Even while reversing many of Mayor Bowser’s proposed cuts, the DC Council gave initial approval to a fiscal year (FY) 2025 budget that leaves major holes in the District’s safety net, particularly in the areas of housing and ending homelessness. The budget continues to vastly underfund housing vouchers and rental assistance despite a 14 percent increase in residents experiencing homelessness over 2023 and the uncertain futures of the 2,200 families being exited from DC’s Rapid Rehousing program.
To restore funding to programs that Mayor Bowser slashed in her budget proposal, DC Council approved a number of revenue raisers. They include a very modest increase to the property tax rate on homes with a taxable assessed value over $2.5 million, an increase in the Universal Paid Leave employer payroll tax, and an extension of sports wagering to new mobile betting platforms. With this funding, and other budget shifts, the Council was able to:
- Allocate $70 million to the Pay Equity Fund (PEF), which restores what the mayor cut but is still $17 million less than what the program cost in FY 2024. The PEF aims to ensure livable and professional salaries to early childhood educators, one step needed to boost teacher satisfaction, retention, and quality care.
- Restore funding for Access to Justice, a program that provides legal services to residents with low incomes.
- Provide $6.5 million in FY 2025 and $26.5 million over the financial plan for “baby bonds,” which aims to reduce DC’s substantial racial wealth gap. Council also reversed the mayor’s proposed eligibility restrictions.
- Fund an additional permanent teacher at each elementary school in Wards 7 and 8, which serve a majority of Black and brown students and those in families with low incomes.
- Restore planned increases to the DC Earned Income Tax Credit (EITC) for families over a slower timeframe than originally legislated (the credit will 100% match the federal credit by 2029, instead of 2026).
- Establish a modest local Child Tax Credit of $420 per child for (up to three) children under age 6.
These changes make real progress over the mayor’s proposal. But the benefits of these investments will likely be hampered because of gaps elsewhere. The Council failed to adequately fund critical housing supports like emergency rental assistance and vouchers for people and families experiencing homelessness or housing instability, creating an immediate crisis. For example, in the FY 2025 budget Council funds just 43 new Permanent Supportive Housing vouchers for individuals. These vouchers ensure both housing and wraparound services to individuals who are chronically homeless and have a high chance of dying because of the length of time they’ve been unhoused and their physical and mental health conditions. But the number funded falls wildly short of the need, especially given the surge in homelessness.
In a statement on the FY 2025 budget proposal, Council Chairman Mendelson said, “I’ve tried to find a way to minimize the way that we are increasing taxes.” But rather than tie their own hands because of an arbitrary—and incorrect—sense that DC’s revenue and spending are “too much,” lawmakers should be working to raise adequate revenue to fund the programs and services that support residents and an equitable, thriving economy.
Public spending through the budget is the foundation of a strong economy. For example, accessible and affordable child care sets kids up for success, allows parents to work, and ensures businesses have a reliable workforce. Reliable public transportation and safe roads move workers, tourists, and goods around the city. The cost of these critical investments grows naturally. To avoid devastating cuts and ineffective programs, DC Council must ensure that revenues keep up with that cost.
While a step in the right direction, the Council’s current property tax increase on high value homes raises only $5.7 million in FY 2025 due to its high threshold and low marginal rate. Council set the threshold for the new marginal rate at $2.5 million in taxable value, which is more than twice the average single-family home price and three to four times the median (and it should be noted that sales prices typically exceed taxable value). In addition, a $0.15 marginal increase in the rate represents a very small tax increase for people who have the level of income and wealth to own a home above that value. Under this plan, a household with a $2.6 million home for example, would pay only $150 a year in additional property taxes (or 15 cents per $100 extra on the last $100,000). That’s equivalent to the cost of a meal and drinks for two at a nice DC restaurant. Lowering the threshold of the tax increase and adding a third bracket and marginal rate could raise millions of dollars more to house residents who might otherwise die without a roof over their head.
Right now, DC under-taxes wealth and income. An owner of a $300,000 condominium pays the same rate on their property as an owner of a $5 million house. Similarly, an executive with an income over $1.1 million pays on average a smaller share of their income in taxes than a middle-class family with two teachers each earning $60,000. DC voters strongly support taxing wealth and high income to raise revenue and address inequality, including increasing property taxes for homes with a taxable assessed value over $1.5 million.
Before finalizing the FY 2025 budget, DC Council should vastly improve the property tax proposal and consider raising taxes on incomes above $500,000, limiting itemized deductions, and taxing capital gains at a higher rate than income from work. With additional revenue, DC Council should:
- Fund at least 600 PSH vouchers for individuals.
- Fund ERAP at the FY 2024 level, which would increase it from $26.9 million to $62.5 million.
- Fund additional housing vouchers for families who will be terminated from Rapid Rehousing.
- Boost the Pay Equity Fund to keep up with costs of meeting minimum salary requirements of the program.
Even with Council’s progress toward bridging the gap between DC’s revenues and residents’ needs, the current budget stands to exacerbate the housing crisis, which will destabilize the nearly 150,000 residents in DC living on low incomes and dampen the strength of the local economy. Councilmembers can and should do more to equitably raise needed funds, keep promises to residents, and fortify District revenue into the future.
