Greater Greater Washington

Posts by Jenny Reed

Jenny Reed is a Research Associate at the DC Fiscal Policy Institute. Before coming to DCFPI she worked for several years on children's issues, ranging from social work for children to grants administration. 

Deputy Mayor wants to give $7 million to one tech company

Next year will be tough for many DC residents, companies, and agencies. But it could be a good year to be a "high technology commercial real estate database and service provider."


Photo by thinkpanama.

Under a new bill introduced in the DC Council, these businesses, and only these businesses, would get up to $700,000 in annual property tax breaks for 10 yearsa $7 million subsidy. Why these companies? Or, more accurately, why this one company?

The criteria for eligible recipients of the proposed tax abatement are very specific. No companies are named in the legislation, but a representative from the Deputy Mayor for Planning and Economic Development testified at the DC Council hearing that they are actively recruiting one company, which they didn't name, but which the WBJ has identified as CoStar, currently located in downtown Bethesda.

The Deputy Mayor's office said that these subsidies were important because office vacancy rates are high in the District. Yet, despite an increase over the past year, DC's office vacancy rate is still the second lowest in the nation. And DC's vacancy rate is much lower than our suburban counterparts in Maryland and Virginia, indicating that DC is still a more attractive place to be for many companies.

The Deputy Mayor's office also talked about DC's unemployment rate being very high, which is true. But CoStar would simply relocate 400 employees at first, with hopes but no commitment to expand to 1,000. Their headquarters are already on Metro, in Bethesda. Relocating jobs from a transit-accessible location near DC is not creating new jobs for DC residents.

CoStar already qualifies for broader incentives. According to DMPED's testimony, they will likely also receive tax breaks under the Net 2000 legislation. They are eligible to get up to $250,000 a year for just moving their employees to DC, up to $1 million a year if they can get enough of their employees to move their residence to DC, plus potential reductions to franchise, personal property, sales and use and capital gains taxes.

Most of all, luring one single company to DC won't substantially change vacancy rates or unemployment. This is why ad hoc tax policy like this doesn't work. Giving a large tax advantage to one business that other businesses do not getincluding those that have already chosen to be in DCjust distorts the playing field.

DC already faces a potential $300 million budget shortfall next year due to weak tax collections. The city should not make its fiscal crunch even worse by giving out questionable tax breaks to individual companies.

DC's employment stable yet unemployment rising

The latest unemployment data for DC tell two conflicting stories. Over the past year, DC has not lost jobs, while most states across the nation are losing thousands. But DC residents are falling into unemployment at a historically high rate. The skills of many DC residents may not be well-matched to the jobs created in the city, with stepped-up workforce training necessary to fix the problem.


FDR Memorial. Photo by le Haricot.

DC's unemployment rate has quickly climbed to 11.4 percent in September. Some 37,500 DC residents are out of work and actively looking for a job but cannot find one. In just one year, the unemployment rate has risen from 7.4 percent to 11.4 percent, a 50 percent increase.

When people say DC is weathering the economic recession better than most places, it is clearly not the case for everyone. What they may have in mind is the fact that DC as a city is not losing jobs the way other places are. Data from the Bureau of Labor Statistics show employment in DC has been flat over the past year. That's good news, actually. Nearly every other state has seen big drops.

But the flat employment doesn't mean some areas have not shed jobs over the year. In fact, DC's construction industry lost 7,000 jobs in the last year. Trade, transportation and utilities, manufacturing, and professional and business services also had large losses. Only two industries had net gains: education and health services (200), and the government, including federal and DC (5,400).

What do these numbers tell us? While the District appears to be holding on to its jobs, thousands of DC residents are losing theirs. And even though jobs are being added to the market, it does not seem that they are going to unemployed DC residents. This suggests that the skills of unemployed DC residents may not be matching the skills required by the industries that are adding jobs.

The District could help reverse the skyrocketing trend in unemployment by really focusing on improving its workforce development programs. This could help get DC residents into the jobs that are available now, and those that will become available as the economy recovers.

It’s time for transparency in DC’s budget

Last week, Councilmember Mary Cheh held a public roundtable to discuss transparency in the DC government. Her timing couldn't have been better.


Photo by jakebouma.

Government transparency is critical. Take the DC budget for example, which is arguably the most important document the government publishes. The DC budget is the main way to figure out the city's real priorities and how taxpayers' dollars will be spent. But, as DCFPI testified, there are significant shortcomings when it comes to DC's budget transparency, and these shortcomings can have serious consequences.

The recent cuts to homeless service programs show just how critical transparency can be. Because of a lack of clear budget information, the DC Council voted on a budget that they didn't know contained nearly $12 million in cuts to homeless service programs. These cuts risked closing shelters right before hypothermia season and cut the budgets of service providers at a time when homelessness is on the rise.

It's pretty amazing that DHS's budget would provide no detail on a $12 million cut to homeless services. But, unfortunately, it's an all too familiar story because DC's budget lacks clarity in two key areas: spending on real programs and services, and federal block grants. Currently, the DC budget is structured in a way that doesn't tell the public how funding is spent on individual programs and services. Instead, programs are bundled into often arbitrary line items that confuse even the most veteran budget readers. And, there is hardly any detail on how our federal block grants get spent — like the $92 million Temporary Assistance to Needy Families (TANF) block grant — even though they fund a variety of critical programs and services.

Improving transparency wouldn't have necessarily prevented the homeless services cuts, but knowing they were on the table would have at least given the Council and public a chance to have a healthy discussion about the public's budget priorities. And from the recent discussions around the cuts, it's pretty clear that homeless services are a priority of both the Council and the public.

We are glad Councilmember Cheh is taking on this important issue and look forward to the steps her committee and the Council will take to improve transparency in the DC government.

Expand the sales tax to selected services instead of raising rates

When you buy a brush to groom your dog, you pay DC sales tax. But if you take your dog to get groomed, you pay...


Photo by richardmasoner.

No sales tax.

When you buy a pack of diapers, you pay DC sales tax. But if you call a diaper service to bring you clean diapers, you pay...

That's right: no sales tax.

It's a pattern that shows up over and over again. When you do the work yourself, you pay sales tax. But when you pay someone else to do it, you don't. What's the deal?

The District just recently voted to raise the sales tax by ¼ of a percent to help close its budget shortfall. But a more sound approach would have been to keep the rate steady and instead expand the sales tax to cover more services.

Why would DC want to expand the sales tax to cover more services? A new report by Michael Mazerov from the Center on Budget and Policy Priorities explains why many states are expanding their sales tax to cover services like auto repair and dry cleaning.

For one, we no longer spend as much of our total income on goods — like shoes and refrigerators. The share of household purchases going for goods declined from 39 to 32 percent over the past 30 years, according to the report, while consumption of services rose from 31 to 45 percent of household purchases over the same period.

Second, expanding the sales tax to more services would make the sales tax more equitable. Taxing only certain businesses' goods can put them at a disadvantage over other businesses that solely provide services. Also, it isn't fair to require someone to pay sales tax when they buy a good but not tax others when they pay for essentially the same thing as a service.

Third, expanding the sales tax to more services can limit the need for rate increases. The sales tax is regressive, meaning low-income residents pay a higher share of their income in the tax than higher-income households. Applying the sales tax to services — which are more likely to be used by higher-income households — is less regressive than increasing the sales tax rate while leaving services exempt.

So what would this mean for DC? DC already taxes some services, such as landscaping, dry cleaning and electricity. But they don't tax pet grooming, investment counseling and diaper services. Expanding the sales tax to cover more services could help maintain the adequacy of the sales tax and improve its equity. It could also help DC raise some much needed revenue, without increasing the sales tax rate, at a time when DC — and virtually every other state — are scrambling to close revenue shortfalls.

Mayor Fenty's proposed cuts fall too heavily on the poor

Mayor Fenty's proposal for closing DC's recently-announced budget shortfall includes major budget cuts to programs affecting DC's low-income residents. These are the very residents that are struggling the most during this economic downturn.

Cuts to programs affecting low-income residents total $52 million. That's more than half of the $99 million in proposed cuts. Yet these programs only make up about 30 percent of DC's budget. In addition, the low-income cuts are more than three times as large as the cuts to any other area of the budget:


DCFPI's analysis of the Mayor's proposed amended FY2010 budget.
Dollars in millions. See note at the end of the post.

What's on the chopping block? Rental assistance, neighborhood economic development, adoption subsidies, and financial assistance to grandparents taking care of grandchildren, just to name a few. Some of the deepest cuts were made to DC's Temporary Assistance to Needy Families (TANF) program — a program that provides financial assistance to low-income families with children — and to adult literacy and workforce development. These areas of the budget have long been overlooked and underfunded in the District. DC's has almost 15,000 more unemployed residents this year than last. Coupled with increased demand for public assistance, cuts to these programs will be particularly painful for DC's neediest families.

It's a tough job to balance a budget in the midst of an economic downturn. DC's revenue collections are down, but because of the economic downturn, the need for assistance is rising. So how can officials create a balanced budget that doesn't rely disproportionately on cuts to programs for low-income residents?

Part of the solution is using DC's $330 million rainy-day fund that's available for budget shortfalls. Congress should fix the onerous payback rules which require us to replenish what we take out within two years, which other states needn't do. The Mayor has proposed using $125 million of the rainy day fund, but hasn't addressed the payback rules.

Another part of the solution is raising revenues. DC's budget shortfalls almost entirely result from falling revenues from the economic downturn, not from increased spending. The Mayor's proposal only includes one $7 million revenue increase. This solves just five percent of the FY 2010 budget gap. A fairer approach would be to balance progressive revenue increases with expenditure cuts.

Some say raising revenues in an economic downturn is bad idea, but it is actually a reasonable approach, especially for states that have to maintain a balanced budget. Leading economists have shown that raising income taxes on high income earners is better for the local economy during an economic downturn than cutting government services.

In addition, it provides us with an opportunity to begin some smart tax policy fixes.

For example, DC could eliminate the income tax exemption it gives DC residents for investing in out-of-state bonds. All states that have an income tax allow exemptions for in-state bonds to provide an incentive to invest in the state's own infrastructure projects. However, DC gives the same break for out-of-state bonds. That provides an incentive for its residents to invest in other states' infrastructure projects. That's not good policy, which is why only one other state, Indiana, allows it. Moreover, this tax break mainly goes to high-income DC residents who could still claim a federal tax exemption for their investment, even if DC eliminated its tax exemption. Eliminating the exemption would give an incentive to invest in DC's infrastructure projects and could also help prevent the need for cuts to important programs and services.

Relying on these principles can help DC officials create a balanced budget that protects the safety net for DC's most vulnerable residents.

Notes on the graph: Total cuts in each appropriation title do not include costs that were shifted from federal funds to O-type or special purpose funds with the exception of Human Support Services and other low-income programs which includes a $440,000 cut to DCRA's building repair fund. Human Support Services and other low-income programs also includes the following amounts from the following appropriation titles: $1.8 million from Government Direction & Support (legal services for low-income residents), $9.84 million from Economic Development (neighborhood economic development, local rent supplement program, building repair fund, and adult workforce development) and $1 million from Public Education (adult literacy).

Living within our means

A $750 million public financing deal for a convention center hotel had scarcely appeared on the table before it was taken off again. One of the driving forces behind the fall of that proposal? DC's recently enacted debt cap. It's an early sign that this tool will help keep our leaders fiscally honest, especially when it comes to economic development subsidies.


Washington Convention Center. Photo by OZinOH.

Just last fall, the DC Council adopted legislation prohibiting the District from allocating more than 12 percent of its total annual budget toward debt payments. The additional borrowing proposed for the Convention Center hotel would have pushed our debt above the 12 percent cap.

Why put a limit on debt? Any debt the District issues creates a long-term payment obligation. When DC issues bonds, it pledges its tax revenue to pay it backoften for 20 years or more. And those bonds must be repaid, no matter what happens to the economy. So even though our resources are now shrinking, we still have to pay back all of the debt we have issued. Too much debt can squeeze resources needed for other important programs and services.

Debt limits are also something that Wall Street pays close attention to. When a city or state's debt gets too high, it can lead to a lower bond rating. That in turn, means higher interest rates when it's time to issue bonds for things like schools or libraries. Managing debt well, by contrast, can lead to better bond ratings.

DC already has more debt than most cities and states, and there is pressure for more. The city is borrowing a lot to fix up schools and other public facilities. And we have authorized over $1.5 billion in debt to subsidize economic development projects over the past decade, like the retail center at Gallery Place. Until the debt cap, there's been no real limit on economic development subsidies.

That's why a cap is so key. Knowing we cannot issue an unlimited supply of debt, elected officials must make choices and set priorities over the infrastructure and development projects they want to support with public tax dollars.

With the new debt cap, a decision to publicly finance the entire convention center hotel project could have forced officials to scrap many long-planned developments around the city such as the Southwest Waterfront redevelopment. When faced with that decision, officials decided that the convention center hotel could not trump those already- planned projects and had to find another way to make the project go forward.

Hooray for DC's debt cap!

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