The DC Council approved a final budget on May 13, 2008. This summary highlights some of the most significant elements of the FY 2009 budget, particularly with regard to programs for low- and moderate-income residents. This review also covers tax provisions in the FY 2009 budget, as well as budget earmarks, the use of budget reserves, and budget transparency issues.
- New Housing Initiatives: The FY 2009 housing budget proposed by Mayor Fenty included a $19 million for a “housing first” program for chronically homeless residents, and $10 million to finance 37 to72 units of affordable housing through the Land Acquisition for Housing Development Opportunities Program. The Mayor’s budget also provided $4 million to provide social services to residents of New Communities projects.
Local Rent Supplement: The Mayor’s proposed budget did not include any additional funding for the Local Rent Supplement Program. Advocates argued that increased funding was needed to help reduce the DC Housing Authority’s wait list and to support the development of new housing projects that can be affordable to very low-income residents only if rent subsidies are available. The DC Council added $2 million to the Local Rent Supplement Program, bringing funding from $19 million in FY 2008 to $21 million in FY 2009.
Inclusionary Zoning: The DC Council added $400,000 to support implementation of DC’s Inclusionary Zoning Program.
Overall Housing Funding Trend: While the FY 2009 budget includes some increases for affordable housing, funds for the Housing Production Trust Fund will decline 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 $38 million in FY 2009, far less than the $59 million funding level in FY 2007. As a result of these conflicting trends, total funding for housing in FY 2009 will be $161 million, slightly lower than the $163 million appropriated in 2008. At the same time, 2009 housing funding will be higher than in 2007 and previous years. 2006.
- Additional Funding for DC Public Schools: A lack of transparency in the DC Public Schools (DCPS) budget makes it difficult to assess the changes in education funding. The Mayor’s budget summary indicated that funding for local schools will increase by $39 million in FY 2009, but this figure could not be found in budget documents. An analysis by the DC Council’s Committee of the Whole suggested that the Mayor’s request for DCPS represented an increase of $67 million ‘ rather than $39 million ‘ through a combination of new policy initiatives and through transferring some functions out of DCPS (such as maintenance) without shifting the related funding. In either case, it appears that the FY 2009 budget includes a substantial increase in funding for DC Public Schools.The DC Council considered a proposal to shift $18 million from DCPS to the Office of Public Education Facilities Modernization to cover school maintenance responsibilities that had been transferred from DCPS to OPEFM. Ultimately, the Council chose to keep those funds within DCPS and identified other means to finance OPEFM’s maintenance functions.
- School Modernization Funds: The Mayor’s budget had proposed funding school maintenance in part by transferring $34 million from the school modernization fund, which is intended to support construction and major renovation of schools. This transfer would have reduced the number of schools that could be built or modernized over time. The DC Council reversed this decision, transferring the $34 million back to the school modernization fund.
- Pre-K for All Legislation Funding: The DC Council devoted $9 million to begin implementing the Pre-K for All program, which has a goal of providing access to pre-K education for all 3- and 4-year olds in the District.
- Maintaining Public Input into the Education Budget: In his budget request, the Mayor proposed repealing a law that requires the Mayor and Chancellor to hold public hearings before the education budget is submitted. The law was created to allow the public to provide feedback on education programs and funding levels while the Mayor’s budget is being developed. The Mayor argued that because his office is now in charge of the school system, DCPS should be treated like other government agencies, which do not have public hearings before the Mayor’s budget is submitted to the Council. The DC Council voted against the Mayor’s proposal and retained the existing law.
New “Healthy DC” Program: The DC Council included funding in the FY 2009 budget to implement the Healthy DC program, which will provide health insurance coverage to uninsured residents with incomes between 200 percent and 400 percent of the poverty line. The program would cap premium costs for participants at 3 percent of their gross income, although terms of other cost-sharing (co-pays and deductibles) have not been spelled out. The Healthy DC benefit package must be at least match the services provided under the Healthcare Alliance. The Alliance benefit package omits some major services, including substance abuse and mental health services. The Healthy DC program will be funded by increasing the cigarette tax by $1 per pack and placing a 2 percent tax on HMO’s and insurers in the District.
- Increased HealthCare Alliance Provider Reimbursement Rates: The Mayor’s proposed budget included $2.5 million to increase the primary care reimbursement rate in the HealthCare Alliance, DC’s health care program for uninsured residents with incomes below 200 percent of poverty. The Council eliminated this increase and devoted the funds to expanding Medicaid reimbursement rates. But the Council also added language to the Budget Support Act to require new or re-negotiated contracts with Alliance providers to include a $95 minimum reimbursement rate for primary care visits, a $30 increase. This would be the first time rates have increased since the beginning of the program in 2001.
- Medicaid increases: The Mayor’s proposed budget increased Medicaid reimbursement rates for day treatment services and residential treatment centers. It also expanded Medicaid services through the Elderly and Physically Disabled waiver and Intensive medical case-management to seniors and persons who are disabled. The DC Council provided $11.5 million in additional funding to increases Medicaid fee-for-service rates for specialty and primary care services to match Medicare rates.
Employment and Training
Workforce Development Funding: Mayor Fenty’s proposed FY 2009 Workforce Development budget was $50.4 million ‘ a decrease of $2.4 million from the FY 2008 revised budget when adjusted for inflation. Workforce development funding had been boosted in the FY 2008 supplemental budget with $14 million for the Transitional Employment Program and the Summer Youth Employment Program. The FY 2009 budget maintains the increase in SYEP but does not fully maintain the TEP increase. TEP funding in FY 2009 will be $14 million in FY 2009, compared with $19 million in FY 2008. (Nevertheless, the budget says this will eliminate the program’s wait list.)
While proposed local funding for FY 2009 is somewhat below the revised 2008 budget level, it is far higher than the $40 million in local funds appropriated for workforce development in FY 2007. In addition, the proposed FY 2009 funding level represents a long-term trend of increasing local commitment to workforce development. As recently as FY 2004, the District contributed only $6 million in local funds to this purpose.
New funds for Adult Training: The Mayor’s FY 2009 budget proposed establishing a new “Adult Training Account,” with an expected $2 million in funding from excess collections in the Unemployment Compensation administrative account. The creation of this fund was intended to make up for a decline in federal funding due to the rescission of Workforce Investment Act (WIA) dollars being applied to the District and all states. The Council eliminated the proposal to tap this funding source and instead approved a direct appropriation of $2 million for adult training programs.
- Funds to implement the “Accrued Sick and Safe Leave Act of 2008.” This new law requires all employers in the District to provide employees with a specified amount of paid leave address illness or domestic violence. The FY 2009 budget includes funds to cover the small number of DC government workers who have no paid leave and are affected by the law.
- TANF grant increase: The Mayor’s budget provides $1.3 million increase in local funds to provide additional cash assistance for TANF families. The maximum monthly benefit for a < ![if !supportLists]> < ![endif]>family of three would increase about $9, to $436 per month. The current maximum TANF benefit of $427 per month for a family of three equals only 29 percent of the federal poverty line. The FY 2009 increase just covers inflation — leaving these families at 29 percent of the poverty line in FY 2009.
- Mental Health Services for Children: The budget provides $2.5 million to enhance the Child and Family Services Agency’s funding for mental health services for children in the District’s child welfare system. This was a policy initiative in the Mayor’s proposal.
- Home visitation services: The Council increased funding by $500,000 for a home visiting program for at-risk families. The funding was directed to Mary’s Center for Maternal and Child Care.
- Earned Income Tax Credit Expansion: 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 by roughly $100, from $760 to $865 per year. DC’s EITC is the most generous state-level EITC in the nation.
- Business Property Tax Cut: Legislation adopted earlier this year established a trigger that would cut the commercial property tax rate ‘ 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 forced Mayor Fenty to make a number of cuts in the FY 2009 budget. In response, the Mayor’s budget proposed to eliminate this tax provision, and instead proposed a $15 million cut in business property taxes.
The Council added $6 million to the Mayor’s proposal and rejected the format of the Mayor’s tax cut. The tax provision adopted by the Council would lower the tax rate from $1.85 per $100 of assessed value to $1.65 for the first $3 million of assessed value of all commercial properties. 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.
Tax and Fee Increases
The FY 2009 includes several revenue enhancements intended to help balance the budget, totaling: It also tax increases to cover the costs of the new Healthy DC program that will extend health insurance to residents with incomes between 200 percent and 400 percent of the poverty line. 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 would double the tax on vacant land, from $5 per $100 of assessed value to $10.
- Increased charge for use of DC ambulances: $7.2 million. The Mayor’s budget proposed doubling ambulance fees, but some Council members raised concerns that this may place a burden on lower-income residents. 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.
- Increased 911 fee/311 Fee: The Mayor proposed increasing the monthly fee applied to all phones lines that is used to fund 911 and 311 services, but the DC Council rejected it.
- 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 interest tax rate had been matched to the deed tax rate. The FY 2009 budget raises the economic interest tax to once again match the deed tax rates.
Taxes to Support DC Healthy Families: 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.
- Other fees: $10 million. The budget includes increases in several business license fees and fees on private development projects.
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. Yet actions taken by the Mayor and DC Council effectively used all of the budget reserve for FY 2008 and FY 2009, leaving little cushion for unforeseen budget problems, such as declining revenues due to a slowing economy.
Mayor Fenty’s proposed FY 2009 budget included provisions to use the Budget Reserve to pay for a number of expenses that in the past been funded through their own appropriations. In recent years, for example, the District has spent between $20 million and $25 million to cover legal settlements and judgments. 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. Other actions by the Mayor had the effect of making commitments for at least $30 million of the reserve.
The DC Council took further actions to use the funds set aside in the Budget Reserve for FY 2009 as well as the current-year reserve for FY 2008. These actions were taken in part because a $35 million additional revenue shortfall was announced a week before the final Council vote on the budget, forcing the Council to find further savings to maintain a balanced budget. The actions by the Council had the effect of utilizing the remainder of both the FY 2008 and FY 2009 reserves.
The FY 2009 budget proposed by the Mayor included a substantial number of “earmarks” ‘ appropriations for specific organizations that are made without competition and are not tied to any specific DC program. The DC Council approved a number of additional earmarks when it approved the final budget on May 13.
A DCFPI analysis of the budget identifies roughly $64 million in earmarked funds to 150 organizations. (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.
- Public Access to Agency Requests for Funding Enhancements: The FY 2009 budget passed by the Council includes a provision requiring each DC agency to share with the Council the requests for funding enhancements that are submitted to the Office of Budget Planning (OBP) during the budget development process. This is important information for the Council to conduct its agency oversight functions, and the availability of this information will enhance the transparency of DC’s budget.
- Maintain Public Input process for Community Benefits Fund and Neighborhood Investment Fund: The Mayor’s budget proposed to remove the established community input process for determining the uses of the baseball Community Benefits Fund, and it proposed allowing funds under the Neighborhood Investment Fund to be spent before approval of an annual spending plan that must be developed with community input. The Council removed the proposed changes to allow the established community input processes to remain.
- Economic Development Support Fund: The Mayor’s budget proposed adding several new revenue sources to this fund, such as lease revenues from the Old Convention Center site. This fund, which is controlled by the Office of the Deputy Mayor for Planning and Economic Development, has very broad uses. The DC Council removed this provision, which means that the revenues sources that been targeted would continue to flow into the District’s general fund.
- Unified Housing Fund: The Mayor proposed creating this new fund as a way to devote re-payments from a number of affordable housing programs into one flexible fund. The Unified Fund raised concerns, however, because it would have very broad and loosely defined uses. The Council removed the major proposed funding source for the fund ‘ repayment of Home Purchase Assistance Program (HPAP) loans, and it narrowed the allowable uses of remaining funds to be more closely aligned to the provision of affordable housing. Additionally, a reporting requirement was added on the expenditures from the Unified Housing Fund each year.