City Paper is not for tourists
Here’s some Marion Barry trivia for you:
82: That’s at least how old Barry will be when he makes his last payment to the federal government to settle taxes he failed to pay between 1999 and 2004, depending on interest rates and his income. It’ll be sometime after 2017.
101: That’s at least how old Barry will be when he makes the last payment to settle his D.C. tax debt. It’ll be sometime after 2037.
Of course, that last part assumes that Barry would actually voluntarily pay what he owes under the plan. Where the feds are currently garnishing $2,700 a month from his council paycheck—meaning that amount is automatically deducted by his employer—the District was not. The agreement between the D.C. government and Barry, dating to shortly after his 2005 guilty plea, relied on the Ward 8 councilmember to voluntarily fork over $350 per month.
And guess what—for a long period of time, he didn’t comply.
According to documents filed in federal court last week, Barry stopped paying his $350 monthlies last July and only “renewed his repayment schedule” weeks ago, after another round of tax woes had hit the news and prosecutors once again were asking that Barry be sent to jail. As it stands, Barry is in legal limbo; his three years of probation were set to expire last month, but prosecutors have now asked for an additional two years of supervision—if not jail—given his failure to file a 2007 return.
Since Barry’s tax woes were first disclosed, most of the attention has been placed on the sum owed to the federal government—a figure which, before he paid a dime, stood at more than $343,000, according to tax liens filed in August 2006 on a pair of Ward 8 properties once occupied by Barry. His balance is now under $278,000, according to court filings.
But hardened tax scofflaws like Barry tend not to be choosy about which jurisdictions they stiff—he failed to pay D.C. as well as the feds. Using the amounts provided on the liens and in court documents, LL calculated, with expert assistance, Barry’s taxable income for the years in question and used those figures to come up with his District tax liability.
With penalties and interest, LL has calculated that Barry owes between $129,000 and $160,000 to the District government. This is as close as LL could get to official confirmation of the sum: Says Attorney General Peter Nickles, “My understanding is that it’s significant.”
So why did the District government agree to take no more than $4,200 per year from him? And why didn’t the Office of Tax and Revenue garnish Barry’s wages—after all, by January 2005, Barry was pulling down a government paycheck of more than $92,000. Couldn’t the government just hold on to that $350 a month?
LL sees two possibilities. First, the Office of Tax and Revenue extended to Barry a sweetheart deal. When the deal was first struck, the payment plan amounted to about 4.5 percent of his council income. These days, with council salaries hiked to more than $120,000, it’s less than 3.5 percent of his yearly income.
LL spends that much on his cable bill.
On the garnishment question, the city finance office explains that such action is pursued only after an indebted taxpayer fails to pay up. Nickles says it’s his understanding that city is either now garnishing the monthly $350 from Barry’s earnings or will be shortly.
How puny is that repayment schedule? Well, if Barry owes on the high end of LL’s carefully crafted extrapolation, and the District is indeed charging interest, then Barry’s contributions don’t even cover the 10 percent rate on D.C. tax debt.
In a Washington Post editorial printed last Sunday, Chief Financial Officer Natwar M. Gandhi is paraphrased saying that Barry “was treated no differently from any other citizen.” And there is some reason to believe him: The other possibility is that Barry is broke.
The city explains the settlement process thusly: Staffers from the Office of Tax and Revenue have a debtor fill out a financial statement. The bureaucrats then determine the difference between income and necessary expenses and take that sum to settle the debt. Depending on the size of the settlement, various OTR higher-ups have to sign off.
That approach is echoed by Michael Fletcher, an accountant who has been involved with multiple negotiations with the Office of Tax and Revenue. He indicatesthat the District’s approach to tax scofflaws tends to follow the old dictum “from each according to his ability.” Ability to pay, that is.
The calculation, according to Fletcher, is “whether to make some sort of arrangement to get payment or shove this person into bankruptcy.”
In a bankruptcy proceeding, governments are among the first to collect the beleaguered’s assets, but that’s a worthwhile proposition only if the beleaguered has assets. Barry’s portfolio is a bare-bones proposition. He owns no property in the District under his own name, for starters. Meaning that the city is left with his paycheck.
And if you believe the city, Barry only has $350 a month in spare earnings after accounting for his debts and living expenses.
There is some history to support claims of poverty: A previous LL reported in 2004 that Barry, after leaving the mayor’s office in 1999, took a rainmaking gig with investment bank M.R. Beal & Co. But according to filings the firm made with federal regulators, Barry didn’t make enough to maintain the mayoral lifestyle to which he’d become accustomed—even without paying his taxes. He never made more than $64,000 from Beal, in addition to a $30,000-plus District pension and other contracting work.
Barry’s lifestyle outstripped his income, so friends gathered in 2003 to set up a fund to take care of his personal bills. The fund was set up as a “blind trust”—Barry had no idea who or how much was being placed into the account.
These days, his council income barely outstrips what he was making during his high-finance days. Take out his current taxes, now being withheld, and the back taxes being garnished by the feds, and Barry is likely keeping less than half his earnings.
Longtime confidante Bernard Demczuk points out, as many have before him, that Barry’s never been a wealthy man. These days, he says, “I imagine that he doesn’t have much disposable income.”
In other words, he has as much need as ever for a blind trust. Lawyers David Wilmot and Frederick Cooke, said by multiple sources to have controlled the fund, did not return phone calls to inquire about the fund’s status.
Barry has clearly had some spare income—for an international getaway, for instance.
In September, after winning the primary re-election, Barry jetted off to Jamaica for a week, accompanied by his son, Christopher, and a companion of his. The trip prompted grumblings among campaign staff who hadn’t received paychecks. And it required the judge in charge of the tax case, federal magistrate Deborah A. Robinson, to sign off on his foreign travel due to his probation.
Jumping through such hoops, LL is told, has Barry chafing. In addition to travel restrictions, he has to account in writing to federal agents how every dollar of each paycheck is being spent, lest they decide to garnish an even larger sum.
With the end of his probation approaching this month, Barry had mentioned to a group of staffers earlier this year that he wanted to throw a party to celebrate his freedom, which was to be granted March 20. Something big, he said. Serious.
Within weeks, however, news broke that he had once again failed to file a tax return. Since then, LL is told, Barry hasn’t mentioned a thing about the party.
He is scheduled to appear before Robinson on April 16.
Should District-Funded Lawyers Be Able to Sue the District?
For the past two years, the District has budgeted millions of dollars to help the poor hire lawyers to do civil legal work. This year, for instance, $3.6 million has been handed to the D.C. Bar Foundation to be disbursed to various groups that represent the indigent.
Some of that money, no doubt, is used to sue the District government. Poor people, after all, find themselves often in conflict with the government they depend on for basic services like housing, food, health care, education, and more. But should they have the right to a District-paid civil lawyer to settle those conflicts?
Attorney General Nickles sees that as a potentially untenable biting-the-hand-that-feeds-you situation. Thus draft budget legislation submitted last month includes language that requires the Bar Foundation to itemize in quarterly reports “the amount of grant funding used…to prepare for or conduct litigation against the District of Columbia,” among many other requirements. Furthermore, the legislation authorizes said attorney general to issue rules on the “permissible use of grant funds.”
Nickles says he just wants the information for now but adds that, if the data indicate a problem, he’s fully prepared to issue rules restricting lawsuits against the District. “Seems to me,” he says, “there’s something wrong with the system when I, as the taxpayer, am paying money to be sued.”
Further, in a budget crunch this tight, he says, the trade-offs are stark: “If it comes to a decision between firing my lawyers and giving the Bar Foundation funding…I will choose not firing my lawyers. They’re doing important work.” Important public service work, he adds—suing slumlords and such.
On Feb. 24, Nickles sent a letter to the Bar Foundation asking for similar information; the foundation’s executive director, Katherine L. Garrett, replied by saying that her group did not collect precise information along those lines, but did point out that “it is inevitable that legal representation of those residents [living in poverty] will involve matters against the District.”
Jonathan Smith, executive direction of the Legal Aid Society of D.C., says the city funds are used for things like landlord-tenant disputes, child-support conflicts, and issues with public benefits. As for massive high-stakes litigation seeking wholesale changes to District agencies? “That’s not the kind of thing that anyone’s contemplating doing” with city money, Smith says.
The conflict heated up last week with the release of the mayoral budget, which in addition to the proposed reporting requirements, cuts city funding for civil legal assistance from $3.6 million to $2.6 million.
Phil Mendelson, who has oversight of Nickles’ office as chair of the council judiciary committee, questioned the wisdom placing restrictions on grantees: “I don’t think we should be getting into the content of litigation….If we’re going to help provide representation to the poor, we can’t then be qualifying that.”
At a budget hearing last week, Peter Edelman—a Georgetown University law professor who is chair of the Access to Justice Commission, which agitated for the District funding in the first place—testified earlier in the day that the language “could chill the legitimate work of lawyers on behalf of clients.”
Mendelson and Mary Cheh both questioned Nickles as to his intentions. Cheh warned the AG to proceed at his peril, calling the idea of restricting grantees from anti-District litigation “astonishing,” “highly objectionable,” and “potentially pernicious.”
Get Loose Lips Daily every weekday morning in your inbox—sign up at washingtoncitypaper.com/blogs/citydesk. Got a tip for LL? Send suggestions to firstname.lastname@example.org. Or call (202) 332-2100, x 460, 24 hours a day.