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The Jack Evans Report
Jack Evans Report
Georgetowner • December 8, 2010
Like many jurisdictions around the country, the District again faces both a decline in tax revenue due to the economy and a number of “spending pressures” that need to be addressed. Just prior to the Thanksgiving break, Mayor Fenty submitted his proposed gap-closing plan for FY 2011, which began on October 1. In addition to this plan, the Mayor also immediately placed a freeze on payroll, hiring and new procurements at the start of the fiscal year. As an exercise in financial management, it behooves all of us to make these important budget decisions early in the fiscal year in order to achieve the highest level of annual savings possible. The Mayor’s plan can be accessed online at: tinyurl.com/27n3cr9.
The Council held a public hearing on the Mayor’s proposal on November 30, which lasted well into the evening. Chairman Gray (now Mayor-Elect) has also held informal conversations with Council members, which will lead to his own plan, a revision of the Mayor’s plan, on which the Council will vote on December 7.
The budget gap we face in FY 2011 is a relatively manageable $188 million. I am, by and large, supportive of the Mayor’s approach, although there are cuts I have concerns about as every member does. To some extent, it would be foolhardy to restore some of these spending cuts now only to have to address them again in April. At that time, Mayor Gray will submit his FY 2012 budget to the Council, and these programs will likely be on the chopping block all over again to address what will be a $350 million shortfall in FY 2012.
Several principles are guiding my thoughts on our budget deliberations: 1.) We cannot continue to live beyond our means, which means not raiding our much-depleted fund balances. 2.) We need to plan for what I think will be continued austerity and a weak recovery from the recession. 3.) We need to focus our resources on the core functions of government.
During the “boom years” of the 2000s, before the financial crash, we added all kinds of new spending and programs to the District budget. We need to take a good hard look at these programs and ask ourselves whether they are absolutely necessary.
The challenges seem daunting on their face, but I believe we can successfully address them in this round. I do think the FY 2012 budget will be a far bigger challenge, but Mayor Gray will have a few months (rather than a few weeks) to look at programs citywide in a systematic way. But for the moment, I think we are moving in a prudent fashion to address our immediate problems in FY 2011.
Jack Evans Report
Georgetowner • December 1, 2010
Earlier this week, Mayor-Elect Gray had a press conference and briefing about the upcoming challenges the District faces in readdressing our FY 2011 budget (and beyond) in the face of continued decline in revenues. I felt reassured by his comments, specifically his pledge not to use shortsighted budget gimmicks to close the gap. I believe he is also very aware of the tax burden faced by our residents and small businesses and recognizes that we cannot balance the budget on their backs. Raising taxes and failing to curtail spending is a recipe for disaster—and you would find next year we would be back in the same place, at which point taxes would likely be raised next year and the year after that. Fundamentally, we need to restructure what we’re doing.
We have difficult decisions ahead, particularly with respect to rightsizing the government to fit our revenue base. We will need to look at what core functions of the government we cannot do without, and look even harder at those things which are perhaps not as necessary. With two-thirds of our spending attributed to public safety, education and human services, we have to keep everything on the table when considering cuts. Looking at deficits of $188 million in FY 2011 and $345 million in FY 2012, we have simply run out of other options. We must curtail spending now. As the Mayor-Elect rightly pointed out, we have been overspending our revenue for each of the past four years, and this year we will no longer have fund balance or federal stimulus monies to paper over the problem.
I will be making a number of recommendations to help close the budget gap, including across-the-board freezes and cuts as needed in both personnel and procurement expenses. I will also be looking long and hard at spending on discretionary items—those things which we want to do, but which in tough times such as these may not be possible. With election season over, it is time for all of us to step up to the plate and make the difficult decisions we were elected to make. We no longer have the option of waiting until next year, and residents and business owners in the District are counting on us.
Let me end on this note: while Thanksgiving is but one day of the year, I have to say I am truly thankful everyday. Thankful for my family and friends. Thankful for my colleagues and staff. Thankful to have the opportunity to make a difference every day in what I do. So don’t let the week go by without a little reflection and hopefully a nice meal with family and friends too!
The Jack Evans Report
Georgetowner • November 17, 2010
Last Tuesday, we elected the people who will lead the District of Columbia starting in January. My colleague, Vince Gray, will take office as our new Mayor and Kwame Brown as Chair of the Council. The challenges before elected leaders are tremendous, and the next several weeks will be crucial in determining the fiscal future of the District.
Although the city is in good financial shape overall, we learned from Chief Financial Officer Natwar M. Gandhi in September that we are facing a $175 million shortfall for the fiscal year that began October 1. This shortfall comprises approximately $50 million less in sales tax revenue, $50 million less in income tax revenue, $35 million in federal stimulus money the city anticipated but did not receive, $25 million in spending pressures in our public schools, and other costs. We face another $135 million shortfall in fiscal 2012, when one-time stimulus money is no longer available.
When the mayor and council faced similar shortfalls over the past three years, we relied largely on spending our reserves to close the gap. This was possible because by September 2005 the District had built up reserves totaling $1.6 billion. But year after year, as revenue slowed and spending increased, we drew down our savings. Over the past three years, the District has spent almost $1 billion in reserves, leaving us only $611 million today. No more of this amount can be used because it supports our revenue bonds and other debt commitments. The District also continued to borrow for capital investments and has increased its outstanding debt to the legal limit of 12 percent of annual debt payments to revenue.
Without reserves available to close our spending gap, and no more room to borrow, we must either raise revenue, cut spending, or both. Because our rates in commercial property tax, personal and corporate income tax, and sales tax are already the highest in the region, and in some cases the nation, it is difficult to ask our residents and businesses to pay more, particularly in these tough economic times. Raising taxes might help to close the shortfall now, but it will also put us at a greater competitive disadvantage with Maryland and Virginia in the future. It’s no secret that new residents and businesses that relocate to the region go elsewhere to save money. This hurts our long-term ability to expand our revenue base and pay for government — including the social safety net — that we want and need.
On the expenditure side, more than 85 percent of our budget is dedicated to social services, education, public safety, and debt service. Reductions in these areas are very difficult, again because of the times. But these areas must be reduced if the city is to balance its budget. Keep in mind that we spend more money on education per student, and on social services and public safety per resident, than most cities and states, and we are consistently ranked as having one of the highest rates of government employees per capita.
We cannot afford to jeopardize all the progress we have made with our bond ratings and investment climate. Now is the time to right-size spending, no matter how painful the decisions might be. Postponing this downsizing by using tax increases and one-time fixes will only lead to larger deficits. I continue to assert — as I have for the past 3 years — that this revenue downturn is not a one year phenomenon. I believe the economy will continue to grow anemically, and we certainly cannot count on a big turnaround in revenues to save the day.
The experience of the District in the 1990’s continues to serve as a cautionary tale. Back then, we used one-time fixes and ended up with a control board. The board then made the hard decisions that the elected government would not make. I will not allow something like that to happen to the city on my watch.
Jack Evans report
Georgetowner • November 3, 2010
The Council and Mayor are beginning to address the revenue shortfall and budget gap now anticipated in fiscal year 2011, which started October 1. To that end, the Mayor took immediate action to freeze personnel hiring and procurements. Our government faces a shortfall of $100 million in declining revenue and $75 million in various spending pressures. In the grand scheme of things, we have little control over the economy, we can’t make the stock market perform better, and we can’t make commercial property sell for more. But what we CAN control is what we spend, and I believe that should be the focus of our efforts.
If we examine some of the recent tax increases passed by the Council (generally over my objection), you’ll find they fall into that “be careful what you wish for” category. Some of my colleagues believe you can raise taxes and everything will be alright. However, with the two initiatives from last year, our revenues actually went down. The first was the increase in the general sales tax from 5.75% to 6% that went into effect October 1 last year. So what happens? We get our revised revenue estimate from Chief Financial Officer Gandhi, and our sales tax collections are now lower than a year ago. So the tax increase did not cover the continued government spending. We also raised the cigarette tax — a socially admirable goal, yes, but not a reliable source of revenue. It has likewise decreased in revenue production while spending has continued unabated. So after both of these two tax increases, we have dug our hole deeper rather than the other way around.
Of course there are various proposals bandying about right now — predominately to increase the income taxes on high income filers. In fact, one proposal would boost income tax rates for filers over $100,000. I believe such proposals would backfire. There are many interesting statistics contained in the city’s annual “CAFR,” which formally is the Comprehensive Annual Financial Report, or our annual audit. In the most recent FY 2009 CAFR, it states (Exhibit S-2H, Page 163) that in the year 2000 there were just over 26,000 income tax filers in the “$100,001 and higher” category. In the year 2009, this had increased by just under 20,000 to about 45,500 filers.
What was the income tax revenue impact of “growing the pie” by attracting new residents over this time period? It was an increase in tax collections by the city of $334 million in 2009 as compared to 2000, with of course growth in all those years in between. In short: an increase of hundreds of millions of dollars over a decade just from an increase of 20,000 filers in this one tax category. So what if half of them never moved here or we abandon our successful tax policies (which have attracted people back into the District) and the inward migration stops? Or worse yet: What if people decide to leave the District? Will that have a revenue impact? You bet it will, and it will be a lot bigger than whatever amount we may get from increasing taxes on “the rich.”
I believe we were elected to make the tough decisions. I am hoping my colleagues will take the long view and not vote, yet again, to unwisely raise taxes.
Jack Evans Report
Georgetowner • October 20, 2010
The question on everyone’s mind these days is: What’s next for school reform?
On Wednesday, October 13, Chancellor Michelle Rhee announced her resignation, and Mayor Fenty and Chairman Gray jointly announced the appointment of Kaya Henderson, Rhee’s deputy, to serve as interim Chancellor. I am a big fan and supporter of Rhee. She started to tackle some very important issues which had not been addressed before: closing down underutilized facilities to maximize efficiencies and support-service costs (which helps put money back in the classroom where it belongs), instituting a system for evaluating teachers, and getting a groundbreaking union contract approved which takes performance and meritorious performance into account, among others.
Did she do everything right? No. But fundamentally I believe she was going in the right direction. Just a few short years ago, we had no plan for fixing up or building new schools, and we had mediocre outcomes for our children with no one – from top to bottom – ever losing their job over poor performance. These things had to change and, under Rhee, they did.
I was an early supporter of Mayoral control of the schools long before it was popular. It was my main theme when I ran for Mayor in 1998. I am supportive of the actions taken yesterday by the Mayor and Chairman to install Ms. Henderson on this basis. She gives every indication of having not only the spirit of a reformer, but substantive experience in the District, particularly in helping continue to bring about change.
I hope she will bring many of the same reformer qualities to the job while maintaining a constructive working relationship with Gray. As Chairman Gray has stated on multiple occasions, school reform is bigger than any one person, and we must work to see that this is so by continuing to focus on substantive issues. Two of the most pressing tasks ahead in the near future are of course implementing the new union contract, as well as fine-tuning the IMPACT teacher evaluation system. We cannot go back to the days when no one was ever held accountable.
All of this must be done in the climate of a $400 million budget shortfall and continued overspending in our school system.
Getting this right – and I agree there are various sensitivities involved – is nonetheless important for the future of our children and our city.
Jack Evans Report
Georgetowner • October 6, 2010
The September Democratic primary has come and gone and the Council’s summer recess is over. It’s back to school, back to work, and back to reality…literally! After a heated campaign, we have my colleagues Vince Gray as the Democratic nominee for Mayor and Kwame Brown for Chair. And we have an outgoing Mayor Fenty with three more months on the job. Together we face a tremendous challenge right off the bat – rebalancing the fiscal year 2011 budget, which began October 1st.
Last week the independent Chief Financial Officer, Dr. Natwar Gandhi, released the revised revenue estimate for the fall quarter.
While I was by no means expecting good news – anecdotal accounts of the economy continue to be pretty bad –the actual news turns out to be worse than I expected. Dr. Gandhi estimates an additional revenue shortfall of about $100 million for FY 2010, and potential spending pressures in the range of an additional $65 – 75 million. And this is just on October 1st!
We continue to see weaknesses in several areas: commercial real property values, income taxes – particularly capital gains and sales taxes. In fact, the decline in real property taxes in one year is $236 million – a figure which should take your breath away.
With the primary now over, all of this will force us to have our “rendezvous with reality” and refigure the FY 2011 budget within the next month. I have some hope of a higher level of cooperation between the Council and the Mayor in coming up with a consensus plan. I would like to see that plan avoid “one-time” fixes as I believe the continued revenue shortfall is likely to persist for a few years. While income and sales taxes will likely bounce back with the economy, I do not see commercial property coming back for several years, and the next wave of loan refinancing in this area is likely to reveal further weaknesses. So as I have said before, what we face is not a “rainy day,” but rather “climate change” and we have to rethink our government in order to live within our means.
This means we cannot keep raiding our accumulated fund balances to pay our operational expenses. We cannot mandate vague and unspecified spending cuts. We cannot raise taxes which discourage investment in the city and hurt our ability to continue to attract new residents and taxpayers to the District. The past 10+ years have seen an unprecedented movement back into DC – and this has had a phenomenal positive effect on our “bottom line” and on our ability to pay for the social safety net we all want. But we need to avoid short-sighted policies which will ultimately kill the golden goose, as it were. We are entering into the third year now of reduced economic circumstances, so clearly one-time fixes are not going to work.
We cannot let the various spending pressures gallop out of control, such as the potential $30 million in special education, the $35 million more we won’t be getting from the Feds for Medicaid, or the spending pressures related to our ownership of the United Medical Center.
It seems to me the fairest thing is to freeze things across the board: pay grades, step increases,
pension contributions, procurement contracts, all of which will result in a rate of zero growth. That way, everyone is making a contribution to our financial stability and we can attempt to avoid the painful process of laying people off.
Can we do it? It’s not really a question of “can.” We simply must do it. The next month or so will be a real test of our city’s leadership and whether we will approach the problems facing our city head on, or whether we’ll stick our heads in the sand.
The Jack Evans Report
Jack Evans • September 22, 2010
-In my last column, I addressed two challenges (education reform and fiscal responsibility) which will face the next Council and Mayor. This election season we will elect a Mayor, Council Chair, two at large Members of the Council, and four Ward Councilmembers (Wards 1, 3, 5 and 6). The city faces five key issues which the Mayor and the Council will have to confront after all the speeches are done and the buttons and signs are put away – and these are my thoughts on the final three:
3. Creating an investment environment. Too many of our neighborhood commercial strips have languished over the past 40 years. Elected officials in town talk a lot about helping small businesses, but I’d point this out — small businesses pay the same outlandishly high tax rates as big businesses! I believe this has greatly discouraged investment in our neighborhoods. Three years ago, the Chairman and I authored legislation which reduced the commercial property tax rate from $1.85 to $1.65 for the first $3 million of a building’s value, which was quite helpful in our neighborhood commercial areas. But even the $1.65 is far higher than the surrounding jurisdictions – we’ve priced ourselves right out of competition with our neighbors, all while we hemorrhage retail spending across our borders. The business income tax rate at 9.975% is among the highest in the country, and we tax unincorporated businesses which our neighbors do not. If we are really serious about changing the business climate in DC – often ranked among the nation’s worst — we need to look long and hard at these rates if we are ever to bring more jobs and opportunities to our neighborhoods, and retain the spending power of DC residents right here in the city where it belongs.
4. Public Safety. We have made great strides over the past decade in implementing community policing, utilizing new technologies, and pinpointing resources at data-identified problem areas. We have much to celebrate — the murder rate is the lowest in 40 years. But we have a ways to go on continuing to lower robberies and theft – and we face particular problems with juvenile crimes and dysfunctionality of the juvenile justice system. These are the next areas we will need to focus on.
5. Self-determination. This area is one in which there can be either incremental or large steps. I believe a two pronged strategy will be needed to obtain statehood for the District, and/or any of the steps along the way. We will need a Mayor and Council that has a good working relationship with the Congress. Statehood ultimately is but a majority vote in the Congress, but there are issues, particularly financial ones, to address along the road to statehood. Smaller steps could be such things as budget and legislative autonomy for the District. Budget autonomy in particular would allow us to conduct a more rational budget process every year rather than the “hurry up and wait” that we suffer now as we wait for the Congress to approve our spending of our own locally-raised funds.
I believe we can achieve these things, but like many things, we’ll all have to wait until the dust settles after the election to get back to work on many of the pressing issues facing our city.
The Jack Evans Report
Jack Evans • August 27, 2010
-It truly is the dog days of summer! Or, in the words of Nat King Cole, “roll out those lazy, hazy, crazy days of summer!” In this kind of heat and humidity the best thing you can do is do nothing, move as little as possible and have a cool, frosty drink nearby.
Oddly enough, those recommendations notwithstanding, we’ve been doing quite a bit in the council office lately. First of all, we’ve continued work on the Georgetown Waterfront Park, and I am happy to announce we have received a commitment from Pepco for a donation of $50,000, which fills an important gap in moving the remaining parts of the project along.
Logan Circle was busy this past weekend with the 11th annual “Dog Days” sidewalk sale events, with participation by both retailers and community groups. And just recently we helped the neighborhood secure funding from the District to help design a marketing plan for the 14th Street corridor.
In Shaw, we celebrated the grand opening of the brand new Watha T. Daniel Library, a great community resource for the neighborhood and city. As you may recall, the previous library was a big heap of unattractive concrete, often compared to a prison or a wartime bunker, which was neither inviting nor very functional. I am very proud of the hard work of my staff, the D.C. Public Library, and community stakeholders in making the new library som
In Shaw this past week, we celebrated the start of a $31 million rehabilitation of the Gibson Plaza Apartments, which will renovate the 271-unit affordable housing building with a variety of green building features, and will be funded by federal HUD funds. I am happy to report that not a single resident will be displaced by this renovation.
Whew — after all that, I think we better slow down a bit! Actually, I love getting things done and it is gratifying that we’ve been able to move forward on a number of projects in the past week or two.
Don’t forget the upcoming elections. One thing is for sure: it is going to be a very interesting month and a half.
The Jack Evans Report
Jack Evans • August 25, 2010
-Our long hot summer will soon enough turn the bend of Labor Day and the September 14 primary which will select the Democratic nominee for Mayor, Council Chair and a number of races down the ballot. As many of you know, I have endorsed Mayor Adrian Fenty for reelection, but regardless of the election’s outcome, the city faces 5 key issues which the Mayor and the Council will have to confront after all the speeches are done and the buttons and signs are put away. We’ll talk about two of them today:
1. Schools. This continues to be one of the central issues facing the city, and historically has broken down like this: “rich” kids go to private or parochial schools and “poor” kids are stuck in run down schools with no future. Over the past 30 years the city has hemorrhaged middle class people, but good schools are key to retaining middle class families in the city and improving outcomes for low income kids. Mayor Fenty has made some pretty big changes, starting with authoring the Schools Facilities Modernization Financing Act as a Councilmember, and of course, as Mayor, implementing the takeover of the school system and installing Chancellor Michele Rhee as its head. As a result of the first legislation and a lot of hard work by Allen Lew and his facilities team, our school construction and maintenance efforts are the best they have been in a generation, by far. At some point credit is due to the Mayor for this. The other changes have been somewhat more controversial, but I believe Fenty and Rhee are on the right track by trying to bring more accountability into the system. My observation over the years has been this: for years we had a performance evaluation system where almost by magic no one was ever fired for lack of performance, but our schools were at the same time among the worst performing in the nation. Fenty has quite correctly identified this as fundamentally problematic and has sought to change old ways of doing business.
2. Fiscal responsibility. As Chair of the Council’s Committee on Finance and Revenue, you’ve seen me write about this topic often, and it continues to be a concern of mine. Fortunately, the District has the relative stability of the federal employment base, but in the FY 2011 budget cycle this spring, I expressed a number of concerns which all go back to this one notion: we can’t live beyond our means. For the last several years we’ve spent down revenue from our fund balances, which were once over $1.5 billion but which now are down to about $500 million. I believe the decline in our revenue — chiefly in the realm of commercial property — is not likely to return in the near term. A certain amount of our economy through the 2000’s was built on the shaky foundation of irrational exuberance. Yet the size of our government has not been restrained in proportion to the shrinking revenue. Using our fund balance the past three year has allowed us to paper over the problem, but I believe the next mayor and council won’t have this luxury — and I’ll note I was the only Member of the Council to vote against the budget this past year.
Those are the two biggest issues we’ll face next year. Next column we’ll talk about three more.
The author is a city councilmember representing District Ward 2.