District Must Make Changes to EITC Payments; Prioritize Funding for Baby Bonds

Chairperson McDuffie and members of the Committee, thank you for the opportunity to submit written testimony. My name is Tazra Mitchell, and I am the Chief Policy and Strategy Officer 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 to improve and advance the approved “Earned Income Tax Credit Expansion Clarification Amendment Act of 2022” to minimize risk of monthly EITC payments resulting in reduced public benefits. Yet, risks remain for eligible filers. This testimony also touches on the “Child Wealth Building Act of 2021,” or the baby bonds program, which aims to reduce DC’s substantial racial wealth gap. This committee championed this bill and successfully restored its funding after the mayor made the program subject to appropriations in her (fiscal year) FY 2024 budget. Yet, nearly two years after the law went into the effect, the District still has not hired a vendor to implement the program or enrolled a single child.

The Committee should:

• Modify the Budget Support Act language to allow EITC filers to opt out of monthly payment of the credit, given it can put receipt of federal benefits, such as Supplemental Nutrition Assistance Program (SNAP), at risk. Or pass standalone legislation making this change; and,
• Maintain funding for the baby bonds program and ensure the Office of Chief Financial Officer (OCFO) swiftly and effectively launches the program and improves public transparency for the program.

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 is the first jurisdiction to enact monthly payments of its credit to act as basic monthly income, which can help smooth out household finances for those making ends meet on low pay. Taxpayers are beginning to receive monthly DC EITC payments on the full value of their refundable credit this calendar year. However, the change from lump sum EITC payments to monthly payments for tax credits above $1,200 is putting at risk EITC recipients’ SNAP benefits due to federal law.

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 the US Department of Agriculture’s Food and Nutrition Services (FNS) must approve changes to rules.

Last year, the DC Department of Human Services (DHS) requested an amendment to DC’s SNAP state plan to exclude EITC monthly payments from counting towards income eligibility, but FNS rejected the request.^[2] DHS must treat the monthly EITC income as “regular” income when determining SNAP eligibility and benefit levels. This change can reduce a resident’s food assistance in part or in full, depending on their household composition and total income. About 37 percent of EITC-eligible tax filers in the District also participate in SNAP, according to data by the Center on Budget and Policy Priorities.^[3]

The committee should work with the General Counsel at 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, for tax years beginning in 2024, the committee should add language to the Budget Support Act (or through a standalone piece of legislation) requiring that the OCFO add an “opt-out” provision on DC’s tax form for EITC monthly payments. This change 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. The committee and Council should require the OCFO to conduct outreach and guidance to working households to alert them to their choices.

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.

Maintain Funding For, Quickly Implement, And Improve Transparency For The 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. Yet, two years later, the OCFO has failed to launch the program and enroll eligible children. 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 the DC area, white households have 81 times the wealth of Black households.^[4]

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.^[5] 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…[W]hen it comes to economic security, wealth is both the beginning and the end.”^[6]

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.^[7] Yet despite this rhetoric, the mayor’s FY 2024 budget raided $54.3 million in recurring funding for baby bonds across the financial plan and made this transformative program subject to appropriations. We applaud Chairman McDuffie’s leadership in restoring funding to the baby bonds program across the financial plan and rejecting the mayor’s cuts.

To ensure that the baby bonds program achieves its long-term goals, the committee must maintain and protect its funding moving forward. Doing so requires getting the program up and running. The mayor signed the “Child Wealth Building Act of 2021” into law on December 13, 2021, and the law took effect on February 18, 2022.^[8] Nearly two years later, the program has not enrolled any eligible children. The slow implementation of the baby bonds program continues to put its success at risk—especially in the face of ongoing revenue challenges and the program’s 18-year time horizon for yielding financial benefits to participants. The committee should continue to work with the OCFO to speed up program implementation and improve program transparency, toward the goal of quickly and effectively enrolling eligible DC children.

To improve and speed up implementation, the committee and OCFO should take steps to:

• Finalize and issue an award to a vendor to administer the baby bonds program and its Child Trust Fund. In last year’s Committee on Business and Economic Development performance oversight hearing, the OCFO testified that it anticipated selecting and making an award to a vendor by the end of FY 2023, or September 30, 2023.^[9] As of late January 2024, the OCFO was still negotiating a contract with the selected vendor.^[10] While selecting a vendor represents a step in the right direction, it is imperative that the OCFO finalize the contract and award the vendor as soon as possible. Baby bonds implementation cannot begin in earnest until a vendor is in place to administer the program.
• Finalize and adopt proposed baby bonds regulations. In December 2022, the OCFO issued a Notice of Proposed Regulations for the baby bonds program.^[11] As of early February 2024, the OCFO still had not issued its final rules, which will provide a framework for program implementation, including the administration of the Child Trust Fund, program eligibility criteria, and enrollment rules.^[12] The timely issuance of final rules is necessary to support the program’s successful roll out. The committee and OCFO should issue final regulations as soon as possible.
• Build public awareness around the baby bonds program. The OCFO has published limited public information about the baby bonds program. Lack of transparency for the program—such as a clear timeline on implementation—makes it difficult for stakeholders to support the program’s success. Moreover, limited public information means that parents of eligible children may not know that their children qualify for the program or understand what steps, if any, they need to take to ensure their children are enrolled. Over the course of FY 2024, the committee, the OCFO, the awarded vendor, and other public agencies, such as DHS, should build public awareness and transparency for the program. This could include a public media campaign, a launch event, regular and widely-publicized program updates, and/or an online program dashboard tracking eligibility, enrollment, and other key data points.

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