Mayor Marion Barry is considering a sharp rise in property taxes to help fill the District of Columbia's budget gap of at least $84 million, but his advisers are divided on whether the tax increases should apply only to businesses or be levied against all property owners, sources said yesterday.
A $21 million tax package under consideration by the mayor also includes increases in gasoline and hotel taxes and a new tax on professional and trade services. However, the property tax proposal is likely to be the most controversial and expensive for taxpayers.
Under one proposal, only the tax rate on commercial property would be increased, from $1.83 to $2.13 per $100 of assessed value. The other proposal would raise the residential tax rate from $1.22 to $1.32; the rate for apartment buildings from $1.54 to $1.69 and that for businesses from $1.83 to $2.03 for each $100 of assessed value.
Property tax bills in the District are already expected to increase considerably on July 1 because of sharply rising property assessments. If Barry decides to propose the increases in the tax rate, and the City Council approves them, tax bills would be even higher.
Sources added that Barry is considering an increase from 8 to 12 percent in the hotel and motel room tax, a boost in the current 1 percent tax charged for recording deeds at the time of transfer or sale and increases in the District's 10-cent-a-gallon gasoline tax.
On Monday, Barry is expected to brief the City Council and the press on his comprehensive plan to eliminate the city's budget deficit. The proposal is expected to include about $11 million in spending cutbacks, according to one source.
Barry issued an executive order Thursday freezing hiring and promotions in the District government and prohibiting out-of-town travel and most overtime for city employes.
A source said Barry is also considering a proposal that would save $1.7 million by ordering each of the approximately 20,000 employes under the mayor's direct jurisdiction to take one day of unpaid leave by Sept. 30 when the current fiscal year ends.
This proposal would not effect employes of the schools, courts, the University of the District of Columbia and other branches of the city government not directly under the control of the mayor's office.
The city's total budget deficit is estimated by the mayor at $84.5 million, although some members of the City Council have insisted that the figure is even higher. The largest single item in the deficit is $41.5 million, which the city has been ordered by the D.C. Court of Appeals to repay to area professionals, who successfully challenged a five-year-old tax on their earnings.
But because the District has decided to appeal that decision to the U.S. Supreme Court -- a process that could delay repayment until later in the year -- Barry said he would defer making any recommendations on how to cover the expense.
A source said the mayor has decided to borrow an additional $40 million from the U.S. Treasury if the District is forced to repay the money from the tax on professionals immediately. The city already owes the Treasury $40 million, under a federal policy that allows the District to draw interest-free loans.
The decision to increase property taxes is likely to be a thorny one for former City Council Finance and Revenue Committee chairman Barry, who campaigned for mayor as "Mr. Tax Relief" and vied with his predecessor, Walter E. Washington, to see who could cut property tax rates the most.
Much of Barry's political support came from high-income voters whose tax bills are likely to rise the most if residential tax rates are increased. Barry is also trying to build a strong political base among middle-income blacks, many of whom are already leaving the city because of the high cost of home ownership.
At the same time, Barry is also trying to strengthen his support by the city's business community, which was only lukewarm to his candidacy. Many businessmen have said they fear higher taxes are likely to drive some of them out of the city as well.
But some consider Barry's ability to resolve the budget problem a major test for his young administration and a key obstacle to overcome if the city is to obtain the greater financial autonomy it has sought for several years.
The property tax is considered one of the best ways to raise large sums of money and is lower here than in surrounding jurisdictions. Some Barry aides consider the personal income tax an undesirable one to increase, especially politically. District sales taxes, which range from 2 to 12 percent, are already the highest in the metropolitan region.
If the property tax rate increases are approved, they would be large enough to be felt by homeowners, especially at a time of double-digit inflation and when assessments are also climbing steeply.
For example, the owner of an average Washington home now assessed at $56,000 already faces a tax increase of $165 because of assessment increases averaging about 23 percent. If the 10-cent rate increase under discussion is adopted, it would add $60 or more to that increase, making next year's tax bill about $225 higher.
For the owner of an apartment building now assessed at $350,000, next year's tax bill would be $1,078 more because of assessment increases averaging about 21 percent. If the proposal to increase that tax rate by 15 cents, from $1.54 to $1.69, is adopted, another $630 would be added to the bill, for a total increase of $1,708.
For commercial properties, whose assessements are up by 9 percent, the rate is now $1.83. The owner of a $3 million building would pay $4,941 dollars more with no rate increase; a total of $11,481 with a 20-cent rate increase, and a total of $14,751 more with a 30-cent increase.
In cutting spending, sources said, Barry is likely to seek the largest reductions in agencies that city budget officials believe have done the most overspending.
Those agencies include the Department of Human Services, the city's largest agency with an annual operating budget equal to more than one-fourth the entire city budget, and the Department of Corrections, the sources said.
Those agencies that may be subject to the least reductions are the Public Library and the Recreation Department, one source said, because they are the most frugal in their expenditures.