CFO of Washington, D.C., delivers keynote address at annual forum of Dialogue on Diversity

Washington: Washington, D.C., the capital of the nation, is a beautiful city, but few middle class or affluent people like to live here, preferring the suburbs. How best to persuade more people to move into the city is an issue that has been engaging the attention of city officials, says Natwar Gandhi, the chief financial officer (CFO) of the District of Columbia. The flight of the middle class and the affluent from cities like Washington, D.C., Baltimore and Detroit leaves behind only minorities and the poor who are dependent on social services, which, in turn, creates revenue problems for local governments, Gandhi said.

The flight of the middle class and the affluent from cities like Washington, D.C., Baltimore and Detroit leaves behind only minorities and the poor who are dependent on social services.

Gandhi pointed out that while Washington, D.C., has a 70 percent minority population, Baltimore had 72 percent and Detroit 89 percent. In view of this, “we need more social services like schools, hospitals, shelter for the homeless,” and hence, “our infrastructure is limited while our economic development is not viable.” For proper economic development of the city, we need a more viable revenue base, he said.

The CFO, who is a native of Gujarat, was delivering the key-note address on ‘Economic Policy, Including Taxation and Employment Issues” at the eighth annual public policy/legislative forum of the Dialogue on Diversity, a Washington, D.C.-based nonprofit organization, which envisages the economic empowerment of women.

His presentation highlighted the plight of the nation’s capital in dealing with a lot of problems due to limited resources. He spoke of how the revenue base has to be widened to improve the city’s infrastructure, its services and to attract more people to make DC their home. He said two-thirds of all income earned in the District is earned by residents of Maryland, Virginia and other states, which the city cannot tap to support its budget. And 57 percent of all the District’s real property is not taxable because the federal government owns it. He said that residents of Maryland and Virginia, who commute to work in D.C. from those states, benefit from city services, but do not pay for them. City officials have often suggested a commuter tax, saying it is needed to offset a structural imbalance. But the federal government does not allow it, he added.

Since the District can tax only one-third of the income earned in the city, D.C. residents are taxed at higher rates than other jurisdictions. The tax rates range from 6 to 9.3 percent in the District, from 2 to 5.7 percent in Virginia and from 3.2 to 7.76 percent in Maryland, he said. The higher tax rates borne by D.C. residents are a consequence of many individual taxpayers leaving the city, further shrinking its tax base.

Several Congressmen from Virginia and Maryland oppose any commuter taxes. They point out that Congress gives the District enough support. Under the 1997 Reorganization Act, Congress pays for the District’s entire legal infrastructure, including courts, corrections, prosecution and public-defender services. In addition, the city receives numerous federal grants. In total, Congress provides the District about $1.6 billion to $2 billion annually. “Under Title VI of the D.C. Home Rule Act, the Council cannot ‘impose any tax on the whole or any portion of the personal income, either directly or at the source thereof, of any individual not a resident of the District.’

Besides, they say a commuter tax imposed by the District would encourage counties to impose reciprocal taxes on D.C. residents who work in their jurisdictions. Gandhi, however, contended that Louisville, Ky., Philadelphia, Detroit, Cincinnati and Cleveland have levied commuter taxes that range from 1.45-4 percent on nonresidents. New York City saw its 30-year-old tax repealed by the state legislature in 1999. New York Mayor Michael R. Bloomberg is trying to get a new commuter tax instituted ----- at a rate six times higher than that of the repealed tax.

Gandhi said the District faces a long-term structural imbalance between its revenue base and required expenditures. The nature of this imbalance caused by restrictions on the District’s taxing authority, its unique status as a core city without a state counterpart and its relationship with the federal government. “Our debt burden, long the highest and now second-highest in the nation among cities, gives us only a limited borrowing capability, even though it has been reduced from $3.21 billion to $2.76 billion, or from $6,177 to $4,819 per capita, since September of 1999,” he said.

“The economic good times the District has experienced for the last five years ---- a period in which each year’s growth of revenues has significantly exceeded inflation ---- have masked this imbalance. However, in an economic downturn, the imbalance will become glaringly apparent.”