D.C. mayor unveils big program cuts and tax hikes in first budget plan

April 1, 2011

Mayor Vincent C. Gray slashed $113 million from social service programs and proposed $127 million in tax and fee increases, including an increase on taxpayers earning more than $200,000 a year, in his first proposed spending plan.

Gray (D) said he repeatedly warned that the $9.6 billion fiscal 2012 budget, which includes $5.5 billion in local funds, would inflict some pain. “This is a tough budget,” he said at a news conference Friday. “I’m not going to represent it as anything else.”

The planned cuts worried advocates of social service programs, which have already been reduced in recent years. Meanwhile, the business community was readying to push back on Gray’s plan to raise the parking-garage tax to 18 percent from 12 percent and to require multi-state corporations to report all income when filing taxes in the District. Both actions would generate nearly $40 million in revenue, according to the proposed budget. Gray is scheduled to meet Saturday with business leaders.

Gray is also proposing a change to the way employers are required to withhold city income taxes, by no longer accounting for standard deductions when calculating withholding rates. The measure is expected to generate nearly $41 million in fiscal 2012, but much less would be collected in subsequent years.

The average District resident would see an additional $160 withheld yearly from paychecks under the proposal, according to the office of the chief financial officer. The withholding change would not otherwise affect taxpayers’ total liabilities.

No one was completely satisfied Friday, though.

Council Chairman Kwame R. Brown (D-At Large) said he would not vote for Gray’s budget as it stands, and he would be “very, very, very unlikely” to support any income tax increase.

Although Gray appeared to strike a balance between cuts and tax and fee increases to help close a $322 million budget gap, the reductions targeted social services, said Ed Lazere, executive director of the D.C. Fiscal Policy Institute. The $113 million accounts for 60 percent of the $187 million in proposed cuts, according to the budget proposal. Health and human services represent about 26 percent of the budget, Lazere said.

And the cuts appear to be at odds with Gray’s goals of improving education. Children cannot learn “if families are put under stress,” Lazere said. Public education would see an $18 million reduction, though no layoffs are planned under the budget proposal.

Council member Jim Graham (D-Ward 1) balked at planned reductions to the Temporary Assistance for Needy Families (TANF) and the city’s interim disability assistance program, which provides pending recipients of Social Security with local assistance until they are approved.

But Graham agrees with increasing the parking garage tax, which he said has not been changed in three decades. With about 60 percent of consumers coming from outside the city, parking garage taxes could be the closest the city could come to a commuter tax, which is prohibited by Congress, he said.

Barbara Lang, president and chief executive of the D.C. Chamber of Commerce, said that the public may immediately think that large parking companies such as Colonial will be taking a hit but that the “people that are going to be impacted are people like me who provide parking for their employees,” she said.

Though supporters see the increase on $200,000-a-year earners as just targeting the wealthy, Lang said, “That will be a big hit to small businesses. How they’re structured, they may be earning $200,000.”

Council member Jack Evans (D-Ward 2), who is known for being business-friendly, said he was surprised by the proposal to raise garage and income taxes and to remove a sunset on an increase in the sales tax to 6 percent. He also said he opposes Gray’s proposal to increase a tax on live entertainment and a $1 hike in the Circulator fare to $2. Evans said the human services budget has risen exponentially through the years while council member Michael A. Brown (I-At Large), who has pushed for an increase in taxes on the affluent, has said that the human services budget has decreased.

Gray first met with council members to give them an overview before holding a news conference.

He was somewhat dismissive of concerns that there would be public backlash over the budget, particularly tax and fee increases, because of recent controversy over his administration’s hiring practices. He noted that salaries exceeding legal caps have been rolled back. “Of course, there’s a perception of a government spending more than it should,” Gray said.

But Gray said that programs such as TANF and the interim disability assistance program are flawed. TANF, which will eventually cut off recipients who have received benefits for more than 60 months, must stop being a program that people permanently depend upon, he said.

The city was supposed to receive federal reimbursements to cover the disability assistance program but hasn’t, Gray said. “We are now seven years into this, and it has never happened,” Gray told Graham. “That is the way it was sold, and it has never operated that way.

The overall budget stays within the city’s self-imposed 12 percent debt cap, does not dip into the city’s rainy-day fund and stops a past practice of using capital dollars to fund $47 million in staffing and operations. Gray and Eric Goulet, deputy chief of staff and budget director, noted that they had to balance the budget without the use of federal stimulus dollars.

Council member Phil Mendelson (D-At Large) said the public is not aware that, under Fenty, the budget was structured in a way he described as inappropriate. “My initial reaction is that Vince has done the right thing in trying to right-size the budget,” he said.

Staff writer Mike DeBonis contributed to this report.

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