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Last year will go down as the roughest year economically since the Great Depression, for DC and the nation as a whole. Those of us who made it through relatively unscathed should feel lucky. If you weren’t so lucky, we hope 2010 will be better.
Fortunately, there are signs that the worst may be over. Unemployment has stopped its meteoric increase — it actually fell a tiny amount in November — and the city’s latest revenue forecast shows most tax sources are holding steady other than commercial property taxes.
But that doesn’t mean you should pull out your New Year’s noisemaker again. It’s sad that we’re cheering just because the economy isn’t getting any worse. Don’t forget that unemployment in DC still is at an all-time high, leaving thousands of residents struggling to get by. And the recession continues to batter the city’s pocketbook. With federal stimulus funds on the wane, the coming year may be harder than last for the DC government.
Finding a way to get through 2010 while preserving key public services is the biggest challenge Mayor Adrian Fenty and the DC Council face this year. We’ve already seen cuts in libraries, recreation centers, the DMV, public schools and housing. No one really wants to see any more cuts.
There are lots of metaphors that could apply. “Tightening our belts” is one, for sure. But the image we’d like to focus on is balance — like the balance of a scale or even the balance of a tightrope walker. A balanced approach to dealing with the recession is the best way to get through with the least damage. This means helping families victimized by the economy, protecting services that are key to the city’s future prosperity, trimming back in responsible ways, and looking for revenues that make it all possible.
Using Federal Funds to Help DC Residents Weather the Recession
Recessions are like a one-two punch: On one hand, residents’ needs are increasing. On the other hand, the ability of the government to respond is decreasing. However, there are ways the District can help residents without putting a large dent in the District’s budget.
Federal funds — especially stimulus money — are at the top of the list. The District would have not gotten through 2009 very well without the stimulus package, which provided “fiscal stabilization,” money to maintain our police force, weatherize homes and help residents facing foreclosure. And there are many signs it worked. The latest evidence: stimulus services kept 12,000 DC residents out of poverty in 2009. That’s impressive.
Some of the stimulus money is still around. The District used some to expand unemployment insurance, which will continue to help unemployed workers this year. And DC is still eligible for a good chunk of stimulus money for Temporary Assistance for Needy Families (TANF). We need to draw down all those funds and put them to good use, such as helping get job training to take advantage of job opportunities once the economy improves.
Use the Rainy Day Fund, for Goodness Sake
DC is one of the few places that has left its rainy day fund untouched during the recession. That’s a bad thing. Most states have been using their reserves, allowing them to preserve more services and limit tax increases. Maryland and Virginia used theirs, as did most of the states with AAA bond ratings.
The decision to dip into emergency savings is not always an easy one, but this one is sort of a no-brainer. As many have said, if this isn’t a rainy day, what is?
Opponents point to the crazy rules imposed on DC by Congress that make our rainy day fund inaccessible. Most crazy is the requirement to start paying back funds right away — with the recession still in effect. But rather than throwing up our hands, we should ask Congress to set our rules more in line with other states, which don’t refill reserves until their economies recover. Surely a Congress that allowed DC to legalize medical marijuana would be open to letting us use our reserves as we see fit.
Time to Go on a Tax Abatement Diet
A little-noticed — but disconcerting — trend last year was the steady stream of businesses seeking a handout from the city through tax breaks. Nearly 20 tax abatement proposals were introduced in 2009, and several were approved, including $7 million for CoStar to move employees from Bethesda to DC and $13 million for high-end residential developments smack dab above the Metro stations at Columbia Heights and Georgia Avenue-Petworth.
The mayor and some DC councilmembers say this is a cost-free economic development tool — the “you have to spend money to make money” argument. Yet the abatements will drain millions from future revenues that might otherwise be used for paving streets, training workers, and providing emergency housing to vulnerable families.
Given the city’s tight finances, taking a break from business tax breaks in 2010 makes sense.
Better scrutiny before tax breaks are awarded also is needed. Banks won’t give residents or businesses a loan without asking why the money is needed. Amazingly, DC doesn’t ask these questions when developers ask for big tax breaks. That’s why we support At-Large Councilmember Michael Brown’s common-sense bill to have the city assess whether a commercial development asking for a tax break really needs it.
Tax Increases — Part of a Balanced Approach
Maximizing federal stimulus funds, using rainy day reserves and limiting new tax abatements are all part of a balanced approach to getting through 2010. But they may not be enough.
Most states have found the problems caused by the recession are too big to address with spending cuts alone. Thirty states have raised taxes in addition to scaling back services.
Here are some possibilities: DC and Indiana are the only places that allow residents to claim a tax break when they invest in bonds from other states. We should get rid of that. Expanding the DC sales tax to cover a wider range of consumer purchases also is another option. For example, residents pay no sales tax for pet grooming services, yet they pay sales tax on pet shampoo if they do the job themselves. That doesn’t make sense.
A number of states also have chosen to raise income taxes on well-to-do residents. It makes a lot of sense, since those are the people who have weathered the economic downturn the best. DC residents with taxable income above $40,000 pay the same rate, 8.5 percent, whether they are millionaires or middle-class. Ward 1 Councilmember Jim Graham introduced legislation to raise income taxes for residents earning $500,000 or more. It — or something like it — should be considered this year.
Making the Budget Easier to Understand
This year is the Year of the Tiger, according to Chinese restaurant placemats. In DC, we’d like to make 2010 the year of budget transparency!
Particularly when finances are tight, the public should be able to find out how the DC government is spending their money. Despite improvements last year, the budget is still often unintelligible. Last year, we struggled to get the Summer Youth Employment Program listed as its one-line item. That’s one program down and a thousand more to go. The mayor’s office is committed to begin putting this kind of detail in the budget in fiscal year 2011. We look forward to the results.
DC also needs to put more budget and performance information on the web. We know agencies are tracking this information. They should share it in accessible user-friendly ways. Did Vivek Kundra take all the secrets of the digital age with him to the White House?
Keeping Our Balance — It Can Be Done
All of this may sound like a lot of work, but it is all doable. You might call it a tightrope walk. But like a good tightrope walker, the District budget can make it across 2010 unscathed if just focuses on taking a balanced approach. |
