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D.C. Council Approves Tax Hikes, Spending Cuts
New Budget, Which Aims to Close $666 Million Shortfall, Built on 'Shared Sacrifice'

By Tim Craig and Nikita Stewart
Washington Post Staff Writers
Saturday, August 1, 2009

District residents could soon face higher sales, gas and cigarette taxes after the D.C. Council approved a revised fiscal 2010 budget that might force Mayor Adrian M. Fenty to abandon earlier promises to not raise taxes and avoid cuts in public education.

Although fees and taxes have risen slightly since Fenty (D) took office in 2007, the new increases promise to affect all residents from the gas pump to the shopping mall.

The tax increases were coupled with spending cuts across the government, including a rare reduction in school resources. They are designed to close a $666 million shortfall over the next three years.

With District finances battered by recession, council members said they have risen to the challenge by curtailing the size of the government as they ensure funding for critical social and city services.

"We have focused our gap-closing solutions on shared sacrifice," D.C. Council Chairman Vincent C. Gray (D) said.

The budget changes will go to Fenty for approval. During his 2006 campaign, Fenty pledged that he would not raise taxes. But in an interview Friday, Fenty said he will probably accept the council proposal.

"The truth of the matter is, this is a pretty big budget hole to fill," Fenty said during an interview on WAMU (88.5 FM) radio. "These are obviously not draconian tax increases."

But advocates and business leaders are alarmed at the speed at which the council pushed through the spending and tax plans. There were no public hearings on the proposed tax increases, and the council spent much of the week negotiating behind locked doors, although it did permit reporters to sit in on most of the proceedings.

"This is just simply unconscionable," said John B. Townsend II, spokesman for AAA Mid-Atlantic. "It is ironic the city has 'no taxation without representation' on its license plates, and yet it raises the gas tax on consumers and raises the sales tax without the public having any input."

The council voted to raise the sales tax from 5.75 percent to 6 percent, although members agreed that the increase would revert to the lower rate in three years. The council also agreed to raise the 20-cents-a-gallon gas tax by 3.5 cents.

The proposal to raise the cigarette tax by 50 cents, to $2.50 a pack, would make the District's tax the sixth-highest in the nation, according to the American Lung Association.

David Sutton, a spokesman for Altria, the parent company of Richmond-based Philip Morris USA, predicted that smokers would flock to Virginia for their cigarettes. Virginia's cigarette tax is 30 cents. Maryland's is $2.

Council members also agreed to temporarily freeze the standard and homestead deductions at current levels.

Fenty must also review the more than $100 million in spending cuts the council approved. The cuts are in addition to the $250 million in reductions that he has outlined.

The council proposed a $30 million reduction in school spending, including a 50 percent reduction in summer school slots next year.

Fenty, who has made school change a top priority, has been protective of public education even as he has made cuts to other agencies. But Gray said the school system, which has an annual budget of about $1 billion, also had to make sacrifices.

Fenty said Friday that Chancellor Michelle A. Rhee has told him that she should "be able to make enough adjustments" to work within the budget approved by the council.

The council also agreed to curtail hiring police officers, eliminate hundreds of positions, scale back the Summer Youth Employment Program from 10 weeks to six weeks, and eliminate earmarks for arts and social service organizations.

George Jones, executive director of Bread for the City, which supplies food and services to about 10,000 low-income residents each month, said the budget cuts will erode the city's safety net.

"We are going to feel this," said Jones, who would lose his $250,000 earmark. "A lot of cuts are really going to make an impact on the neediest residents of this city."

The vote was a major political victory for Gray, who proved that he can unite the council in a fiscal crisis and fend off pressure from interest groups. Gray demanded that the council not only fix the revenue shortfall in this year's budget but also avoid creating large gaps in future spending plans. In accomplishing that goal, Gray risked support from social and business groups by raising taxes and cutting spending to a greater extent than Fenty had proposed.

The council also met Gray's objective of not using the city's reserve fund to help fill the budget gap. Fenty wanted to use $125 million from the fund, but Gray said that would be fiscally irresponsible because the money would have to be repaid in fiscal 2011 and 2012.

"We've made some very tough decisions that we believe, at the end the day, will create a sound future for our government," Gray said.

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