Tuesday, March 13, 2012

District Government, or "Whaaaaaat?"

Every year the municipal government of the District of Columbia develops a draft budget and annual financial plan with the data that it receives from its agencies and departments, like all other local governments. Officials hold public hearings for review and input, finagle public opinion and internal politics, and eventually agree on a final working budget. The local council would then approve the budget plan, but when it comes to the District, the US Constitution says that the federal legislature gets a fair chance to ruin everything first.

The DC budget and financial plan is subject to the Congressional Appropriations Process (yes, the whole thing). In no other US city or territory does this happen. DC's elected officials do not have legislative, budgetary, or judicial autonomy. The budget remains a "proposed draft" until the House and the Senate each individually review and modify DC's budget and meet together to agree on a single budget, and send it to the President for approval or veto. Because no one knows how to handle municipal administration like elected officials who have no stake in the outcome!

So why would anyone do this? It's the Founding Fathers' fault. They gave Congress the right of "exclusive authority" over its seat of government in Article 1, Section 8, Clause 17 of the 1787 U.S. Constitution. This made a lot of sense at the time. It allowed the federal government to protect its 'assets' from mobs and other disruptions that were much more common in the early days of the country, and no one really lived here - at least not people who could vote. It was a huge swamp that had to be burned down and filled in, and a lot of people were dying of malaria in 1801. Real estate was pretty cheap.

The federal government defines DC as a state for legal purposes in hundreds of statutes. The DC government performs most state functions, as well as county and city functions. For those of you who have not worked in these three levels of government, that is a LOT of functions. The federal government generally does very little in the way of service implementation.

With the passage of the Origins Act of 1871 the federal government consolidated the cities of Washington and Georgetown (yes it was its own city) into "Washington, DC". A hundred years later, and after a bankruptcy-and-a-half, they realized that the district was growing too large to properly administer at the federal level. The Home Rule Act of 1973 devolved certain powers of Congress to a local government administered by an elected mayor and 13 members of the Council of the District of Columbia. (another helpful reference...)

The city is politically divided into eight wards, each electing one Council member. Four Council members are elected at large, as is the Council Chair. There are also 37 Advisory Neighborhood Commissions (ANCs) that are elected by smaller neighborhood groups. While ANCs have typically wielded political weight among the Council members, they have no formal discretionary authority in District affairs.

In recent years there has been pressure to redraw the ward boundaries to redistribute voter representation and better group neighborhoods together. The Greater Greater Washington blog has been playing a game about redistricting based on where residents think they live, and it's turned up some useful information (with more colors!).

The District's municipal government is responsible for many of the functions of a state, county, city and special district all in one. While DC generally retains the power to establish taxes accordingly, the Congress has vetoed certain tax initiatives in the past. But more importantly, Washington faces certain unique difficulties. Operating costs for the DC government are more than twice as high as adjacent jurisdictions (at about $8,800 per resident). According to a 2002 NARPAC report, DC spent twice as much for administration and debt interest, three times as much for social services, and four times as much for public safety. DC requires 25 percent more public funds than surrounding jurisdictions, largely because of remarkably high poverty rates.

At the same time, Washington faces a persistent structural deficit and relatively high tax burdens. For those of you not familiar with the area, DC has a 10.5% sales tax, whereas Maryland's is 6%. The District's payroll tax rate is 2.7%, whereas San Francisco's base rate is 1.6%. DC also has higher personal income taxes than most areas. According to the Mayor's FY 2000 budget analysis submitted with the budget and financial plan, the tax burden of DC citizens is higher than the nation's largest 51 cities:
(DC Tax Burden Relative to 51 City Average, by income level)
+6.9%, $25,000
+7.9%, $50,000
+13.2%, $75,000
+16.4%, $100,000
+19.4%, $150,000
There are many complications with DC's tax structure, but among them three significant factors are easy to identify: High demand for social services (esp due to chronic poverty), systemic inefficiencies and federal direction (plus a bit of historic abuse and corruption in both the late 1800's and 1900's), and a substantial structural deficit.

Over 50% of the property in Washington is exempt from municipal taxes, whether because it is federal land, part of an embassy or it just has a special protection. That makes sense in itself, but consider that property tax is one of the greatest sources of public revenue for most states, and it allows the tax burden to be distributed widely. In places like California where property tax revenues were truncated by Prop13, states and counties there rely increasingly on alternative revenue streams like payroll and business taxes - but the District is also banned from imposing commuter taxes, exempting about 60% of the DC workforce.

Congress pays no taxes or payment in lieu of taxes on the land it owns in the District and it exempts many other organizations from taxes. According to Carol Ó'Cléireácain's "The Orphaned Capital" (Brookings, 1997) 41% of DC assessed property valued at $32 billion was tax exempted, 65% of which belonged to the federal government. That figure is now greater than 50%. The DC Tax Revision Commission advised that the federal government should make a Payment to DC in Lieu of Taxes (PILOT), but Congress has of course carefully backed away from that suggestion. The federal government did effectively acknowledge a structural deficit that same year, however, when they took responsibility for financing the District's judiciary, managing long-term felons and massively increased local Medicaid funding. And yet the 2003 GAO Report on Structural Imbalance and Management Issues remarked that a significant structural deficit between $470M to $1Billion per-year persists. The current budget still has a $330M shortfall out of a total budget of $9.1Billion (including the Highway Trust Fund).

According to The Report of the Commission on Budget and Financial Priorities of the District of Columbia, (known as the "Rivlin Report") the process of federal review and oversight makes budget projections more difficult because it adds 6 MONTHS to the process, and it costs DC taxpayers $3M annually. The cost of reporting mandates added to DC government responsibilities has not been formally assessed.

The most contentious opposition to federal jurisdiction is not the fiscal deficit per se, but rather the great irony that 600,000 American citizens are taxed without representation in the capital of a country who's rallying cry to revolution was "No taxation without representation". District residents pay more than $3 Billion in federal taxes each year - that's a higher per capita rate than almost all other states - and in 2007 residents and businesses in DC together paid more than $20 Billion in federal taxes. The federal government has almost total discretion in the District's public administration, and yet Washington, D.C. (like other federal territories) only has one non-voting delegate in the House of Representatives - Congresswoman Eleanor Norton.

Even if the city were able to implement a nonresident tax and received a fair payment by the federal government to compensate for the significant percentage of tax-exempt land in the District, its augmented revenue levels would likely still be inadequate to reacquire and pay for the and long-term maintenance of all of its state functions - particularly the prison system, the courts and Medicaid costs that are at a higher rate than most states. The District is home to 'only' 600,000 residents, is landlocked, and is adjacent to counties with comparably low tax burdens, and as such it has a fairly limited ability to develop its tax base. Significantly raising existing taxes would likely pressure mobile middle and upper income residents or business to relocate, and lower income resident with less mobility would either face the additional tax burden or be exempted. As suggested by Stephen Fuller, an economist with George Mason University's Center for Regional Analysis, the District effectively needs new sources of revenue because "it has [already] squeezed the maximum out of the sources it has."

Considering these administrative barriers with the demographic peculiarities of the the District of Columbia, it is perhaps less surprising that so many middle aged adults and couples with children move into the burbs.

And so Washingtonians are upset, the District can't afford itself, businesses refuse to pay any more taxes, and Congress is pretending it's not a problem. I'm sure this all sounds a bit familiar. But it's a beautiful place and it's Spring now, and the municipal government is trying out some new ideas for public planning and urban renewal. Like streetcars and a grocery store on H Street (and I'm like yesss!).

But really guys, how about some really bicycle infrastructure, eh?

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