With all the discussions of individual aspects of the budget recently approved by the Council, it is all too easy to lose the forest in the trees. Let’s try to zoom out a bit, then zoom back in, all in a way that’s more approachable by the average District resident.
Due to the District’s unusual status, the budget approval process is also complicated, involving passage of two pieces of legislation. The second of the two, the more detailed Budget Support Act, contains details of new programs and initiatives, as well as new policies for the District government. The Budget Support Act (BSA) must be voted on twice—it was approved 13-0 on May 28 and 12-1 on June 24. Subsequently, the Mayor vetoed an emergency version of the BSA, and on Monday, July 14, the Council will consider an override of the Mayor’s veto. If the veto is not overriden, the individual and business tax savings outlined in the charts below will never occur.
If the Council overrides the Mayor’s veto, then, like all DC legislation, the act will go to Congress and it will go into effect after 30 Congressional legislative days have passed without Congress taking action to block it. (District voters overwhelmingly approved a referendum that would allow the District to spend its locally-raised revenues without Congressional review, and the Council has taken the Mayor to court to have this budget autonomy implemented. For additional information, click here.)
Once the budget ultimately becomes law as anticipated, it will determine how approximately $12.6 billion is spent.
The primary objectives of the budget as passed include:
Implementing Tax Revision Commission’s Proposed Revisions
The District of Columbia is a dynamic and rapidly growing city–one that looks very different than it did twenty years ago. As such, the Council felt it was important to take a fresh look at the District’s tax code and determine ways to make it more progressive, broad, and fair to District residents and businesses. The result of this effort: most individuals earning under $500K a year will ultimately save $400-800 a year in taxes, and businesses will ultimately see their tax bill cut by 17 percent.
In 2011, the Council reestablished the Tax Revision Commission, ably headed by former Mayor Anthony Williams, and composed of business people, academics, and professionals representing socioeconomically diverse individuals and businesses, all nominated by the Mayor or Council Chair. Its final report was unanimously approved by its members and reported out in May.
Although tax cuts often are seen as benefiting the wealthy, the package of cuts in the Council’s budget was designed to be progressive and compassionate, ultimately putting hundreds of dollars a year back in the pockets of our city’s least affluent citizens. Given the difficulty of surviving on a tight budget, it is certain that these tax savings will immediately be reinjected into the local economy, spent in our neighborhood businesses, and a portion of these expenditures will even return to the District’s coffers through the payment of sales taxes.
Specifically, the budget as passed will ultimately result in tax savings of several hundred to nearly a thousand dollars per person, per year, as can be seen here: 1
These savings result from a number of specific tax code changes, including the creation of a new middle tax bracket, an increase in the standard deduction, and an expansion of the local Earned Income Tax Credit (EITC) to single workers. Being a progressive tax package, at the other end of the income spectrum, a new tax bracket was created for those earning between $350K and $1M, and the personal exemption is gradually phased out for earnings of $150K to $275K, and entirely at incomes above that.
An additional progressive tax change included in the budget was an extension of the District’s 5.75% sales tax, originally applied just to goods, to certain services. Given that every year, the local and national economies become less focused on goods and more focused on services, a sales tax applied strictly to goods applies to a smaller percentage of the economy each year. Additionally, it is estimated that a sales tax applied strictly to goods impacts those with lower incomes disproportionately, since service consumption is focused more at higher incomes. Contrary to popular belief, many services already have the DC sales tax applied to them. In fact, of 183 services recognized by accountants, 74 are already taxed by the District. So, in fact, by extending the sales tax to services such as gym memberships, bowling, and water delivery, the District is simply closing a loophole, and applying the tax to some additional services that had previously been excluded.
In regards to making DC’s business taxes more competitive with those in our neighboring jurisdictions, the District will be gradually decreasing its business franchise tax from 9.975% to 8.25%. The rate will initially decrease to 9.4% on January 1. Then, like many tax reforms in the budget, once certain revenue targets have been met, additional decreases will kick in as revenue targets are met. Ultimately, businesses will see their tax bill cut by 17 percent a year, as can be seen here: 2
Similar to the tax cuts on lower and middle income individuals, the money smaller businesses save through these tax cuts is very likely to be immediately reinvested in the local economy, through increased employment, additional spending, or other investment in business expansion.
Also built into the schedule of revenue-based tax reductions is a one-time correction of a $181 million funds imbalance in the Financial Plan for FY 2016. Current revenue projections for the coming years would allow for the entire spectrum of proposed tax cuts to be implemented. However, even if revenues fall below projections, the planned tax cuts are “stepped” so that they will kick in partially as partial goals are met.
Human Support Services and Affordable Housing
The Council’s budget addresses key threats to the well-being of District residents, including the ongoing family homelessness and affordable housing crises, the crippling effect of chronic diseases, and the health and mental needs of District youth in a number of ways.
Specifically, the Council increased the budget for the D.C. Office on Aging by $1.25 million to increase funding for senior transportation services and enhance grants made to outstanding providers across the District. The Council also provided an additional $2 million in support of the Tobacco Control Program to allow for improved tobacco cessation efforts. To further address the health and well-being of District residents, the FY15 budget also creates a local enhancement to the Supplemental Nutritional Assistance Program (SNAP) to ensure that no resident receives less than $30 per month in vital nutrition assistance.
As evidenced by this past winter’s rise in the number of families seeking shelter, the District must continually make significant investments in preventing, treating, and ending homelessness. Therefore, to address these goals and the growing problem of family and individual homelessness the Council took the following steps in the FY 2015 budget:
In addition to the homeless programs described in the chart on this page, the Council invested resources in related safety net programs that provide financial resources to stabilize families and keep them from becoming homeless.
For example, adults who are homeless or at risk of becoming homeless face significant hurdles in obtaining Social Security Income (“SSI”) and Social Security Disability Insurance (“SSDI”), even if they are eligible. To assist these individuals, the Council funded an SSI/SSDI Outreach, Access, and Recovery (“SOAR”) program. SOAR is a national project that has proven successful at assisting high-risk individuals in obtaining SSI/SSDI benefits they are eligible for more quickly.
The Council is directing funding to provide additional POWER eligibility – to mothers with children under six months of age. By ensuring new mothers continue receiving their full TANF benefits after the birth of a child, the Council is protecting children and allowing families a starting point on the path to self-sufficiency. Finally, to further address the health and wellbeing of District residents, the FY 2015 budget also creates a local enhancement to the Supplemental Nutritional Assistance Program (SNAP) to ensure that no resident receives less than $30 per month in vital nutrition assistance.
Affordable housing continues to be a top priority for the Council. In support of that priority, the Council is directing an additional $4.3 million to the Department of Housing and Community Development for the development of affordable senior housing. This amount will also fund a pilot project to study how best to develop affordable housing and wrap-around services for the District’s LGBT seniors. To enhance the production of affordable housing units, the Council provides $1 million to create a locally funded Low-Income Housing Tax Credit (LIHTC). Many states across the country also provide a state funded LIHTC to further accelerate the production of affordable housing for very low-income residents.
Within the capital budget for the human support services agencies, the Council is following the advice of the District’s hired turnaround consultants, and fully funding the $155 million in capital investments necessary to improve the current UMC facility, attract an operating partner, rebrand UMC, encourage more residents to utilize the facility’s services, and improve patient services.
For Fiscal Year 2015, the Council continues its unwavering efforts to improve public education for all District children. The Council strongly believes that adequate funding for public education is imperative to improving social outcomes for youth across the city.
In an effort to achieve this, the Council unanimously approved, and the Mayor signed, the Fair Student Funding and School Based Budgeting Act which added a weight to the Uniform Per-Pupil Funding Formula for at-risk students. The goal of this addition was to ensure that schools with at-risk students had the funding needed to provide critical supports and services for these students. Through savings identified throughout DC Public Schools, the Council restored $3.6 million to the budgets of 35 schools that received less than half their expected at-risk funding for their student population because of how DCPS originally allocated the at-risk funding. The Council also provided $1.4 million to those charter schools that lost significant funding for their successful summer school programs because of the elimination of this weight. Finally, the Council restored $1 million to the successful Community Schools program to integrate academics, health and social services, youth and community development, and community engagement.
The Council’s modifications to the Mayor’s proposed budget show the legislature’s continued efforts to invest in viable infrastructure and environmental preservation that encourages and supports the District’s long-term economic and population growth.
The Council dedicated $587 million toward the streetcar project in the FY 2015 – FY 2020 capital improvement plan – a decrease from the Mayor’s proposed budget. While the Council is supportive of the Streetcar initiative, it is also concerned about the amount of funding being diverted from future operating budgets and about DDOT’s capacity to effectively manage the project.
Since 2006, the streetcar project has been budgeted $222 million, and has spent $114 million. As of July 11, 2014, the project has an unspent allotment of $107 million. The Council chose not to bank money for a project that has no track record of spending the funds already allocated for it. By comparison, the $983 million the mayor wants to “bank” in the streetcar project is 36% more than the $721 million we will be investing in desperately needed WMATA capital improvements over the same period.
The Council’s budget would maintain a 6-year, $400 million investment in streetcar capital projects (federal and local funds), give priority to the H Street Line, dedicate $45 to $65 million of operating funds to the projects annually, and supplement the dedicated funding stream with other paygo or GO/IT bond financing, as needed. This amount of funding is consistent with annual budget allotments that the project has received in recent years and exceeds DDOT’s annual spending on streetcar projects to date.
As DDOT’s Chief Engineer has indicated, streetcar tracks on the H Street Bridge over the Union Station railroad tracks are temporary because the bridge must be replaced within the next three to five years. The replacement is critical if the streetcar line is to extend west along K Street. Therefore, the Council is adding $187 million of funding to the streetcar project to be used to support full replacement of the bridge. The Council directed the Mayor to amend the regional Transportation Improvement Program to include full replacement of the bridge so that federal financial assistance can be made available, and the bridge can be replaced by FY 2018. This action, combined with the previously cited $400 million, leaves a total of $587 million in the streetcar project – more than the projected need when the FY 2014-2019 Capital Improvements Plan was adopted.
1 New average tax amounts are based upon full implementation of the tax changes. Some tax relief will take immediate effect on January 1, 2015, including a new individual income tax middle bracket, an increased standard deduction, and an expanded earned income tax credit. Beginning January 1, 2016, additional tax relief will be triggered based on revenue growth realized after each fiscal year’s budget is approved. Full implementation of all tax reforms is expected in the next 3 to 5 years.
2 The Budget Support Act as passed by the Council will lead to a 17% reduction in the District’s business franchise tax – from 9.975% to 8.25%. On January 1, 2015 the rate will drop to 9.4%. Beginning January 1, 2016, additional decreases in the rate (in 0.2% to 0.25% increments) will be triggered based on revenue growth realized after each fiscal year’s budget is approved. The projected annual franchise tax savings shown in the chart above are based upon a fully implemented decrease in the business franchise tax rate to 8.25%, which is anticipated in the next 3 to 5 years.