D.C. lawmakers took a modest step away from the city’s high-tax reputation on Wednesday by approving a budget that includes a cut in the sales tax while cementing a tradition of strong business regulation by giving an initial nod to a bill requiring some big-name retailers to pay a “super minimum wage.”
The budget vote represents first efforts to roll back tax increases made four years ago when the economic crisis decimated government revenue. The cut in the general sales tax, to 5.75 percent from 6 percent, was made possible by a $92.3 million addition to fiscal 2014 revenue estimates announced Monday.
Council Chairman Phil Mendelson (D) said the revenue windfall offered a “rare opportunity” to reduce a tax — one that had been raised as a supposedly temporary measure. “Today, we were able to live up to our word,” he said.
The increase was made in 2009 as city leaders wrestled to close a $660 million two-year shortfall. It was intended to sunset in fiscal 2012, but Mayor Vincent C. Gray (D) proposed continuing with the higher rate in 2011 and the council assented.
Since then, the city’s economy has rebounded mightily. Fiscal 2012 ended with a $417 million surplus over projected revenue of roughly $6 billion, and the latest revenue estimates indicate that no slowdown is expected soon.
When the new rate takes effect Oct. 1, it will be slightly lower than the 6 percent rates in Maryland and Northern Virginia. Other parts of Virginia have a 5.3 percent sales tax.
The tax cut is expected to reduce city revenue by $19.8 million in 2014, and budget legislation carves out an additional $18 million for future tax cuts that are expected to be proposed by the Tax Revision Commission in coming months.
The tax reductions were outweighed by $50 million of new spending initiatives, also made possible by the revenue upgrade. They include several proposals from Gray — such as an expansion of early childhood education and more money for senior programs — as well as several pet initiatives of council members. Those include free Metro service for students, film and TV production incentives, and $1 DC Circulator bus fares.
The sales-tax cut won kudos from the D.C. Chamber of Commerce, whose leader, Barbara B. Lang, called it a “good start” and praised Mendelson for his “good judgment.”
Business leaders were less pleased by the council’s vote granting initial approval of a bill requiring “big box” stores such as Wal-Mart and Target to pay their employees no less than $12.50 an hour — a significant increase from the current citywide minimum of $8.25.
The 8 to 5 vote came after the incorporation of an amendment that would limit the law’s impact to stores doing business in spaces of 75,000 square feet or more.
Without the amendment, the bill would have covered all businesses associated with a national company that does yearly sales of $1 billion or more — potentially affecting such retailers as Apple and Nike. With the amendment, the bill is more squarely focused on Wal-Mart, which has announced plans to open six stores in the city.
The bill passed after nearly an hour of debate that touched on the need to balance D.C. leaders’ efforts to attract major retailers with city residents’ ability to earn sufficient wages in a city that grows increasingly more expensive.
“For once in your life, stop worrying about business, because business is going to take care of itself,” said Vincent B. Orange (D-At Large), one of those introducing the bill.
The Large Retailer Accountability Act had the backing of worker advocates and labor unions — particular those representing grocery store workers — who have argued that the nation’s largest companies have the ability to pay their employees a “living wage.” But business representatives have lambasted the bill, saying it places an uneven burden on large employers, unfairly exempts unionized businesses and inaccurately conflates large revenues with windfall profits.
“If this is about sticking it to Wal-Mart, we should be honest and say so,” said Muriel Bowser (D-Ward 4), who opposed the bill, saying she was afraid that it would make it harder for the city to attract retailers, such as Trader Joe’s and Wegmans, that her constituents support.
Three Wal-Marts are being built in the city, and two are expected to open before year’s end. It is unclear how the council’s vote will affect the plans of the mega-retailer. Steve Restivo, a company spokesman, said Tuesday that the retailer has made no decision but that the “arbitrary costs” added by the bill could have “unfortunate ripple effects.”
A Wednesday statement from the company called on Gray to veto the bill, saying it “runs counter to every economic development platform his administration has identified as a priority.”
Gray has not said whether he will sign the bill. Nine council votes would be required to override a veto.
In a letter sent to the council ahead of Wednesday’s vote, Gray said lawmakers should “move cautiously” and strike the “appropriate balance . . . between improving the lives of our workforce, and encouraging business attraction and retention.”
Orange said he expected Gray to sign the bill. “Especially if he’s running for reelection,” he said. “This is for the people.”
A second, final vote on the bill is scheduled for July 10.