Administrator, as well as the Attorney General and Chief Financial Officer’s Office.

The proposed FY 2009 budget represents an increase of less than one percent over FY 2008, after adjusting for inflation and transfers of funding responsibilities between appropriations titles that would occur under the Mayor’s proposal [vi].  The growth is 12 percent when compared with FY 2007 expenditures. The major funding increases are in the Office of the Chief Financial Officer, the Office of the Attorney General, the Technology Office, and the DC Council.

Economic Development and Regulation: The proposed budget for Economic Development and Regulation is $363 million for FY 2009.  This appropriations title includes the  Consumer and Regulatory Affairs, Housing and Community Development, Employment Services and the Deputy Mayor for Planning and Economic Development, among others.  The proposed budget represents an 18 percent decline from FY 2008 after adjusting for inflation, the largest decline of any appropriations title.  This seemingly drastic decrease follows a substantial increase in funding in FY 2008.   When compared with FY 2007, the FY 2009 budget represents an inflation adjusted increase of nearly 6 percent per year  

Most of the rise and fall in the funding in the Economic Development Appropriations title occurred in the budget for the Office of the Deputy Mayor for Planning and Economic Development (ODMPED) which received large boosts in funding in FY’s 2007 and 2008.  The ODMPED budget jumped from $71 million in FY 2007 to $147 million in FY 2008 and back to $61 million for FY 2009.  Moreover, some of that decrease from FY 2007 to FY 2009 is a reflection that one-time earmarked grant funds, which had been included in the ODMPED in FY 2007, are now listed in the budget of the Chief Financial Officer’s office (under the Government Direction and Support appropriation).  In addition, funds under the Comprehensive Housing Strategy are transferred in the proposed FY 2009 budget from ODMPED to other agencies outside of this appropriations title.

The remainder of the budgets under Economic Development and Regulation widely vary in their increases and decreases.  Notable differences include the Office of the Tenant Advocate, whose budget had the largest percentage increase, of 32 percent— a result of an increase in condo conversion fees; and the Housing Production Trust Fund’s, whose budget had the largest percentage decrease, 62 percent,  due to a slowdown in the housing market and the deed recordation and transfer taxes.  The Office of Small and Local Business Development has also experienced a huge swing in its budget.  For FY 2008 the budget was $6.2 million, an over 200 percent increase from $2 million in FY 2007.  For FY 2009 the budget is at $3.3 million, a 46 percent drop from FY 2008 but still higher than FY 2007.  Much of the decrease is the lack of $1.95 million in intra-district funds the OSLBD received in FY 2008 for the Main Streets and reSTORE DC programs. 

Public Safety & Justice:  The proposed FY 2009 for public safety functions is $1.04 billion, and includes the Metropolitan Police Department, Fire and Emergency Services, and the Department of Corrections, among others.  Proposed FY 2009 expenditures on public safety are 2.2 percent lower than in FY2008, after adjusting for inflation, largely as a result of projected savings in fixed costs such as rent.  For example, the budget assumes $11 million in cost savings as a result of moving the Violent Crimes Branch and First District Headquarters to Bowen Elementary School, after the school is closed.  The FY 2009 proposed budget expands the police force by 100 officers, provides $3.6 million to implement emergency medical service reforms, increases the District’s smoke detector program, and expands a pilot program in the Department of Corrections to provide HIV/AIDS testing for all inmates. 

The FY 2009 proposed public safety budget is 1.1 percent higher than in FY 2007, after adjusting for inflation.  This reflects an increase in the number of sworn police officers increase and large expansion of the city’s Unified Call Center.  These budget increases are offset by a $29 million reduction in required contributions to the police and firefighter retirement system.  Without this decline, the FY 2009 budget would be 4 percent higher than FY 2007 expenditures. 

Public Education:  Local funding for education functions — including K-12 schools, libraries, and the University of the District of Columbia — totals $1.45 billion under the proposed FY 2009 budget.  This is 2.5 percent lower than the revised FY 2008 budget, after adjusting for inflation and for transfers of some funding responsibilities to education-related agencies.[vii]  This includes a substantial increase in funding for DC Public Charter schools due to rising enrollment and a reduction in funding for DC Public Schools due to enrollment declines. For both sets of schools, the per-pupil funding level would increase by five percent in 2009.  In addition, the budget includes the transfer of special education functions to the Office of the State Superintendent of Education and the creation of a Schools Maintenance Trust Fund in the Office of Public Education Facilities Modernization.  The budget also changes the formula for determining the facilities allowance for charter schools that reflects the attempt to better align the facilities allotment with charter schools’ actual enrollment.   

The proposed FY 2009 education funding level is 5.1 percent higher than the FY 2007 level, after adjusting for inflation.  This is lower than growth in the overall budget and in most other programmatic areas.

Human Support Services:  The FY 2009 general fund budget for Human Support Services is $1.6 billion, making it the largest area of the budget.  This appropriations title includes departments of Human Services, Health, Mental Health, Child and Family Services, Disability Services, and Youth Rehabilitation Services, among others.

The proposed FY 2009 budget for Human Support Services is basically the same as the FY 2008 budget, after adjusting for inflation and for the transfer of child care responsibilities to the Education appropriations title.  The FY 2009 budget reflects the creation of a new Department of Health Care Finance, to administer the Medicaid and HealthCare Alliance programs that previously had been administered under the Department of Health.  The budget includes modest increases for cash assistance benefits for poor families with children ($1.3 million) (which is discussed more below) and to raise Health Care Alliance reimbursement rates for primary care ($2.5 million).  The proposed budget would also provide funding increases for mental health services for children in child welfare ($2.5 million), and to move disabled residents into permanent housing ($5 million).

The proposed FY 2009 Human Support Services budget is 1.4 percent higher than the FY 2007 expenditures in this area, the slowest growing area of the budget other than Public Safety.

Public Works:  The proposed FY 2009 budget for Public Works is $613 million, barely unchanged from the previous year after adjusting for inflation.  The FY 2009 budgets for most of the agencies remained somewhat level with the FY 2008 budget levels, including the Department of Public Works, the Department of Transportation, and the Department of Motor Vehicles.  Budgets for the District Department of the Environment (DDOE) and the District’s contribution to the metro system would increase 9 percent and 7 percent, respectively.  (Although the DDOE budget was increased, local funding for low-income energy assistance would decline.)  

At the same time, the proposed FY 2009 public works budget represents 10 percent annual growth since FY 2007, the largest percentage increase among major program areas other than Financing. This reflects notable growth in the budgets for many agencies in this group, including the Department of Transportation, the Department of Public works, the Department of the Environment, and the District’s contribution for the Metro system.[viii]

Financing and Other: This appropriations title includes payments on the District’s debt for capital construction projects, funding for capital construction projects that are funded with operating dollars (as opposed to bond financed), funding for negotiated pay increases with unionized workers, the city’s budget reserve, and others.

The proposed FY 2009 budget for Financing and Other is $932 million and represents a 7 percent decrease from the FY 2008 budget, after adjusting for inflation and for transfers of some functions from this area of the budget to others.  Some of the savings include $9 million by ending the practice of short-term borrowing to cover periods of cash flow problems, a $27 million reduction in the contribution needed to cover health benefits for DC government retirees.

Some of the costs saving measures raise concerns.  For example, the proposed budget sets aside no funds for costs related to legal settlements and judgments, which have averaged roughly $20 million per year.  Instead, the budget indicates that these payments will come from the District’s $50 million budget reserve, which is set aside each year for unexpected contingencies.  The Mayor’s budget proposal also would use the reserve to pay for legal fees to attorneys representing students seeking special education services. These actions effectively eliminate the majority of the reserve, which means that the District would have a limited ability to respond to unforeseen funding needs.

While funding for financing and related functions would fall in FY 2009, it has grown substantially in recent years.  The proposed budget for Financing and Other functions is 41 percent higher in FY 2009 than in FY 2007, after adjusting for inflation, making it the fastest growing part of the budget.  Much of the increase comes from increased principal and interest payments for the District’s general obligation bonds, which are issued to support capital construction projects.  Bond repayments are growing because the District has issued more bonds in recent years.  The increase also reflects higher payments for health benefits for DC government retirees, among other factors.


End Notes:

[1] Robert Greenstein, “The Earned Income Tax Credit: Boosting Employment, Aiding Working Families,” 2005, Center on Budget and Policy Priorities, http://www.cbpp.org/7-19-05eic.htm.

[i] The general fund budget includes the “local funds budget” – programs supported by the general pool of taxes and fees collected by the District —  as well as services supported by "special purpose" revenues or "dedicated taxes" —  services in which funding is tied to specific dedicated sources.  The latter includes the Housing Production Trust Fund, where funding is tied to 15 percent of deed tax collections.

[ii] These comparisons include a number adjustment to reflect technical changes and transfers of funding responsibilities from one part of the budget to another.  For example, some $65 million was added to the Transportation budget in FY 2008, as funds were transferred from DDOT’s capital budget to  its operating budget.  Because this did not reflect an actual increase in funding, this transfer is factored out of these comparisons.

[iii] Mayor Fenty also has proposed offering some DC-owned land for the development of affordable housing.  When the value of that land is considered, total funding for affordable housing in FY 2009 will be higher than indicated in this analysis.  The list of properties that will be contributed has not yet been released.

[iv] For more information on this tax cut provision, see DCFPI, “Hiding The Costs Of Business Tax Cuts,” January 2008 (http://dcfpi.org/?p=129)

[v] The proposal adopted by the DC Council in January targeted personal property taxes for businesses —  taxes on business equipment, largely because the Council could not find an easy way to target a cut in real property taxes —  the taxes on buildings —  on smaller businesses.

[vi]  Some $24.6 million in “District-wide assistance” is reflected in the budget of the District Chief Financial Officer.  These funds are “earmarks” — appropriation s for specific organizations that are made without competition and are not tied to a specific DC program.

[vii] In FY 2009, administration of child care services was transferred from the Department of Human Services to the Office of the State Superintendent of Education.  In addition, some $35 million of school modernization.

[viii] This increase does not reflect a $68 million in transportation funds that were held in special accounts in 2007 but would be transferred to the general fund budget of the Department of transportation under the proposed 2008 budget.

About the DC Budget

| June 14th, 2007 |

The District of Columbia’s budget is a plan for how the District government will spend money in the coming year. It is the clearest statement of the District government’s priorities, expressing the vision and policies of the Mayor and Council.

The budget also identifies the sources of revenue used to support this spending, both the amounts raised by the District itself and the amounts received from the federal government. Local revenue sources include income, excise, and property taxes, licensure fees, parking tickets, and usage fees. Federal dollars come to the city in a number of forms, including block grants (such as the Temporary Assistance for Needy Families program) and federal matching funds to supplement DC spending (such as Medicaid).

The District has two types of budgets: an operating budget and a capital budget. The operating budget lists spending to deliver services in the upcoming fiscal year, such as teacher salaries. The capital budget lists spending to build infrastructure (such as new schools) or purchase major equipment. This Toolkit covers only local funds in the operating budget.

  Download the Fair Budget Coalition’s Citizen’s Guide to the DC Budget to learn more.

 

The DC Budget Process

Development of the District’s budget begins in late summer or early fall, when the Office of Budget and Planning (OBP) provides agencies with guidelines for submitting their budgets for the next fiscal year. Agencies develop their budgets throughout the fall, often communicating with individuals and organizations in the community as they do so. Agencies ask for funds that are sufficient to maintain their current level of services and, in many cases, to provide new or expanded services as well.

OBP then "scrubs" the agencies’ requests, eliminating redundancies and verifying costs. In February, OBP releases the baseline budget, which reflects the agencies’ requests and OBP’s scrub.

While the baseline budget is being developed, the District Council is considering its priorities for the budget. The Council holds oversight hearings for each agency, usually in February (before the mayor’s budget request is released). These hearings review the agency’s performance over the past fiscal year and help the Council identify budget priorities. The public is invited to testify at these hearings and provide input for Council priorities for the new budget.

From February to March, the mayor prepares the budget request based on the baseline budget received from OBP. The mayor makes adjustments to agencies’ budgets to reflect management changes. If the baseline budget calls for more total spending than the District projects it will receive in revenue, the mayor has to make cuts. If the baseline budget calls for less total spending than the District projects it will receive in revenue, the mayor has the chance to invest in more goods and services for residents or to cut taxes. The mayor’s office communicates with residents as it prepares the budget request.

After the mayor releases the budget request, the Council holds a series of hearings (from March until May) to "mark up" the mayor’s budget. The first set of hearings review the budget request and allow agencies to present their funding requests to the Council; the public is also invited to testify. During the second set of hearings, the Council modifies the mayor’s budget request. Each Council committee marks up the budgets of the agencies under its purview. If there are no surplus funds to claim, the committee can provide extra funding to particular agencies only by taking funds away from other agencies under its control. The public may only observe these hearings.

Following the mark-ups, the Council votes on the budget in May. After the mayor and the Council agree on it, the final budget is submitted to Congress for approval. The District’s fiscal year begins October 1. After the fiscal year begins, a revised budget is released that reflects any changes in the spending plan since the final budget was approved.

  Download DC Action for Children’s District Budget Process — Step by Step for more detail.

 

Guide to Budget Advocacy

  • Get a budget. A limited number of paper copies of the budget are available.  While the baseline budget generally is available to the public only in hard-copy form, the mayor’s budget request and the final budget are available electronically one or two weeks after their release.  Paper copies, when available, must be obtained from the District’s Office of Budget and Planning.

      Visit http://cfo.dc.gov to download copies.
      Call 202-727-6234 for a paper copy.

  • Attend a hearing. Public oversight hearings of DC government agencies occur from February to March. Public hearings on the mayor’s budget request take place in April. The Council’s mark-up of the budget takes place the last week in April. The Council considers all of the mark-ups in a final hearing in May.

    Check the Council calendar before attending any hearing, as the schedule may change. All hearings are open to the public, though only some offer opportunities for the public to provide testimony.

      Visit http://www.dccouncil.washington.dc.us for a full schedule of hearings.

  • Testify at a hearing. The public is invited to testify at public oversight hearings and at public hearings on the mayor’s budget request. In order to testify at a hearing, participants must sign up in advance. It is preferred that you provide copies of your testimony for each member of the Committee holding the hearing; if you cannot make your own copies, Committee staff will make copies for you if you provide your statement a day ahead of time.

    Contact committee staff to sign up for hearings. The full schedule of hearings contains the necessary contact information.

      For tips on preparing and delivering testimony, download DC Action for Children’s Tips for Preparing and Delivering Testimony.

What’s in the Mayor’s FY 2008 Budget Request?

| June 13th, 2007 |

On March 23, Mayor Fenty submitted his first budget proposal, for the FY 2008 budget that starts in October of this year.  The FY 2008 general fund budget request totals $6.2 billion.  This reflects a 6.3 percent increase over the revised FY 2007 budget, after adjusting for inflation.[i]  (All figures in this analysis are adjusted for inflation to equal FY 2008 dollars unless otherwise noted.)  Mayor Fenty also proposed an additional $56 million in expenditures that would be implemented if a future revenue estimate shows enough new revenue to cover the services.

Where Would the Budget Grow Under the Mayor’s Proposal?

TABLE 1

Appropriation Title FY 2007 Revised FY 2008 Proposed Change, FY 2007 to FY 2008
Government Direction $398.8 $379.7 -4.7%
Economic Development $368.3 $384.0 4.3%
Public Safety & Justice $971.9 $1,040.2 7.0%
Public Education $1,264.0 $1,276.2 1.0%
Human Support Services $1,518.0 $1,579.1 4.0%
Public Works $426.9 $491.2 15.1%
Public Financing $726.5 $970.8 33.6%
*in millions; adjusted for inflation to equal FY 2008 dollars.

The District’s budget is divided into seven major functional categories, known as “appropriation titles.” The table shows that the budgets for health and human services (“human support services”), public education, public safety, and financing functions total more than $1 billion in 2008 each. These are the largest portions of the DC budget.

As shown in Table 1, the proposed 2008 budget reflects increases across a number of program areas.  In most cases, the increases were needed to maintain services provided in 2007 (so called "baseline" funding needs).

Financing and Other: Funding for these services would grow by more than one-third under the FY 2008 proposed budget, but much of the increase comes from one-time expenses — such as a payment for health benefits for DC government retirees that is required by a change in accounting rules. Without these changes, the financing budget for 2008 is about five percent higher than the 2007 budget after adjusting for inflation.  This largely reflects an increase in repayments for the District’s general obligation bonds, which are issued to support capital construction projects.  Bond repayments are growing because the District has issued more bonds in recent years.

Public Works:  This area of the budget would receive the largest percentage increase in funding, with a proposed FY 2008 budget that is 15 percent higher than the 2007 budget after adjusting for inflation.  This reflects notable growth in the budgets for many agencies in this group, including the Department of Transportation, the Department of Public works, the Department of the Environment, and the District’s contribution for the Metro system.[ii]

Public Safety & Justice:  Expenditures on public safety are proposed to be 7.0 percent higher in 2008 than in 2007, after adjusting for inflation, largely as a result of a substantial increase in the number of sworn police officers.  This force expansion was adopted in 2007 but will not be fully implemented until 2008.  It also reflects a substantial increase in the budget for the city’s Unified Call Center and the Department of Corrections.

Human Support Services:  The inflation-adjusted increase in local funding for Human Support Services is 4.0 percent.  This stems largely from an increase in health care expenses, including growth in the number of residents enrolled in the Healthcare Alliance, a program for low-income residents who are not eligible for Medicaid.  This appears to have resulted from a change in enrollment processes that have identified more eligible residents.  The 2008 budget also includes increases in costs for the Medicaid program, due largely to rising health care costs, and an increase in funding for the Department of Mental Health that includes expansion of a number of services.  The Human Support Services budget also includes modest increases in funding for substance abuse treatment, cash assistance benefits for poor families with children, and adoption assistance.  The budget also appears to include a modest cut in funding for child care (which is discussed in more detail below).

Economic Development and Regulation:  The proposed FY 2008 budget is 4.3 percent higher than the revised 2007 budget, after adjusting for inflation.  This largely reflects an increase in funding for the Department of Housing and Community Development, mostly in the Home Purchase Assistance Program, which helps low-income residents become first-time homebuyers.  It appears that the proposed budget would spend funds that have accumulated in recent years in a special account for HPAP.

Public Education:  Funding for education functions — including K-12 schools, libraries, and the University of the District of Columbia — would grow one percent under the proposed budget after adjusting for inflation.  This includes a substantial increase in funding for DC Public Charter schools due to rising enrollment and a reduction in funding for DC Public Schools due to enrollment declines. For both sets of schools, the per-pupil funding level would grow four percent in 2008.  As discussed below, the budget also would change the formula for funding DC schools that has the effect of cutting $25 million from the DCPS budget for FY 2008.   

Government Direction and Support:  Funding for these services would fall nearly five percent in inflation-adjusted dollars under the proposed budget.  The decline primarily reflects a proposal to change the way that personnel and procurement functions are supported.  Currently, both agencies receive direct appropriations to fund their activities.  Under the proposed 2008 budget, these agencies would receive almost no direct funding, and instead they would charge other agencies for providing personnel and procurement services.  This proposal has raised some controversy, because other DC agencies did not receive funding increases to address these new expenses. Without this funding shift, the FY 2008 budget for the government direction appropriations title would be roughly the same as the inflation-adjusted FY 2007 budget.

The budget for the government direction appropriations title also includes a substantial funding increase for the Office of the Chief Technology Officer — to cover operating costs for technology projects that are being completed — and a cut in the budget for the Chief Financial Officer.

 

Long-Term Budget Growth Shows Different Trends

It is worthwhile to place these annual funding changes in a broader, more long-term context.  A comparison of the proposed FY 2008 budget with expenditures in FY 2000 shows the following trends.

  • The proposed 2008 budget for economic development and regulation programs represents average growth of 16 percent per year since 2000, after adjusting for inflation.  This stems largely from the substantial increase in local funding for affordable housing that has been adopted in recent years.  In 2000, there was almost no local funding for this purpose.  In addition, the growth reflects nearly $40 million in planned expenditures under the “neighborhood investment fund” for a variety of community investments.  The fund was established in 2004 with annual funding of roughly $10 million, but it has been used only modestly since then.  Most of the accumulated funds would be spent in 2008 under the proposed budget.
  • Funding for public safety and government direction have grown at roughly five percent per year between 2000 and the proposed 2008 budget.
  • Public Education funding in the FY 2008 budget reflects average increases of 4.4 percent since 2000, or somewhat below the average for all program areas.
  • Human Support Services expenditures have grown most slowly since 2000, with an average annual increase of 3.9 percent after adjusting for inflation.

 

Contingent Funding

The proposed FY 2008 budget includes a provision to allocate an additional $56 million to a variety of purposes if tax and other revenues collected in FY 2008 come in at higher levels than currently expected.  The Chief Financial Officer updates revenue forecasts four times a year, and often the forecasts for a given year change as the year progresses. The contingent funding items in the Mayor’s proposed budget includes:

  • $25 million for transportation projects, include street, alley, and sidewalk repairs, and streetscape improvements in commercial corridors;
  • $10 million for parks, particularly Stead Park;
  • $10 million in environmental initiatives for storm water control and green roof incentives; and
  • $11 million for arts-based economic development activities, health and youth initiatives.

 

Revenue Issues in the FY 2008 Budget

The Mayor’s 2008 budget request includes two notable revenue proposals.

Increase in the 911/311 Fee:  The budget would increase the monthly fee applied to all phones lines, which is used to fund 911 and 311 services.  The fee would increase from 76 cents per month to $1.55 per month, and this would raise $17 million in revenue.

Property Tax Rate Cut combined with Elimination of the Calculated Property Tax Rate:  In 2005, the DC Council also adopted a provision, known as the “calculated rate" under which the property tax rate for homeowners and landlords is reduced automatically if total property tax revenues are expected to rise more than a specified amount.  The calculated rate resulted in cut in the property tax rate in 2007, from 92 cents per $100 of assessed value to 88 cents.

The FY 2008 budget would eliminate the "calculated rate" mechanism while also lowering the residential tax rate to 86 cents per $100 of assessed value.  The DC Fiscal Policy Institute supports elimination of the calculated rate for a number of reasons.

  • DC’s property taxes on homeowners are the lowest in the region.  Among homes worth $400,000, for example, the average 2006 property tax in DC was $2,900, compared with $3,800 in Montgomery County, $4,700 in Prince George’s County, $4,900 in Fairfax County, and $4,500 in Arlington County.
  • Most DC homeowners are paying less today than two years ago.  As a result of several property tax relief measures adopted in recent years, 2007 property tax bills will be lower than 2005 property tax bills for 66 percent of DC homeowners, despite the nearly 50 percent increase in median assessed values since then.

These findings suggest that a provision to automatically reduce the residential property tax rate is not warranted at this time.  Even if the calculated rate is eliminated, the District can still consider property tax relief in the future.  Rather than allowing the rate to drop automatically, policymakers can assess the need for tax relief annually, and consider the need for property tax relief in light of the city’s overall budget situation and other possible budget priorities.

 

Other Issues to Track in the FY 2008 Budget

Possible reductions in housing funding due to slowing real estate market:  Funding for many DC housing programs are tied to revenues derived from deed recordation and transfer taxes.  The Housing Production Trust Fund receives 15 percent of deed taxes each year. In addition, deed tax rates were raised in 2007, with a portion devoted to housing programs.

Since then, however, the District’s real estate market has started to cool down, and as a result deed tax collections are projected to slow down, too.  Last year, deed tax collections were projected to rise from $330 million in 2006 to $462 million in 2008 (in part due to an increase in the tax rate).  Under more recent projections, deed tax collections in FY 2008 are projected to be $380 million.  While this is an increase over the 2006 level, that is only as a result of the deed tax increase adopted in 2007.  Without it, deed tax collections would be lower in FY 2008 than in FY 2006.

As a result of the slowdown in deed tax collections, funding for affordable housing in 2008 will be lower than had been expected.

  • Funding for the Housing Trust Fund in 2008 will be $57 million — which is roughly the same as in 2006 and 2007.  As recently as last summer, projected Trust Fund revenues for 2008 were nearly $70 million.
  • A new "Comprehensive Housing Fund" was established in 2007 based on a portion of revenues raised through a deed tax increase.  At the time, this was expected to create $43 million in new housing funds in 2008.  Under current projections, this fund will received less than $30 million in 2008.  This may mean that certain planned expenditures from the fund —  including energy assistance, emergency rental assistance, workforce housing, and New Communities funding —  may need to be scaled back unless additional funds can be found.  The FY 2008 budget did not include an appropriation to address this shortfall.  This also means that additional funding will be needed to reach the recommendations of a 2006 mayoral housing task force, which called for $200 million in new housing funds for each of the next 15 years to address major affordable housing needs.

Change in Funding Method for DC Public Schools Will Result in $25 Million Funding Cut:  Until this year, the funding for DCPS that is tied to enrollment — the per-pupil funding allotment — has been based on enrollment as certified in the prior year.  For example, funding for school year 2006-07 was based on enrollment as of school year 2005-06. This method was used to provide stability to school funding.  DCPS enrollment has dropped sharply in recent years, primarily as students move to charter schools.  But the actual enrollment drop for a particular school is difficult to predict before the school year starts.  If funding were based on actual enrollment, a school’s budget would not be known until the school year starts, and a school that loses a large number of students could face a large budget cut just as the school year starts.

Funding for charter schools, on the other hand, has been based on actual enrollment.  This means that a school that has lower-than-expected enrollment gets less funding than it had planned, while schools with higher-than-expected enrollment get more.

The Mayor’s FY 2008 budget proposes to fund DC Public Schools the way that DC Public Charter schools are funded — based on projected enrollment.  The DCPS school enrollment projection for the 2007-08 school year would include an adjustment to reflect average enrollment declines over the past three years.  This results in a projected enrollment decline of six percent, or 3,000 students. 

While this creates parity with the funding formula for charter schools, it could present problems some DC Public Schools.  This change will have the effect of providing $25 million less for DC Public Schools than would expect without the formula change.  While the budget includes a four percent increase in per-pupil funding, the formula change results in an effective two percent cut in the per-pupil funding amount for DC Public Schools when compared with per-pupil funding this year.

Are there hidden cuts in the FY 2008 budget?  Each fall, DC each agency prepares a budget request for the upcoming year — known as the "baseline budget" request — that is intended to reflect the cost of maintaining services at existing levels.  As preparations for the FY 2008 budget began last fall, however, there were signs that increases in expenditures would outpace increases in revenue, due largely to large increases in a few budget areas.  As a result, each agency was asked to prepare a baseline budget request that was eight percent lower than its approved 2007 budget.

Clearly, it would be difficult or impossible in many cases to submit a budget request that maintains all existing services while spending eight percent less.  For this reason, each agency was allowed to appeal its budget request to both the Chief Financial Officer and the Mayor if it believed that meeting the eight percent reduction target would greatly reduce its ability to provide services.  Through this process, many the baseline budgets were adjusted upward for many agencies.

Yet there remain cases where the baseline budget for FY 2008 remains well below the approved 2007 budget:

  • The proposed budget for child care in FY 2008 is $100.8 million, lower than the $103.4 million appropriated for FY 2007.  Yet the budget document suggests that the 2008 funding level meets the child care division’s baseline needs —  that the number of children served in 2008 will be the same as in 2007 —  and even includes a $1 million program enhancement.
  • The proposed budget for adoption and guardianship subsidies within the Child and Family Services Agency is $41 million, three million lower than in 2007.  The budget document, however, indicates that this program is being expanded by $5 million to support an additional 200 adoptions.  The explanation for this discrepancy is that the agency submitted a baseline budget request that reflected a large reduction from its FY 2007 budget.  It is not clear how the agency expected to maintain services while cutting expenditures.

There are many references in the FY 2008 budget document to budget reductions made in order to meet the reduction targets, generally with little explanation.


End Notes:

[i] This figure reflects adjustments for certain large one-time expenses, such as recent requirements to budget for health benefits for retired DC government employees, as well as other technical adjustments to make the 2008 and 2007 budgets comparable.

[ii] This increase does not reflect a $68 million in transportation funds that were held in special accounts in 2007 but would be transferred to the general fund budget of the Department of transportation under the proposed 2008 budget.

What’s in the FY 2008 Budget for TANF?

| June 8th, 2007 |

PDF of this Page

Funding Summary

The District’s welfare-to-work program for families with children is funded with a mixture of federal TANF block grant funds and local funds.  Federal law requires the District to spend roughly $75 million in local funds to receive $92 million in federal TANF funds.  This is known as a “maintenance of effort” or MOE requirement.   

Mayor’s Budget Request:  The FY 2008 proposed budget includes a $3 million increase in local funding to support “additional cash assistance benefits to low-income families receiving TANF.”  This increase follows a 7.5 percent increase in TANF cash assistance benefits that was implemented in July 2006. 

The focus on increasing TANF cash assistance benefits reflects the fact that benefits are relatively low — the 2006 increase raised the maximum monthly benefit for a family of three from $379 to $407 — and that TANF benefits have not been adjusted for years.  Prior to the 2006 increase, the District had not increased its TANF benefits since the early 1990s.

  • The maximum TANF grant for a DC family of three in DC is less than $14 a day and equals just 29 percent of the poverty line.
  • DC stands near the bottom among the largest city in each state — 44th out of 51 — when its TANF benefits are compared with the local cost of living. 
  • Even with food stamps, families live well below poverty.  Monthly TANF and food stamp benefits are about $800 for a family of three or 58 percent of poverty.

Council Mark-up:  The Committee on Human Services marked up the TANF budget on May 2.   The committee approved the Mayor’s $3 million increase in TANF cash assistance benefits and directed that this be implemented as an increase in maximum monthly TANF grant levels. For a family of three, the increase will bring the maximum monthly grant from $407 to around $427 a month.  While notable, this increase will still leave DC’s TANF grant at 30 percent of the federal poverty level.

Final Submission:  The DC Council Committee of the Whole considered the entire FY 2008 budget request on May 15, 2007.  They did not make any changes to the committee mark-up of the TANF budget.

 

Issues to Track

Federal TANF reauthorization has resulted in a loss of federal funds.  The District received annual bonuses under the TANF program — totaling $20 million to $25 million in each of the four years prior to 2007 — tied to reductions in the incidence of out-of-wedlock births.  This bonus was eliminated when TANF was reauthorized in 2006.  TANF bonus funds have been used to raise cash assistance levels, enhance support for child care and energy assistance, expand welfare-to-work services, and other activities.  The 2008 budget includes some increases in local funds — such as in energy assistance — to offset the loss of TANF bonus funds.

What’s in the FY 2008 Budget for Interim Disability Assistance?

| June 8th, 2007 |

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Funding Summary

Mayor’s Budget Request:  The District’s Interim Disability Assistance provides temporary cash benefits to adults with disabilities who have applied for federal Supplemental Security Income (SSI) benefits and are awaiting an eligibility determination.  (Some 37 states have similar programs.)  The benefits paid to IDA recipients are reimbursed by the federal government when an applicant ultimately is determined to be eligible for SSI.  SSI approval can take anywhere from several months to several years.

The Mayor’s proposed FY 2008 operating budget request for the Interim Disability Administration — a program within the Department of Human Services — totaled $5.6 million.  This amount is relatively unchanged from the FY 2007 amount, a decrease of just over 2 percent when adjusted for inflation.

The IDA program also is supported by reimbursements received from the federal government when an IDA recipient is found eligible for federal SSI benefits, and in recent years the program has had a small amount of funds carried over from prior years.  Overall funding in FY 2008 is expected to include $1.6 million in reimbursements and $900,000 in carryover.  The Department of Human Services expects to be able to serve all eligible residents seeking assistance in FY 2008.

When the FY 2007 budget was adopted, it was anticipated that the IDA caseload would rise to nearly 2,500 participants by the end of the year.  Caseloads have leveled off at a level below 2,500, however, and actually have declined modestly in recent months.  It is not yet clear what is responsible for stalling caseloads.

Council Mark-Up: The DC Council Committee on Human Services marked up the budget request for the Department of Human Services on May 3, 2007.  They did not make any changes to the budget for the Interim Disability Assistance Program.

Final Submission:  The DC Council Committee of the Whole considered the entire FY 2008 budget request on May 15, 2007.  They did not make any changes to the budget for the Interim Disability Program.

What’s in the FY 2008 Budget for Housing?

| June 8th, 2007 |

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Funding Summary

Mayor’s Budget Request:  The primary source of local funding for affordable housing in the District is the Housing Production Trust Fund, which supports the construction and renovation of affordable housing.  Under legislation enacted in 2002, some 15 percent of deed recordation and transfer taxes are dedicated to the Trust Fund each fiscal year.  For FY 2008, funding for the Trust Fund will be $57 million.

Beginning in FY 2006, the District also began providing local funding to the DC Housing Authority (DCHA) — which operates the federal public housing and housing choice voucher programs — the first local funding in years.  This was provided to address a sharp decline in federal funding for DCHA in recent years.  In FY 2007 the District also allocated funding to DCHA for a local voucher program in addition to the funds to cover shortfalls in the federal programs.  Together, the proposed FY 2008 budget allocates $23 million for these purposes.

A third source of funding for affordable housing was adopted in FY 2007 as part of an effort to start implementing the recommendations of the city’s Comprehensive Housing Strategy Task Force.  Deed recordation and transfer taxes were raised from 1.1 percent to 1.45 percent in 2007, following a Task Force recommendation, and a portion of the proceeds were devoted to housing and related services.  The Comprehensive Housing Fund was expected to receive $40 million for both FY 2007 and FY 2008 when it was adopted, but due to a decline in expected deed tax collections, the fund will get less than $30 million in both years.  (This is discussed in more detail below.)

Finally, local funding for affordable housing includes funding to operate the Department of Housing and Community Development (DHCD), which administers the Housing Production Trust Fund and supports first-time homebuyer services, and other services.

The 2008 budget proposed by the Mayor would devote $141 million in local resources to housing initiatives, a 15.7 percent increase from the $122 million included in the FY 2007 budget.  (All figures are adjusted for inflation to equal FY 2008 dollars.)  This includes one notable increase.

  • Budget Increase: The budget includes a proposed increase in the Home Purchase Assistance Program (HPAP), from $6 million in FY 2007 to $21 million in FY 2008.  HPAP provides low-interest or no-interest loans to help lower-income first-time homebuyers.  When homebuyers re-pay their HPAP loans, those repayments are then re-used to support loans to new homebuyers.  The FY budget would use nearly all of the existing HPAP repayment funds, and this would support both a recent increase in the allowable loan amount as well as an increase in the number of families served.  In prior years, DHCD had not appropriated all of its HPAP repayment funds.

  • Funding in the Comprehensive Housing Strategy Fund would fall from $29 million in FY 2007 to $28 million in the proposed FY 2008 budget.  The budget for this fund is tied to a portion of deed recordation and transfer tax collections.  When the fund was created in the FY 2007 budget, it was projected to get just over $40 million from the tax in both FY 2007 and FY 2008.  The reduction for both years reflects a change in projected deed tax collections. The Fenty administration has signaled an intent to appropriate additional funds to make up for the shortfall in FY 2007, although it has yet to occur.  The Mayor’s proposed budget does not appear to include funds to make up for the shortfall in FY 2008.

Table 1 shows the planned expenditures from the fund in FY 2007.  It is not clear which expenditures would be scaled back if additional funding is not provided to make up for the shortfall.[i]

  • Funding to the Housing Production Trust Fund will decrease slightly — from $58.9 million in FY 2007 to $57.1 million in FY 2008.

  •  DCHA funding will remain essentially flat with a small increase to cover increases in operating costs — from $23.3 million in FY 2007 to $23.5 million in FY 2008.

  •  The FY 2008 budget includes, for the first time, a small amount of funding — $1.6 million — to implement the city’s new Inclusionary Zoning Program.

Council Mark-Up: The DC Committee on Housing and Urban Affairs marked up the budget request for the Department of Housing and Community Development on May 3, 2007 and the Council Committee of the Whole marked up the budget request for the Office of Planning on May 2, 2007.

While there were no funding changes for affordable housing at the committee level, the Committee on Housing and Urban Affairs did state its intent to seek funding changes to some of the programs under its purview in the final Council vote.  Specifically, the Committee wants to.

  • Increase funding for the Local Rent Supplement Program by $36 million, which would add approximately 3,000 vouchers to the program.  The Committee urged the Finance and Revenue Committee to raise the deed recordation and transfer tax on commercial properties from 1.45 percent to 1.7 percent, with 65.5 percent of the proceeds going to rent supplement.  The Finance and Revenue Committee did not approve this measure.  Councilmember Marian Barry, chair of the Committee on Housing and Urban Affairs, will bring the matter before the entire Council.

  • Change the law governing the Housing Production Trust Fund to require 50 percent of the funds be spent on owner-occupied units.  This measure passed the Committee, but with strong opposition from several committee members.  The issue likely will be revisited before the entire Council.

Though not considered before the Committee at mark-up, Councilmember Marian Barry has floated several other recommendations that will likely be considered in the full Council.  They include:

  • Securitizing $30 million of the Housing Production Trust Fund for the New Communities Initiative;

  • Moving homeless services activities from the Department of Human Services to the Department of Housing and Community Development; and

  • Requiring un-employed and under-employed adults living in households that receive a local rent supplement voucher to receive services from the Department of Employment Services.

Notably, the Committee on Economic Development directed $3.5 million from the funds going to the Department of Human Services for Homeless No More and emergency assistance activities to be set aside for Progressive Redevelopment Incorporated to develop 40 units of temporary housing for domestic violence survivors.  The units will be part of a larger development.

Final Submission:  The DC Council considered the entire FY 2008 budget request on May 15, 2007.  Although the Council put $7.45 million additional dollars into the Local Rent Supplement Program, total funding for affordable housing decreased by a net $2.7 million — from $140.9 million at the end of committee mark ups to $138.2 million after the final full Council vote.  This was due mainly to a $10.5 million decrease in funding to the Housing Production Trust Fund as a result of falling deed recordation and transfer tax collections.  The District’s Chief Financial Officer announced during the first week of May that projected collections would result in $46.5 million for the HPTF, not the $57.1 million that had been anticipated when the mayor proposed the budget in March and when the Council committees considered the budget in April.

Although deed recordation and transfer taxes were on the decline, the CFO gave the city the green light to spend an additional $61 million in revenue over what had previously been projected.  This additional revenue came mostly from property taxes.  The Council used this additional revenue to fund the increase in rent supplements, among other things.

The full Council also approved a measure introduced by Councilmember Marion Barry that would allow the city to securitize up to $30 million of the HPTF for the New Communities Initiative.


End Notes:

[i] The proposed FY 2008 budget reflects funding for Homeless No More, Teen Homeless initiatives, Emergency Assistance, and Energy Assistance (though at $4.2 million instead of $6 million).  It is not clear if other items from the Comprehensive Housing Fund are included in the proposed budget.

What’s in the FY 2008 Budget for Health Care?

| June 8th, 2007 |

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Funding Summary

Mayor’s Budget Request:  The Mayor’s FY 2008 proposed budget for the Department of Health is $684 million, or 3 percent above the revised FY 2007 budget after adjusting for inflation.  The FY 2008 budget continues expansions of health coverage implemented in FY 2007.

The District’s Medicaid program accounts for the largest share of the Department of Health’s budget.  The Mayor’s 2008 local funding request for this program is $463 million, which represents an increase of $11 million, or 2.4 percent, compared to the FY 2007 proposed budget and adjusted for inflation.

The FY 2007 budget included local funding to expand Medicaid eligibility for children in families from 200 percent of poverty up to 300 percent of poverty and provided funding to provide for adults who previously were not eligible for any dental assistance.   (Prior to this change, only adults in families with children received dental coverage under DC’s Medicaid program.) The FY 2008 budget continues these priorities in addition to providing additional funding to increase Medicaid provider and vendor payment rates.

The Health Care Safety Net Administration is the second largest program in the Department of Health.  The Administration manages the DC Healthcare Alliance, which provides health care services to uninsured DC residents who are not eligible for Medicaid.  The Mayor’s 2008 budget request would increase local spending from $91 million in FY 2007 to $134 million, or by 47 percent when adjusted for inflation.  The large increase is due mainly to projected increases in enrollment in the Alliance, stemming from a change in enrollment procedures that have identified more eligible residents.  The FY 2007 budget supported 30,000 participants. Yet enrollment has risen to 42,000 in the middle of FY 2007 and is expected to rise to 50,000 by FY 2008.  The FY 2008 budget fully funds the anticipated enrollment increase.

Proposed local spending for all other health services — including HIV/AIDS, substance abuse treatment, and emergency medical services — remains largely unchanged with small increases and decreases in most areas, many to account for reallocation of various activities from one program to another.  These small changes do, however, represent important investments in some areas, such as the $3.7 million increase to the Addiction Prevention and Recovery Administration, the $3 million increase to the HIV AIDS Administration to support “Ticket to Work” — a program that helps people with disabilities who have been disconnected from the labor force get back to work — in addition to increased HIV surveillance services and rapid test kits.

The proposed budget also docks some savings, like $2 million from the DC Healthcare Alliance by moving 19 and 20 year olds onto Medicaid.

Council Mark-Up: The DC Council Committee on Health met on May 3, 2007 to mark up the budget for the Department of Health.  The 2008 budget for the Department decreased by $135,000 ― a change due entirely to transfers between the committees.  The Committee on Health received $100,000 from the Council Committee on Human Services to fund one additional full-time employee for rat abatement services.  The Committee on Health transferred $235,000 to the Committee on Public Safety and the judiciary to fund health-related services at the Office of Administrative Hearings.

The Committee made few changes of its own to the overall funding level for this agency.  They did, however, find savings across the board from non-personal costs like utilities, communications, rent, and security that were redirected to direct services within the Department.  The result is a $4.3 million increase for substance abuse treatment and prevention services and a $1.7 million increase to the Maternal and Family Health Administration for the school health program, among other increases.

Final Submission:  The DC Council Committee of the Whole considered the entire FY 2008 budget request on May 15, 2007.  They did not make any changes to the budget for the Department of Health.  As a result of a revised revenue estimate issued by the District’s Chief Financial Officer that added some $60 million to the to the general fund, the council set aside $500,000 to go to the Allied Health Program at Georgetown University for job training.

Issues to Track

Expansion of Medicaid:  The 2007 budget included a notable Medicaid expansion for children, but it did not expand coverage for parents.  Research shows that children are more likely to enroll in public health insurance programs when parents are eligible as well.

Substance Abuse Treatment:  Funding for substance treatment declined sharply in the 1990s.  Despite some increases in recent years, funding remains at a historically low level.  The FY 2008 proposed local funding level of $33.5 million would remain well below the 1990 level of $45 million.  (The 1990 figure is adjusted for inflation to equal 2008 dollars.)

What’s in the FY 2008 Budget for Energy Assistance?

| June 8th, 2007 |

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Funding Summary

Mayor’s Budget Request:  The primary source of funding for energy assistance in the District is in the DC Energy Office’s Low Income Home Energy Assistance Program (LIHEAP).  Each year, LIHEAP assists thousands of low-income DC households with their utility bills.  Assistance for families behind on utility or rent bills is an important strategy to prevent homelessness and to preserve affordable housing.

The proposed appropriation for LIHEAP in FY 2008 is $15.8 million, almost 6 percent more than the $14.9 million appropriated in FY 2007.  (All figures have been adjusted for inflation to equal FY 2008 dollars.)  Of the $15.8 million, $9.5 million is local and $6.3 million is federal.

Until recently, DC’s LIHEAP program was funded primarily by the federal government.  Beginning in 2004, however, the District started supplementing inadequate federal funding levels.  The FY 2007 local appropriation of over $9 million was nearly double the federal funding level.

The additional funds received in FY 2007 have allowed LIHEAP to serve more residents than it has in the past, but it has also allowed the program to make some other needed policy changes.  Chief among them was an increase in the eligibility threshold.  Prior to FY 2007, residents were eligible for LIHEAP if their household income was less than 150 percent of the federal poverty line.   Many families with income above that threshold, however, remain very needy but could not receive assistance.   For FY 2007 LIHEAP increased the threshold to 60 percent of the state median.  For a family of three, 60 percent of the state median equals $32,750, which is roughly 200 percent of the poverty line. This new threshold is consistent with other means-tested public benefit programs that set their eligibility thresholds at two to three times the federal poverty line in recognition of the fact that many families with income far above the poverty line still experience extreme hardship. 

See a recent DCFPI testimony on LIHEAP at http://www.dcfpi.org/?p=186.

Council Mark-Up: The DC Council Committee on Public Services and Committee Affairs met to mark up the budget request for the DC Energy Office on May 2, 2007.  They did not make any changes to the funding for the Low Income Home Energy Assistance Program.

Final Submission:  The DC Council Committee of the Whole considered the entire FY 2008 budget request on May 15, 2007.  They did not make any changes to the committee mark up of the budget for the Low Income Home Energy Assistance Program. 

What’s In the FY 2008 Budget For Employment and Training?

| June 8th, 2007 |

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Funding Summary

Mayor’s Budget Request:  The general fund budget proposed by the mayor for the Department of Employment Services (DOES) is $71.1 million — an increase of $1.2 million, or 1.8 percent over the FY 2007 revised budget after adjusting for inflation.  The FY 2008 budget largely would maintain services at the FY 2007 levels, with the modest funding increase needed to meet rising operating costs due to inflation and other factors.

The budget document makes reference to two funding increases for 2008, although it is not clear that they both represent real increases in services.

  • Documents released at the Mayor’s press conference on the FY 2008 budget refer to a $3 million increase in funding for youth employment, which will support enrollment of 11,000 youth in the Summer Youth Employment Program.  Yet this is roughly the same as the 10,800 youth that participated in the program in 2005.
  • The proposed 2008 budget includes $500,000 to expand employment services for residents leaving prison.

It should be noted that employment and training programs were expanded substantially in FY 2006 under Mayor Williams “Way to Work” initiative.  Funding for Way to Work programs increased the DOES budget by more than $20 million between FY 2005 and FY 2006.  This increase began to restore some of the support for employment services that had been cut in the 1990s, including a transitional employment program and training and services for 16-to-24 year olds not enrolled in school.  A 2004 DCFPI analysis found that spending on employment and training was 80 percent lower in 2004 than it was in 1990.  The FY 2008 proposed budget would continue these initiatives. Yet even with the recent increases, local funding for employment and training remains about 30 percent below the 1990 level, after adjusting for inflation.

Council mark-up:  The Committee on Workforce Development marked up the budget for the Department of Employment Services on May 4.  The committee added $1 million for training services for ex-offenders, adding to the Mayor’s proposal to increase funding in this area noted above.  The additional funding was provided by the Committee on Economic Development, which transferred $1 million of its budget authority to the Committee on Workforce Development for this purpose.

Final Submission:  The DC Council Committee of the Whole considered the entire FY 2008 budget request on May 15, 2007.  The Council approved a $5 million increase in funding for workforce development.  Of this amount, $500,000 is earmarked for a Neighborhood Small Business Litter Clean-up jobs program, another $500,000 is earmarked for a training program with Georgetown University Hospital in emergency room technical support staff, and $500,000 is earmarked for youth employment services.

What’s In the FY 2008 Budget for Education?

| June 8th, 2007 |

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Funding Summary

Mayor’s Budget Request: DC Public Schools:  The FY 2008 general funds budget request for DCPS is $806 million.  This is $31 million, or four percent, lower than the revised FY 2007 general funds budget after adjusting for inflation.

DC Public Schools has responsibility for both the operation of local schools and for functions typically operated at the state level in other jurisdictions. 

Funding for the operation of local schools in the proposed FY 2008 budget is $555 million, a drop of $43 million, or seven percent from FY 2007 after adjusting for inflation.  This drop reflects continued decline in enrollment in DCPS combined with a modest increase in the per-pupil funding level that is used to set the local education budget.

  • The per-pupil funding level in the proposed budget is $8,322, a four percent increase over the 2007 level.
  • Enrollment in DC Public Schools is projected to fall by more than 3,000 next year — from 52,000 to 49,000.  As discussed below, a proposal from Mayor Fenty to change the funding formula would result in an additional reduction in funding for DCPS in FY 2008.

Proposed funding for state-level functions — primarily tuition and transportation for special education students enrolled in private schools and oversight by the DC Board of Education — is $242 million, a five percent inflation-adjusted increase over the FY 2007 budget.  This reflects a continuation of the long-term trend of increasing special education costs.  The FY 2008 budget includes an increase of $27 million, or 13 percent — in tuition and transportation costs for special education students enrolled in private institutions.

The proposed FY 2008 budget also includes $30.6 million for state-level functions that are related to proposed school reform legislation under which the Mayor would take over many responsibilities for school operations.  Because this legislation has not been adopted, the $30.6 million appropriation is not included in the DCPS budget but instead is included in a separate budget account.

DC Public Charter Schools:  The FY 2008 budget request for DCPCS is $320 million. This is $48 million, or 18 percent higher than the revised FY 2007 budget, adjusting for inflation.  The increase in funding reflects an expected increase of nearly 3,000 enrolled in charter schools, from 19,300 to 22,300.  It also reflects the proposed increase in per-pupil funding noted above.  Since DC Public Charter Schools receive the same per-pupil funding as DC Public Schools.  Charter schools also receive a per-pupil funding level to cover facility costs.  The Charter School facility allotment for FY 2008 is $15 million higher than the FY 2007 allotment.

Council Mark-up:  The Committee of the Whole met on May 2 to mark-up the education budget.  There were no major changes adopted to the budget for DCPS or DCPCS.

Final Submission:  The DC Council Committee of the Whole considered the entire FY 2008 budget request on May 15, 2007.  They did not make any changes to the committee mark up of the budget for DC Public Schools or DC Public Charter Schools. 

 

Issues to Track

Change in Funding Method for DC Public Schools Will Result in $25 Million Funding Cut:  Until this year, the funding for DCPS that is tied to enrollment — the per-pupil funding allotment — has been based on enrollment as certified in the prior year.  For example, funding for school year 2006-07 was based on enrollment as of school year 2005-06. This method was used to provide stability to school funding.  DCPS enrollment has dropped sharply in recent years, primarily as students move to charter schools.  But the actual enrollment drop for a particular school is difficult to predict before the school year starts.  If funding were based on actual enrollment, a school’s budget would not be known until the school year starts, and a school that loses a large number of students could face a large budget cut just as the school year starts.

Funding for charter schools, on the other hand, has been based on actual enrollment.  This means that a school that has lower-than-expected enrollment gets less funding than it had planned, while schools with higher-than-expected enrollment get more.

The Mayor’s FY 2008 budget proposes to fund DC Public Schools the way that DC Public Charter schools are funded — based on projected enrollment.  The DCPS school enrollment projection for the 2007-08 school year would include an adjustment to reflect average enrollment declines over the past three years.  This results in a projected enrollment decline of six percent, or 3,000 students. 

While this creates parity with the funding formula for charter schools, it could present problems for DC Public Schools.  This change will have the effect of providing $25 million less for DC Public Schools than would expect without the formula change.  While the budget includes a four percent increase in per-pupil funding, the formula change results in an effective two percent cut in the per-pupil funding amount for DC Public Schools when compared with per-pupil funding this year.

Funding for School Modernization:  Legislation adopted in March 2006 adds $100 million per year for school construction, with annual adjustments for rising construction costs.  Funds under this legislation were first provided in FY 2007.  When combined with the $98 million base funding in the schools’ capital budget, the total school construction budget in FY 2007 is $223 million.  The FY 2008 budget includes $218 million for school construction efforts.

What’s In The FY 2008 Budget For Child Care?

| June 8th, 2007 |

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Funding Summary

Mayor’s Budget Request:  The local operating budget request for Early Childhood Development — a program within the Department of Human Services — is $41.1 million.  This represents a $15 million, or 27 percent, decrease from the FY 2007 approved budget when adjusted for inflation.

This reduction in reflects an effort to shift local funds from the child care program to DC’s TANF welfare-to-work program, with a corresponding shift of federal TANF funds to the child care program. This shift in the source of child care funding was made in response to new federal TANF rules adopted in 2006.  It was not intended to change the overall funding level for child care.

The reduction in local funding also reflects tight fiscal conditions faced by the District each year.  Each agency was asked by the Mayor to trim its budget in response to a projected budget shortfall, and the Department of Human Services responded in part by reducing local funding for child care.

When both local funds and federal funds are considered, the proposed child care budget for 2008 is $100.8 million, or $5 million lower than in 2007 after adjusting for inflation.

Despite the proposed reduction, the Mayor’s proposed FY 2008 budget document indicates that this funding level will allow the District to provide child care services to 23,000 children in 2008, the same as in 2007. 

At hearings on the proposed child care budget, officials from the Department of Human Services explained that the funding reduction partly reflects technical changes – in that some elements of the FY 2007 child care operating budget were moved to the separate capital budget.  The DHS officials also noted that the funding change stems from targeted reductions in services other than payments for child care services.

Nevertheless, it remains unclear whether the child care program will be able to maintain services at 2007 levels in 2008 while also absorbing this reduction in funding.

Council mark-up:  The Committee on Human Services marked up the budget for the Department of Employment Services on May 2.  The committee accepted the Mayor’s proposed child care funding level, accepting the statement from the office of the Mayor that this funding level would allow the child care program to maintain services.  On Friday, May 4, the Committee on Economic Development transferred $500,000 of its budget authority to the Committee on Human Services for the purpose of enhancing the child care program.  The additional funding will support services that help child care workers get child development credentials and other initiatives to improve the quality of child care services.

Final Submission:  The DC Council Committee of the Whole considered the entire FY 2008 budget request on May 15, 2007.  They did not make any changes to the committee mark up of the budget for child care services.