D.C. Council Chairman Phil Mendelson broke his own rules, and now we’re all paying for it.
In the lead-up to this year’s budget debates, the chairman sent an email to each of his colleagues informing them of the kind of budget shenanigans he would not tolerate. For one, committees were not allowed to propose tax increases, according to Mendelson’s rules.
Apparently, that rule doesn’t apply to the chairman.
Mendelson’s proposed budget contained three changes to the tax code, including a new and controversial 3 percent tax on advertising sales that turned this week’s legislative meeting into a “shitshow,” as At-Large Councilmember Elissa Silverman described it.
The chairman said he proposed tax increases in order to stave off similar efforts from his colleagues—a move that has backfired, he acknowledged, as three councilmembers came to the July 7 budget meeting with tax legislation of their own.
Ward 6 Councilmember Charles Allen tried and ultimately failed to raise taxes on residents who make more than $250,000. But he succeeded in delaying a tax cut for publicly traded companies, a move that will raise an estimated $7.4 million in revenue in Fiscal Year 2021.
An amendment from Ward 1 Councilmember Brianne Nadeau cut a tax subsidy for “qualified high tech companies,” which is expected to bring in $17 million.
And Ward 8 Councilmember Trayon White’s amendment successfully lowered the threshold for those subject to the estate tax from $5.6 million to $4 million, chipping in an estimated $1.8 million in revenue. Altogether, the Council is considering more than $66 million in tax increases to balance the Fiscal Year 2021 budget.
The chairman repeated his general aversion to raising taxes, as well as doing so within the budget process, throughout the meeting two weeks ago. He found support from Ward 3 Councilmember Mary Cheh and Ward 5 Councilmember Kenyan McDuffie, who echoed the chairman and lamented the lack of a more thorough and public process around the tax proposals.
“I think [raising taxes] in this fashion, in this budget hearing, virtually, is challenging, given the complexities not necessarily of the particular measures, but bringing all the measures together cumulatively,” McDuffie said.
“I agree that when we talk about taxes, we need to talk about it in a thoughtful, open process way, a comprehensive way,” Cheh added. “And that despite the fact that there may be all sorts of data out there, that is not the process that has produced this amendment.”
The frustrations with the lack of a more thorough vetting process for tax legislation in the budget is a symptom of a larger problem with what some budget watchers say is a flawed process. LL will get into that, but first, a brief explainer on how the budget process generally works.
Every year, the mayor submits a budget to the Council by a certain date. This year, the Council extended Mayor Muriel Bowser’s deadline to May due to the COVID-19 pandemic. The Council then has 70 days to pass the budget into law.
To arrive at the final budget, each Council committee considers the mayor’s proposed budgets for the agencies within their jurisdiction. Committee chairs are free to reconfigure those agencies’ budgets, but they generally do so using only the amount of money the mayor recommended.
The committees then submit their recommendations to Mendelson, who, as chair of the Committee of the Whole, assembles them into one cohesive budget for the entire District government. It’s the chair’s prerogative to keep the recommendations from the respective committees or change them entirely.
This year, Mendelson circulated his budget documents at 6 p.m. the evening before the Council was set to debate for the first time, leaving councilmembers and their staffs just 16 hours to review a 216-page document and react to the chairman’s changes and draft amendments.
But it doesn’t have to happen exactly that way.
Ed Lazere, a current at-large Council candidate and the former director of the D.C. Fiscal Policy Institute, a left-leaning think tank, cringed as he watched the initial budget debate. In a phone conversation ahead of the Council’s second budget meeting this week, Lazere laid out what he believes are some potential improvements to the process.
First, Lazere believes the Council chairman should be required to submit the budget proposal with enough time for the members (and the public) to understand what’s in it before the first vote. A week ought to be enough time, he says.
Of particular concern for Lazere and others this year was Mendelson’s proposed tax increases, which he included without a public hearing where policy experts or the people impacted by the taxes could weigh in. (Allen, Nadeau, and White’s tax legislation were also introduced without the typical public vetting.)
Faithful budget watchers will recall that Cheh tried last year to require Mendelson to publicize the budget 48 hours before the first budget vote.
Mendelson argued against Cheh’s proposal, saying that the short timeline (which the Council sets) and the amount of work that goes into assembling the budget makes it impossible to publicize it with that much notice. The chairman even dragged former chairman and current Ward 7 Councilmember Vince Gray into his argument, saying Gray “famously got one budget out, I think it was after midnight.”
In a phone call this week, Mendelson argues that Cheh’s proposed rule change would have imposed a constraint that doesn’t exist with other legislation and would give councilmembers even more opportunity to make changes to his budget.
“If there were four or five amendments after I circulated [the proposal] the day before [the vote], then if I were to circulate on July 3 or 4, I can guarantee there would be more amendments, more disorganization, more confusion,” Mendelson tells LL. “And it would be harder for the public to follow.”
Lazere believes that, by dividing the mayor’s budget into committees, the Council is tying its own hands. Currently, each committee works with a finite pile of money based on the budgets the mayor proposes for the agencies in their jurisdiction.
That set-up forces committee chairs to take money from one agency in order to fund another, which means major priorities could get shortchanged, Lazere says. He uses an example from last year’s budget, when At-Large Councilmember Anita Bonds struggled to find money for repairs to public housing. Mendelson plugged that hole with money from Events DC’s reserves, but Bonds didn’t have that ability, because Events DC isn’t in her committee’s jurisdiction.
“When you have the whole budget, you can find resources across the whole budget,” Lazere says. “When it’s within your committee, it’s harder to find big sums of money to fix big problems.” As an example, Lazere mentions the additional $13.6 million child care advocates requested but did not get.
Instead, Lazere proposes the Council identify its major priorities during a public hearing and fund them completely by drawing from the entire available budget.
Mendelson says Lazere’s proposal would be difficult to execute.
“It’s really hard in a group setting,” the chairman says. “If you put five of your friends around the kitchen table, and you say, ‘We have $16 billion, how do we spend it,’ it’s going to be difficult for you all to come to an agreement.”
Mendelson says that’s the point of the budget work session, a non-voting meeting where each councilmember lays out their committee’s recommendation. It’s during that discussion that Mendelson says he gets a sense of his colleagues’ priorities, which helps him assemble the budget.
To that, Lazere replies, “Bullshit. Most of the day is spent just presenting what the committees did. Anybody who watches those conversations would not say they are a serious give-and-take about how to fix problems across committees. That may be the intent. But that’s not the way it works out.”
Allen, who chairs the Committee on Judiciary and Public Safety, says committees and their staffs develop expertise and therefore play an important role in setting agency budgets.
Amber Harding, a lawyer for the Washington Legal Clinic for the Homeless who has tracked the District’s past 16 budget cycles, says another issue with the budget process stems from what she believes is a lack of effective Council oversight of executive agencies.
She uses a $12.6 million cut from the mayor’s homeless services budget as an example.
“No one has been able to say what the impact is,” Harding says. “The administration says they’re going to try to have contract negotiations and bring that down in a way that won’t impact services, but there’s not much more detail on it.”
LL is sure councilmembers will scoff at the notion that their oversight of executive agencies is subpar. But according to D.C. Auditor Kathy Patterson, Harding isn’t far off.
In a 2019 report, Patterson declared that the entire D.C. government isn’t following the law. In 2001, the Council passed legislation setting up the budgeting process once it was free of the federal control board. The law identifies three tiers of government operations—programs, activities, and services—and seeks to tie funding to the two deepest tiers: activities and services. The law requires agencies to submit detailed “strategic business plans” that explain how they’re spending money down to the service level and allow lawmakers to budget from zero rather than the previous year’s figures.
For example, investigative services is a program within the Metropolitan Police Department. Child investigations is one of the five activities within that program. And within that activity are three services: child abuse investigations, missing child investigations, and juvenile processing, according to Patterson’s report.
The framework, known as performance-based budgeting, is intended to give lawmakers a more precise idea of how much each service costs taxpayers. The law was supposed to be fully implemented in 2006. But by 2008, under Mayor Adrian Fenty’s administration, the detailed strategic business plans “came to be described as cumbersome” and were replaced with a new version of performance plans, Patterson’s report says. Patterson counted 12,000 services in the District government, but the required business plans hadn’t been submitted for several years.
“What has been lost, in a very practical sense, is to be able to tell taxpayers what they are paying for,” Patterson writes in the report. “They’re paying for salaries, by and large, with little further definition.”
This week, Mendelson says he was surprised to learn the night before the Council’s second budget debate, on July 21, that his ad sales tax had some unintended consequences. And that’s exactly the point, as several of his colleagues let him know.
As written, the legislation would tax every step in the process to create advertisements, rather than only the purchase of ad space from a newspaper or broadcaster. The chairman moved an amendment to fix the issue, reducing the estimated revenue by about $1 million, which Mendelson proposed to take out of the public libraries’ budget. Then all hell broke loose.
Allen pointed out that the Council rejected his amendment to raise taxes on the wealthy, and with Mendelson’s ad tax rollback, lawmakers were preparing to take money from the libraries, which serve as a significant resource for people without reliable internet access.
Ward 2 Councilmember Brooke Pinto, who at that point had been an elected councilmember for a total of 24 days, chided the three-term chairman for his “dangerous” tax policy “as evidenced by your comments a moment ago, respectfully, that it just came to your attention last night that it would negatively impact ad agencies.”
McDuffie echoed Pinto and repeated his concern about the impact the ad tax could have on small business and media outlets such as the Washington Informer. (City Paper would also be negatively impacted by the ad tax and its leadership has spoken against it.)
Gray asked what effect the tax would have on the Informer, a question Mendelson couldn’t completely answer.
Ultimately, Mendelson’s solution was to recess the meeting until Thursday while he digs through each committee’s budget to try and come up with $18 million in cuts to make up for lost revenue from the ad tax. Several councilmembers objected, saying the closed-door budget maneuvers fly in the face of good governing.
Allen asked Mendelson to explain the process for making cuts and presenting them to the Council.
“The process is as clear as milk,” the chairman said. “I will circulate something before we come back.”