Harry Jaffe: Raising D.C. taxes is a prescription for disaster
By: Harry Jaffe
Examiner Columnist
July 22, 2009
Last Friday, D.C.'s five keepers of the coin took a pilgrimage to Wall Street; their mission was to convince the bond rating agencies the District was still a worthy risk. When formerly gold-plated governments such as California are handing out IOUs, Wall Street lenders have a duty to be a tad wary.
The pilgrims were Chief Financial Officer Nat Gandhi, Mayor Adrian Fenty, City Administrator Neil Albert, Council Chairman Vince Gray and finance committee Chairman Jack Evans. For starters, Gray and Fenty hardly spoke -- not the best way to present a united front.
Thanks in large part to Gandhi's handling of the city's finances for more than a decade, D.C. has gotten its first top rating from the bond agencies. In May, Standard & Poor's bestowed the coveted AAA. It allows the District to borrow money at a lower rate, because lenders have a better chance of getting paid back. Bottom line: Having a great rating saves the District millions of dollars a year in interest payments.
Our finance titans presented rating folks with the bad news: The city could be as much as $600 million in the red in 2011. Sounds grim, but compared with other cities (New York) and states (Virginia), D.C. is still a good bet -- if it can close the relatively small budget gap.
Fenty's plan to make one-time cuts didn't fly. The Wall Street types wanted to see reductions in fundamental expenses -- such as human services and education. And they had one more message: Don't raise taxes.
Back in D.C., our city council members are currently deciding how to balance the budget. First suggestions? Raise taxes -- on the wealthy, on folks who call 911 or on those who drive -- by raising gasoline taxes. Old habits are hard to break, especially if you are a city addicted to spending lavishly and taxing liberally. But now is the time for our pols to stiffen their backs and cut programs, even if it means people will lose their jobs.
In most cases, D.C. taxes its residents and businesses more than other states and counties in the region. Why give businessmen another reason to flee?
"Raising taxes in a recession is the worst thing to do," Evans said. "It will actually lower revenues in coming years and force us to raise taxes again."
Marion Barry used this accounting style while he was mayor for 16 years. People called it "funny money." It brought D.C. near bankruptcy and brought federal control. Do we need to use the Barry method again?
Evans has asked Gandhi to compare spending in 2006 with this year's budget, because our revenues are where they were three years ago.
"Have programs we put in place worked?" Evans wants to know. "If not, we should eliminate them."
Eliminating programs in a good year is tough on local pols, who too easily buckle to protesters. This time it will be more difficult -- especially for Fenty, who has been able to fend off cuts to education so far.
E-mail Harry Jaffe at hjaffe@washingtonexaminer.com.
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