jonetta rose barras: DC’s money squeeze comes fast and hard

If anyone running for elective office this year in DC promises to expand existing government programs, turn and walk away. Do not give a second thought to marking your primary or general election ballot for such a fantastical thinker. The District is in the throes of a recession. It will be there for the next 18 months, according to DC Chief Financial Officer Jeffrey DeWitt.

A miracle could happen. That seems improbable, however. 

COVID-19 has whipped DC mercilessly. If the virus rebounds in the fall, intersecting with the normal flu season, the money squeeze could become even more intense — especially if Congress doesn’t provide additional financial assistance to cities and states. Thus far, U.S. Senate Majority Leader Mitch McConnell is blocking support and has become an advocate for bankruptcy.

DeWitt has projected a four-year revenue shortfall in DC totaling $3.2 billion. Every revenue source is affected, including sales, income and property taxes. Consider that in 2019, the District collected $147 million from licenses and permits. The CFO has projected a drop in 2020 to $93 million. Fines and forfeits, meanwhile, are expected to drop from $195 million in 2019 to $118 million, according to DeWitt’s April 24 revenue projection letter sent to Mayor Muriel Bowser and DC Council Chairman Phil Mendelson.  

“This is a recession no matter how you look at it,” DeWitt explained at a press briefing prior to the release of his letter. Traditionally, a recession is slow-moving; people can see it coming and start to prepare.

Interestingly, DeWtt told me that during the council’s retreat earlier this year, he outlined steps he would take in the event of a recession. He said he told his folks to place that action plan behind the glass. Then, the coronavirus moved across the country with astounding speed, killing people while devastating the economy. The day Bowser announced the city’s public health emergency, DeWitt recalled, he told his staff “break the freakin’ glass.”

His projection of a $722 million revenue loss means a huge shortfall in the District’s $9.9 billion approved local budget for 2020. Including federal grants and subsidies, the city’s total approved budget was $13.4 billion, according to the CFO’s website. 

Back in the 1990s, DC faced a similar fiscal crisis. There are some key differences, though.

Then, the deficit accounted “for somewhere between 20% and 25%” of the city’s $3 billion local budget, said DeWitt. The projected deficit for fiscal year 2020 represents about 7% of DC’s local budget.

The city’s credit rating in the 1990s was at junk bond status; borrowing was costly. Today, the District has the luxury of a AAA rating. 

In the 1990s, a congressionally appointed financial control board stepped in to make many difficult decisions. A federal law mandates the return of such a group if DC officials commit any of what DeWitt described as the “seven deadly sins” — failure to make payroll, failure to pay its debt service, failure to make pension payments, failure to maintain liquidity, failure to meet Washington Metropolitan Area Transit Authority (WMATA) compact payments, failure to maintain congressionally mandated cash reserves, and failure to pass a balanced budget.

Don’t expect any of that to happen under DeWitt. Prior to coming to DC, he was CFO for Phoenix when the city faced a deficit that was 25% of its budget. And, early in his tenure here in DC, he threatened not to certify the 2015 budget if changes weren’t made.

That may be unnecessary this time around. “We’re trying to solve this together,” he told me, offering that he, the mayor and council chairman held a four-hour Zoom meeting to reach a consensus on the supplemental COVID-19 emergency response legislation passed earlier this month.

Bowser has acted quickly to address the revenue shortfall by controlling expenditures. In March, she announced a limited spending freeze. DeWitt said he has not determined the amount of savings from those actions. He and his staff are figuring out various ways they can reduce the projected deficit for 2020, in part by using some of the $490 million provided to DC through the federal CARES Act.

The mayor will submit her revised 2020 supplemental budget and her proposed 2021 budget and financial plan on May 12. Mendelson has hinted at an accelerated schedule for the supplemental budget given that the government is already seven months into the fiscal year with an urgent budget gap. For the 2021 proposals, the council will hold a series of public hearings and will likely vote on a final document beginning June 30.

While Bowser has said she wants to ensure that the people who helped build DC’s vibrant economy can remain in the city during the recovery, the fact is that may be hard for some residents, particularly those who are low-income and without work. Even those employed in the government will feel the pinch. Consider that this year the city budgeted $3.6 billion for personnel costs — more than a third of local expenditures. 

“Everybody has to give something,” the mayor said during the press briefing, noting that “everything is on the table” but cautioning that “we can’t make up the deficit by raising taxes” as the only solution.

Bowser could try to raise revenues by increasing fees on certain services, like those provided by fitness centers and spas, or pushing for a higher tax on parking garages. Those would be turnip-squeezing exercises, however.

Mendelson seemed unwilling to close the door on the possibility of raising taxes. “Nothing is off the table,” he argued. “Some things may be easier than others.”

That surely sounded like music to the ears of progressive advocates who have started lobbying for their policies and projects. Keshini Ladduwahetty, with DC for Democracy, and others undoubtedly will reintroduce their perennial tax-the-rich strategy as a solution to the fiscal challenge. 

Empower DC organizing director Daniel del Pielago, working with public housing residents, the DC Fiscal Policy Institute and others, is pushing the mayor for a $60 million expenditure in her 2021 budget. “Public housing residents are living through a double health crisis — COVID-19 and unhealthy housing,” he said in a statement. “The mayor needs to put local funding for public housing repairs in the budget.”

In the 2020 budget fight, before COVID-19 hit the scene, the council fought the CFO  over its plan to transfer money from the Events DC reserve account for public housing renovations. A compromise was reached and $24 million went to the DC Housing Authority.

Events DC, which oversees the convention center and various entertainment venues like the Entertainment & Sports Arena in Congress Heights, has not shown an immunity to the coronavirus. With conventions being canceled and hotels experiencing drastic reductions in occupancy rates, Events DC has already taken a hit. DeWitt, who sits on its board, said the agency has had to substantially revise its budget. He said he expects “there will be some operations cuts” and it will have to “defer its strategic initiatives.” Most notable, the credit rating agency Standard & Poor’s has issued a negative outlook for the convention center, as it has many convention centers around the country, said DeWitt.

The mayor’s budget-cutting task for 2021 will be harder. The estimated revenue reduction is larger than it is in 2020 — $774 million vs. $722 million. The District will need cash from the congressional stimulus package to offset that loss. In the CARES Act, approved earlier this year, DC was treated as a territory — not a state. That meant it was denied $700 million, which could have gone a long way to closing the budget gap. It’s not clear whether that decision will be reversed in any pending stimulus bill. 

DeWitt had been days away from certifying Bowser’s initial 2021 fiscal plan when COVID-19 arrived. She had already announced an increase in per pupil spending for public schools — traditional and charters. That now seems unlikely given the size of the deficit. Can she and the council still meet the goal of providing 12,000 units of affordable housing by 2025, when the CFO indicates that the dedicated tax stream used to fund the Housing Production Trust Fund has taken a hit? The mayor announced Wednesday night plans to move forward with construction of a new hospital east of the Anacostia River while providing financial assistance to expand services at Howard University Hospital. Can the city afford both projects?

Even after Bowser submits her revised budget and new financial plan and the council votes on them, nothing will be finalized. DeWitt will provide updated revenue projections in August. The economy may or may not look any better by then. “The list of uncertainties is long and we cannot assume, given the extensive disruptions to the economy, that things will quickly return to the way they used to be,” he said, noting that he met regularly with a host of affected groups, including  restaurant and hotel owners and managers, as his office developed its revised revenue projections.

“There could be lingering effects on shopping, work and travel patterns, along with changes in the interest people have in moving to and working in the District of Columbia or other cities. There could also be changes in demand for office space, as well as people’s desire to go out to bars, restaurants or movies.“

Translation: It is hard to quantify the impact of a fearful public. That may be the most difficult thing for elected officials to overcome.

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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.