John A. Wilson Building, home to the local government
John A. Wilson Building. Credit: Photo by Darrow Montgomery.

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The District ended fiscal year 2020 in a strong position. In the year of our lord 2020, the pension and retiree health care trust funds remained fully funded, and the city continued to have a AAA bond rating, so there is no risk of being managed by a federal Control Board. The District ended the fiscal year in September with $1.4 billion in its rainy day fund. This level of reserves equates to 60 days of operating cash that officials could use during an emergency. 

The good news comes from the Office of the Chief Financial Officer. The office’s financial report and testimony to the Council on Wednesday kicked off the budget season. The mayor’s FY 2022 budget is due March 31. 

Not everyone had a good year. In his testimony to the Council, Chief Financial Officer Jeffrey DeWitt noted that while higher-wage jobs expanded, lower-wage jobs were lost. An eye-popping statistic: New unemployment claims rose by 309 percent in fiscal year 2020 due to the coronavirus pandemic. Consequently, the District paid 1,206.61 percent more in unemployment insurance compared to the prior year. Ultimately, the D.C. government had a good year. At the end of fiscal year, the General Fund balance was $3.3 billion. 

“If you were to ask me in April what I thought was more probable—that we would overspend or underspend—I was worried about overspending because COVID costs were going up,” DeWitt told the Council. In April, DeWitt gave a grim financial outlook, where he predicted significant revenue loss. Instead, the District saw the greatest surplus that some sitting councilmembers said they’d ever seen, at half a billion. The dissonance between the city’s good year and some workers’ worst year did not sit well with lawmakers. 

Here are some highlights from DeWitt’s presentation to the Council:

  • The unemployment rate rose to 8.7 percent in September 2020, up from 5.3 percent a year ago.
  • The largest decline in employment in fiscal year 2020 was in the leisure and hospitality industry, which suffered a 43 percent decrease mostly due to COVID-19 restrictions.
  • Government revenue from real property taxes increased 5.1 percent compared to FY 2019.
  • Revenue from individual income taxes also increased 3.4 percent. (“On average, the ones that are doing better are offsetting the ones that are not so good when you look at total taxes,” explains DeWitt.)  
  • Corporate franchise tax revenue increased 13.3 percent. (“The 34 percent drop in the stock market, it all came back and then some,” explains DeWitt.) 
  • Revenue from sales and use taxes decreased by 22 percent.   

“We can not call this financial report of our economy good news unless we are content with the massive number of residents we are leaving behind, most of them people of color,” said At-Large Councilmember Robert White.

The Council uses the Office of the Chief Financial Officer to inform budgeting decisions. Given that the District overall did well while thousands of workers struggled to pay rent or put food on the table, could the government have done more last budget cycle? The Council wrestled with this very question throughout Wednesday’s hearing. Ward 6 Councilmember Charles Allen, for example, recalled how the Council rejected his proposal last budget cycle to modestly increase income taxes on individuals earning at least $250,000 to fund affordable housing. Some agencies like the Department of Human Services underspent $38 million largely because the District overestimated Medicaid enrollment and underestimated federal reimbursement for that insurance program. 

DeWitt says the District did better than expected thanks to federal assistance related to COVID-19. Aid like the CARES Act, PPP loans, and enhanced unemployment benefits totaled over $1.9 billion. He says that the strong financial results from 2020 will help with an uncertain 2021. Expect another financial forecast Feb. 28. Although, councilmembers—even ones who think it wise to be cautious like Ward 3’s Mary Cheh—voiced concerns that projections would miss the mark again.  

“I don’t disagree with any of you when you say we don’t want to leave money on the table when we have all these needs,” said DeWitt. “But I remind you that we were doing this forecast in April of 2020 when no one knew the level of federal funding. No one knew the impacts that COVID was going to have. No one knew how these sectors were going to be impacted.” Now his team is better prepared, he assured. 

Some councilmembers are eyeing the surplus and reserves to help workers in need. Council Chairman Phil Mendelson said the money by law has to be directed to the Housing Production Trust Fund and the capital fund for infrastructure needs, and that lawmakers may need to direct some of it to a $461.8 million shortfall over the four-year financial plan. DeWitt added, “I think there is a misunderstanding, you are significantly using your reserves as other states are. You are just not touching the cash flow and the emergency.” Some believe the mayor should try to change the reserve rules so officials could use, say, the cash flow reserve during hard times. 

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