Apply Recovery Principles to the District Budget

The Numbers

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The pandemic is devastating District families and the local economy. Thousands of residents have tested positive for the virus, and hundreds have lost their lives. But with many businesses closed and residents spending less, the District has fewer resources to meet the increased demand for social services. The Chief Financial Officer (CFO) estimates that DC will lose more than $1.5 billion in revenues—the money the city brings in primarily through taxes and fees—by September 2021.

For families to come out of this crisis stronger and to build a just recovery, DC leaders need to preserve and enhance crucial investments in programs that help individuals and families secure safe, affordable housing, maintain economic security, and access high-quality physical and mental healthcare.

All options to ensure a just recovery must be on the table, including examining DC’s tax structure, so those communities being hit the hardest by the pandemic—and those who were suffering even before—are not further hurt by severe cuts to critical programs. This would advance racial and economic equity: Black residents have the highest infection and death rates, and they and Latino residents are likely to be hit the hardest by and the last to recover from economic fallouts.

As the Council finalizes the budget, they should use key principles to reduce harm to communities shouldering the brunt of the pandemic and our economy:

Raise Revenue to Avoid Cuts
The Mayor and Council should not take a cuts-only approach to maintain crucial programs and services and meet growing needs. Cutting vital programs will not only worsen the economy’s fall, but it will also hurt families that are struggling to protect their own health, eat regularly, and pay bills. Budget cuts also undermine our ability to address underlying racial and income inequities that the pandemic is intensifying and respond to the economic harm of a potential second COVID-19 phase.

Policymakers’ hands are not tied; they have options for increasing revenue. During a downturn, leading economists tend to favor targeted tax increases that don’t hurt the economy or low-income families over spending cuts to public programs that do. That’s because spending cuts and layoffs take money out of the local economy: when residents lose access to their child care voucher or rent assistance, they have less money to spend. On the other hand, revenue increases can add demand to the economy by protecting programs that help people secure affordable housing and provide for their children.

To help balance the budget, policymakers should enact strategic and targeted tax increases on DC’s richest households, large corporations, and real estate developers that continue to have high incomes, profits, and activity even as the economy declines. This would also make the tax code fairer. For example, a teacher earning $60,000 in taxable income pays the same tax rate that a CEO earning $350,000 does. That’s fundamentally unjust and bad economic policy. Asking the wealthy to pay their fair share in taxes advances equity and racial justice—and it’s far preferable to cutting the District budget on the backs of low-income families.

Ending special treatment for profitable corporations and businesses would help fix the budget crisis too. Each year, DC wastes millions on ineffective business tax cuts that don’t contribute to economic growth, including the Qualified High Technology Company incentive, which the CFO determined is ineffective and costly. There’s no single way to address the budget shortfall, but eliminating lucrative tax giveaways will help stave off painful budget cuts.

Tap into the Rainy Day Reserves
Given the torrential economic downpour pounding the city, it’s time for policymakers to take advantage of its reserves—or “rainy day funds”—to avoid budget cuts that would devastate communities and delay the city’s recovery. Prior to COVID-19 taking the District by storm, the city had $1.43 billion in its reserves. DC law requires local reserves be repaid within the same fiscal year and the federal government requires that funds be repaid within two fiscal years. DC leaders should waive the local requirement and ask the federal government to waive its requirements so we can fund immediate needs.

Policymakers should use some of the $500 million that was leftover in the budget at the end of the 2019 fiscal year.  DC law requires some of this money to be funneled into its reserves, while the remaining funds must be split between the Housing Production Trust Fund and funds for capital projects. Policymakers should redirect the capital funds to protect urgent needs.

Preserve Safety Net Programs
The District should put people first to protect and strengthen services that help with basic needs like cash and food assistance, housing, and health care. The CFO predicts that DC’s unemployment rate will reach 18 percent, meaning tens of thousands of our neighbors will need more help affording the basics and paying rent. A just economic recovery also requires policymakers to advance racial justice. Black and brown DC residents are carrying an unequal burden of the virus, reflecting the legacy of racism and ongoing inequitable access to culturally-competent health care, quality housing, and well-paying jobs that could otherwise soften the blow of the health pandemic and economic downturn.

During the Great Recession, District leaders took steps that worsened inequities—including cutting cash benefits for low-income families and slashing the education budget. DC cannot repeat this history—policymakers should raise adequate amounts of revenue to pass a budget that protects anti-poverty programs that the city’s most vulnerable families need to survive the pandemic.

Engage the Community in Budget Decisions
All Council committees should host at least one live, virtual hearing for public witness voices and accept additional input through multiple means of communication for the budget hearing process. Given the tough decisions policymakers will need to make, the Council should be trying to expand public participation, not limit it, to ensure that the people most impacted by the shrinking economy and public health crisis have their voices heard.

Devastating budget cuts are not inevitabilities, they are choices. Policymakers must choose to lessen the harm of the pandemic by making budget and policy choices that help make our city better for all residents.

Kate Coventry and Qubilah Huddleston are Education Policy Analysts with the DC Fiscal Policy Institute. Learn more and contact them at www.dcfpi.org