Mayor Marion Barry has told the City Council that District income taxes might have to be raised 20 percent and property taxes more than 40 percent if the city cannot borrow $215 million in the coming year to pay cash debts.
Barry said he was confident that the loan could be arranged and stressed that he was not formally proposing any tax increases. His comments, in a letter to Council Chairman Arrington Dixon, were basically political, warning the council -- and Congress -- that failure to approve the mayor's fiscal rescue plans could have what he called "very burdensome" consequences for District residents and business.
Borrowing $215 million through the sale of bonds to be paid off over 30 years is a key component of the financial stability program that Barry put forward last week.
The cash is needed, he said, to help pay the $409 million debt from the current fiscal year and previous years "which are subject to demand for payment at any time or within the near future." His letter, he said, was an attempt to explain "what a contingency plan might like" if the bond sale fell through.
The key components of the tax package needed to raise $215 million, the mayor said, would be:
A 20 percent surcharge on personal and business income taxes, retroactive to Jan. 1, 1980.
Reinstatement of the court-abolished tax on the income of nonresident professionals.
A variety of sales tax increases, including revival of the tax on laundry and dry cleaning service.
Increase in the real estate property tax, both through an increase in the rate and through abolition of the "homestead exemption," which grants $9,000 assessment exemption for owner-occupied single-family homes.
The most drastic increase among the options offered by the mayor would raise the residential property tax rate from $1.22 per $100 of assessed valuation to $1.75, an increase of 43 percent.
"I am not proposing this tax package," Barry said in a letter to Dixon. "I am merely illustrating what would be the elements of a tax package of this magnitude."
Barry's overall financial program, unveiled last week, seeks to pay off the District's deficit and balance future budgets without further increases in the tax, burden on the city's individuals and businesses, which he described in his letter as "one of the heaviest in the nation." The mayor, whose first term ends in two years, has said he does not intend to raise taxes on city residents through 1982.
In the past, the city has "rolled over" its debts from one year to the next, in effect paying one fiscal year's bills with the next one's revenue. Barry has said that practice was responsible for the city's financial distress and must be replaced by a pay-as-you-go policy; that is why the $215 million has to be paid now instead of deferred.
What he would like is help from Congress in the form of an increased federal payment and authority to tax the incomes of nonresidents -- a "commuter tax." In the absence of that, he has had to look for other revenue sources, one of which is the bond issue.
Barry administration officials and their private financial consultants agree that the city, with its financial difficulties and questionable book-keeping practices, is not ready to face the scrutiny of the commercial bond market. As a result, Barry proposed to sell city bonds to the Federal Financing Bank, a little-known branch of the U.S. Treasury that buys securities issued or guaranteed by federal agencies.
"I am confident that we will be able to sell bonds," Barry said, because it is unreasonable to except the city to pay off debts accumulated over 10 years with current revenues, and because the "unusual restrictions" imposed on the city's taxing power by Congress make it only fair for Congress to approve the bond arrangement.
Both the City Council and Congress would have the authorize the bond sale. Preliminary responses to the Barry plan from both indicated that members will ask hard questions about exactly what the $215 million would be used for.
That figure first appeared, without explanation, in Barry's speech last week.
City Administrator Elijah B. Rogers later said it was the sum of an anticipated cash deficit of $125 million in the current fiscal year, which ends Sept. 30, and $90 million in debts from previous years. Barry said it would cover bills that come due in 30 to 120 days, which would have to be paid through the bond issue or from some other new revenue sources because all money coming into the city treasury is already committed.
Barry's letter to Dixon did not specify how long tax increases would remain in effect if the bond proposal failed. Dince the $215 million is a non-recurring debt, it presumably would have to be paid only once and the taxes could then be lowered again, but the mayor omitted any discussion of timing.
The mayor noted, however, that his projections indicate that at current rates of spending the city will need an additional $168 million to finance the budget for the 1982 fiscal year.
He said he preferred to reduce that gap by controlling expenses, rather than raising taxes, but he said that "should the council choose to continue funding the D.C. government at the current level of services," some of the same tax increases could provide the money.
In other words, the political burden will be on the council to decide whether the mayor's proposed cuts in programs and payrolls are too drastic and to vote for the tax package needed to prepetuate anything he recommends cutting.