The District of Columbia's financial crisis will soon spread to outlying suburban governments, ushering in an era of belt-tightening for the metropolitan area in the 1980s, according to a report released yesterday.
The only way local government official can hope to cope with skyrocketing inflation and the prospect of declining federal aid, according to the report, will be to increase property taxes drastically -- a prospect sure to rankle taxpayers.
These are among the conclusions of a report released by the Greater Washington Research Center, a local "think thank," whose chief economist, Philip M. Dearborn, regularly monitors metropolitan area government finances.
The report also predicts that in the 1980s:
Sales tax and income taxes will soar as local governments in the metropolitan area cast anxiously about for revenues to pay for tax-payer-demanded services.
Even if local governments slice spending in half, that will not be enough to pay the projected costs of government in the next decade. Projections show that by 1985, total local government spending needs could exceed available revenues by $600 million to $3.6 billion.
The report cites four reasons such projected spending applies to all area governments:
Pay raises, step increments and promotions will boost personnel costs, even if employees are cut back.
Inflation will increase the cost of goods and services governments must purchase.
The need to pay pensions, service debt and pay for entitlement programs such as welfare and other programs mandated by law will continue.
Operating costs will climb for capital improvements already on track, such as Metro and the Blue Plains sewage plant.
Indeed, by 1985, area governments will be spending nearly $8 billion, almost double what they spent toward the end of the 1970s era of galloping government growth. And that figure is based on the assumption that local governments can "slam on the spending brakes" and hold expenditures to half of the 1970s annual spending rate of 14 percent growth, says Dearborn, the center's vice president and author of the report. It's an unlikely prospect, he concedes.
Dearborn says that his projections assume a 10 percent annual rate of inflation over the next decade. He said that may be overly optimistic, given runaway inflation figures now almost double that.
If the economy continues to smoke along at 20 percent inflation, Dearborn predicts far more dire consequences for local government budgets. "I don't know what will happen if we continue at 13-15 percent inflation. You can't possibly project 18 percent pay raises for government employes and real estate taxes of 10 percent a year," he says. "People just aren't ready to see their property taxes go up at that rate. Citizens wouldn't stand for it."
Nonetheless, if inflation continues, and Dearborn expects it will moderate, area government spending will rise at an annual rate of 14 percent, equal to the pace of the last decade.
Taxpayers will be paying more and getting less as they face an era of austerity, ushered in with "a fairly substantial increase in local tax loads, particularly property taxes," and a "significant slowdown" in services.
"The prospect of reduced federal aid [especially in the District] means that metropolitan areas will have to run harder in taxes just to stay in place in services," says Dearborn. "Washington area governments in the 1980s face an almost certain downturn in their financial fortunes."
The report finds that Alexandria, the other "central city" in the area, will also be hit hard by any decline in federal aid, while "sluggish property tax growth" will hit the suburbs' revenue coffers hardest, especially Virginia.
D.C. faces hard times before Congress and the report says that increases in state aid for Maryland and Virginia area governments are doubtful.
This will be reflected in the political ring, where rival interest groups will be forced to take off their gloves and fight harder than ever for a piece of the diminishing revenue pie. The 1980s, says Dearborn, will be a decade of high-stakes budgetary horse-trading and unparalleled political fireworks over who get how much.
A preview of the fights to come surfaced in Prince George's County in 1978, when disgruntled residents -- riding the crest of the tax cut wave that broke the year before in California with Proposition 13 fever and swept the country -- voted to tie the hands of local tax collectors. TRIM, a charter amendment, froze property taxes at the fiscal 1978 figure of $142 million.
Recent cries have also been heard from Washington's business community, still fuming over Mayor Marion Barry's proposed tax package that would have them shoulder a hefty share of the taxes required to bring down D.C.'s $172 million projected budget deficit. If Dearborn's state of the region report holds true, such fiery choruses -- to slash government fat, not services -- will be echoed from the Maryland suburbs to Virginia's rural countryside througout the 1980s, making the life of government spenders ever more hazardous.
"The political strength of those opposed to increased taxes at all levels of government appears to be stronger than at any time in recent history," says Dearborn.
And if the federal government resists increasing aids in the 1980s for suburban governments -- as it already has for the District, which is more dependent on such aid than any other area jurisdiction -- local governments will have to maintain "at least" a 10 percent annual growth rate in property taxes, predicts Dearborn.
In the District, the taxpayer burden is bound to come in increased income and sales taxes as well, says the report, since D.C. is more dependent on those means of revenue collection than property taxes, the mainstay of outlying suburban governments' budget base. All this will come on top of ever-tight spending controls, according to Dearborn's report.
But even with budgetary belt-tightening, Dearborn expects that the costs of running local government will grow "no less" than 8 percent a year between now and 1985. Take the case of the District, where officials project that even with an 8 percent growth factor, budget requirements in 1985 will be one-third higher than 1981.
In the 1970s, area governments managed to take in money at a higher rate than they spent it. While their spending jumped 148 percent, or from $1.74 billion in 1970 to $4.32 billion in 1977 (the last year census figures are available), annual revenues increased 160 percent from $1.62 billion to $4.22 billion over the seven-year period.
Dearborn warns that federal funding -- the "dominant factor" in revenue growth from 1970 to 1977 -- "has topped out and may even be decreasing." During that seven-year period, the report finds that federal assistance to area governments more than quadrupled, from $327 million to $1.4 billion.
The increase in federal aid to area governments accounted for 21 percent of total resources in 1970 and 34 percent by 1977. Overall, state aid declined slightly from 12 percent to 11 percent of total resources.
Dearborn says that area governments can no longer depend on federal largesse to solve their inevitable budget burdens. In 1979, the report says, the federal payment to the District was less than the year before. Anti-recession fiscal aid ended in 1978 for all area governments. General revenue-sharing appropriations have not grown since 1976, and President Carter has proposed no change in the funding level during the early 1980s.
Add to such prospects the decline in Comprehensive Employment and Training Act (CETA) and Community Development Block Grant funds and the curtailment of grants for sewage treatment facilities, says Dearborn, and "the prospects for growth in federal aid in the Washington area are dim, the possibility of a decline more likely."
The one exception to a decline in federal assistance, says Dearborn, will be in programs that "require local governments to spend more of their own money to get more federal money."
The report offers other revenue prospects for the 1980s.
While the Prince George's County TRIM amendement only prohibits property tax revenue increases as a way of meeting that county's needs, it may inhibit similar tax increases in other area jurisdictions.
State-shared sales and income taxes "probably" will keep abreast of inflation, though neither represents a sizable source of local government revenues.
Potential tax revenues that can be realized from new economic development appear too small to be able to put a dent in the area's revenue problems.
While propety taxes accounted for the second largest source of area revenues between 1970 and 1977, providing 18 percent of total revenues -- and government planners can be expected to resort to them as a key source of revenue in the '80s -- it is doubtful they will grow as fast as the last decade, when they increased 94 percent compared to overall revenue growth of 16 percent.
The report also found that:
Between 1970 and 1977, the metropolitan area population increased by 8 percent, households by 18 percent and the consumer price index by 56 percent.
The number of people working for local governments increased by 19 percent, up from 112,000 to 133,000.
Government spent at a greater rate than the increase in population, households, inflation and the number of government employes -- mainly because of large increases in payroll costs, welfare expenditures, and the costs of mass transit, sewage treatment, fire and police services.
Education accounted for the largest dollar amount of local government spending, increasing 95 percent over the seven-year period, while school enrollments declined.