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Half a billion in cuts, targeted tax hikes shape Bowser's D.C. budget plan

Officials with the D.C. mayor's administration said the city faces a $4 billion budget hole over the next four years, including a $700 million shortfall this year.

By Meagan Flynn, Michael Brice-Saddler | 2024-04-03

Mayor Muriel E. Bowser (D) testifies before the D.C. Council on Wednesday about her proposed budget. (Craig Hudson for The Washington Post)

D.C. Mayor Muriel E. Bowser unveiled a $21 billion budget proposing significant program cuts and some tax hikes to account for a gaping budget shortfall anticipated over the next five years, amounting to some of the most challenging fiscal terrain of Bowser's tenure and for the District since the coronavirus pandemic drastically shook up city finances.

In a multi-hour hearing before the council Wednesday, Bowser (D) pitched her budget as "Strategic Investments and Shared Sacrifice" -- coupling cuts with what she described as targeted investments in downtown, education and public safety. But with pandemic-era federal aid exhausted, commercial vacancies lashing revenue and expenses growing at a far faster rate, Bowser administration officials said the city was staring down a $4 billion budget hole through fiscal 2029, including a $700 million shortfall this year.

To close the gap, Bowser is proposing about $500 million in cuts to city programs this year, including eliminating the Early Childhood Educator Pay Equity Fund, which offers stipends to caregivers and day-care teachers -- an outcome that education advocates had feared. That proposal drew immediate concern from several lawmakers and became a main pressure point throughout the council briefing. Bowser said the administration made the cut late in the game after a requirement from Chief Financial Officer Glen Lee to replenish one of the city's reserve funds at a cost of $217 million over the five-year financial plan -- a requirement she said she strongly disagreed with.

Bowser prepares to testify at the council hearing Wednesday. (Craig Hudson for The Washington Post)

While presenting the budget to the council, Bowser said she had to make difficult "trade-offs" but rejected the "pessimism" of the troubling post-pandemic financial outlook for the city.

"In other words, what we do right now lessens the likelihood of the dim revenues currently projected by the CFO," Bowser said. "So, the big question for this budget is: How do we change the trajectory?"

To start, her budget includes several tax increases intended to try to raise revenue, which some lawmakers described as a bit too tepid considering the fiscal challenges.

Bowser will ask consumers to pay a sales tax increase that will be phased in starting in October 2025 to help afford the anticipated growing cost burden for the region's public transit system; this year alone, D.C. plans to invest $200 million as part of a regional plan to help Metro avoid extreme service cuts. Under Bowser's proposal, the city would increase the sales tax from 6 percent to 6.5 percent starting in fiscal 2026, then up to 7 percent in the following two years, netting an estimated $100 million per year.

While Metro funding has been a priority for lawmakers, Bowser's budget cuts the Circulator bus, saying it was not recovering its pre-pandemic ridership.

Bowser is also proposing to increase the tax that businesses must pay toward the Paid Family Leave program, returning the tax to its 2021 level. Administration officials said that move could bring in $250 million annually for the city's general fund to help with the rising costs of social services programs.

As a third revenue source, the city plans to impose a new fee on hotel bookings that would go toward expenses at the District's widely scrutinized 911 call center, drawing about $7 million annually. The mayor intentionally avoided touching income taxes, property taxes or commercial property taxes, noting that the commercial property base is already "distressed."

Bowser had been preparing residents for the likelihood of significant cuts for months. The gravity of the fiscal challenges is perhaps best illustrated in one notable choice: For the first time in her nine years as mayor, Bowser will not be devoting at least $100 million to the Housing Production Trust Fund, the city's main engine for new affordable housing and one of her key initiatives. This year she budgeted $60 million, showing how even Bowser's flagship programs were not insulated from the severe budget constraints.

Bowser acknowledged it as a difficult decision but said the lower investment in the trust fund allowed for a focus on other housing programs, including the Emergency Rental Assistance Program (ERAP), which she funded at $20 million this year.

Advocates and some lawmakers, namely council member Robert C. White Jr. (D-At Large), said $20 million still wasn't enough considering the staggering demand, echoing tensions that emerged last year when Bowser said the city needed to "normalize" ERAP funding. Bowser said Wednesday that she was concerned too many people were using ERAP to supplement their rent when it wasn't an emergency. White argued that it was the most cost-effective way to keep people from entering more costly social services programs.

When White suggested that the city's most vulnerable residents will feel cuts and tax increases the hardest, Bowser countered that they will also benefit from other investments. "We can sit here and pretend like there's manna from heaven, but there isn't," Bowser said. "As I've mentioned, there is a confluence of activities that we have to recognize. And if you don't like what I've presented, change it."

Bowser's choices to make significant new investments in public safety, public education and downtown's revival crystallize the mayor's priorities for the remainder of her term.

In the public safety realm, after last year's historic crime spike, Bowser is setting aside $8.7 million to add 40 new "community safety officers" and other civilian positions to the D.C. police department, intended to free up more sworn officers for crime-fighting.

She proposes adding $3.1 million to beef up staff at the Department of Youth Rehabilitative Services facilities, which have struggled to handle an uptick in detained youths. And her budget allocates $4.6 million to fund items in Secure D.C., the newly passed omnibus crime bill, including increasing security in busy commercial corridors, creating a task force to explore more diversion programs and jailing more people charged with violent offenses while they await trial.

In education, Bowser rolled out a historic 12.4 percent boost in the per-pupil funding formula weeks ago, coupled with what she has described as strategic investments in programs such as high-impact tutoring.

Investments in downtown carried the banner. Bowser unveiled the budget a day after the council approved $515 million in public funds to go toward Wizards and Capitals owner Ted Leonsis's major renovation project of Capital One Arena in the heart of downtown, a deal she struck after bringing Leonsis back to the negotiating table when his plans to move the teams to Virginia fell apart. In addition to that half-billion-dollar investment in Capital One -- which is in the capital budget, versus the more strapped operating budget -- Bowser is pitching an array of other proposals intended to aid downtown.

Bowser, Monumental Sports & Entertainment chief executive Ted Leonsis, and D.C. Council Chairman Phil Mendelson (D) during a news conference on March 27. (Craig Hudson for The Washington Post)

Those include $68 million for three major streetscape projects and $63 million for tax incentives to convert vacant or underused office spaces into residential or other uses. Additional efforts will focus on attracting businesses to downtown corridors that officials say have strong growth potential as well as bringing life to lethargic public spaces with pop-up retail and festivals -- combining ideas from the recently unveiled Downtown Action Plan and public realm plan.

Bowser's proposal includes $64 million to build an annex to provide permanent supportive housing and other congregate dwelling units at the downtown site of the Community for Creative Non-Violence shelter, which she called a "hallmark" effort of her third term.

Several lawmakers, including council members Kenyan R. McDuffie (I-At Large) and Charles Allen (D-Ward 6), asked whether the mayor's focus on downtown has come at the expense of other businesses and commercial corridors that have received less attention.

"I'm constantly hearing from our local businesses outside the downtown that they, too, are struggling, they deserve the same attention and support," Allen said, pointing to the H Street corridor as one example.

Jenny Reed, Bowser's budget director, later rattled off budget investments to help businesses outside of downtown: $7 million toward grants to help commercial corridors across the city attract and support new businesses; and fully funding a bill from council member Brooke Pinto (D-Ward 2) that aims to reduce business costs.

"We can't do everything with this budget. And there is a need to prioritize, and look at how we have a vibrant and growing downtown," Bowser said, adding, "We have to recognize that if the downtown fails, this conversation next year, or in 2028, looks a lot different."

Advocates on Wednesday morning protested a number of Bowser's proposed cuts -- especially those impacting child care and families, such as a reduction to the child-care subsidy and cuts to the District's Access to Justice program, which provides legal aid for low-income families facing evictions, domestic violence or other challenges.

"It's worse than what we expected," said Jen Jenkins, policy council at Legal Aid DC.

Some council members lamented Bowser's proposal to roll back an increase to D.C.'s earned income tax credit, funded by the council's tax increase on the rich in 2021. Council member Christina Henderson (I-At Large) pinpointed Bowser's decision to slash the Pay Equity Fund, adding that she disagreed that the budget proposal represents a "shared sacrifice"

Mendelson speaks to council member Christina Henderson (At-Large) following her questioning of Bowser about cuts to child care. (Craig Hudson for The Washington Post)

"It feels as though we are proposing to balance this budget on the backs of Black and Brown women in the child-care sector with the elimination of the early childhood pay equity fund," Henderson said. She added later: "If you want people downtown, if you want people in their offices, there has to be a stable, affordable child-care system in order for it to all work."

The council's chairman, Phil Mendelson (D), was bullish about finding a way to save the Pay Equity Fund and move the budget forward without having to fully replenish the city's fiscal reserves. Lee argued that it would be a risk not to do that, saying the city may rely on the reserve fund to pay its bills starting in late 2027. But Mendelson at one point threatened to completely disregard Lee's requirement, questioning what he would do about that.

Lee said he would not certify the budget.

"Is that it?" Mendelson quipped, suggesting the council might send the budget to Congress without Lee's support -- raising the temperature on what is expected to continue to be a major disagreement as the council continues to review the budget.

The council plans to hold hearings in the coming weeks to understand the budgetary needs of city agencies before pitching their own changes to Bowser's proposal. Lawmakers are scheduled to take their first vote on a final fiscal 2025 budget package in late May.


This article was downloaded by calibre from https://www.washingtonpost.com/dc-md-va/2024/04/03/dc-budget-bowser-cuts-tax-hikes/


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