jonetta rose barras: The coronavirus — taking lives, destroying the economy

Even before the U.S. Senate could settle on its nearly $2 trillion stimulus package as a bulwark against the coronavirus’s ravaging of the national economy, the DC Council had offered its own relief that relied on drawing millions of dollars from the city’s hefty savings accounts. While there were cheers at the federal and local levels, the fact remains that in each case the help provided is mostly temporary. 

In the hours before the Senate’s approval, word got out about the decision to treat DC as a territory, with $500 million in relief on the table, rather than the minimum of $1.25 billion promised to each of the 50 states. That led to a predictable but justifiable outcry over inequitable treatment of DC as well as pointed criticism from Maryland Sen. Chris Van Hollen, but the danger of a reduced allocation only adds to what’s already clear.

Real pain is coming soon. In DC, budget cuts will be unavoidable.

“There is no question about that,” Council Chairman Phil Mendelson said during an extensive interview with me earlier this week about the city’s economy and what the government may face even after the spread of the virus has been contained.

Arguing that the city “does not have the full picture yet” of what federal assistance might come, Mendelson declined to indicate what areas might be targeted for budget reductions. “The challenge will be what programs get cut. I don’t want to speculate at this point.”

Social services, including welfare, education and public safety, account for at least two-thirds of DC’s local spending, according to District government documents.

“This is so much different than any depression or recession,” Mendelson continued, noting a certain predictability and slow-moving nature to both. Some economists had previously predicted a recession could hit the U.S. within the next two or three years. 

“We need a big [assistance] package from the federal government. They can do deficit spending. We can’t. We are constrained by our budget,” said at-large Council member Elissa Silverman. 

In its relief package, the feds have set aside $150 billion for state and local governments; another $500 billion will go to the hardest-hit industries. That could help DC’s hospitality and tourism sectors. 

No one saw the coronavirus coming with such ferocity. It has been like a sucker punch to the global economy. China, where cases were first reported, didn’t appear to be prepared for its expansive severity.

“This was so sudden,” said Mendelson. What’s more, virtually no sector has been unaffected by the massive shutdowns that have taken place worldwide, including in DC. “It’s every landlord. Every business. Every bank.” 

Reviewing the initial impacts, Silverman said, “This could go beyond a recession. It could be a true depression.”

As a way to measure what DC is up against, Silverman told me that between Friday, March 13, and Sunday, March 22, the city received as many as 17,000 unemployment benefit claims. It normally gets about 30,000 a year.

“We are seeing a level of claims for UI [unemployment insurance] the city has never seen before,” she continued, adding that the director of the Department of Employment Services has been pulling workers from other parts of the agency to help handle the demand. 

According to government officials, 1 in 7 workers in DC are employed in the hospitality industry, which has been hit hard by closures mandated by the public health emergency called by Mayor Muriel Bowser. Further, between 30% and 50% of the city’s sales taxes derive from hospitality- and tourism-related businesses. Elliott Ferguson, president and CEO of Destination DC, said cancellations of various conventions could cost the city more than $78 million.

The District has seen hard financial times before. Back in the mid-1990s, the city faced a budget deficit that reached as high as $750 million. The red ink came even though  when Sharon Pratt was elected mayor in 1990, the feds gave the city a $300 million subsidy — a signal of how happy congressional representatives were that Marion Barry was no longer in charge. However, Pratt’s administration — aided and abetted by the council — ran through those funds and, to paper over the mismanagement and misspending, created a fifth budget quarter, which essentially allowed borrowing from an upcoming fiscal year.

When Barry returned to office, he announced the deficit. U.S. Rep. Tom Davis, a Fairfax County Republican who chaired the committee with oversight over the District, came to the rescue, working across the aisle with DC Del. Eleanor Holmes Norton and President Bill Clinton to do so. Among other things, the feds picked up the city’s unfunded pension liability, took over its court and prison system, and set up a financial control board, which essentially pushed Barry aside and ran almost every agency of the government.

The fiscal discipline that began in that period and ambitious public policies developed under Mayor Anthony Williams brought the city to its current state of financial prosperity. The federal control board legislation also set in place a fiscal infrastructure, including an independent chief financial officer, to guarantee there wouldn’t be any repeat of those days in the 1990s.

“We’re in a much better place,” said Mendelson.

Shout hallelujah.

Still, the District won’t be able to glide over the rough road ahead. Speaking to the council before the vote on its wide-reaching relief package, DC Chief Financial Officer Jeffrey Dewitt indicated the city could be forced to cut $500 million out of its current budget if the public emergency and widespread shutdowns continue into June. He is preparing a revised economic forecast for District officials. 

“The income tax would be affected next year (2021),” said Mendelson. “The real property tax would be over the next several years.” In 2019, about $5.8 billion of the city’s local revenue of $7.4 billion came from property, income and franchise taxes; the remaining $1.6 billion came from sales and use taxes, according to the 2019 Comprehensive Annual Financial Report.

The size of the upcoming budget cuts and duration of the pain will be dictated, in part, by the fact that the law requires DC to repay within two years the money it has taken from its savings account. “It’s not unreasonable to ask [Congress] for an extension,” Mendelson said, explaining one way to ease the immediate hit on the DC budget.

The District actually has four so-called rainy day funds, two of which were created under local law. Nevertheless, all are restricted by the two-year rule. Silverman said that was put in place to prevent officials from just drawing down those funds willy-nilly. Given the present circumstances, Silverman said she would support a waiver. “This is not a rainy day — this is a complete deluge,”  she added. 

Thus far, the long-term budget impact has drawn minimal attention. The hue and cry has been for economic relief and public health protections. Echoing the view of many residents, Yesim Sayin Taylor, head of the nonprofit D.C. Policy Center, said, “DC passed a good [rescue] package.” 

However, as an expert on DC’s finances, her praise came with caveats and cautions. Taylor told me during our interview last week that she is concerned about the long-term impact on workers who are part of the “in-person” economy. These are people who can’t work from home. She cited as examples drivers with ride-hailing companies, building janitors, security personnel, and general administrative personnel who work in offices. 

The local bailout allows independent contractors to receive some help through grants and loans. But responding to a question from the press at her coronavirus update, Mayor Muriel Bowser said on Wednesday there isn’t a lot of money for this segment of the workforce.

In a report Taylor released this week, she asserted that the central theme of the coronavirus crisis is “capacity,” citing as examples the ability of governments to perform tests and of hospitals to handle the influx of cases. But the issue is broader. The rescue packages could adversely affect “District residents’ and businesses’ capacity to bounce back when it is time to grow and thrive again.” She said it’s important to consider how to “build a more resilient local economy in the long run.”

“Businesses, governments, and households are not like Lego [blocks] — one cannot dismantle them and rebuild them in the same exact way without losing something,” Taylor wrote in her report. “Once dismantled, many will take a great amount of time to rebuild themselves, if they can at all.” 

In our conversation, Taylor — who was a fiscal analyst with the DC Office of the Chief Financial Officer before leaving to launch the D.C. Policy Center with the assistance of the Federal City Council — proposed that DC consider regulatory changes that could make the bounce back easier for businesses. “Eliminate Clean Hands right now,” she continued, citing a law that prohibits individuals or businesses from securing a DC contract or license if they owe money to the government. 

Taylor said the city could also remove some professional licensing requirements, allowing its hospitals, for example, to make the determination without government involvement as to who is qualified to work for them. “We basically have to do everything we can to increase [the] capacity of businesses to stay in place,” she added.

“I think we have to be cautious [given the potential impacts of] both of those,” said Silverman, adding that she is concerned about the tax deferrals for hotels and other businesses that the council agreed to in its relief package. Those delayed payments could make it difficult for the city to provide additional aid to the businesses and families most in need — one way to ensure the capacity and resilience that Taylor talks about. 

“We have to have some money coming in. We are going to need every dollar we can get,” said Silverman.

DC elected officials and residents may disagree on whether and to what extent regulatory reforms will be necessary to restore the vibrancy of the District’s economy. Let’s hope, however, we can all agree on this: DC’s reliable, old budget favorite of raising taxes must not be deployed as the fix.

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jonetta rose barras is an author and freelance journalist, covering national and local issues including politics, childhood trauma, public education, economic development and urban public policies. She can be reached at thebarrasreport@gmail.com.