Mayor Anthony A. Williams is calling on the D.C. Council to eliminate a planned $8 million property tax cut, saying the benefit would overwhelmingly go to the most affluent areas of the city.
In the 2006 budget, the council included a proposal to reduce the city's property tax rate from 96 cents to 94 cents per $100 of assessed value. Williams's office pointed to a study by the city's chief financial officer that shows 52 percent of the benefit going to homeowners in Wards 2 and 3. Those wards include such pricey Northwest neighborhoods as Georgetown, Cleveland Park and Wesley Heights.
"This is bad policy and is skewed toward the neighborhoods that least need tax relief," said Vince Morris, a spokesman for Williams. "He's disappointed and hopes saner minds on the council will reconsider and look twice at this before they pass the budget."
The proposal is included in the Budget Support Act, which needs a second and final vote from the council. Morris said if it weren't part of the budget, Williams (D) would veto the rate cut.
The mayor maintains that tax relief should be targeted to homeowners and neighborhoods least able to afford rising taxes, Morris said. The mayor is also concerned that if the council reduces the tax rate during good financial times it will be politically difficult to reverse the cut in tougher times.
The council's proposed rate reduction is in addition to the mayor's proposal, also conditionally approved by the council, to increase the homestead deduction to $60,000 from $38,000. Under the mayor's proposal, every homeowner in the District would get to keep an extra $211, according to a city analysis.
The rate cut is part of a package of tax relief that would go into effect next year only if Chief Financial Officer Natwar M. Gandhi identifies additional tax revenue. Lawmakers say they expect the additional revenue based on surpluses in recent years and the continued health of the city's housing market.
The council also voted to lower the property tax rate automatically in future years if tax revenue exceeds projected revenue and spending for a budget cycle.
The rate reduction was proposed by council members Sharon Ambrose (D-Ward 6) and Phil Mendelson (D-At Large) to give relief to homeowners hit hard by rising property assessments and tax bills.
"Reducing the rate is the fairest approach, and anyone who suggests it is regressive doesn't know what they are talking about," Mendelson said. "Every jurisdiction around us has reduced the rate except the District. In good times, when people are paying 40 percent more in taxes, reducing the rate is a good thing.''
Cutting the residential tax rate 2 cents, as proposed, would cost the city $7.95 million in revenue, according to an analysis by Gandhi.
Council member Jack Evans (D-Ward 2), chairman of the Finance and Revenue Committee, had proposed reducing the city's property tax cap to 5 percent, from 12 percent. But Ambrose and Mendelson favored the rate reduction over Evans's plan.
"The point of the tax rate reduction is that it is across-the-board fair and everyone gets it, unlike the tax cap, which only goes to the parts of the city where assessments go up the highest," Ambrose said.
Ed Lazere, executive director of the D.C. Fiscal Policy Institute, which studies city budget and tax issues, said the most affluent neighborhoods would benefit most from a rate cut because the the relief is proportionate to the amount of taxes paid and expensive houses generate more in taxes.
Lazere said that the mayor's plan to increase the homestead deduction will benefit less-affluent homeowners most. He said 72 percent of homeowners will pay less in taxes next year than this year, and 17 percent will receive tax increases of less than 5 percent.
If the city runs into financial difficulty in the future, Mendelson said, the council could revisit the tax rate cut.
"I would support restoring the rate if the economy goes bad, so I don't see this going only in a one-way direction,'' Mendelson said.