The Final Vote on the DC Budget: What Happened?

June 15th, 2011 | by Jenny Reed and Aleksandra Gajdeczka

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

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

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

  • Green Teams and Clean Teams.  The Council added $1.8 million to the top of the list for Green Teams and Clean Teams. These programs provide additional cleaning services in several DC wards and often hire ex-offenders.
  • Managed Care Contracts. Two health care programs were identified by Mayor Gray late last week as needing additional funding for next year. The first was $32 million in the Department of Health Care Finance to provide health care services for residents enrolled in the Health Care Alliance program. The Gray administration explained that one of two contractors that provide health services has threatened to pull out of the Alliance unless their contact was renegotiated to include these additional dollars. Some council members questioned the expenditure, but the Council decided to add the $32 million to the top of the priority list by a 7-to-6 vote.
  • School Nurse Health Program.  The second spending pressure was $12 million for a program that helps place nurses in DC schools. The Gray administration claimed that federal funding DC planned to use for this program is no longer available, and the program now needs to be funded with local dollars.

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

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

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

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

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

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