Editor’s note: A previous version of this article incorrectly stated the budget’s authorized spending in local and federal funds and the percentage increase over last year.
Come Oct. 1, D.C. workers will probably find more taxes withheld from their paychecks. Many of the District’s businesses, particularly national chains, could pay more taxes. Drivers who park in the city’s garages might also pay a higher tax. Private investigators and armed guards would be required to charge sales tax for the first time.
The city’s highest-earning residents, however, will probably not pay a higher income tax rate.
Under a budget deal that passed an initial vote Wednesday, D.C. Council Chairman Kwame R. Brown (D) made good on an oft-repeated promise not to raise income taxes, eschewing a $18.7 million proposal by Mayor Vincent C. Gray (D) to implement a 0.4-percentage-point increase on residents making more than $200,000 a year.
But to close a budget gap once estimated at $322 million while funding an array of social service programs that Gray planned to cut, Brown and his colleagues found scads of revenue in several new taxes and fees — including a little-discussed proposal to tax non-D.C. municipal bonds for the first time.
Despite eliminating the income tax increase and a controversial sales tax on live performances, Brown found ways to offset the cuts to social services, including $23.4 million for homeless shelters and other human services programs. He also increased funding for Metro to stave off transit service cuts. In all, the budget authorizes the spending of $10.8 billion in local and federal funds, 3.1 percent more than last year.
“It would be easy if we could simply tax our way out of a difficult budget situation, Brown said, “but that’s not a realistic solution.”
But advocates and some members still wanted the income tax increase, which had been extensively debated since Gray delivered his proposal April 1. After a spirited debate, members defeated an amendment by Michael A. Brown (I-At Large), Phil Mendelson (D-At Large) and Jim Graham (D-Ward 1) to reinstate the income tax increase and use the proceeds to restore more social services.
The budget does not immediately fund more police officers, which many council members deemed a top priority. But in a novel move, the legislation passed Wednesday sets spending priorities for new revenue expected in the coming months as the city economy improves. Although it is unknown how much new revenue there will be, the council decided how it would spend as much as $125 million in yet-to-be-identified funds.
First on the list is $10.8 million to bring the D.C. police force up to 3,900 officers.
But the bulk of Wednesday’s debate concerned whether the new revenue should instead be used to eliminate the new bond tax. Brown proposed doing so, but Tommy Wells (D-Ward 6) proposed an amendment removing the “buy-back.”
In a unusual example of open horse-trading on the council dais, Wells won the support of Vincent B. Orange (D-At Large) after agreeing to set aside about $500,000 for a D.C. Emancipation Day celebration next April, to be held at the Lincoln Theatre on U Street NW. Orange’s vote was enough to pass the buy-back amendment, vexing members who supported the bond tax with the understanding that it would be probably be eliminated with new revenue.
Orange, who was sworn in this month after winning a special election April 26, is on the theater’s board of directors. He did not mention the affiliation on the dais, but he said in a subsequent interview that he did not see a conflict of interest because his board position is unpaid.
“I don’t think the city has been doing right by the theater,” he said. “Even right now, it’s facing some financial difficulties.”
The budget unanimously passed a voice vote, and Gray indicated in a letter sent to Brown on Wednesday morning that he would “look forward” to signing it. Gray wrote that he preferred the income tax increase because it has “received a full public vetting . . . while a tax on bonds has not.” But he said that he would not veto the budget proposal over its inclusion.
But several council members said after the vote that they would work to eliminate the bond tax, which is projected to raise $13.4 million, before a final vote on supporting legislation set for June 14. Although the District now stands alone in granting tax exemptions on public bonds issued outside its borders — Indiana recently ended a similar exemption — several council members said they feared that a new bond tax would be unfair to current bondholders and would disproportionately affect retirees.
Still, former mayor Anthony A. Williams applauded the council’s decision. “The District has made headway in reducing taxes over the years. We’re very proud of that,” he said. “But I don’t think we should be the only jurisdiction to offer this benefit.”
During Williams’s tenure, the city twice proposed ending the exemption. But the council never went through with it, due in part, he recalled, to warnings that residents would pack up and move. “I don’t buy that argument now,” he said.
“I don’t remember the grandma-grandpa argument,” he said, referring to concerns about retirees’ dependence on bonds.
Helen Modly, a Middleburg-based financial planner who has clients in the city, said that the broad exemption “always was kind of a nice thing for District residents.” But she said she understood why legislators looked to end it.
“If you had to come up with a tax increase in the District that really only affected the wealthy, I think they did a pretty good job,” she said, adding: “To say that this something that’s going to affect the elderly, no. It’s going to affect people in high tax brackets.”
Staff writer Nikita Stewart contributed to this report.