DC Is Swimming in Cash--When Will it Spend Some of It to Make DC Stronger?
The District’s financial fortunes have turned around stunningly from the Great Recession. The city ran a $400 million surplus last year, and tax collections in 2013 are even better than in 2012. With the city’s population growing at the fastest rate in decades and construction cranes continuing to dot the horizon in many neighborhoods, things are looking good.
You might think this would have prompted discussions about neglected investments that the city could now afford to make. You’d be wrong. Mayor Gray wants to put the 2012 surplus in reserves, to help improve DC’s bond rating. And despite obvious signs of growing coffers this year, the CFO has declined to officially certify the new revenues – out of concern that federal budget cutbacks will kill DC’s economic buzz.
To borrow from The Rime of the Mariner, there is water, water everywhere but not a drop to drink.
That may change soon. Mayor Gray has signaled an interest in restoring cuts to programs that were left under-funded in the recession, such as programs that help build affordable housing. That is good news. While building up savings is fiscally responsible, so is making targeted investments that meet high priority needs and improve DC’s the quality of life. The good news is that it looks like DC will have resources to save some and spend some.
DC’s rising resources also are an opportunity to tackle some thorny problems. Prior to the recession, for example, the city started a process to end chronic homelessness, but that effort has stalled for years. DC Public Schools Chancellor wants to raise test scores at the lowest-performing schools, yet hasn’t been given any new resources to do so.
This enthusiasm needs to be dampened a bit by the outlook for the federal budget. If there are deep cuts, DC will have to make up for reduced grants in transportation, education, health care and more. And if cuts in the federal workforce are steep, the DC area will feel the effects especially hard. While that calls for some caution, it shouldn’t hold DC’s leaders back from making some smart uses of the growing revenues.
DC’s $400 Million Surplus: Wow!
Every January, the District finds out how our budget fared in the previous year, when the audit of city finances is released. Dr. Gandhi, the CFO, always steers the District’s financial ship to have at least a modest surplus – since a deficit could bring back a federal control board. But we never know just how large it will be. It is sort of like the city’s Christmas bonus, a month late.
Apparently we were good boys and girls last year. Revenues in 2012 were $400 million higher than expenses, both because tax collections were higher than expected ted and because expenditures were lower than expected.
Mayor Gray’s plan is to place 100% of any surplus into savings, to build up reserves that fell in the recession. The goal is to save $700 million in two recently created reserves. That is a lot of money to set aside, when there are school library shelves that are bare and funds to help victims of domestic violence are depleted. We at the DC Fiscal Policy Institute have always taken a spend some/save some approach to the city’s annual surplus.
That said, the savings million target should be reached soon, probably a year from now, and Mayor Gray says it will be ok to spend the surplus at that point. Beyond that, the city’s tax collections this year appear to be so strong that we can save the full surplus and still have resources to spend to improve education, health care, housing, and more.
Tax Collections Coming In Strongly This Year – But Not Officially
DC’s good financial news isn’t just about last year’s surplus. Tax collections are pouring in this year at a rapid clip, not because of rate changes but because the economy is doing so well. As of the first quarter of the city’s fiscal year, cash reports show collections are 18 percent higher than a year before. Imagine your salary rising 18 percent, or getting 18 percent return on an investment. That is how good the news is.
Except that the increase has not been officially recognized yet. The CFO has declined for an entire year to make any estimates of tax collections for 2013, even though such forecasts are supposed to be done every quarter. The reason? Dr. Gandhi has cited federal budget uncertainty to delay making projections of 2013 revenues. In particular, deep cuts from “sequestration” could lead to cuts in federal employment and contracting, which would hurt the DC region.
Yet when the next revenue forecast comes out – in February – the CFO will have four months of actual tax collections for 2013 to look at, and it will be hard for him to ignore that reality. The federal budget picture remains unclear, and probably will for some time. DC needs to move ahead and adjust economic and revenue forecasts as new information becomes available.
So What Can DC Do with its Growing Revenue?
To start, the District can restore programs that were cut in the recession. Funding for affordable housing fell one-fourth in recent years, even though rents in the city continued to rise in the recession.
Beyond restoring cuts, DC can make some bold investments to tackle problems that have vexed the city for years--such as eliminating chronic homelessness. During the winter, families have a right to shelter, and the system gets overwhelmed, leading to reliance on motels to house some families. Starting April 1, the District’s obligation ends, and families get turned away even if they have no safe place to go. With growing resources, the city can tackle homelessness year-round and in a way that gets families out of shelters as fast as possible.
Education is another area ready for transformation. Later this year, the city will release a study on the adequacy of funding for DC schools. Contrary to popular perception, DC does not spend a lot more per-pupil than suburban jurisdictions, if special education is taken out. The DCPS chancellor wants schools with proficiency rates hovering around 25% to gain 40 points over five years. That cannot be done without added resources for things such as longer school days
Finally, the District could use its new-found resources to make a number of smaller investments, such as extending library hours and enhancing library collections, better funding of job training programs, and expanding Capital Bikeshare.
There will be those who argue that the District should return the surplus through tax cuts. And that may make sense in targeted ways. But if the city is thriving now, with its current tax system, the argument for reducing taxes to improve competitiveness is weak. A 2011 poll of DC voters found that maintaining good services is far more important than holding taxes down.
It is great news that the District is a stronger city than it has been in a long time. The test for the Mayor and DC Council will be how they use the city’s growing resources to make it even stronger.
Lazere is the executive director of the DC Fiscal Policy Institute (www.dcfpi.org), which conducts research on tax and budget issues that affect low- and moderate-income DC residents.