DC Council Should Reject the Mayor’s Austerity Budget

Chairman Mendelson and members of the Committee, thank you for the opportunity to testify today. 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.

Mayor Bowser’s proposed fiscal year (FY) 2024 budget cuts vital lifelines for DC residents struggling to make ends meet and backtracks on existing commitments aimed at advancing racial justice. Her proposal hits the pause button on key initiatives to end homelessness and prevent eviction and pulls back on affordable housing. It also ends or cuts other programs aimed at ensuring that struggling DC residents aren’t left behind and instead locks in spending that benefits commercial developers.

Despite claims that DC residents no longer face an emergency, many households experience significant economic insecurity, especially with the cost of basic needs like food and housing on the rise. Since 2019, the number and share of people living below the poverty line, which is $27,740 for a family of four, has increased. At the same time, Black residents in the District are more than five times as likely to live in poverty and have roughly one-third the income relative to white residents. And, while the overall unemployment rate in DC is low, it masks big disparities by race and ward. Nearly 10 percent of Black workers in DC were unemployed as of the 4^th quarter of 2022, and as of January 2023, the unemployment rates in Wards 7 and 8—largely Black communities East of the River—remain on par with the high Districtwide recessionary monthly unemployment rates of much of 2020 and 2021.^[1]

Given this hardship, the Council should reject the mayor’s austere approach. This body should make major changes to the FY 2023 supplemental budget and FY 2024-2027 financial plan rather than its usual practice of passing a supermajority of what the mayor proposes. In particular, we are asking the Council to:

• Reconsider the Housing in Downtown (HID) Abatement altogether, or short of that, reject mayor’s proposed FY28 expansion and exemptions from key equity provisions while adding safeguards to protect taxpayer dollars;
• Make large investments in Emergency Rental Assistance Program (ERAP) in the FY 2023 supplemental and FY 2024 budgets;
• Restore $18 million to the Access to Justice program;
• Restore $20 million to DC CARES for workers excluded from traditional unemployment insurance in the FY 2023 supplemental budget;
• Restore funding for the baby bonds program;
• Restore the cut to the Early Childhood Educator Pay Equity Fund (PEF) in the FY 2023 supplemental budget and FY 2024-27 financial plan;
• Protect neighborhood schools by proactively planning for schools relying on one-time and encouraging DCPS to improve transparency of school budgets;
• Restore funding for public restrooms; and,
• Expand Permanent Supportive Housing (PSH) vouchers.

Reject Changes to Housing in Downtown Tax Abatement Program and Consider Changes to Safeguard Public Dollars

The proposed FY 2024 budget includes changes to the “Tax Abatements for Housing in Downtown Act of 2022” adopted by the Council in the FY 2023 budget. The program provides a property tax abatement to subsidize the conversion or rebuild of commercial properties into residential units. This subsidy would go to qualifying property conversions in a specific area of downtown DC that add at least 10 housing units; property owners would receive the abatement for a period of 20 years. The total cap on the abatement program is $2.5 million in FYs 2024-2026 and $6.8 million in FY 2027, after which time the cap raises by 4 percent each year. Properties must set aside 15 percent of housing units at rents affordable to households earning 60 percent or less of median family income (MFI). Mayor Bowser’s FY 2024 budget proposal would remove key equity provisions built into the abatement program and vastly grow its size in FY 2028, outside of the current financial plan.

As I shared in my testimony at the DMPED budget oversight hearing, tax abatements often go to companies that already are prepared to engage in a particular business activity, subsidizing activity that would have happened anyway and thus wasting public funds.^[2] This has been borne out by national research. A comprehensive analysis of business incentives for economic development offered by state and local governments found they are often costly yet not highly correlated with unemployment or income levels, or with future economic growth.^[3]

Some have pointed to the NoMa housing abatements made available in 2008 as a shining success story of the efficacy of tax abatements for this purpose, but the District government has not conducted an analysis to determine a causal relationship between the abatements and housing production in the neighborhood. In fact, it is far more likely that the development of the then New York Avenue Metro Station just a few years prior served as the major catalyst for development in the area, accompanied by the federal government’s efforts to bring thousands of federal employees to new headquarters near the stop.^[4] Indeed, the District created the Metro stop specifically because of the untapped economic potential of that area, and private interests were willing to pay a substantial share of the costs to build it for that very reason. Broader research confirms the catalytic economic development effects of public investment in transit—rail in particular—which often also predicts future gentrification.^[5]

The shock of the pandemic created an incredible level of uncertainty and DC, like so many places across the country, is arguably only just starting to emerge from that crisis, with many residents still facing hardship and insecurity and many employers now considering the right balance of remote versus in person work. It is not at all a foregone conclusion that the extreme, necessary shift to remote work is permanent.

If the demand for commercial property remains low or worsens, and developers conclude that it benefits their bottom line, then conversions to residential or mixed-use properties will happen without public subsidy. Some have already happened.^[6] In fact, one analysis shows that DC led cities across the nation in office to residential conversions between 2020 and 2021.^[7]

The Council should reconsider the program altogether, particularly at a time where we have limited resources and stark trade-offs in our spending decisions. Short of that, Council should reject the mayor’s proposed changes to the abatement and consider potential changes that safeguard the use of public dollars to subsidize conversions:

• Reject exemptions from key equity provisions of the abatement as adopted in the FY 2023 budget. Affordable housing requirements for the current HID abatement are already low. The mayor’s proposal brings the abatement further out of line with the District’s affordable housing goals by allowing developers to choose between ensuring that at least 8 percent of units are affordable to households at 60 percent of MFI or that 15 percent are affordable at 80 percent MFI. DC also should keep in place its First Source in hiring requirements for businesses receiving public subsidy because DC residents should get first consideration for jobs created with public dollars. Furthermore, exempting developers from Tenant Opportunity to Purchase Act requirements deprives potential tenants in converted buildings of the rights that other tenants have. It sets a dangerous precedent to eliminate for a small and powerful interest group key equity provisions required by others to receive public subsidies.
• Reject the proposed, costly increase to the abatement cap in FY 2028. This expansion increases the cap on the abatement by 600 percent in a year that falls outside of the current four-year financial plan. This amounts to budget gimmick that locks in a high level of spending in a future year, when we have no idea what the revenue landscape will look like or what the trade-offs will be. It also leaves in place—for the foreseeable future—the annual 4 percent increase on the abatement cap starting in FY 2029. If the District made full use of the program, the cost would add up quickly. DCFPI estimates that the District would spend roughly $286 million in 10 years, $567 million in 15 years, and $909 million in 20 years, not adjusted for inflation.
• Add safeguards that ensure appropriate use of public funds. Council should require a “clawback” provision for developers that fail to comply with equity provisions and a sunset for the program. Developers who are unable to meet DC’s requirements to ensure affordable housing units at the level mandated or to ensure first source hiring agreements should be required to pay back the abatement. Developers should receive the abatement for no more than five years and the amount of the abatement they receive should phase down over time. Additionally, the program overall should include a five-year sunset. That would set it up to expire in FY 2028, one year after the Office of Chief Financial Officer (OCFO) will publish its next Tax Expenditure Report, which should document how effective the abatement program is at meeting its purported goals. The need for conversions is not permanent, neither should be the abatement. In the meantime, Council should request details from the Office of the Deputy Mayor for Planning and Economic Development on 1) the number of conversions happening already, without subsidy, 2) the number of applications that have been submitted or that it expects will be submitted for such projects in downtown, 3) and the full application and vetting process for the HID abatement.
• Finally, consider converting the abatement into a capital loan program. The District has experience with this through its HPTF, which has a dedicated revenue source that allows DC to subsidize the production of affordable housing with low interest loans and grants, including to cover capital construction costs. DC could create a special, temporary fund for expanding residential units downtown that operates like the HPTF. This would be a more transparent process, force developers to compete, and better ensure that the loan awarded matches what is needed to make the project work. It could be funded through a special tax or fee, perhaps even modeled after a hospital provider tax that levies a fee on providers to help cover the costs of industry-related services. This model would reduce trade-offs with other spending priorities in the budget.

Make Large Investments in ERAP in the FY 2023 Supplemental and FY 2024 Budgets

ERAP helps residents facing eviction pay for overdue rent and related legal costs—yet the mayor proposes slashing this program by about 80 percent next year. The program also covers security deposits and the cost of the first month of rent for residents moving into new homes. And many PSH residents use ERAP for security deposits when they need to move apartments. Preventing evictions is a key to avoiding significant socioeconomic setbacks for adults and children and offering security deposits helps households exit homelessness. Many DC residents experience housing instability: nearly 40,000 households earn less than 30 percent of family median income, just $29,900 for an individual, and pay more than half of their income in rent.^[8],[9] These households are severely rent burdened and are one missed paycheck or illness away from losing their housing.

The mayor’s proposed FY 2024 budget includes only $8.2 million for ERAP, down from $43 million in FY 2023. The District recently closed the ERAP portal for FY 2023 because DHS anticipates running out of funding in May. DHS received 7,720 applications for ERAP since last fall, but this likely undercounts the number of households who need help. In fact, analysis of Census Pulse data shows that from last October through mid-March, a monthly average of 16,300 DC renter households reported they weren’t caught up on rent.^[10] Council should provide at least an additional $50 million to ERAP in the supplemental budget—as housing advocates have called for—and anticipate high need for the program in FY 2024 due to a forthcoming rent increase, high inflation, and because every year the program runs out of money mid-year.^[11] The administration claimed their approach returns the program to pre-pandemic levels of spending. But the FY 2024 budget falls short even of the FY 2020 budget once inflation is taken into account. The unadjusted FY 2020 budget was $7.6 million, or $8.5 million in FY 2024 dollars.

Restore Access to Justice Funding

The mayor’s FY 2024 cuts $18 million from the Access to Justice program. Access to Justice provides lawyers to residents with low incomes who are dealing with eviction, foreclosure, debt collection, public benefit problems, and domestic violence. The Council should restore this funding to ensure that the courts and legal system work for all District residents, regardless of income.

Restore Funding for Excluded Workers

The mayor’s FY 2023 supplemental budget also cut the entire $20 million budget for DC CARES, a vital cash assistance program and lifeline for workers excluded from traditional unemployment benefits. DC CARES provides a modest one-time $1,000 cash benefit to these workers, helping them afford basic needs such as medicine, transportation, childcare, and debt incurred throughout this pandemic. Due to a long history of structural racism, discrimination, and economic exploitation, the vast majority of DC’s excluded workers are Black and brown people who earn or have earned low wages and are more likely to work in sectors hit hardest by this recession.^[12]

DC should keep the promises it made last year to residents struggling the most. Without this support, many will incur more debt and face economic uncertainty as rents and inflation increase and as our uneven economic recovery continues. The DC Council should restore funding to DC CARES in the FY 2023 supplemental budget.

Restore Funding for Baby Bonds

The Council unanimously passed the “Child Wealth Building Act of 2021” to create a 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.^[13] 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.^[14]

The mayor’s own Comeback Plan called for building “economic stability, mobility, and wealth” among DC’s Black, brown, and Indigenous residents.^[15] Yet despite this rhetoric, the mayor’s FY 2024 budget failed to provide continued funding for this transformative program. We recently learned that the OCFO made a technical error in its budget documents prepared for the mayor showing that the approved FY 2023-2026 financial plan included funding for baby bonds only in FY 2023 and nothing in the other three years, when in fact the financial plan included recurring and growing levels of funding in each year.^[16] Even so, the mayor made the choice to discontinue funding for a program that would help build equitable intergenerational wealth for District residents. The mayor should fix this in her errata letter. If she falls short, the Council should restore $8.8 million in FY 2024 and $54.3 million across the financial plan.^[17]

Restore Funding for PEF

Preserving and improving the quality, accessibility, and affordability of child care is an ongoing need of the early education system. Every last cent in the child care budget is needed to continue addressing each of these dimensions to ensure that every child has access to high-quality, affordable early learning. Yet, the mayor’s proposal undermines progress towards these goals by making cuts to the PEF in the FY 2023 supplemental budget and and FY 2024-2027 financial plan under the guise of “right-sizing” a program that the Office of the State Superintendent of Education (OSSE) hasn’t even fully launched.^[18] The recurring cut to PEF conflicts with the vision of the Council, which intentionally crafted it to be a “non-lapsing” fund.

It is essential to restore recurring cut to PEF—particularly after FY 2024—and going forward, preserve all PEF funds and its non-lapsing status given the many uncertainties about the costs of and participation in the program. We recently witnessed how the negotiated Washington Teacher’s Union contract grew the cost of parity overnight. Future contracts will do the same, and there will undoubtedly be other pressures such as growing health care costs. In fact, OSSE released estimates showing that it may cost up to $87.6 million to implement the PEF in FY 2024, depending on teachers’ take up rate of new credentialing requirements that begin in December.^[19] This is about $18 million higher than what is in the Mayor’s recurring budget proposal. Carryover funding from FY 2022 and 2023 is expected to protect the fund in the upcoming fiscal year, but that is not a sustainable, long-term source of funding as those funds will run out and costs of the program will rise. Raiding PEF funding undermines the District’s ability to sustain the growing costs of the program, put more funding into the equity adjustment, and expand the compensation program to directors of child development facilities.^[20]

Protect Neighborhood Schools

The Council should protect neighborhood schools by create a plan on best ways to support schools that are relying on one-time stability funding—primarily schools East of the River. Otherwise, these schools are at risk of experiencing a sharp fiscal cliff moving forward. And, Council should encourage DCPS to improve transparency around school budgets, as we requested at the COW budget oversight hearing on the education cluster.

Schools in Wards 7 and 8 are the most likely to face a fiscal cliff in FY 2025 due to the loss of one-time funding absent proactive planning from policymakers. Our analysis shows that six schools across Wards 5, 7, and 8 have submitted budgets in which stability funding makes up five or more percent of the school’s budget. Stabilization and safety net supplement funding, two categories of stability funding in FY 2024 initial budgets, are recurring sources that DCPS provides to schools. However, stability funding from the mayor’s Recovery Fund is one-time funding, and FY 2024 is the final year of the fund. Twelve schools receive mayor’s Recovery Funds, with 11 of those being in Wards 7 and 8. Six of those 12 schools have submitted budgets in which this funding makes up at least five percent of their budget, a sizeable loss that would carry consequences for children already the furthest from opportunity. When factoring in Elementary and Secondary School Emergency Relief (III dollars, one-time federal funding provided to school districts in response to the COVID-19 pandemic, the number of schools with greater than 5 percent of their budgets accounted for by one-time dollars increases from six to eight. Lawmakers should be proactively planning for how it will protect these and other schools relying on one-time stability funding from experiencing a sharp fiscal cliff moving forward. Figuring this out next budget season will be too late.

On another note, 38 percent of DCPS schools in Wards 5, 7, and 8 are facing a cut under the mayor’s proposed FY 2024 submitted school budgets and many of these cuts cannot be explained by a decrease in a school’s overall enrollment or enrollment of student groups, such as students receiving special education services and students designated “at-risk” of academic failure. Council should require DCPS to improve transparency and better explain why some schools’ budgets are increasing or decreasing, particularly if DCPS is using any discretion to pivot away from the formula for a particular school. The current format of publicly available budget documents makes it difficult for the public to discern why and how a school’s budget could be decreasing even if enrollment is growing or remains unchanged.

Restore Public Restroom Capital Funding

Passed unanimously by the Council in late 2018, the “Public Restroom Facilities Installation and Promotion Act” calls for the creation of pilot standalone restrooms in the District. The working group appointed to make recommendations for locations released a draft report in May 2022. The legislation required the mayor to install two public restrooms within 180 days of the release of the report. Rather than installing these restrooms, the mayor removed funding for public restrooms from the proposed capital budget.

Residents experiencing homelessness in particular stand to benefit from restroom expansions. The pandemic made restroom access worse, as many downtown businesses closed restrooms that non-customers once were able to use. And even prior to the pandemic, there was evidence that fewer businesses were allowing non-customers to use their restrooms. The People for Fairness Coalition (PFFC) visited 85 businesses in five areas of DC to see if they would allow the general public to access their restrooms. In 2015, they found that just over half of the businesses did.^[21] One year later, they found that 10 of these businesses now limited access to individuals who weren’t customers.^[22] They also found that businesses discriminated against a PFFC member experiencing homelessness who visited the restrooms. They allowed a white woman who appeared housed to use the restroom but not a Black man who appeared possibly homeless.^[23] The lack of access to bathrooms is not merely an inconvenience—it can have devastating health and public health consequences. Dr. Catherine Crossland of Unity Healthcare has testified about her patients skipping lifesaving blood pressure, heart and HIV/AIDS medications because they can lead to an urgent need for the restroom.^[24] Southern California experienced a large Hepatitis A outbreak from 2017 to 2019 because of the lack of toilets and handwashing facilities for residents experiencing homelessness.^[25] At least 21 people died as a result.^[26]

Council should restore funding for standalone restrooms.^[27]

Expand PSH Vouchers

As a Steering Committee member, DCFPI supports The Way Home campaign’s full budget platform but I would like to focus on PSH in this testimony as it is the main intervention for ending chronic homelessness. Housing is health care. Every day individuals experiencing homelessness die from preventable and manageable diseases. This is particularly true for residents who are chronically homeless, meaning they have been homeless for years and suffer from life-threatening health conditions and/or severe mental illness. By providing affordable housing coupled with intensive case management services, PSH helps people stay in housing and improve their health, and it saves a substantial amount of money as a result.

The proposed budget does not include any new PSH vouchers. Without a new investment, residents will languish in shelter or on the streets. The Council should fund 1,030 PSH vouchers for individuals experiencing chronic homelessness and 480 PSH vouchers for families. The Council can take into account the delays in voucher implementation by assuming these vouchers will start mid-year and prorate the costs in FY 2024.

I and my colleagues have testified on other important issues, such as housing preservation. Our testimonies can be accessed on our website. Thank you for the opportunity to testify, and I am happy to answer any questions you may have.