DC Fiscal Policy: A Core Mission for the Federal City Council

Chief among the Federal City Council’s (FC2) pivotal initiatives and projects is its long-standing commitment to the fiscal integrity of the District of Columbia and its continued economic vitality and growth.

Working with like-minded organizations and District officials, the FC2 has emphasized the virtuous cycle of investment, economic development and increased tax revenues to maintain the city’s fiscal stability while also preserving its autonomy.

“The Federal City Council plays a critical role in ensuring that both the city and the region are economically competitive,” says Mark Ein, CEO of Venturehouse Group and an FC2 Trustee. “Given its long history in the city, and the weight and importance of its members, the Council brings a very important perspective to all economic discussions in the District.”

But those discussions over the last two decades have not been easy, especially as the District navigated a rocky course from its near bankruptcy in the mid-1990s to the cataclysmic shock of Sept. 11 through the recession in 2008.

“The District has had a spectacular climb out of a real mess, and now we have to throttle back and determine what is the most effective use of our resources going forward,” says Anthony Williams, the FC2’s CEO and Executive Director.

And those resources are necessary to ensure the District’s long-term viability. Despite its numerous strengths, the District has many residents in need of social supports, including a better quality education, reliable health care and more affordable housing.

Over the last two decades, the best way to accomplish the city’s dual goals—economic stability and adequately funding social supports—has been to grow its economy. To continue to prime that pump, the FC2 keeps tabs on a wide variety of District fiscal policies and, most recently, revisions to the tax code.

The FC2 supported enactment of the DC Tax Revision Commission’s 2014 recommendations, which were designed to create a more fair and competitive tax system in the District. The Commission was chaired by Williams, and members of the panel included FC2 Trustees Ein and Pauline Schneider, special counsel at Ballard Spahr LLP.

The Commission’s recommendations were approved, largely in full, to be phased in over time. As the District’s political leadership has debated the pace of implementation of the recommendations, FC2 has been a consistent voice for a steady and predictable adoption timetable—one that ensures  in which the taxes targeted for reduction are reduced steadily cut over time as the District’s financial position improves.

Last spring the DC Council accelerated implementation of the Commission’s recommendations, which had been approved by the DC Council in 2014 as part of the FY 2015 budget process. The tax changes were to be phased in contingent upon the achievement of certain revenue triggers. After an animated debate in May 2015, the Council settled on a compromise implementation date of September 2015, five months earlier than originally planned.

“Our goal is a city that works,” says Kevin Clinton, the FC2’s COO. “A city that is a fair to our residents. A city where people can have a good quality of life. A city that has a growing economy. A city that is a good place to start a business and create jobs. And as part of our improvement over time, having sensible, effective fiscal and tax policies can be a part of that.”

The approved tax revisions will create a new tax bracket for DC residents making $350,000 to $1 million annually; increase the personal exemption and standard deduction to federal levels; and expand the earned income tax credit (EITC) to childless workers. The city also will lower the corporate and unincorporated business franchise tax rates for its 43,000 businesses to 8.25 percent, which will match the level in Maryland. And over two years, the District will increase the threshold at which estates are subject to the estate tax to $5.25 million, the current federal level. The tax relief builds upon the District’s favorable debt cap, its preparation for retiree health and pension obligations and its strong cash resources.

“It’s healthy for any jurisdiction to look at its tax system to determine how one makes it fairer, competitive with its neighbors, broader, and assists in creating jobs and helping small businesses,” says Gerry Widdicombe, director of economic development at the DowntownDC BID and executive director of the DC Tax Revision Commission, 2012-2014. “That was the Commission’s charge. The Commission’s tax revision package, as adopted by the DC government, achieves those goals.”