Five Takeaways From District’s Latest Revenue Forecast

The Numbers

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Right now, our District is in crisis. A deeper-than-expected drop in the city’s revenue due to the pandemic-ravaged economy could mean budget cuts to education, child care, health care, and other vital services.

As tens of thousands of our neighbors are out of work, going hungry, and falling behind on rent—and as small businesses close permanently—District revenues are also feeling the pinch, according to the Office of Chief Financial Officer’s (OCFO) latest forecast. The pandemic’s harm has wreaked havoc most on Black and brown residents and their businesses, as well as women in the workforce, due to structural racism and a broken economic model that too often stacks the deck against them, even in good times.

The disparate harm that the pandemic is wreaking illustrates why the District should avoid plugging the resulting budget shortfall in ways that would continue to harm the people suffering the worst of the pandemic—and suffering long before the crisis. Revenue should be part of the debate to address the budget gap, including asking more from those with the greatest ability to give—such as high-income residents who’ve largely been unscathed by the pandemic—and profitable corporations that are still doing well even in this deep recession.

Here are five things you need to know about the OCFO’s September forecast:

  1. Revenues are projected to drop by another $782 million across the four-year budget and financial plan. Lawmakers must approve a four-year budget annually, and the OCFO publishes revenue estimates for the same period. For the current 2021 fiscal year (FY) that began in October, revenues are projected to drop by another $212 million compared to estimates in the approved budget. Although the total level of revenue is expected to grow modestly in each of the next three years of the plan, it is projected to grow more slowly due to the steep and prolonged recession (Figure 1). Compared to pre-recession estimates in February, projected revenues in FY 2021 are down by nearly 10 percent.
  1. DC now has a budget shortfall, but the FY 2020 surplus can help. The Mayor and DC Council will have to pass a supplemental budget to balance the budget. One surprise in the September forecast is that FY 2020 revenues came in above projections by $222 million, in large part due to government intervention that stimulated the economy. The OCFO will put the surplus in the Fund Balance. The Mayor and DC Council should use that surplus to help offset the revenue losses across the 4-year plan.
  1. Government intervention and telework options are helping, but more economic supports and stimulus are needed. The OCFO reported that substantial federal spending and actions to lower interest rates prevented jobs and income from falling as much as anticipated. Public investments helped buffer the District from revenue losses through programs such as the $1,200 stimulus check, boost in unemployment benefits, and PPP loans for small businesses. Higher-income residents have been able to better weather the pandemic due to telework options and steady paychecks as well as healthy stock portfolios. The data is in line with the evidence showing that this pandemic is triggering the most unequal recession in modern history.
  1. Revenues may drop further. The OCFO anticipates that the District’s revenues will begin to recover in FY 2022. However, if the District does not receive further federal aid, the recession continues, the stock market declines, and/or if there are delays to a widely accessible and effective vaccine beyond the end of next year, revenue collections could worsen further. Deeper revenue shortfalls would grow the budget shortfall, threatening cuts to programs that are helping residents navigate the economic pain of the recession.
  1. It is unclear how policymakers will plug the budget gap, or the process they’ll use to make those decisions. The Mayor and Council can address the revenue shortfall using a combination of the FY 2020 surplus, a portion of the $1.2 billion we have in reserves, revenue increases that ask more from higher-income residents and large corporations, and any existing or new federal relief dollars that are available, among other revenue sources. Belt-tightening is also an option; however, that strategy is ill-advised during a recession because it does more harm to Black, brown, low-income residents, and our economy than it does It is also unclear when the Mayor will begin working on the supplemental budget, or what the supplemental process will look like.

The primary goal of revenue policy is to raise enough revenue to meet the critical needs of DC residents, and a guiding principle is to do so in a way that asks more from those with the greatest ability to contribute—that is, we should raise revenues in a way that advances equity. We can and should do both.

The solution is to require high-income people and corporations that continue to thrive even during these hard times to contribute more, and DC voters agree. High-income people and those with wealth have avoided the worst economic effects of the recession: they’ve been less likely to lose their jobs, benefitted from a rebounding stock market, and seen an increase in luxury home values. Meanwhile, the District’s top earners pay a smaller share of their income on total local taxes compared to the middle class—and they’re disproportionately benefitting from the federal Tax Cuts and Jobs Act, which turbocharged tax cuts for the wealthy, the supermajority of whom are white. It is a policy choice to allow this to continue while half of DC children in renter households were in households that didn’t get enough to eat, were behind on rent, or both, in July.

These are racialized choices, given the District’s history of systemic racism, stark racial income and wealth divides, and how the pandemic is hitting Black and brown DC residents the hardest. There are big needs in our city and these challenges will worsen if we fail to center tax, racial, and gender justice in our response.