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The short path to ruin in DC

The DC Council gave preliminary approval this week to a $21 billion Fiscal Year 2025 Budget and Financial Plan that included dozens of significant adjustments to the proposal submitted in April by Mayor Muriel Bowser. Legislators roundly praised themselves and their staffers for their spending package that reduced cuts or outright restored several social programs — most of them unevaluated — while including more money for public education, among other things.


“This resets the District on the path to fight poverty and social justice,” said Council Chair Phil Mendelson, who essentially forged the final plan by using recommendations from standing committees and some of his own ideas — a few of which were not publicly vetted. 


He said he tried to find “sources to put it all in one pot and draw from that pot for [various] uses.” In other words, there seemed to be no clearly designed or articulated vision or mission that helped shape budget decisions aside from a desire to fund council priorities.


In his full-throated public presentation of the budget at Wednesday’s council meeting, Mendelson deployed a phrase most associated with now-deceased Mayor Marion Barry, proclaiming that the council had ensured the city’s most vulnerable residents — “the last, the lost, the least” — would be served.


Don’t believe the hype. The budget package also includes plenty of bennies for the not-so-poor. Money is set aside to purchase The National Theatre; the foundation that runs the institution would not be required to repay those funds. There is also money to help Arena Stage settle a loan and make improvements to its facility.


Who’s reading the details, really?! 


Mendelson’s spin and budget are massive palliatives, designed to quiet various advocates. Undoubtedly he also hopes to assuage those residents who are growing more vocal in expressing their dissatisfaction with the quality of DC’s political and administrative leadership and the overall direction of the city.


“This is Phil buying his next election,” said one longtime political operative who requested anonymity so that he could speak freely. Mendelson is expected to run in 2026 for a fifth term as chair; campaigning probably will begin early, especially since in his last race in 2022 a generally unknown Ward 4 advisory neighborhood commissioner came too close for comfort. A far-left-leaning politico, Erin Palmer received 56,671 votes in the Democratic primary; Mendelson prevailed with 64,877 votes. More than 6,000 voters who cast ballots in the election didn’t select a candidate in that race, according to results published on the DC Board of Elections’ website.


In politics, two years can be a lifetime. Can the budget maneuvering insulate him?


If Bowser’s proposal was bad — and it was, in my view — the budget presented by Mendelson and approved 11-1 is worse. Ward 8’s Trayon White voted against it; Ward 7’s Vincent Gray, who has been battling health issues, was absent.


In its budget proposal, the council not only spent the $217 million that Chief Financial Officer Glen Lee had sought to have appropriated to replenish the city’s Fiscal Stabilization Reserve Fund, but it also raised taxes on residential properties valued at more than $2.5 million. DC’s left wing has been salivating for years to impose such a tax. 


Mendelson had previously fought against the move. This year, he offered that it is “a good thing that we’re creating more progressivity” in the tax structure.


Except that the property tax hike has the potential, according to experts, of setting in motion a ripple effect that could lead to even higher home sales prices in DC, including properties that may currently be considered in the mid-range.


Moreover, in his effort to reach a détente with the CFO, Mendelson’s budget package includes the agreement that “any revenue increases certified in the next three revenue estimates through December 2024 will be deposited into the Fiscal Stabilization Fund.” If there continues to be a shortage by the start of fiscal year 2026, Mendelson pledged to include an appropriation in the next budget. 


The Fiscal Year 2025 Budget Support Act, the legislation that authorizes the actual spending, also increases the amount of money that goes into the Cash Flow Reserve Account by approximately $200 million, which is 10% of the General Fund operating budget. If that weren’t enough, it further “allows the OCFO to use other large reserve accounts for temporary cash flow purposes,” according to Mendelson’s statement on his budget proposal.


Natalie Wilson, the CFO’s spokesperson, said in an email to me that such provisions “indicate that the council has taken the [OCFO’s] concerns regarding liquidity very seriously and has taken direct action to address them during the financial plan period. Should these provisions be enacted into law, they will satisfy the necessary liquidity requirements, thereby supporting the District’s financial health. 


“Upon a thorough review of the complete budget, we will proceed with the necessary steps to determine certification,” added Wilson.


I like collaboration between government officials. It would be great, I think, if the mayor and council could work together to jointly address the city’s fiscal crisis. Maybe they can hold a fall summit, prepare the FY 2026 budget together, and present a unified agenda focused on District residents and not their egos or political ambitions.

I know, I am dreaming.


I want to celebrate Mendelson’s handshake with the CFO, but from my vantage point the details offer more evidence of recklessness. Consider, for example, that one of the funds the council is permitting the CFO to use for cash emergencies is the Housing Production Trust Fund (HPTF).


“Any funds drawn from the HPTF to cover cash flow needs must be replenished in the following fiscal year,” according to the BSA.


Didn’t this all start with the CFO demanding that the mayor replenish a reserve fund, and Mendelson asserting that the law doesn’t make such a demand?


Am I the only person getting dizzy, dancing in this circle? 


And isn’t HPTF for construction and financing of affordable housing? Are DC officials serious about affordability or is it just an election and pre-election talking point?


The council’s budget, not unlike the mayor’s proposal, includes a significant raid of funds from reserved and dedicated tax funds. In its FY 2025 budget, the council increased the employer payroll deduction beyond what Bowser had proposed; unsurprisingly, Mendelson and crew spent that money. They added a 50-cent surcharge for taxi rides, and then took 25 cents of that amount for the General Fund. 


The council gave initial approval of a last-minute change to sports wagering in DC. After years of disappointing revenues and blistering criticism, the program has been revived by the entry of a new subcontractor, FanDuel, which delivered nearly $2 million to the city’s coffers in the first 30 days of signing its performance agreement on April 15. The company has guaranteed to bring in a total of $10 million in the first year of the contract, according to government officials. 


Still, Council Chair Pro Tempore Kenyan McDuffie has pushed for a new sports wagering model that could flood the city with more mobile operators, competing against DC’s recently redesigned app while increasing licensing revenue and potentially diminishing the involvement of small Black-owned businesses like Ben’s Chili Bowl, for example. 


McDuffie and Mendelson have given the impression that the changes are critical for restoring the Child Wealth Fund eliminated in Bowser’s proposal. However, the cost for what is commonly called “baby bonds” is only about $7 million for FY 2025, which could be generated under the existing subcontract with FanDuel.



For what it’s worth, some legislators, including at-large member Christina Henderson and Ward 5’s Zachary Parker, argued that the change should go through the normal legislative process. 


“I believe this proposal needs more scrutiny,” said Parker, noting that he had watched the public hearing McDuffie recently conducted on the issue. “Many expressed concerns about how this would negatively affect small businesses, including those in Ward 5.”


“There should be some consideration to see what [FanDuel] generates before opening the city to different platforms,” said Anita Bonds, another at-large legislator.


McDuffie pushed back aggressively, leaving some people to ask whose interest he is representing. 


In an email to me, Jose Sousa, a spokesperson for McDuffie, wrote, “We categorically reject that any of these efforts have been created to help any individual or business.” 


Sousa added that the bill doesn’t disadvantage “those who have already made investments but provides them a competitive position once these changes go into effect.”


“The changes proposed will prioritize consumers, who will get better and more competitive options, and long-term businesses, which have invested in and will continue to invest in the vibrancy of the District,” wrote Sousa.


The change made it through the first vote of the budget; a second vote is scheduled for June 12. Will other councilmembers also push to have this measure removed from the budget package? Will anyone introduce an amendment to that effect?


Finance experts with whom I spoke this week suggested that the council’s budget is irresponsible. Like the mayor’s proposal, it perpetuates a fundamental structural revenue-spending imbalance that is paving the road to DC’s potential ruin. Consider this key fact: The city’s revenue is growing by only 2.0% per year while expenditures are growing at 7.5% a year. 


“They act as if there is no fiscal crisis,” said Yesim Sayin, a finance expert and executive director of the D.C. Policy Center. She characterized the council’s actions as a version of kicking the can down the road.


“It’s go today, come back tomorrow,” Sayin said in a telephone interview about the council’s vote. “All I’m seeing is a far more difficult problem next year.”


“Structural budget balance is reached when revenues equal expenditures in any given year and with equal rates of growth of revenue and expenditure over the financial plan,” fiscal expert and former Brookings Institution fellow Carol O’Cleireacain wrote in a 1998 white paper — “Bolstering DC’s Fragile Fiscal Recovery.”


“Spending is growing faster [in DC] than revenues,” she added.


Over the past two decades, the District has been able to camouflage that same problem with a variety of gimmicks and contrivances. Now, in the post-pandemic era, with a significant loss of commercial property taxes and a shifting economic base, as evidenced by new remote working habits of federal and private-sector workers, there are fewer methods for avoidance.


Interestingly, the report prepared by the Committee of the Whole, chaired by Mendelson, acknowledged the city’s structural problems. The expected lack of growth for all types of property taxes in FY 2024 is a significant reason for flattening revenues. The committee also cited drops in motor fuel taxes and decreases in real property deed and unincorporated business taxes. “If these trends continue, the District will face challenges maintaining its current expenditure levels.”


Nevertheless, Mendelson, the leader of the legislative branch, ignored that reality. The budget he presented reversed many of the cuts Bowser had made in her attempt, albeit imperfect, to rightsize the government. 


Councilmembers restored programs like the Early Childhood Educator Pay Equity Fund and Access to Justice, which serves low-income residents facing legal challenges. It added 477 new housing vouchers and provided nearly $7 million in one-time funding to the Emergency Rental Assistance Program.


I get it, and I agree that the government must help poor and working-class residents. Few in this liberal city would argue against that. 


But elected officials have to be responsible. The DC government can’t — and shouldn’t — fund programs that are not achieving their stated purposes and that are essentially keeping people in a cycle of poverty. Yet all too often we see administrative and programmatic expansions that are unsustainable. Such actions trigger financial instability and jeopardize the whole. Ultimately the people left holding the empty bag are the very residents officials claimed they wanted to help.


“Our government is very financially responsible. Our expenditures cannot exceed our resources,” said Mendelson.


That is such a flimsy definition of “responsible” — especially when Mendelson and his colleagues are misusing those resources with apparently little regard for the long-term consequences.


This article first appeared in TheDCLine.org


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