Mendelson plans to slash streetcar funding, pay for tax cuts
In his proposal for the DC budget, council chairman Phil Mendelson will propose lowering the streetcar's capital funding from what Mayor Gray has proposed. Mendelson will fund other streetcar-related projects like a new bridge near Union Station, while much of the decrease will fund a package of tax cuts.
In a phone conversation, Mendelson said the change will devote about $400 million for the streetcar over five years. The mayor's proposal dedicates about $800 million over five years, rising to $3 billion over ten years.
Mayor Gray's budget director, Eric Goulet, says this is not nearly enough to build the streetcar system as planned, and the change would effectively halt the streetcar program. Mendelson disagrees, and says that he'd like to see a clearer plan from DDOT about how it will spend the money before approving it.
Gray had proposed a system where as DC's revenue increases, 25% of that increase beyond the projected level for 2015 would go into the streetcar. This would ensure the streetcar has an ongoing pool of money, and since the streetcar will supposedly generate economic growth, it can capture some of that benefit.
Mendelson's proposal would change the formula so that it's only 25% of the gain in any specific year. In other words, if revenue rises from 2015 to 2018, Gray's proposal would dedicate a quarter of the difference from 2015 to 2018 to the streetcar, while the Mendelson proposal would instead use a quarter of the difference just from 2017 to 2018.
Councilmember David Grosso, who agrees with Mendelson's plan, emphasized that he does not want to see the streetcar program wither, but he also doesn't think it needs the quantities of money that Gray wants to dedicate. He said there is a $100 million surplus in the streetcar account; therefore, there isn't a need for more. "It's been proven that they aren't spending the money," he said. "You should budget according to what you can actually accomplish and get it done right."
The mayor has disputed the $100 million number as well. That number came from calculations by staff for Mary Cheh, who chairs the transportation committee. But in a letter to the council yesterday, Mayor Gray called this an "incorrect financial analysis"; Gray's budget staff have described it in more colorful terms.
"It's just not sustainable," said Mendelson. Council budget director Jennifer Budoff explained that while the city's revenue increases by about $200 million a year (of which $50 million would go to streetcar under Mayor Gray's plan) the city's budget also increases, often by more than $200 million a year, due to rising costs. Therefore, she said, the streetcar allocation would eat into the base budget after about five years.
Some of the money will go to pay for a new Hopscotch Bridge, the bridge over the railroad tracks north of Union Station which the streetcar will use. That bridge has to be replaced before the line can extend to downtown and Georgetown, and needs about $200 million.
The cuts will also fund a series of tax breaks which will $165 million a year. These are some of the proposals from the Tax Revision Commission which former mayor Tony Williams chaired. Mendelson's budget proposal leaves out a few proposals from that commission, such as a "local services fee" that would charge all DC employers a flat rate per employee (seemingly a backdoor way of getting some revenue from companies that employ out-of-state workers who don't pay any income taxes) and an increase in the sales tax.
The tax breaks will phase in over 5 years. They include a new middle tax bracket for people making $40-60,000 of 7%, then dropping to 6.5%; making single people eligible for the Earned Income Tax Credit; a higher standard deduction; a cut to 8.75% for people making $350,000-$1 million (but not those making more); a cut in the business franchise tax; and a higher estate tax exemption that would rise from the current $1 million up to $2 million and later to the federal level of $5.25 million.
The sales tax would still broaden to more businesses, like health clubs and yoga studios, a proposal that these businesses fought heavily in recent years.
The DC Fiscal Policy Institute, which supports a more progressive tax code, supports most of these changes and notes that cuts for low and middle income families, which will cost $123 million, make up about three-quarters of the $165 million tax cut package.
The business tax cut costs $40 million a year, and the estate tax cut will make DC lose out on about $14 million a year from deceased residents.
Cheh said her staff have not been able to look at the proposal, which won't be released to councilmembers until 5 pm today; she only has spoken to Mendelson verbally about the plans thus far and has not formulated a position on the proposal. She emphasized that, if the cuts go through, she will work to ensure the streetcar gets enough money to continue building, and recognizes that a project like this can build up momentum which could be lost if there are too many budget hurdles.
I will update this story as it develops.
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