The District government will see almost no revenue growth this fiscal year as a result of a slowing economy and the 35-day federal government shutdown that ended Jan. 25, according to a new report by Chief Financial Officer Jeffrey S. DeWitt.
The annual report estimates the city will collect $7.8 billion for its operating fund in the current fiscal year, which ends Sept. 30, almost unchanged from the previous year. The report says the city will have lost $41 million in revenue this year, mostly attributable to the federal shutdown.
Economic growth from the 2017 federal tax overhaul appears to be dissipating, it said.
“Since September 2018, federal data, released before the shutdown, indicates slower population growth and slower job and income growth, all suggesting that the District’s economy will likely grow more slowly over the course of the financial plan than was anticipated in September,” the report says.
But the report also suggests that the slowing economy could be reinvigorated by the spinoff effects of the planned creation of an Amazon headquarters in nearby Northern Virginia. (Amazon founder Jeffrey P. Bezos owns The Washington Post.)
“These new revenue estimates remind us that while D.C.’s economy is strong, we must continuously prepare for what may lie ahead,” Mayor Muriel E. Bowser (D) said in a statement. “It is unfortunate that our nation and region had to suffer through the historic and unnecessary 35-day federal government shutdown, and in D.C., it was an important reminder of why we continue the work of diversifying our economy and making our city an attractive place to do business.”
The report projects that revenue growth will rebound after this fiscal year, growing between three and four percentage points annually over the next several years.
More immediately, the declining revenue means Bowser and the D.C. Council may have to make cuts as they draw up a budget this spring. And D.C. Council Chairman Phil Mendelson (D) said the upcoming budget cycle will not be easy.
“This is going to be a tight budget because the revenue is not showing the kind of growth that we’ve seen in previous years,” said Mendelson. “The good news is that our economy continues to grow and over the course of the financial plan, the outlook for the city continues to look very healthy. But for the next year’s budget, which is what we will be debating beginning March 20th, it’s going to be tight.”
Although the District broke a population milestone of 700,000 residents last year, population growth is expected to slow, growing by 1.8 percent over fiscal 2019 and fiscal 2020, down from 2.4 percent from fiscal 2016 to fiscal 2018.
Stephen Fuller, an economist at George Mason University who studies the Washington metropolitan area, said he sees the current slowdown in the District as a “period of adjustment” as the region tries to wean its dependence on the federal government.
The District is “going to come back soon and be a full-fledged member of the economy,” said Fuller. “As we begin to attract more non-federally dependent businesses and more businesses that aren’t federal contractors, that look more like Amazon . . . I think the District will do better building on that base.”
Millennials drove much of the District’s growth over the past decade, but they are now cooling on the nation’s capital, Fuller said.
“Some of what really worked for the District five years ago isn’t working as well because of the aging of the millennials,” he said. “And on top of that, the better-paying jobs are growing in the suburbs.”
The slowing economy could portend changes for a city government that in recent years has been flush with cash.
After decades of budgetary mismanagement — ending in the late 1990s with a humiliating period of congressional oversight and restructuring — the District bounced back. The establishment of an independent chief financial officer, along with the offloading of some government functions and pension obligations by the federal government, set the stage for a new era of fiscal health.
The District has built up billions in reserve funds and has seen its coffers flooded with new tax revenue from a sustained real estate boom and steady population growth. The city has funded big-dollar contracts and capital projects — such as upgrades to recreation centers, school modernization and new libraries. The recent renovation of a public arts high school that went $100 million over budget was waved through as routine by elected officials.
That situation stands in sharp contrast to many American municipalities that today face crippling obligations for public employee pensions and, in some cases, continue to cope with the lingering aftereffects of the 2008 financial crash.
The dismal revenue outlook this year will increase pressure on the D.C. Council from advocates for the poor to focus dollars on the needy as income inequality persists.
Illustrating that point, advocates for the poor Thursday blasted pending legislation that would increase the tax deduction for homeowners’ primary property as disproportionately benefiting the wealthy.
“It will be a tight budget if they don’t make choices to find new revenue,” said Ed Lazere, executive director of the left-leaning D.C. Fiscal Policy Institute who floated the idea of a higher property tax on expensive homes. “We have to be careful stewards of our resources, so it’s important to not cut our revenues any further than we have already.”