Council Must Make Changes to FY24 Budget Proposal to Support an Inclusive Economy

Chairperson McDuffie and members of the Committee, thank you for the opportunity to submit written testimony. My name is Erica Williams, and I am the executive director at the DC Fiscal Policy Institute (DCFPI). DCFPI is a nonprofit organization that shapes racially-just tax, budget, and policy decisions by centering Black and brown communities in our research and analysis, community partnerships, and advocacy efforts to advance an antiracist, equitable future.

My testimony first focuses on ensuring Earned Income Tax Credit (EITC)-eligible filers are able to claim their credit. This committee did great work last year to improve and advance the approved “The Earned Income Tax Credit Expansion Clarification Amendment Act of 2022” to minimize risk of monthly EITC payments resulting in reduced public benefits. The Committee and Council also supported extending the EITC to undocumented workers who file taxes with an Individual Taxpayer Identification Number (ITIN). Even with both advances, barriers remain for eligible filers. My testimony also touches on baby bonds and the Clean Hands law.

The Committee should:

• Modify Budget Support Act language for tax year 2023 to allow EITC filers to opt out of monthly payment of the credit given it can put receipt of federal benefits like SNAP at risk; and,
• Work with the Office of the Chief Financial Officer (OCFO) to ensure that filers unable to receive an ITIN because of Internal Revenue Service (IRS) restrictions have a way to claim the DC EITC, and allocate implementation funding as necessary.;
• Restore Funding for “The Child Wealth Building Act of 2021”; and
• Require Greater Transparency of DC’s Clean Hands Law and Remove Occupational Licensing Barriers 

Ensure EITC Filers Can Opt Out of Monthly Payments if That is What’s Best for Their Family

As the Council well knows, DC’s EITC makes a big difference in the lives of DC families with low and moderate incomes. The District of Columbia is the first jurisdiction to enact monthly payments of its credit to act as basic monthly income that helps smooth out household finances for those making ends meet on low pay. Those monthly DC EITC payments begin this calendar year 2023.

Last year, this Committee advanced and Council adopted, “The Earned Income Tax Credit Expansion Clarification Amendment Act of 2022.” The Act ensures that those receiving monthly payments of the DC EITC are not at risk of seeing a reduction or loss in DC-funded public benefits or federal-state programs where DC can modify eligibility, like Temporary Assistance for Needy Families.

However, the Act does not (and cannot) exempt monthly EITC payments from eligibility and benefit level determinations in other programs with federally-set rules.^[1] SNAP eligibility rules and benefit levels, for example, are set at the federal level and uniform across the nation. States have limited flexibility to tailor aspects of the program, and changes to rules must be approved by the US Department of Agriculture’s Food and Nutrition Service. This is likely the type of public assistance EITC recipients are most at risk of losing, in part or in full, due to monthly EITC payments. About 37 percent of EITC-eligible tax filers in the District also participate in SNAP, according to unpublished data by the Center on Budget and Policy Priorities.^[2]

The Committee should work with the General Counsel at the Department of Human Services (DHS) to determine the full scope of the problem and the number of taxpayers at risk of losing public benefits. For example, we don’t know how many EITC-eligible families also receive WIC and Supplemental Security Income. Some Medicaid recipients who are eligible because of a disability or who are over age 65 may be harmed. At a minimum, EITC participants should receive information and guidance on whether and how monthly payments of the credit may affect their receipt of other public benefits, and the OCFO should work with DHS to connect filers to this information.

In addition, the Committee should add language to the Budget Support Act requiring that the OCFO add an “opt-out” provision on DC’s tax form for EITC monthly payments, which would particularly benefit recipients who would face loss of the value of other public benefits by receiving monthly EITC payments. Other families also may want to opt out even if they’re not at risk of losing other benefits, for example if they need to pay for a big-ticket item like an expensive car repair, flee an abusive relationship, or prefer a lump sum to cover a backlog of rent and bills. An opt out provision would allow families to make the best choice for their needs. If this recommendation is adopted, the Committee and Council should require outreach and guidance to working households to alert them to their choices.

This current tax filing season, it’s likely fewer filers are at risk because of the unique way Council decided to pay out the credit, now set at 70 percent of the federal credit. Filers with children will receive 40 percent of the federal credit as a lump sum, and if the remainder is more than $600, it will be paid out monthly. In future years, if a family’s full credit is more than $1,200, it will all be paid out monthly, and the larger payments are more likely to affect federal benefits.

DC has made great strides in leveraging this proven tool for reducing poverty and inequality and advancing racial, gender, and economic equity for more than 60,000 households. Periodic payment of the credit is a laudable step toward smoothing out the financial stability of families working for low pay. We urge the Committee and Council to do all that’s possible to reduce risk and increase DC’s options for supporting families and holding them harmless.

Ensure that EITC Filers Who Cannot Obtain an ITIN can Access the Credit

Last year, DC Council expanded the DC EITC to people filing their taxes with an ITIN. DCFPI has learned since from other states that the IRS has a policy to NOT issue ITINs to individuals who don’t have federal tax liability or aren’t otherwise eligible for refundable federal tax credits. That could mean that many DC workers newly eligible for the DC credit who don’t already have an ITIN will be unable to claim it next tax filing season.

The OCFO should determine whether the IRS can offer the District a “workaround” to ensure DC residents who would qualify for DC’s EITC but do not currently qualify for an ITIN under IRS criteria can still obtain an ITIN for that purpose.

In addition, ITIN applications must be submitted with a federal tax return, which means DC workers newly eligible to claim the DC EITC and applying for an ITIN will likely not be able to get both in the same year. The OCFO should create a system allowing those eligible for EITC to file late for the credit so that they are not penalized for the timing of IRS’ process.

The OCFO also should ensure that its staff is ready to do outreach around the credit expansion and to support free tax preparation groups and tax filers themselves as they navigate the ITIN application and EITC claims processes. The Committee should confirm with the OCFO and DHS whether this recommendation requires a budget appropriation to cover the costs of staff time and outreach materials. With the OCFO, the Committee should request information on whether there is any unspent funding from the allocation for EITC outreach in the fiscal year 2022 budget that could be put toward this purpose.

Restore Funding for Baby Bonds Program

In 2021 and 2022, Chairman McDuffie laudably championed the Child Wealth Building Act of 2021, which established a DC Baby Bonds program to reduce the substantial racial wealth gap in the District. As the result of a long and well-documented history of deliberately racist policies, exploitative and extractive systems, and white racial violence against Black residents, the District has one of the largest racial wealth gaps in the country. In DC, white households have 81 times the wealth of Black households.^[3]

The racial wealth gap causes intergenerational harm. Wealthy families can pay for an elite education for their children, start a business, buy a home in a safe and amenity-rich neighborhood, weather a job loss or illness, and provide their children and grandchildren an inheritance to build on.^[4] Families with little or no wealth are denied these opportunities as well as the freedom and security wealth provides. In the words of baby bonds scholar and advocate Darrick Hamilton, “the reality is that wealth is the paramount indicator of economic prosperity and well-being. When it comes to economic security, wealth is both the beginning and the end.”^[5]

Baby bonds are a promising tool for building Black wealth and realizing a future of shared abundance in the District. The Mayor’s own Comeback Plan called for building “economic stability, mobility, and wealth” among DC’s Black, brown, and Indigenous residents.^[6] Yet despite this rhetoric, the Mayor’s FY 2024 budget raids $54.3 million in recurring funding for this transformative program across the financial plan and makes the program subject to appropriations. In effect, the Mayor’s budget ends the baby bonds program before it is able to launch and robs the opportunity to build wealth, economic security, and a brighter future from thousands of eligible young children.

The Council should reject the Mayor’s proposal and fully restore recurring funding to the baby bonds program in the amount of $8.8 million in FY 2024 and $54.3 million across the financial plan.

Require Greater Transparency of DC’s Clean Hands Law and Remove Occupational Licensing Barriers 

Beginning in October 2023, the Clean Hands Certification Equity Amendment Act of 2022 (the “Clean Hands Amendment”) will ensure DC residents can renew their driver’s license even if they owe the District $100 or more in fines or fees. The Clean Hands Amendment helps to repair harms in the District resulting from the disproportionate ticketing of residents of color and those with low incomes. Black residents account for 45 percent of DC’s population but receive just over 65 percent of all tickets.^[7] Because the median per capita income of Black residents is roughly one-third the median income of white residents,^[8] it is more difficult for Black residents to pay back the debts they incur. Black residents are also 19 times more likely to be arrested for driving without a valid license compared to white residents, leading to harmful economic ripple effects across families and communities that result from criminal legal system involvement.^[9]

While the FY 2023 budget included just over $300,000 for the first year of the Clean Hands Amendment implementation, the OCFO anticipates more than $7.2 million in revenue loss across the financial plan as a result of reduced debt collections.^[10] To ensure transparency about how the Amendment’s implementation impacts District revenues, the Committee should require the OCFO to include updated estimates about anticipated revenue losses as a part of their quarterly revenue estimate reporting. Transparent reporting on revenue loss can support efforts to identify reinvestment opportunities if revenue loss is less than expected.

In addition, the Committee should continue to improve the Clean Hands law by ensuring residents with District debts can renew occupational licenses. With more than 10 percent of DC’s private sector workforce requiring some form of professional license, financial barriers imposed by DC’s Clean Hands Law prevents many workers from legally working in their chosen occupations. Additionally, many of the occupations requiring professional licensing pay below the median wage in the DC region, placing increased financial burden on these individuals relative to other occupations. For example, bus drivers, cosmetologists, childcare workers, and many other occupations earn, on average, less than the median salary in DC despite requiring an occupational license.^[11] Restricting workers from renewing these licenses due to unpaid debt further entrenches wage inequities and makes it even more difficult for hard-working individuals to pay back their debts.

Thank you for the opportunity to testify, and I am happy to answer any questions you may have.