More Money, Part 2! Another Implication of DC’s Latest Revenue Forecast

July 12th, 2017 | by Ed Lazere

As we noted last week, the District is collecting a lot more tax revenue, according to the city’s latest revenue forecast. The growing tax collections reflect a strong DC economy that is outperforming the rest of the region.house money

Last week’s blog focused on tax collections that are projected to jump this year, which creates an opportunity to make important one-time investments in affordable housing and other needs before the end of the year.

Today’s blog examines expected revenue growth in 2018 and beyond. The new forecast also is higher than the previous one, although the increase is less than it was for 2017. Under the recently-adopted budget for 2018, this new money will be set aside to help pay for a teachers’ contract that is being negotiated and to support a new Metro funding plan. While these are worthwhile uses, dedicating growing revenues will decrease revenues that may be needed for other purposes when new budget planning starts next year.

Let’s explore this a bit more, with some numbers:

  • Where’s the new money coming from? Nearly all of DC’s major revenue sources are growing, according to the recent forecast, including property, sales, and business income taxes. (The one tax source not growing—resident income taxes—appears to reflect people holding on to investments, waiting for a possible federal income tax cut before cashing them in.) The robust growth of many tax sources is a reflection of a strong DC economy, which has outpaced the region in population and private-sector job growth for the past decade.
  • Just how much additional revenue will there be next year? Tax collections in 2018 and beyond will be about $30 million higher than previously thought. Half of that will be set aside for a new DCPS teachers’ contract that is currently being negotiated, and half will be set aside for any future Metro funding plan. The just-adopted budget also dedicates new revenues from the next revenue projection, in September, to the same two purposes.

The decision to set aside growing revenues, regardless of the worthiness of the expenditures, has a downside because it limits budget choices a year from now. Normally, changes in revenue projections that come out after one budget is adopted are available for next year’s budget, to address emerging priorities and rising costs due to inflation. Dedicating some of that growing revenue now will mean less new money next year when it’s time to put the next budget together.

It’s like knowing you will get a cost-of-living adjustment to your salary next year, and deciding in advance to spend some of it on something you need, like a new computer. That may work out fine, but it could be a problem if your refrigerator unexpectedly fails.

Like your own personal budget, keeping some wiggle room for the coming year makes sense.  The DC budget would be stronger if it didn’t include plans to spend money that hasn’t yet materialized.

To print a copy of today’s blog, click here.

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