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Fenty's Options for New Budget Woes

In today's paper, we told you about the latest bad news for the city's financial picture: a new $35 million budget shortfall just a week before the D.C. Council is scheduled to vote on the fiscal 2009 spending plan.

Now it will be up to Mayor Fenty and the council to cut spending and/or raise taxes in the next seven days to balance the budget. What will they do? A possible roadmap was drawn up by Fenty's budget analyst William Singer and delivered in a memo to City Administrator Dan Tangherlini last evening. D.C. Wire has obtained a copy of the document from a government source, who declined to be named because the budget negotiations are ongoing.

The memo lists six areas where the administration could seek to close the revenue gap, though it warns against at least one of the options. They are as follows:

1. Close the "economic interests" tax rate loophole. Singer explains that some real property sales avoid higher rates of deed taxes because property owners classify the sales as "economic interest" transfers, which are taxed at lower rates. If the city were to raise the taxes on the economic interest transfers to match traditional deed taxes, it could gain an additional $5 million per year, Singer says.

2. Completely scrap the business property tax cut. The mayor scaled back the council's tax cut from $96 million to $15 million, but the city may have to scrap the idea altogether. "For context," Singer writes, "it is important to note that the District is the only jurisdiction in this region that has even considered significant tax relief as part of the FY 2009 budget. By and large, neighboring jurisdictions are deciding not whether, but by how much, to raise key tax rates. This year the District has been fortunate to have a serious discussion about lower taxes and to embark in that direction. However, if the revenue picture deteriorates, we may reach a point where suspending implementation of tax relief is a prudent option."

3. Reassess discretionary grant spending. The city has had a run of budget surpluses, that are plowed into the following years' budgets, including $24.6 million in the recent budget support act. "It may also be necessary to reevaluate whether discretionary grants are the kind of expense we can afford," Singer says.

4. Singer warns that fiscal 2008 could be the final year with budget surpluses and says the city should consider not spending any of the extra money, saving it for future years, which could be as bad or worse as fiscal 2009.

5. Avoid unallocated cuts. Some jurisdictions make sweeping, across-the-board cuts of 1 or 2 percent, but Singer notes that this option should be avoided because it "diminishes transparency and accountability" by not clearly showing the impact on specific programs.

6. The mayor's budget support act included several subtitles requiring legislative changes, for example to enact higher fees for emergency 911 call services. But council members have sought to strike out some of the subtitles, and Singer says the adminstration "may have to find alternatives that do not require legislative changes" to ensure the budget remains in tact.

By David A Nakamura  |  May 7, 2008; 6:00 AM ET
Categories:  Budget , David Nakamura  
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