In declaring that the District is in a financial crisis, a blue-ribbon panel has confirmed what many observers had concluded some time ago. In citing the root causes of the crisis, however, the commission gave short shrift to a major factor: The District has shared very little in the area's growth these past few years and lacks the economic development policy and programs that could make a difference.
The city's deficit has two immediate causes, said the Commission on Budget and Financial Priorities, also known as the Rivlin Commission: the drug epidemic and its related problems, and the slowdown in the District's economy.
The fact is, there has been a slowdown in the District's economy for almost two decades. The current slowdowns in the regional and national economies have merely brought into sharper focus the District's thin economic base.
To be sure, the commission has recommended a dismantling and restructuring of the present bureaucracy operating under the heading of economic development. In 195 pages describing the crisis and suggesting how it might be resolved, however, the commission never quite put its finger on a major cause of the city's financial woes -- the seeming inability to develop and execute an effective economic development program.
While it's probably true that the District's budget is being strained by a bloated bureaucracy and redundancies in agency operations, a financial crisis would exist even if deep personnel cuts and major consolidations were made.
Without question, the fiscal crisis has been made worse in the absence of an increase in five years in the annual payment that the District receives in lieu of taxes from the federal government. Only the political Neanderthals in the White House and Congress continue to oppose an increase. But even if those opponents should suddenly stumble upon the fiscal realities of the 20th century and approve an increase in the federal payment, it wouldn't be enough to offset the city's economic ills.
That assertion may not be shared by members of the commission, but the report nevertheless implies that the District's economy continues to be eroded by factors other than the static federal payment, high staffing levels in government agencies and insufficient tax revenue from existing sources.
The economic slowdown and the drug epidemic, the commission found, "expose stresses that have been accumulating" for many years. Indeed, they have. "The city has been losing middle-income residents, jobs and sales to its rapidly growing suburbs. An increasing proportion of the region's poor and persons with serious problems are concentrated in the District," the commission pointed out, confirming findings reported in several previous studies.
And little wonder. Throughout the economic boom of the 1980s, the District continued to lose ground to the suburbs. There was indeed a surge in office and hotel development in downtown Washington during that period. The building boom tended, however, to mask the fragility of the District's economy.
The number of trade and professional association headquarters continued to grow. So did the number of law firms, accountants, consultants and nonprofit organizations. But expansion by those groups created a host of white-collar jobs held mostly by suburban dwellers. The economies of Northern Virginia and the Maryland suburbs, meanwhile, were being expanded at unparalleled levels by high-technology firms, telecommunications companies, defense contractors, printing and publishing firms, wholesale and distribution facilities and mammoth shopping malls.
District officials not only saw firms new to the area spurn the city in favor of suburban locations but also seemingly were resigned to watching former D.C. employers move white- and blue-collar jobs to Fairfax, Montgomery, Prince George's and Arlington counties and Alexandria.
The drain really began before explosive growth enriched the suburbs in the 1980s. That much was documented in a major report for the city by Brimmer & Co. Inc., an economic and financial consulting firm headed by former Federal Reserve governor Andrew Brimmer. "It is clear that the District did not share in the area's growth," Brimmer noted in the 1981 report. The District's share of metropolitan jobs decreased in every sector of private employment between 1970 and 1980, the report showed. Moreover, the report underscored the District's glaring cost disadvantages in taxes, workmen's compensation, unemployment compensation and space, among others.
Little has changed in the interim. A comparative study of taxes for 1989-1990, by the Greater Washington Board of Trade, shows that nine different types of corporations would pay higher taxes in the District than in any other local jurisdiction. The Rivlin Commission would have the D.C. government expand the business franchise tax to cover now-exempt unincorporated businesses, impose a comprehensive gross receipts tax on all firms and expand the sales tax base to include professional and business services. Those could be Catch-22 remedies. The city could wind up losing more businesses, just as it has lost middle-income residents wary of higher taxes.
Merely increasing taxes won't widen the tax base. For that, the District needs a broader business base and more jobs -- not just those for office workers, but those for residents with basic skills and little hope of obtaining meaningful employment in the city.
The issue, in a nutshell, is that the District lacks a comprehensive economic development program for business attraction, development and retention. Consolidating District agencies responsible for economic development activities is a much-needed start. Ultimately, however, there needs to be a drastic change in policy and execution.
In 1981 Brimmer recommended development of more industrial sites and the creation of specialized space in the District. Federal Express's new 210,000-square-foot distribution facility in the warehouse district of Northeast Washington proves that is still a viable area for investment and job creation. Other distribution and light manufacturing sites, though limited compared with the suburbs, exist for the development of what Brimmer called specialized space for selected industries.
At some point, the District may indeed have to come up with some creative ways to increase revenue -- raise taxes, if you will. But it should first attempt to expand the existing tax base by adopting and executing an aggressive economic development program.