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The all-important DC primaries are finally upon us. By the time you read this, voters may have selected candidates for the November ballot – or they will very soon.

Whoever wins will inherit a city that has been hit by a devastating economic and financial storm. Poverty has risen sharply as unemployment soared to nearly 30 percent in some areas of the city. Faltering DC finances have forced cuts from libraries and recreation centers to affordable housing and adult education, just to name a few. While there actually are more jobs today than before the recession, DC residents aren’t getting those jobs. And gentrification continues to price more and more residents out of the city.

DC’s finances have received a lot of attention this election season, but the focus has been mainly on how DC’s savings account – or fund balance – has declined. That focus is puzzling because is it really so surprising, or bad, that DC has spent down savings in a recession? Isn’t that what you do? You save during good times, to get you through the bad times. The fact that our fund balance is healthier than that of 43 states suggests the worry is overblown.

Much greater fiscal challenges facing the mayor and council next year. How will the city restore cuts to services that support neighborhoods and residents? How will DC make smart investments in training and economic development to make sure residents benefit from the economic recovery we hope to see? How can policymakers update the tax system to help the city grow out of the recession?

Here are three key issues that need to be addressed.

Getting DC Back on Its Feet Post-Recession
DC’s finances will continue to be tight for some time. Yet after three years of high unemployment and budget cuts that affected nearly every city service, the challenge for policymakers  will be to set an investment agenda, especially as the economy bounces back and more jobs are created. Some of the major questions to be answered:

How can we keep neighborhood services strong? DC has built or renovated a number of libraries and recreation centers in recent years, but money to operate them has been cut. It will be important to make sure new facilities can offer a full range of services and that they are maintained for the long-term.
How can we keep DC an affordable place to live? The recession led to huge increases in homelessness and foreclosures, and at the same time to severe cuts in funding for affordable housing. Rents have started to rise again, after a short break in the recession, suggesting a return to the gentrification that is revitalizing the city, but also pricing out many of our neighbors. How will the Mayor and Council ensure that this city remains livable for all residents?

How will DC prepare residents for a resurging job market? DC is adding jobs, but they are not going to many of the unemployed DC residents. Just this July, jobs in the city jumped 18,000, but the number of working DC residents actually fell. Where, and how, will policymakers make investments to help residents get the training they need to take advantage of the jobs the District is creating?

A smart investment agenda calls for clear priorities and sticking to adopted budgets. With DC’s finances being so tight, overspending in one area of the budget could mean another area of the budget is unfairly cut as a result. 

Building a Tax System for the Future
Every major source of revenue has suffered, leading to a huge drop in tax collections. Both the Mayor and Council moved to raise some revenue sources, but it was done in a haphazard way. Increases in parking rates and other fees and fines left residents feeling nickled and dimed. Increases in sales and gas taxes, among others, have fell most heavily on middle class and low-income residents.

We are now at a point where taxes paid by DC residents generally are lower than in the suburbs (no, seriously). But we have a tax system where working poor residents shell out a larger share of their income than high-income residents.

Two big questions facing the mayor and council on taxes are:
Will taxes need to be raised? Given DC’s fragile finances, this is a definite possibility.  It would be better to make smart adjustments to our basic tax system than to rely on more fee and fine increases. Take DC’s income tax. The top income tax rate starts at $40,000, meaning middle-class residents and wealthy residents pay the same rate. Creating new brackets for high-income folks would be a good place to start because it makes our tax system fairer and helps us weather the financial storm. It is an approach taken by many states in recent years and endorsed by many economists.

Is it time for tax reform? There hasn’t been a hard look at DC’s tax system for over a decade. Yet there have been notable changes throughout. A comprehensive review to make sure our taxes are efficient, well matched to DC’s economy, easy to administer, and fair is in order. It’s also a good time to look at the hundreds of tax exemptions and credits on the books. Not only could this strengthen DC’s finances, but some have been on the books for years and years, and may no longer be giving DC much bang for the buck.   

Making the Most of  Economic Development Investments
As DC’s economic engine starts to rev up again, we’ll be looking to see how the Mayor and Council target development aid to areas that need it the most, how they will use economic development to create more quality jobs, and how they will help small neighborhood businesses.

Getting a handle on DC’s latest economic development craze – tax abatements for big developments – is important both to DC finances and a better economic investment strategy. An increasing number of developers and businesses have come to DC officials asking for tax breaks that cost the city tens of millions of dollars each year. Yet, research finds that they don’t really encourage new development (most tax abatements are sought after a business has decided to locate), they tend to favor big businesses over small local businesses (think of DC’s attempt to lure Northrop Grumman), and no one is checking to see if the businesses actually need the abatement to move their projects forward.

A Focus on DC’s Future
The fiscal health of the District is important, but focusing simply on DC’s savings account balance doesn’t tell us all we need to know. Instead, focusing on how policymakers will reinvest in our city and its residents, reform our tax system, and get a handle on economic development will go a long to setting a fiscal policy agenda that will address DC’s biggest fiscal problem – getting out of the recession.