Property Transfer, Cigarette Taxes Likely to Increase

The D.C. Council is poised to increase taxes on cigarettes and property transfers to make up a $35 million budget shortfall, while still providing new funding for schools and tax relief for small businesses.

Chairman Vincent C. Gray (D) said yesterday that the council has reached a consensus on a strategy that would maintain many of Mayor Adrian M. Fenty's priorities in his $5.7 billion spending plan for fiscal 2009 and resolve the key areas of disagreement.

The revised budget package, which the council will vote on today, also includes amendments ranging from providing universal health care to rejecting the funds that would reopen Klingle Road, the thoroughfare through Rock Creek Park that has been closed for 17 years.

Gray, his budget staff, the mayor's budget staff and the Office of the Chief Financial Officer worked together yesterday, finding cash in reserves and revised revenue estimates in addition to the tax increases on cigarettes and property transfer fees.

Separate from the budget, the council will also vote on whether to award a $120 million lottery contract to a new firm, W2I, whose credentials have been questioned by several council members. Gray said he decided to put it on the agenda to end the controversy. "I put it on the agenda so the members can vote it up or down," he said.

Meanwhile, in the two most contentious areas of the budget-- school spending and business tax relief -- Fenty and the council appear to have compromised. Gray had sought to move $18 million from new art and music programs in the schools to facility modernization, saying Fenty shortchanged the school construction fund. Under the revised budget, the city would pay for the new programs and fully fund the modernization budget, Gray said.

More than $10 million would come from funds Fenty (D) had originally set aside to lease a Virginia Avenue SE building for the police department. "The city administrator said at two hearings that the city is going to sublet the property, so we took that money and put it into schools," Gray said.

The police department's budget will be tapped to give small businesses property-tax relief, Gray said. Fenty proposed a $15 million commercial property tax break despite the council's vote in January to dole out a $96 million tax-relief package. Gray is backing the recommendation of Phil Mendelson (D-At Large) to transfer $6 million from the public-safety budget, unused salaries from vacancies, for the tax cut.

"We'll get it up to $21 million," Gray said of the tax cut. "They tried very hard," said Barbara Lang, head of the D.C. Chamber of Commerce. "I don't know whether it's going to be enough, but every little bit helps."

Carrie Brooks, Fenty's spokeswoman, said the public-safety transfer could hurt Chief Cathy L. Lanier's efforts to increase police presence. "Those dollars were specifically for putting more police on the street," Brooks said. "That's what Chief Lanier told us she needed to get to the 4,200 [total officers]."

The revised budget also increases the tax rate assessed for transferring property from 1 percent to 2.9 percent. Gray said the increase puts it in line with similar property levies in the city. The change is expected to generate nearly $8 million in fiscal 2009.

Council member David A. Catania (I-At Large) also came up with what he called "new taxes" on cigarettes and health-maintenance organizations to help pay for "Healthy DC." The city health-care plan is designed to insure residents whose incomes are too high to qualify for public-assistance programs and another city-funded health care program already in place, the DC Healthcare Alliance.

Catania scaled back the plan because insurance giant CareFirst BlueCross BlueShield was hesitant about being the provider and donating $5 million annually to the cause. But an amended proposal that gives the mayor the authority to seek out a provider is included in the new budget.

The $1 increase on a pack of cigarettes would generate $5 million to help fill the budget gap, Gray said.