Council Approves District Budget

Members Also Back Tax Relief Package

D.C. Council members gave unanimous initial approval yesterday to Mayor Adrian M. Fenty's $5.7 billion budget for fiscal 2008, adding an eleventh-hour plan crafted to provide $30 million in tax relief to residents and small businesses.

The tax measure would increase the standard deduction on individual income tax returns from $2,500 to $4,000, raise the homestead deduction for homeowners from $60,000 to $64,000 and create an $11 million tax relief fund for the business owners.

The plan marked a dramatic shift from earlier proposals, which advocates for affordable housing and the homeless had characterized as tax breaks for the city's wealthier residents.

Council Chairman Vincent C. Gray (D) said yesterday's plan offered equitable relief to residents across the city. He said he finished writing the plan at 3 a.m. yesterday after polling council members Monday.

"I got a general sense that the council wanted to give relief to people who hadn't received it lately, like renters and low-income residents," Gray said. "We wanted to reward the people who are really trying to work and make it."

Council member Marion Barry (D-Ward 8), who represents some of the city's poorest neighborhoods, urged his colleagues to support the new tax relief plan. "There was a conflict between giving money to the rich and kicking the poor in the behind," he said.

The council will take a final vote on the budget June 5.

The city's overall budget is $9.7 billion, including federal funds, and officials said the $5.7 billion local portion represents an 8 percent increase over fiscal 2007, which ends Sept. 30. Fenty, who took office in January and submitted the budget proposal in March, did not include many new initiatives but focused on reorganizing agencies.

"I am pleased by the Council's decision to accept the majority of my proposed budget," Fenty (D) said in a statement. "In addition, I am in full support of the tax relief included in the budget that will benefit homeowners, low-income residents and small businesses."

At first, Fenty and Gray had been at odds over whether the mayor's first fiscal proposal was balanced. Chief Financial Officer Natwar M. Gandhi recently announced a total projected revenue surplus of about $95 million for fiscal 2007 and 2008, eliminating much of the debate.

The council plans to use some of the surplus for the tax relief and the unexpected expenditures for rebuilding the Georgetown public library and Eastern Market, both recently damaged by fire.

The vote on the tax relief plan was a victory for advocates who doggedly pressured council members to abandon proposals that would have exempted residents with estates of up to $3.5 million from inheritance taxes and capped residential property tax increases at 5 percent. The cap is currently 10 percent, and estates of up to $1 million are currently exempt from taxes.

Yesterday, Barry pushed for another form of relief for renters. He and council member Kwame R. Brown (D-At Large) persuaded a narrow council majority to approve a $5 million increase in funding for a supplemental rent program for the city's poor. "We have 40,000 folks out here suffering," Barry told the council. "There are people paying more than 50 percent of their net income in rent."

The measure passed 6 to 5. Council members Jim Graham (D-Ward 1), Carol Schwartz (R-At Large), Harry Thomas Jr. (D-Ward 5) and Tommy Wells (D-Ward 6) were the other supporters.

In a more low-key move, the council rejected Fenty's plan to eliminate the "calculated tax rate," a cap on revenue from residential property tax assessments, and fix the rate at 86 cents, which Fenty said would reduce homeowners' tax bills.

Phil Mendelson (D-At Large) was the first council member to raise objections to Fenty's plan, saying that homeowners would actually pay more in taxes because the calculated tax rate will soon drop to 85 cents.

Mendelson also fought Fenty's plan to increase emergency 911 fees for telephone users to cover improvements to the communications network. The council voted to use some surplus money to pay for the upgrades.