Let’s Put DC’s Surplus to Work Helping DC Residents

The recent news of DC’s hefty $500 million budget surplus in 2019 marks a really important moment in DC’s finances. The surplus allowed DC to fill its reserve requirements—after nearly a decade—with $324 million left over to fund affordable housing and DC government construction projects.

With our reserves now filled, it means that 100 percent of future surpluses will be available to be spent, rather than saved. This holds the promise of providing hundreds of millions of dollars for badly needed affordable housing construction, if the Mayor and Council remain committed to the current requirement that half of future surpluses go for housing.

Under current rules, the other half of annual surpluses goes to fund DC government capital projects, like schools and fire stations. Now that this opportunity is here, it’s worth broadening the list of possible ways to use these funds. Our annual surplus could serve other urgent purposes, such as repairing public housing, protecting legacy small businesses being priced out by gentrification, or helping first-time homebuyers.

It’s important to note that a year-end budget surplus is unpredictable, which means the best way to spend it is on “one-time” projects that do not require funding year after year. Surplus funds can be used, for example, to build affordable housing, but not to provide rental subsidies that are paid every month.

Finally, Adequate Funding for Affordable Housing Construction – If We Protect It

Under legislation passed in recent years, half of each year’s budget surplus (once reserves are full), goes to DC’s Housing Production Trust Fund (HPTF), which supports construction and renovation of affordable housing. The 2019 surplus generated $162 million for the HPTF. When added to the roughly $70 million in taxes dedicated to the HPTF under current law, it would provide over $230 million for affordable housing next year. That’s enough for about 1,500 new homes and is close to DCFPI’s estimate of the annual funding pace needed to address DC’s most serious affordable needs over the next decade: $250 million per year. (Note that in addition to funding for construction, more funding will be needed for rental subsidies—through the Local Rent Supplement Program—to make the new housing affordable to DC’s poorest families.)

DCPFI supports protecting all of the FY 2019 surplus funds designated for the HPTF, along with the tax revenues already dedicated to the program.

Let’s Be Creative About Other Surplus Uses

Legislation passed in recent years sets aside the remaining half of available annual surplus funds for “pay-go capital,” meaning paying for government construction projects directly rather than through borrowing by issuing bonds. Using pay-go capital allows DC to fund more construction projects than otherwise—such as renovating schools at a faster schedule—or reducing the need to borrow for the currently planned construction projects.  Both of those are worthwhile goals.

But it’s also worth thinking creatively about other possible uses of surplus funds, such as:

  • Repairing public housing: Thousands of DC public housing units are severely dilapidated, following decades of federal disinvestment. The DC Housing Authority is developing plans to address conditions, but there is no clear funding source.
  • Helping early childhood centers expand to meet growing demand. Several years ago, Mayor Bowser devoted $9 million to help private early childhood centers renovate and expand. With demand for child care high, lawmakers could devote surplus funds to support even more expansion.
  • Small business opportunities targeting residents of color: The average wealth of Black households in the DC area is just $3,500, compared with $284,000 for white households, a gap reflecting our nation’s and DC’s history of denying wealth-building opportunities to Black residents. The limited wealth of Black residents continues to deny them wealth-building opportunities in DC’s growing economy, such as starting a small business. Beyond that, many small businesses owned by Black and brown residents are at risk, as gentrification moves through communities of color and leads to rising rents and property taxes. (The latest victim is Horace and Dickey’s off H Street NE.) Legislation before the DC Council would create financial support for legacy small businesses, but funding will be needed.
  • Enhanced home purchase assistance for first-time homebuyers: The District has a Home Purchase Assistance Program (HPAP) to help low- and moderate-income residents buy their first home. The maximum HPAP grant, however, is just $80,000, which may be too low to make a home affordable to low-income residents. Lawmakers could use the FY 2019 surplus to provide larger HPAP funding to prospective homebuyers.
  • Funding a community land trust: Community land trusts are private organizations that buy and hold on to land, to support construction of housing that is affordable permanently and shielded from gentrification pressures. Currently, there is no public funding to support community land trusts.
  • Job Training Support: Unemployment among Black DC residents is seven times the unemployment among white residents, a gap that has widened as DC’s economy has grown. Lawmakers could use DC’s surplus funds to enhance job training opportunities for good-quality jobs.

These are just a few examples of how lawmakers could put to use DC’s newly available surplus funds to make a difference in the lives of DC residents and addressing DC’s long-standing inequities.

One final side note: While the 2019 surplus resulted in completely filling DC’s reserves, which are now over $1.4 billion, the sad reality is that restrictions placed on those funds will make them hard to use if DC ever faces a rainy day. To be truly excited about a large rainy-day fund, we also need to make sure it’s really available when needed. We’ll write about that soon, so stay tuned!