Chairman Mendelson and other members of the Committee, thank you for the opportunity to speak today. My name is Ed Lazere, and I am the executive director of the DC Fiscal Policy Institute. DCFPI works to expand economic opportunity for residents of the District of Columbia and to reduce income inequality through thoughtful budget and policy solutions.
I am here to express support for two proposals in the Budget Support Act. The first is an increase in the sales tax from 5.75 percent to 6 percent, which helps limit the need for budget cuts and supports a variety of initiatives in the FY 2016 budget. The other is the proposal to extend TANF assistance for one year for time-limited families. This would prevent 6,000 families from losing income and employment assistance, and give the new human services leadership time to develop a comprehensive and appropriate time limit policy.
Taking Time to Get the TANF Time Limit Right: A One-year Extension of Assistance to Families Makes Sense
DC’s TANF time limit was created in 2011, as part of the Fiscal Year 2012 budget, without extensive prior deliberation and planning. As I will discuss below, it was adopted without the policies and protections used in many states to avoid pushing families into hardship. In effect, DC’s TANF time limit policy started first as a budget proposal and then was handed over to the Department of Human Services to implement. DHS was left to build the airplane while also flying it.
Much of what has happened since then, including DC Council action to slow down the schedule of benefit cuts, reflects efforts to address the large gaps in the initially adopted time limit policy. What may seem to some as delays or backtracking have in fact been important and needed course corrections. Because this year — Mayor Bowser’s first year in office — would be the first time the time limit would entirely cut families off from assistance, it is reasonable for the mayor to seek a delay while she develops a more thorough policy.
Getting the TANF time limit right is extremely important. An effective TANF program should provide financial stability to families in need, while also helping parents move to greater independence and economic self-sufficiency. But if TANF policies such as time limits are not designed well, they can push families into deep poverty without improving employment outcomes. And there is a growing body of research showing that time limits in many states have weakened the safety net for families with children by cutting off families who face multiple and severe challenges.
These families often are not able to replace lost benefits with employment income, leading to chaotic or unstable lives. Here are some of the ways that DC’s TANF time limit was implemented before the District was fully ready.
- Time limits were imposed before family needs were assessed. When DC’s time limit was passed, the Department of Human Services had not assessed all families to identify their employment and service needs. The time clock ran while those assessments were done.
- Time clocks still run while families wait months for services: DHS acknowledges that families wait up to a year to get into DC’s TANF employment preparation services, with their time clock ticking. In Maryland, the time clock does not run when families do not receive services.
- DC’s TANF computer system is not capable of monitoring certain time limit exemptions. Last year, the DC Council devoted resources to stop the time clock for parents with newborns, yet this has not been implemented. The time clock continues to run because the TANF computer system cannot handle it. The computer system is in the process of being replaced.
- DC’s time limit fails to recognize the complex lives of many poor families. Forty-four states recognize that some families need more time to move to self-sufficiency. But DC’s rigid time limit has no exceptions. Policies elsewhere reflect that parents who remain on TANF for long periods often suffer from mental health challenges, developmental disabilities or other problems that are difficult to identify. The Department of Human Services recently acknowledged that many TANF recipients “have unexposed or undiagnosed barriers that may prohibit them from engaging in services.”
The mayor’s TANF proposal includes important efforts to better understand the needs of TANF families, which will then inform changes in services and in the time limit policy. It will:
- Develop a fundamental understanding of long-term TANF participants: The Department of Human Services will support research on a group of DC’s long-term welfare recipients to better understand their characteristics and needs, and it will conduct thorough assessment of all families once they are within one year of reaching the time limit.
- Provide new services for families with multiple barriers: The mayor plans to expand access to employment services in 2016, while taking time to develop new service options for 2017 and beyond, such as closely linking employment and mental health services.
- Create hardship extensions for families in certain circumstances: Starting in FY 2017 the District will give extensions to families that meet conditions that warrant a time limit extension.
A time limit that is responsive to family circumstances is important to ensuring that TANF helps families take steps toward greater independence, rather than pushing children into deep poverty.
Supporting a Sales Tax Increase Will Raise Addition Revenue and Support Crucial Investments in Other Areas
DCFPI supports the FY 2016 Budget proposal to raise the sales tax from 5.75 percent to 6 percent — a move that would raise $22 million in revenue to support commitments to affordable housing and economic security. That rate would put the District in line with Maryland and Virginia and only add 25 cents to a $100 purchase.
The proposed revenue increases — which equal one-half of 1 percent of the budget — stand out as modest. This is the second smallest budgeted increase in revenues since 2009, according to a DCFPI review. Moreover, new revenues address just one-sixth of the budget gap Mayor Bowser faced. Even with the revenue increase, total spending in FY 2016 would be less than the amount needed to maintain services at FY 2015 levels (the Current Services Funding Level). This means that the proposed FY 2016 budget overall is a lean one, with reductions and efficiencies that outweigh increases in other areas.
It also is worth noting that taxes on DC residents are the lowest in the region, according to an analysis by the DC Chief Financial Officer of taxes paid at different income levels. That will not change with the proposed sales tax increase.
The District’s revenue growth is slowing, which means we must seek out new revenue sources to make continued progress in expanding opportunity and reducing income inequality. The sales tax puts a down payment towards those goals. However, more investment is needed to meet pressing challenges, such as ending chronic homelessness. Other essential services that were underfunded in the budget — like afterschool programs and nutrition programs for infants — need additional resources to fulfill their promise. Raising the sales tax this year will give the mayor and the Council more flexibility in making those investments in years to come.
On a policy level, raising the sales tax makes sense for the following reasons:
- This change was recommended by the D.C. Tax Revision Commission: The commission supported this change because it would raise revenues to support other important tax reductions while keeping our rate in line with Maryland and Virginia.
- The tax increase will be modest for most residents. For DC’s poorest families, the would only add one-tenth of one percent — or $20 for a household making $20,000 — in additional taxes, according to an analysis by the Institute of Tax and Economic Policy.
- Low-income residents have benefited from substantial tax cuts in recent years. The DC Council expanded the Earned Income Tax Credit and the income tax standard deduction last year, and the Schedule H low-income property tax credit was expanded twice in recent years. These tax cuts outweigh the sales tax increase for a large share of lower-income households.
- DC’s tax system keeps taxes relatively low for low-income families. The District has taken steps over the years to offset the regressive effect of the sales tax; the tax rate is below national average and broad-based to cover as many services as possible. And the rest of the tax system should be very progressive to offset the sales tax. For low-income families, DC’s combined taxes paid by low-income residents are when compared with all states.
Given the needs in the community, DCFPI supports the sales tax increase and we ask DC Council to maintain the proposed rate. The additional sales tax on residents is well worth the investment in programs that help residents live and thrive in the District. If savings are found in the budget, we hope that Council will continue these investments rather than saving residents and visitors pennies on large purchases.
Thank you for the opportunity to testify today, I am happy to answer any questions.