The unprecedented economic crash resulting from the pandemic has brought hardship to DC residents, communities, and small businesses. Public needs are rising dramatically—but the District has fewer resources to meet those needs because the economic shutdown is causing revenues to plummet. DC faces a revenue shortfall of more than $1.5 billion in fiscal year (FY) 2021 and FY 2022.
To make it through this crisis and build a just economic recovery, it is important for DC’s response to preserve crucial investments in homeless services and housing, health care, social services, and education. As the Mayor and Council begin the difficult task of developing the budget, we identified six principles they should use to reduce harm to vulnerable residents and our economy.
Put Revenue on the Table
To avoid excessive, economically harmful budget cuts to crucial programs and services, the Mayor and Council should enact revenue raisers to maintain services and meet growing needs. A cuts-only approach will worsen the economy’s fall, hurt families that are struggling to stay afloat, and jeopardize the District’s ability to make the most of prosperity when it returns. For budget cuts, lawmakers should identify efficiencies and reductions that would have a limited effect on key services, such as delaying nonessential capital projects.
The District should also prioritize investments that will boost the economy. Preserving and expanding the safety net for low-income residents and preventing layoffs are both key to sustaining local businesses and helping them avoid their own layoffs because these individuals spend what they receive to meet basic needs. Preventing government layoffs whenever possible will help, but also avoiding the cancellation of government contracts for local businesses and the removal of funding for nonprofit partners is also key, as these kinds of cuts often lead to layoffs at the affected businesses and nonprofits.
For revenue, District leaders should ask more from those who can afford it; one example is raising taxes on wealthy individuals who received massive federal “Trump” tax breaks in 2017. The top one percent of DC taxpayers received an average federal tax cut of over $67,000 per year in that deal, from which they’re still benefiting. Lawmakers can also repeal business tax giveaways that are ineffective, such as the Qualified High Technology Company incentive, or come at the expense of providing targeted supports to shuttered small businesses, such as the “deferred tax deduction” for big businesses that will go into effect in FY 2021.
Additionally, increases in taxes for wealthy residents are less likely to negatively affect local businesses because they are less likely to reduce their purchases because they have a larger financial cushion than other households. Thus raising taxes on wealthy households is better for the economy during a recession than cutting services and benefits for low-income residents or cuts that lead to layoffs.
Use Reserves and Waive Restrictive Repayment Rules
Before COVID-19 hit, the District had a total of $1.43 billion in its two federal and two local reserve funds. Lawmakers set aside money during good economic times to help stave off deep budget cuts during “rainy days.” Now is the time to use these reserves for critical needs and waive the restrictive repayment rules that govern their use.
DC mandates that withdrawals from its local reserves be repaid within the same fiscal year and the federal government requires that withdrawals be repaid within two fiscal years. It is unlikely that the District’s economy will completely rebound in this time. DC should waive the local mandate and ask the federal government to waive its requirements so that there is more time to refill the reserves. To replenish the reserves sooner, lawmakers could also enact a temporary tax increase during better economic times and direct those new revenues into the reserves.
Redirect Some of the FY 2019 Surplus
The District ended FY 2019 with a $500 million budget surplus. After meeting the requirement to fill the reserves, the District had $324 million left over. Current law requires that the District allocate half of this funding to the Housing Production Trust Fund and half to pay-go, funds used for DC government construction projects. The District should redirect the funds to other urgent needs as construction projects could instead be funded through borrowing or delayed if they are not urgent.
Preserve Safety Net Programs and Address Needs Related to COVID-19
Given the economic downturn and expectation that DC’s unemployment rate will reach 18 percent, the District should avoid cutting services that help with basic needs like cash benefits, housing, healthcare, and food assistance. As more people lose their jobs through no fault of their own, the District is anticipating an increase in the number of people receiving Temporary Assistance for Needy Families (TANF) cash benefits for families with children and Supplemental Nutrition Assistance Program (SNAP), also known as food stamps.
With the Centers for Disease Control and Prevention (CDC) Director predicting a second wave of COVID in the fall, the FY 2021 budget must include funds to address related needs. For example, individuals who are homeless are particularly likely to acquire COVID-19 because of their age, vulnerability, exposure to many people while living in dormitory-style shelters, and/or inability to keep clean while living outside. And because of their health conditions, they are twice as likely to need to be hospitalized and two to three times likely to die from COVID. The District needs to move as many individuals into housing as possible by increasing funding for Permanent Supportive Housing (PSH) which provides housing intensive wrap-around services to medically vulnerable individuals.
Make Progress Towards Racial and Economic Equity
The FY 2020 supplemental budget and FY 2021 budget can improve racial, ethnic, and class inequities, worsen them, or leave them at the same unacceptably high levels. A just economic recovery requires lawmakers to prioritize the former, acknowledging decades of systemic racism, and the fact that Black and brown residents are often the last ones to bounce back after an economic downturn. Black residents are already hardest hit by COVID-19, with the highest infection and death rates. During the Great Recession, the District took steps that worsened these inequities, including cutting cash benefits for low-income families and the education budget. Because historical and current discrimination often leaves Black households with little or no wealth to fall back on during hard times, maintaining the social safety net is vital to keeping families afloat and reducing inequities.
By following the principles outlined above and not repeating the budget cut decisions of the Great Recession, the District can improve racial and ethnic equity.
Engage the Community in Budget Decisions Through an Inclusive and Transparent Process
The pandemic required lawmakers to put DC’s normal budget calendar on hold so they could address immediate needs. Last week, the DC Council released a truncated budget schedule and revised hearing procedures that both vary by committee and severely limit public voices and participation. If Council committees host invite-only hearings or only accept written input from the public, many residents will effectively be shut out from engaging in the budget process. Given the tough decisions that will need to be made in this tight budget environment, the Council should be trying to expand public participation, not limit it. This means that all committees should host at least one live, virtual hearing for public witness voices and accept additional input through multiple means of communication.
This post has been updated.
