New Revenue Will Restore D.C. Tax Cuts
Financial Officer Credits Housing Market, Economy
By David Nakamura
Washington Post Staff Writer
Wednesday, June 30, 2004; Page B01
The booming real estate market and a healthy economy will generate $100 million more in revenue than had been anticipated this year, automatically restoring tax cuts suspended two years ago, District officials announced yesterday.
Chief Financial Officer Natwar M. Gandhi attributed the increase in revenue to higher-than-projected income and real estate tax collections. The windfall is in addition to Gandhi's announcement in April that the city would get $50 million more than expected from a revived tourism industry.
With the added revenue, the District's Tax Parity Act, which was passed in 1999 but stalled in 2002 during the economic recession, will resume automatically and reduce the income tax burden from 9.3 percent to 9 percent for residents who make more than $30,000 in adjusted gross income, said D.C. Council Chairman Linda W. Cropp (D).
In other matters, the council gave preliminary approval to a measure that would extend the current school governing structure for four years. The bill, offered by Kevin P. Chavous (D-Ward 7), would keep the current school board structure in place, with five elected members and four appointed by the mayor.
An amendment by Jim Graham (D-Ward 1) to give the council line-item control of the school budget was tabled until July 13, so the council can seek comment from the public. Another amendment by Graham, to abolish the hybrid school board after two years and move to a fully elected board, was defeated.
The council will take a final vote on the matter at its next meeting.
"We have a static system incapable of change," said David A. Catania (R-At Large), who supported both of Graham's amendments. "This body spent all these many months and produced nothing to advance" the school system's governing structure.
In addition, the council, buoyed by the flush economic picture, moved to reduce the real estate transfer tax from 1.5 percent to 1.1 percent, returning it to where it was two years ago, before city leaders raised it to help close a budget deficit.
"This is a period of celebration," Cropp said. "It means the two commitments the council made to reduce the deed and recordation tax and the income tax, folks will see them go into effect in October."
The D.C. Council passed the Tax Parity Act as a five-year plan to lower the top income tax rate from 9.5 percent to 8.5 percent, which would bring the District tax rate closer to those of suburban jurisdictions.
But the plan was suspended after two years because of the economic downturn and dwindling revenue. Now, Gandhi said, the city is "on an economic roll" that could last several more years.
"The real estate market is very hot," he said. "This provides [a] very good picture for the city."
An analysis provided by Gandhi's staff showed that a family of four with an income of $50,000 would save $20. That would rise to $81 if the family made $75,000, $146 if it made $100,000 and $271 if it made $150,000.
Ed Lazere, executive director of D.C. Fiscal Policy Institute, a liberal think tank, suggested that the Tax Parity Act was passed on a flawed premise because cutting the tax rate to attract high-earning residents to the city was an outdated concept. After all, the city's real estate market has been among the hottest in the nation even as the top tax rate remained unchanged, he said.
"If this is a sign that the District's economy is on a healthy path, then we need to think about how to use that bounty," Lazere said. "It may be better to reduce the income tax burden on low-income folks and, in addition, to address larger problems like child care, libraries, school cuts of teachers."
Council members sparred over Chavous's bill on the school board, which had been passed on an emergency basis this month in an effort to persuade Carl A. Cohn to take the D.C. school superintendent job.
Cohn, a former school superintendent in Long Beach, Calif., had said that the current governing structure must remain in place for him to accept the position. He withdrew from consideration last week.
Some council members said they feared that the city would have continued trouble attracting a superintendent if the council made drastic changes.
"We've had a high level of collaboration on the superintendent search, and I don't want to see that interfered with by a measure like this," said council member Kathy Patterson (D-Ward 3).
© 2004 The Washington Post Company