July 27, 2012

One of the predominant myths about D.C. is that the federal government fully compensates the city for any costs or lost revenue it incurs as the federal district. In reality, D.C. residents bear a heavy fiscal burden — to the tune of about $1 billion a year — because of a structural deficit that Congress could fix. Rep. Darrell Issa (R-Calif.), the chairman of the House Oversight and Government Reform Committee, clearly understands this, making news last week by stating that he is open to a measure that would shrink this deficit . What about House Minority Whip Steny Hoyer ? It was disappointing enough that the powerful Maryland Democrat came out immediately against Issa’s proposal. Did he have to do it by evoking the myth that won’t die?

The District’s structural deficit begins with the fact that the largest employer and landowner in the city — the federal government — pays no property tax. Neither do embassies, non-governmental organizations or other nonprofits. Yet the District provides all of these institutions and their employees with the same services it provides to private, tax-paying property owners. The D.C. chief financial officer (CFO) estimates that the District loses $540 million a year because of this.

The District also has to perform the functions of a state and a city, but it lacks taxing powers that states have. If you work in one state and live in another, you pay some income taxes to the state where you work. The District, on the other hand, can collect nothing from the thousands of workers who work in the city but live in the suburbs. Studies from the Brookings Institution and the D.C. CFO place the lost revenue to the city at $1.4 billion to $2.2 billion a year.

The federal government does offset some, but far from all, of the costs of providing state-level services — about $1.1 billion a year, according to the CFO. For instance, it pays the cost of the court system and incarcerates long-term felons ($761 million), which a state would normally have to cover on its own, and it pays a higher percentage of D.C.’s Medicaid costs ($310 million).

But the District still must pay for motor vehicle licensing, mental health services, higher education and other functions typically carried out by states. A 2005 Brookings and D.C. Fiscal Policy Institute study estimated that the District spends $1.1 billion in city funds on state-level functions — essentially picking up half the tab.

Congress’s own investigative arm, the Government Accountability Office (GAO), did the math in 2003, and concluded that the District simply cannot provide the services of a world-class city because of this “structural deficit,” which the GAO placed at $470 million to $1.1 billion per year.

So back to Issa and Hoyer. At a recent congressional hearing, Issa said that he’s open to fixing this problem. “I think we should, after the election, start thinking about how we’re going to deal with the only place that doesn’t have the ability to tax people who earn their income in that place.” Hoyer’s response to that? “Everybody in America pays to support the District of Columbia,” he said. “Everybody pays that because it’s the capital of the United States of America. That’s the appropriate way to fund it.”

If only that were true. The reality is that every comparable city in America receives revenue that is denied to the District, while the District faces an extra burden that Congress doesn’t adequately reimburse.

The Hoyer Myth, that some generous payment that “everybody in America pays” covers the structural deficit, is a particularly sinister falsity because many members of Congress use it to justify meddling in local affairs.

The District has done its part, passing balanced budgets for 15 straight years and earning top bond ratings. This fiscal discipline, however, masks the structural deficit by deferring needed investment in schools, transportation and other services used by residents, workers and visitors from around the world.

It’s time for Congress to do its part, in one of two ways: Either make the Hoyer Myth a reality by covering this structural deficit with an annual payment to the District of $470 million to $1.1 billion, based on the GAO’s estimate, or allow the District to tax the income of nonresident workers. That’s simple fairness.

The writer is a contributor to the blog Greater Greater Washington.