DC's economic challenges - an annotated briefing


Goal and Outline

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This briefing was prepared in response to a request for a lecture on the economic challenges facing the District of Columbia, and NARPAC has taken this opportunity to summarize much of the contents of various sections of this increasingly lengthy web site.

In fact, NARPAC has never heard or seen any specific stated objective for the economic development of DC and has therefore constructed its own, above. It suggests that DC has an obligation to the American people to be an outstanding American core city, but it is not obliged to carry a special financial burden for the privilege.

Six separate sections are presented, beginning with an analysis of the current budgetary demands on DC, and illustrating the extent to which this burden exceeds that for citizens residing in the surrounding jurisdictions. DC taxpayers are paying more than their neighbors, but not by enough to drive them out of this prestigious place. Nevertheless, small changes in land use can make a substantial difference in net revenues generated.

We will look at some of the distinctive land uses for the national capital city, and show how unevenly the wealth and productivity are distributed around the 61 square miles. We will then look at population and demographic trends and emphasize the extraordinary concentration of the metro area's poor within the central city. The popular notion that DC can only grow its way out of its current tenuous financial condition is questioned. There are certainly trade-offs in which less residents would be an economic boon.

It is possible to very roughly allocate revenues and expenditures to each of DC's eight wards. While there is no intention to suggest that each ward should be equally productive, it would be irresponsible to suggest that neighborhood and ward-level decisions should be made without considering their overall economic position relative to the rest of DC.

The notion that DC's useful land is limited is certainly true, but any suggestion that it is being efficiently utilized at this time is certainly not. There are many opportunities to greatly increase DC's land productivity--if the current residents will recognize that change is acceptable, and inevitable. Clearly, there are many impediments to concerted growth, however, and these will be explored in the last section.

Throughout, there are references to other parts of this web site where greater detail can be explored.

Comparative Burdens of Government

It may be useful to start out by comparing the per capita tax burden for DC and the three states directly around it. Although Delaware is not contiguous, as are Maryland and Virginia, it is one of the smallest states--and one that DC's statehood advocates hold as an example. The popular notion that DC residents pay too much because they have no state with which to share costs is not demonstrated by the facts. But it should also be noted that DC receives very much more federal grant aid per capita than do the surrounding states (shorter bars).

Maryland and Virginia residents both pay less in state and local taxes together, and both are below the national average. If these state and local revenues were equalized across the region, however, DC's revenue demands on its residents would be reduced by almost $700M annually. If the entire region accepted the national average, then DC costs would be reduced over $500M.

It might also be noted that if all American citizens kicked in $2 a year, that wuld also raise over $500M to lower the tax burden for its capital city residents.

One of the major costs of government is, of course, the pay and benefits for its employees. In this respect, DC maintains a substantially larger government work force per capita than do the nearby states, and than the national average. If DC could streamline its work force to the regional average, it would save almost $380M per year, and if it could get down to the US average, it could save $490M in annual revenue needs. But there appear to be good reasons why DC's personnel levels are higher than those of their neighbors. This is explored on the next charts.

For further details see:
state and local revenues and expenditures
use of state payments in lieu of taxes
regional macro-economic growth
equalized tax burdens

DC Revenues and Expenditures

These three stacked bars indicate where DC's revenues come from, and how they are spent, both by function and by recipient group. In the left-hand revenue bar, note first that a very substantial part of DC's general fund revenues comes from the federal government.

Within the revenues which DC raised from its own sources, it is also worth noting that revenues from residential income and property (bottom two layers) are substantially less than that derived from commercial sources (next three layers). Note, however, that sales taxes are assumed by NARPAC to be generated by commercial properties, not by the income of the residents: i.e., no local stores, no local sales taxes. DC's lack of automobile sales rooms, for instance, costs the city significant revenues.

The center bar provides the normal functional division of government budgets into its major functions. The major point of this graphic is to show the huge share of DC's budget that is devoted to health and welfare, compared to the other categories (from the FY01 DC Budget Proposal). But it should also be noted that the base slice, the costs of financing DC's debt is a very significant element--and exceeds the amount spent from general revenues for public works and economic development together. The right-hand bar is NARPAC's own creation, and allocates each spending function among certain classes of recipients. For instance the cost of safety and justice and public works are spread across all beneficiaries including commuters, tourists, etc. Other items such as mental health and public hospitals serve mainly those poor enough not to be able to use other alternatives. It is also assumed, for instance, that virtually all kids from households in poverty go to public schools, whereas some middle income, and most higher income kids go the non-public schools.

Here the results seem stunning at first sight: while perhaps 15% of total DC expenditures goes to non-residents, more than three quarters of the remainder goes to poverty households. This distribution is so lopsided that small errors in allocations are unimportant. It clearly is the primary player in the subsequent trade-offs.

For further details see:
analysis of DC FY01 budget
analysis of DC FY00 budget
earlier budget reviews

changing revenues and expenditures

DC Government Personnel Levels

This next chart on DC government personnel allocations follows the pattern of the previous one, and is based on the DC budget document break-out which assigns personnel and funding source to each budget item. Note here that a larger share of DC funding goes to personnel than of the federal grants--because they include cash payments, and contractor support. This converts into a smaller proportion of FTE's than expenditures involved in welfare, and shows the public school system (including libraries and UDC) to be the largest consumer of government personnel. However, in the right-hand column, the vast majority of government personnel attend to services for residents, and the vast majority of them are tending to the various needs of households in poverty who depend on those services.

This chart and the preceding one explain why DC budget expenditures and government personnel levels are both higher than for the surrounding jurisdictions. DC will never become "competitive" with jurisdictions with only a fraction of the households below the poverty level. This inescapable fact will keep recurring throughout this briefing.

For further details see:
analysis of DC FY01 budget
earlier personnel levels

This page was updated on Oct 5, 2000




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