Unemployment is low, property values are high and downtown restaurants cater to a lunchtime crowd interested in $28 hamburgers. The local economy in the nation’s capital shows few outward signs of stress.
But experts say the boom that has propelled that economy for much of the past decade is beginning to fade, and some of the most concrete signs yet of the slowdown appeared this week as D.C. Mayor Muriel E. Bowser (D) released her proposed budget.
The clues are subtle: To pay for affordable-housing programs, Bowser had to go beyond the city’s current tax base, hiking fees on high-end commercial real estate transactions. She sought to reverse a commercial property tax cut passed by the D.C. Council and opted against funding at least two major initiatives — a new tax break for homeowners and an ambitious program providing early childhood services to District families.
Such actions may go unnoticed by many District residents, but they mark a departure for a city where elected officials have come to view overflowing tax coffers as the rule, not the exception.
Unlike in past years, “the mayor did not have a whole lot of new money to play with” in the proposed budget for the fiscal year that starts Oct. 1, said Yesim Sayin Taylor, executive director of the D.C. Policy Center, a centrist think tank. And for programs that span multiple years, Taylor added, “out-years get even tighter.”
Recent reports from D.C. Chief Financial Officer Jeffrey S. DeWitt present a clear picture of a cooling economy. Job growth effectively came to a halt in the last quarter of calendar year 2018 when compared to the same period a year earlier, and the District’s population growth of 1 percent last year was the lowest it has been in a decade.
Those trends, compounded by the 35-day federal government shutdown — which cost the District an estimated $47 million — led DeWitt to predict last month that the District’s collection of local tax revenue this year would remain essentially flat after years of growth.
In an interview this week, Bowser said questions about the stamina of the District’s hot economy had been top of mind as she and her staff prepared the budget.
“We’re not recession-proof in this city,” she said. “We’ve made ourselves resilient in a lot of ways, but we have to be smart about how we spend. I think one of the big lessons is not to introduce new programs that we can’t afford should a recession hit.”
She added, “I think that has made us very mindful of new programs in this budget.”
No recession looms — on the contrary, economists and city officials predict continued growth that merely slows down, at least in the short term. The mayor nevertheless said she has directed her staff to familiarize themselves with the belt-tightening techniques that allowed the city to survive the financial crisis of 2007 and 2008.
Others caution against exaggerating the effects of the city’s slowdown.
By wide consensus, the District is one of the most fiscally stable governments in the United States. That status comes thanks to strict budgetary controls, including an independent chief financial officer, imposed after the federal government temporarily took over the city’s ailing finances in the late 1990s. During that period, federal officials also offloaded costs associated with city employees’ pension funds, removing a source of financial strain that has crippled many other cities and states.
To guard against sudden losses in tax revenue, the city today maintains more than $2 billion in reserves. Last summer, Moody’s Investors Service upgraded the District’s bond rating to the highest level possible, citing “exemplary fiscal governance.”
Ed Lazere, executive director of the left-leaning D.C. Fiscal Policy Institute, said the mayor’s warnings about careful spending could simply be talking points to defend a budget that is already being attacked by critics who say it does not adequately fund some social services or schools in low-income neighborhoods.
“Finding reasons for not expanding programs could just be a way to defend a budget that didn’t expand a lot of programs and left a lot of constituents unhappy,” Lazere said.
Council Chairman Phil Mendelson (D) said that even after accounting for slowing job growth and the hit from the shutdown, the District’s revenue had grown by more than $2 billion over the past four years.
Stephen S. Fuller, a professor who studies the Washington region’s economy at the Schar School of Policy and Government at George Mason University, said the city’s economic slowdown is likely temporary and could be more than offset in coming years as Amazon moves an anticipated 25,000 workers to a new corporate office in nearby Arlington. He estimated that thousands of those employees will chose to live in the District. (Amazon founder and chief executive Jeffrey P. Bezos owns The Washington Post.)
A more important long-term challenge for the city, Fuller said, is creating a job base that relies less on the U.S. government — and is thus more resistant to lurches in policy, such as the shutdown, that affect the federal workforce.
City officials are “all trying to become less dependent on the federal government,” Fuller said. “Turns out that’s harder done than said.”
Fenit Nirappil contributed to this report.