For more than two decades, the District has prided itself on its balanced budgets, with its surplus nearing $1.5 billion dollars.
But now, the coronavirus pandemic that’s sweeping the nation is undermining that rosy picture. The District needs a steady stream of new money to run the day-to-day government and that stream is thinner and murkier than ever. One victim likely is Ward 6 Councilmember Charles Allen’s bold plan to use surplus funds to give D.C. residents up to $100 a month in Metro fares.
When the District this week agreed to match the federal government and delay income tax payments due April 15 to July 15, it meant an immediate loss in millions of dollars in uncollected taxes for 90 days or more.
Asked Wednesday by NBC4’s Mark Segraves whether the city also would delay about $1.4 billion in semi-annual property taxes due March 31, Mayor Muriel Bowserwinced.
“I would say that it would be very unlikely that we would be able to do that. It would be detrimental if not catastrophic for the District’s cash flow,” Bowser replied. She said the city needs a “consistent cash flow” to pay its own bills for vital services, “so we are closely watching the financial health of our city.”
Chief Financial Officer Jeffrey DeWitt has already publicly warned that city leaders may have to cut as much as $500 million from this year’s fiscal budget which ends September 30. That number could approach $1 billion, other informed observers say. By law, the city must balance its budget. It has done that since the late 1990s when a federal control board was imposed on the nearly bankrupt city. If the city falters again, the control board is automatically reimposed. DeWitt is scheduled to brief the Council again later this week on the gloomy revenue slump.
“When DeWitt first spoke to us, he put the fear of God in us, economically speaking,” says Ward 3 Councilmember Mary Cheh. “It’s a dangerous thing to lose your liquidity. Then you can’t pay your own bills”
An early victim of the virus disruption is that $100 Metro supplement proposal. Allen introduced it with great fanfare just weeks ago. He wanted then-routine, yearly budget surplus funds to pay for it. Now, those surpluses are likely gone. “Everybody recognizes the world is dramatically different than three weeks ago,” Allen says, but adds that people still need to get to work and the city needs to reduce auto traffic. “Transit is critically important to a high-functioning city. A crisis like this helps elevate [the issue].”
The mayor and Council also face a political problem. While they have bragged for years about the city’s fiscal health, there have been increasing calls from critics to spend more of the city surplus on social services and other programs. In the face of the coronavirus pandemic, the city has passed emergency legislation to extend unemployment benefits, grants to small businesses, and other needs even as the sources of revenue are drying up.
That budget surplus of about $1.43 billion in potentially spendable money is a tempting target. But it’s not just money sitting in a piggy bank. Officials say half the funds—about $700 million—may be temporarily used but must be repaid before the end of the fiscal year. The other half also may be used in narrow circumstances but requires complex repayments that would endanger future budgets.
And, before you ask, few leaders are interested in or calling for raising local taxes.
Income, property, and sales taxes are the three-legged stool of local taxes that raise about $8 billion a year. The remainder of the city’s $15 billion annual budget comes from federal programs like Medicaid and other federal funds that states also receive. While D.C. is often treated like a state when it comes to federal funding, it was shortchanged in the coronavirus stimulus bill making its way through Congress. A draft of the legislation the Senate approved Wednesday night treats the District as a territory and only grants it $500 million, as opposed to the $1.25 billion guaranteed to all 50 states.
The District collects about $2.9 billion a year from income taxes, another $2.8 billion a year in property taxes, and $1.7 billion in sales taxes. Sales taxes have cratered as the city has shut down. It will be up to DeWitt to report on that in the coming days and weeks. There was a sharp jump in sales taxes collected in February, officials said, a jump that vanished in March.
Property taxes are due in twice-yearly installments, on March 31 and September 30. The mayor and Council threw a lifeline to city hotels by delaying their spring property tax until July 15. That accounts for about $200 million. It’s unclear if hotels will have the money in July because the huge springtime influx of visitors to D.C. dried up faster than the fallen cherry blossoms laying on the ground.
“This is our biggest season and it’s a bust in many ways,” one city official says. Millions of dollars in lost revenue can’t be recovered, and the District is just starting to fully calculate the dire months ahead.
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