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DC's Economic Landscape


INTRODUCTION

The latest addition to this chapter involves a description of the rapidly rising costs of living in DC and the rest of its inner metro area. The analysis was conducted for the Wider Opportunities for Women (WOW) in 2005 and "gives new urgency to the question of self-sufficiency for the DC metro area's working families". It also provides potent arguments that education is a key ingredient in achieving that self-sufficiency.

The remainder of this chapter, written in 2001, describes the many aspects contributing to DC's "economic landscape", most of which are as applicable today as when written, though the detailed statistics have changed somewhat.

Serious analysts seeking solutions to DC's many problems will do well to take into account the physical, economic, and cultural layout of the city. In many ways it is like other cities, but in some aspects it is unique--and not just because it lacks two senators and a fully-ordained representative. It is worth considering all the following aspects.

In addition to being a residential city,

o it is an unusually wealthy area;

o although the source of that wealth comes from an unusual job balance which emphasizes government work at the expense of private sector entrepreneurship and cannot help but impact on the city's political outlook;

o this is also reflects in the unusual composition of DC's gross domestic 'state' product, as demonstrated by 1999 BEA data;

o it has limited sources for its revenues and expenditures;

o the are substantial differences between the 'net productivity' of residential and commercial stakeholders with DC favoring the less financially rewarding option;

o the character of its residents and real estate is changing; its housing stock is at best a mixed bag, and DC is proving to be remarkably slow in getting rid of rent controls;

o it retains strong racial, political, and economic divisions

o and the gaps between rich and poor are continuing to grow, with a high concentration of jobs and property value in a small portion of the city.

o it also has a very high number of homeless people relative to the rest of the metro area--a perfect opportunity for regional "poverty-sharing";

o it has very large contrasts in the "productivity" of both its people and its land, in terms of revenues and expenditures produced;

o and there are strong contrasts in the productivity of households as well;

o Updated statistics using the latest issue of DC's Indices indicates that data for the years '97 and '98 did not greatly change things, though some of the 'conventional wisdom' about DC trends still do not hold water;

o but it clearly has not yet exploited its new metrorail system, and

o the new long-range plan for the "monumental core" of the capital city does not deal with the needs for the non- federal parts of the inner city, but other plans are emerging.

o and, a new bill being drafted in the DC Council would establish a National Capital Revitalization Corporation devoted to improving the economy of the District by, amongst other things, slum and blight removal.

o NARPAC has collected many of the factors addressed here and elsewhere in its separate briefing summary entitled Economic Challenges for DC.

return to the top of the page THE UNAFFORDABLE WASHINGTON METRO AREA

In mid-September, 2005, The "Wider Opportunities for Women (WOW)" organization released a report prepared for them by a senior sociologist at The University of Washington (State) indicating the high, and rapidly increasing, costs of living in the Washington, DC, metro area. It clearly shows the financial challenges for single parents, mostly moms, and the counter-intuitive fact that it is cheaper for them to live in DC than any of the neighboring suburbs, except for Prince George's, plus the inadequacy of the federal poverty measure. According to the report's summary, "these trends give new urgency to the question of self-sufficiency for the DC metro area's working families". It might also have pointed out that the need for a self-sufficiency education is at least as great a challenge.

The report develops a "measure of income adequacy for working families" in today's environment, called the "Self-Sufficiency Standard". It is a market-basket approach to accurately document the cost of living for families that takes into account family size, ages of children, geography, and the number of breadwinners. It "calculates the bare-minimum costs for housing, child care, food, transportation, health care, miscellaneous (including clothing, shoes, household items, telephone, etc.), and federal, state, and local taxes". Federal tax relief measures, i.e., the Child Care Tax Credit, Child Tax Credit, and Earned Income Tax Credit, are all included where applicable. According to the Executive Summary, the Self-Sufficiency Standard (SSS) is "a measure set at a level that is not luxurious or even comfortable yet not so low that a family is unable to meet its day-to-day needs."

The chart below summarizes the changes in SSS between 1999 and 2005, between one adult alone and two adults with two kids, and between the six "inner jurisdictions" of the DC metro area. Several facts seem to stand out:

o DC remains the cheapest place for a single adult to live ($21,200), and the second-cheapest place ($60,300) after Prince George's County for a couple with two kids;

o Fairfax is the most expensive place for a family to live ($71,800), with Montgomery Country a close second ($69,600), consistent with their latest ranking as the two wealthiest counties in the United States; and

o Perhaps more troubling, these "bare-bones" break-even incomes have risen between 25% and 50% in the past six years, and the notion of providing "affordable housing" for lower income workers seems more and more fanciful.


The next chart shows the build-up of a typical household from single mom to a 2x2 family, and offers the following insights:

o The costs of the first kid virtually doubles the wage needs of a single adult from $21,000 to $41,000. The addition of a school-aged kid adds $6200, and a second adult (hopefully, but not necessarily, a wage-earner!) another $6500;

o While housing is a major outlay for the single resident (47%), it is only 21% for a family of four;

o Taxes become a significant share of household costs as the household and its income demands grow. (Not shown, the DC of these taxes is probably less than half of those paid by the 2x2 family:

o The costs of transportation, health care, and day-to-day purchases together do not match the spending on housing, taxes, or "net child care" (after suitable credits are taken);


The next chart simply reinforces how little it costs (financially, at least) to add a second adult to the household, either in the cheaper place to live, or in the most expensive:

o The marginal cost of an adult household partner varies from $4900 to $5400, and the major part of that seems to be from what he eats!

o But the major significance of this chart is implied but not stated. Surely it is more practical for two adults with two kids to earn $68,000 in DC than for one, most probably a mom, to earn $62,000, or for two to make $70,000 in Fairfax County rather than one to make $65,000. As noted ahead, two parents with some college education seems more achievable than a single mom with a law degree.


The fourth chart provides some possibly startling information on the magnitude of the available child support and work-support benefits in offsetting the required earned wages (the heavy black line is not a separate cost or benefit, it is just a highlight between required wages and available governmental support). It should be read as follows: Case A starts with the income needed for a single adult with two kids, noting the reduction due to federal child credits included in the SSS calculation; Case B deducts federal child support benefit; Case C includes the large reduction for child care; Case D adds food stamps, "WIC" (supplemental nutritional income for women, infants, and children) and "CHIP" (a DC healthy families initiative); and Case E adds the Section 8 housing allowance:

o Added together, federal and local child and work support benefits can cover 77% of a single mom's overall family-sustaining wages, some $53,600, leaving an earnings requirement of only $12,500, well below the DC minimum wage of $19,300, and providing virtually no federal or local revenues in return.


Finally, and perhaps a little further afield, this report presents an estimate of the new jobs likely to become available between 2000 and 2010, a period now half gone by, the salaries those jobs will offer, as well as the educational achievements needed to earn those wages. The upper chart has some interesting twists, the lower one is not a pretty picture.

The impact of education on earnings in the nation's capital city is indicated in the somewhat complicated upper chart. Eight levels of education are listed down the left-hand side from a full doctorate at the top to a high-school drop-out at the bottom. The dark blue bars indicate the average annual earnings (in thousands of dollars) across the US for males. The pink bars show the equivalent earnings for US females. The tips of the bars indicate the marginal wage advantage or disadvantage of the same educational skill for those working in DC: light blue for a male wage advantage; yellow for a disadvantage; and green for the female wage advantage. The following observations pertain to the upper chart:

o As applies nationwide, a doctorate is not worth as much in DC as a professional degree for males or females;

o Females do better than the US average in DC at all education levels, but surprisingly enough, males earn less than the US average in all the middle education levels, making salaries almost gender-indifferent;

o Men with professional degrees make about $110,000 on average in DC: a good 50% more than women;

o Masters Degrees bring men about $63,000 and women about $10,000 less;

o High school drop-outs make roughly one-third as much, very close to the DC minimum wage;

o to bring up two kids alone in DC, a woman needs at least a bachelor's degree, a man better than an associate's degree.


The somewhat obscure chart below integrates the total number of jobs expected to be available in DC as a function of the average annual earnings associated with them. Reading up from the lower left-hand corner, the number of jobs projected for each level of education can be discerned:

o Of the 170,000-odd new jobs expected by 2010, less than 30,000 will be filled by high-school drop-outs;

o High school graduates may get a shot at some 40,000 jobs, and those holding bachelor's degrees will find only 10,000 more available;

o The remaining 90,000 jobs, paying more than $50,000 per year will almost all require advanced degrees, a Master's or a professional degree such as lawyer, doctor, or engineer. These are also the pay scales required to bring up two kids alone.

(The September 23th, 2005 issue of Washington's Kiplinger Letter confirms these trends nationwide.

"Skilled workers will be harder to find in 2006, and even more so in following years. The real problem lies in education. Some college or advanced training will be needed for about 85% of new (US) jobs, but only 60% of American students will get that far. Businesses will need 2 million more scientists and engineers by 2012 and 2.4 million workers with key manufacturing and production skills. Current trends indicate demand won't be met."}

It appears clear from the above that not only are self-sufficiency wages increasing rapidly, so are self-sufficiency educational requirements.

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page DC IS A RESIDENTIAL CITY

DC, sometimes called the "City of Trees", still considers itself a "residential city", and has over 100 identifiable, named neighborhoods, many with quite distinctive characteristics. Many of the subway stops bear the names of these locales, and the DC Home Page features short descriptions of several of the best known. Some of these communities are over 100 years old, but others resulted from the rapid expansion of the federal government during the war years in the 1940s. Although the street layout of the city was largely established during the 1920's, it was not fully implemented until WWII. Since then, of course, DC has become the inner--or central--city of a very much larger, and still growing, metropolitan area. Nevertheless, because DC residents have no state affiliations with Maryland or Virginia, they still tend to think of themselves as a separate entity.

Relative to a sample of 19 large US metro areas (excluding the "megametros", New York and Los Angeles), The Greater Washington Metro Area ranks 13th in area, 9th in population. Despite its residential nature, It's population density is typical of cities of the same overall size. DC's socioeconomic situation is nonetheless more fragile than that of its surrounding metro area. While the average inner city is about 6% of its metro area, DC is only 3%--half as large. As a result, it has only 25% of the population (v 39% avg); 21% of the total income (v 35%), and 20% of the labor force (v 38%). DC is also unique in that the surrounding jurisdictions share virtually no common political, economic, or administrative responsibilities for its day-to-day management--or its future welfare. Topography and Land Uses

Topographically, the District is virtually flat, and most of it is less than 100 feet above sea level. There are essentially no natural or political barriers to metro area "sprawl" beyond its fixed boundaries. The southern quarter of the District is separated from the rest by the minor Anacostia River, which has had surprisingly little development--or even clean-up--to date. Its original population was farmers, partially replaced by blue-collar shipyard workers, and then by government workers. There are a few "hills" (250-350 ft) with commanding views of the rest of the District and surrounding area. Some have been reserved for prominent churches and public institutions, others (primarily south of the Anacostia) are virtually undeveloped other than for housing or schools. The new National Capital Planning Commission new plan for expanding DC's "monumental core" now encompasses the banks of the Anacostia.

The District's 69 square mile area, with its three straight-line borders, plus the Potomac River, has a number of large parks, substantial areas owned or set aside for the federal government, and an unusually high number of non-profit organizations (religious, cultural and otherwise). There are also over 180 embassies, many now occupying what once were the finest "mansions" of the city's original upper class, and supported by thousands of foreign citizens.

In fact, only 43% of the city's acreage is taxable. Of the tax exempt area, 72% is federally owned, 10% is DC-owned, and 18% is used by non-profits. Of the taxable land, 75% is zoned residential, 13% commercial, and 3% industrial (another 9% is categorized simply as "vacant").

Downtown

The 550,000 remaining residents still think in terms of a "downtown" business area, well differentiated from where they live, despite the fact they represent less than 15% of the population of the metropolitan area. The downtown area bounds the federal enclave on the north and south, and each occupies roughly half of a four square mile area--no more than 8% of the total area of the District. Despite the existence of good public transportation, there is still a tendency to cram all new developments into this same small area: a new sports arena has just opened, a new convention center is being planned a few blocks from the existing one, and a new home is being sought for the Washington Opera in the very center of the downtown area. To some it appears to be a conscious decision not to "spread the wealth" across the entire DC area.

As a case in point, a considerable controversy currently surrounds where to locate the city's new convention center. Advocates seem determined to squeeze this huge 10-pound (2- million sqft.) structure into the tight 5-pound Shaw neighborhood at Mount Vernon Place. Struggles to accommodate neighborhood worries have escalated costs substantially, while the Authority appears to have turned a deaf ear to a readily available, much larger site (27 acres v 17) adjacent to Union station. This nearby location which would contrbiute to the development of a major part of DC--and essentially expand the "downtown" area into economically depressed territory.

It has become increasingly clear that the city authorities did not properly consider this second site, and is using a somewhat specious issue of "closer to downtown" to stonewall thoughts of change. The few blocks difference (if any) seems almost immaterial compared to broadening DC's developed area . NARPAC, Inc. has absolutely no information to suggest that local political hany panky is involved, but surely hopes that someone in authority will insist that a second look be taken at this important addition to DC's economic future. Meanwhile, in a proper exercise of grassroots democracy, civic leaders in the Shaw Neighborhood have put together a "Greater Shaw Consensus Group which hopes to develop a "common ground" for developing the several unattractive razed lots that have stood virtually empty for 25 years.

The city is distinguished by its 1922 law that restricts the height of all private/commercial buildings in order to avoid dwarfing the federal enclave. The result is that the downtown office buildings are limited in height to perhaps half of what they are in the immediate suburbs, making them less efficient, and less able to generate income for the inner city. One wonders why this limitation could not be modified so that allowable height could increase with distance from the center of the federal enclave, until it matched the height of the satellite city buildings at DC's boundaries. Surely no one foresaw those burgeoning satellite cities in 1922.

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page AN UNUSUALLY WEALTHY METRO AREA.

The Greater Washington Metro Area is, however, by far the richest in per capita income--25% above par inside the city, and 30% in the suburbs. In addition, more of its adult residents are working both in the city (55% v 49%), and in the suburbs (73%vs53%).

Industry and Commerce

There is very little "industry" in DC, and even commercial zoning is tightly restricted to certain areas. Most of the commercial zoning is for "low density" mom-and-pop shops, except in the "downtown area". What little area is zoned for industry is mainly centered at the confluence of the two railroad lines entering the city from the north and the east, and most of that is now standing idle. Little attempt has been made to capitalize on the first-class new subway system as an engine for economic growth.

With regard to retail sales, there tend to be more shops per capita both inside and outside DC and those shops are still serving a higher income base per establishment. However, due to the small size of the District (and its anti-business climate), only 26% of the area's retail stores are in the central city (v 40% avg). Retail sales in the suburbs are much higher per establishment, per resident, and per dollar of income. These factors all tilt economic prosperity towards the suburbs-- and make it more difficult for the District to raise revenues for its own needs.

Employment Sources

Many analysts have noted that the federal government is the real "industry" of the nation's capital, and that it is just as good--and doubtless longer lasting--source of income as automobiles in Detroit, or steel in Pittsburgh. In the past it has certainly been a more stable source of employment-- and does not require access to railroad tracks. Federal employment provided well over 350,000 jobs to the Washington Metropolitan Area from 1970 to 1990, over 200,000 of which have been within the District. However, the current government "downsizing" is the greatest single reason for the recent drop in DC population. And now the DC government is probably going to "downsize" by as many as 10,000 of its 50,000 employees. If these jobs are to be replaced by "light industry" of other kinds, then some rezoning will be required, and some low density residential area converted.

The ten largest business employers in the District are generally white collar (Washington Post, Potomac Power, Bell Atlantic, Safeway, Hyatt Hotels, etc.) and employed some 18,600 workers in 1996. By comparison, the ten largest non- profit employers were universities and hospitals, employing 35,700 workers.

Not surprisingly, the growth in regional employment has favored the suburbs over the inner city by a substantial amount. Between 1982 and 1994, jobs grew from 1,646,000 to 2,376,000 in the region, but DC's share grew only 60,800 (10%) while the suburbs grew 669,600 (64%). DC's share of the regional jobs market thus dropped from 36% to 28% by 1994--and is still dropping. Government jobs grew both inside and outside the District, remaining 41% of DC's work force, but declining to only 21% of the suburbs'. In the suburbs, private sector jobs expanded almost 78%--with the service industries growing by almost 104%, while all else grew 62%. Services was DC's only growth industry, rising 36%, while the non-services sector dropped almost 13%. Of greater concern, however, is DC's apparently endemic unemployment rates. In 1997, when national unemployment levels dropped to their lowest levels in 24 years (4.6%), DC rates still hovered around 8%. By comparison suburban unemployment dropped to 2.9%, with skilled worker shortages threatening to slow economic expansion.

While employment in DC rose by 87,000 jobs (15%) between 1982 and 1989, the rest of the metro area gained just over 500,000 jobs (47%). In the short recession from 1989 to 1991, central city jobs dropped only 1%, while the suburbs fell 3%. Since 1991, however, DC lost 64,500 jobs (10%) while the suburbs grew another 23.5%--350,000 more jobs. Most of the loss in city jobs were from government downsizing (53,000), plus reductions in trade and finance (15,000), with only the services sector growing (11,000).

Not all DC residents work in the city. Of the 260,000 employed DC residents, some 80,000 wortk in the suburbs, while some 420,000 suburban residents make their living in DC.

Immigrants also have some impact on the general employment patterns across the US. According to a new (Jan, 2000) study from the Center for Immigration Studies, there are fewer native-born entrepreneurs (10%) than the national average of (11.8%), while there is a higher fraction of immigrant self-employed (13.8%) than the national average of 11.3%. This may be due to an unusually high number of immigrants from Europe, Korea, and the Middle East.

Payroll Composition

The overall composition of the job market in the District is quite distinctive, and bears on any plans for future development. As is shown on the table below, the average annual pay for all Americans in 1994 was $26,900. In DC, it was $40,900. Of the almost 660,000 paying jobs in DC (down from 690,000 in 1990), 41% were in the public (government) sector with an average wage of $46,900, while the other 59% were in the private sector, with average wages of $36,600. No wonder government has come to be known as the employer of first resort. More troublesome, however, is the fact that while there were 660,000 paying jobs in DC in 1994, only 314,000 workers reside in the District and contribute to the District's revenue base.

DC SOURCES OF EMPLOYMENT AND PERSONAL INCOME
(Ref: DC Indices 1994-96)

WorkersAvg Pay(%Wkrs)(%Payroll)
US-wide   $26,939
Public Sector$29,205
Private Sector$26,494
DC-wide 658,700 $40,919100.0%100.0%
Government Jobs270,500$46,87241.1%47.0%
Private Sector Jobs388,200$36,64258.9%52.8%
DC Private Sector: 388,200 $36,642100.0%100.0%
Services, incl:251,740$37,89864.8%67.1%
Business39,700$23,21910.2%6.5%
Medical35,468$37,0939.1%9.2%
Education27,152$35,6907.0%6.8%
Legal28,753$63,3777.4%12.8%
"Other"120,667$37,39031.1%31.7%
Retail Trade46,802$15,76512.1%5.2%
Finance, Ins, RE, etc.28,557$45,8957.4%9.2%
Transport/Commo17,425$51,2214.5%6.3%
Manufacturing13,100$47,3893.4%4.4%
Construction9,227$31,5792.4%2.0%
Wholesale Trade5,868$45,7701.5%1.9%

In the private sector in 1994, a whopping 67% of the total $14.2 billion payroll generated within the District was in the services areas (business, medical, education, legal, etc.) with an average wage of $37,900. The legal profession, with its average wage of $63,400, accounts for 19% of this category. Another 9% was in finance, insurance and real estate with an average wage of $45,900. Then comes transportation, communications, and utilities at 6.3%, paying $51,200 annually. Retail trade accounts for only 5.2% of the total DC payroll, in part because the average wage is only $15,800, followed by 4.4% "manufacturing" (predominantly printing and publishing) paying $47,400. Finally, wholesale trade and construction each account for 2.0 with average wages of $45,800 and $31,600 respectively.

The District cannot hope to solve its "revenue base" problem by lowering unemployment, or filling it's unoccupied housing units. Three-quarters of the 26,000 unemployed come from the low income areas of the city where job skills, and even literacy, are lacking. There are also about 15,000 vacant housing units considered habitable, again mostly in the lower rent districts. If all the unemployed found work in restaurants (@$13,400), and all the vacant housing units were occupied by non-family households of workers in the business services (@$23,200), the total additions to the annual (taxable) payroll might reach $800M, providing a kind of "full-employment, no vacancies" baseline. The additional income and property tax revenues from taxpayers at the low end of the income spectrum are likely to be very small indeed, and to be more than offset by their demands on District services.

There is clearly no alternative to somehow tapping the $6,700M payroll of the 370,000 daily commuters, and many others whose suburban jobs depend on their proximity to the nation's capital. At the very least, "gentrification" of some of the lower income neighborhoods in DC must be strongly encouraged (rather than disparaged) by local political leaders.

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page MORE BUREAUCRATS AND FEWER ENTREPRENEURS

It is important, NARPAC believes, to note the general distribution of jobs in DC compared to its suburbs, and also to look at the growth of entrepreneurship among the area's plentiful minorities. Both have an impact not only on the relative economic outlook of the city compared to the rest of the metro area, but on the local political climate as well. The private sector has a generally different outlook on the role of government, and entrepreneurs are generally stronger supporters of self-reliance rather than government dependence regardless of their income levels. 1998 data shows that DC has an inordinately large number of government workers (federal and local), and an inordinately small number of competitive business workers (in trade and manufacturing):

Recently released but quite old--data also shows the relative rate of growth of minority entrepreneurship , strongly favoring the suburbs over the city, and of incoming Hispanics relative to the black population. The latter has generally found the road to the middle class generally runs through public sector employment, while the former, perhaps by necessity as well as choice, prefers independent small businesses:


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DC's 1999 GROSS DOMESTIC PRODUCT

The Department of Commerce's Bureau of Economic Analysis tracks "gross state product" for the US and each state including DC. The Bureau of Labor Statistics can provide labor statistics and personal income for states, counties, metro areas, and cities. The two charts below show the 20-year trends of gradually declining economic stature for DC relative to its neighboring states, and to the metro area


Of more direct interest in the fall of 2001, in the wake of the 9/11 terrorist attacks on the US, may be the composition of DC's employment base relative to the entire metro area, and of DC's gross state/domestic product and employment mix compared to that of the US as a whole. For instance, as indicated on the two charts directly below, DC is far less susceptible to changes in the construction, manufacturing, and wholesale/retail trade sectors than either the metro area or the country as a whole. On the other hand, as is pointed out in earlier statistics DC is uniquely heavy in the services industries and in government workers:


Further details are provided in the three charts below, which break out subheadings within each of five key areas: transportation, communications, finance; services; and government.
In the first three areas, DC is above average only in the area of communications. Since these are all in percentages of total domestic product, however, the relatively low percentages in these first areas reflect the much larger shares below. In the services area, DC stands out in the hotels/lodging sector, business and personal services, legal services, and the ill-defined "other" area. Note that DC's "legal" category is very extensive, generating more wealth than health and education combined. Strongly tied to the business of government, these law firms provide an interesting buffer against an economic recession (as do the government employees they interact with). As a bonus, of course, the revenues from a smaller number of wealthy taxpayers is greater than from a larger number of lower paid workers.



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CHANGING DC GOVERNMENT REVENUES AND EXPENDITURES

Deciding how best to "increase the tax base" in DC, is surely not a straightforward task. It may be worth noting the sources of the District's total tax revenues of $39.1 billion over the past ten years. These are shown on the table below. To begin with, 33% of those revenues came directly from the federal government through $7.1B in grants (welfare, etc.) and $5.8B in federal payments for DC "services rendered" (or foregone) to the federal government. Another $3.2B derived from licenses, permits, fines, and other charges not considered to be taxes. The rest came from taxes. No other city--or state, for that matter--gets 33% of its revenues from the federal government--although very few cities pay even 67% of their own bills.

TOTAL DC REVENUES AND EXPENDITURES, 1987-1996
(Ref: Greater Washington Society of CPAs: 1996 DC Audit)


10-YEAR REVENUES ($Billion) (%Tot)
DC Generated:26.2967.1%
All Property Taxes7.6519.5%
Sales and Use Taxes5.2813.5%
Individual Income Taxes 6.1615.7%
Business Income Taxes1.453.7%
"Other" Taxes2.516.4%
"Other" Sources3.258.3%
Federal Add-ons:12.8732.9%
Payments5.7714.7%
Grants7.0918.1%
TOTAL: 39.15 0.0%
10-YEAR EXPENDITURES ($Billion) (%Tot)
Government Direction1.440.7%
Economic Development2.566.5%
Public Education7.0718.0%
Public Safety10.0125.4%
Human Services13.9735.5%
Public Works2.777.0%
Debt Service & Financing3.338.5%
Future Employee Benefits-1.76-4.5%
TOTAL:39.38100.0%
(excess)-0.23-0.6%

Among the various taxes which raised $23 billion over these past ten years (1987-1996), the largest chunk (30%) of $6.9B derived from real estate taxes, followed by $6.2B (27%) from individual income taxes, and $5.3B (23%) from sales and user taxes. Business income taxes raised only $1.5B (6%) while the rest came from personal property taxes, rental taxes, gross receipts, and the ever present "other" category. It is surely not immediately clear how best to raise revenues within the district.

On the other side of the ledger, it is also instructive to look at how DC spends its revenues. DC spent $39.4 billion over the past ten years, including $1.4 billion on "government" and another $3.3 billion on debt servicing and financing, which are clearly partially attributable to failures in prudent governance. Another $2.6 billion has been spent on economic development, although there is precious little to show for it. In fact, total DC revenues have been declining slightly since 1992.

$14.0 billion has been spent by DC on welfare and other human services, though probably half of that was provided by Federal grants ($7.1B), not local taxes. $7.1 billion has been spent on public education since 1987, and DC seems to have squandered most of it. A goodly number of its drop-outs and illiterate graduates have found a life in crime, and as a result the District has spent $10.0B on "safety and justice". It is a sad commentary on urban life in general, and on our nation's capital in particular, that there are 3650 uniformed police officers in DC, and only 5600 in the seven surrounding counties: 40% of the law enforcement personnel for 13% of the population!

Finally, DC has spent just $2.8 billion on public works--less than on debt servicing-- and virtually none of that has gone into capital improvements, it was needed for snow and pothole removal.

At best, one-half of total DC spending went to "building on success"(education, economic development, etc.), while the other half went to make up for past failures (welfare, police, courts, jails, and debt payments). More troubling, perhaps, is the fact that over the past ten years, the share of DC's budget devoted to "past failures" has risen from 39% in 1987 to 52% in 1996.

In addition, the per capita tax burden has also risen, exacerbated by the drop in population in the District. Hence the total DC expenditures in 1987 amounted to $3300 per man, woman, and child in DC, but this amount had risen to just under $5500 in 1997.

At the same time, the federal payment and federal grants have also risen substantially, with the result that DC--up to 1997, at least--now receives a little over $6 per American man, woman, and child, whereas this figure was only about $4 ten years ago. On the other hand, it is also a fact that 260 million Americans could provide all the revenues now consumed by DC for $17.20 per capita, or for $37.25 per American tax return--of which there are now some 120 million.

Prime Real Estate on 9th St. NW. LEFT: This prize home has had no owner for thirty years. RIGHT:This five story home at 9th and R St. NW may become a charter school. Photos by Len Sullivan.

return to the top of the pageRELATIVE PRODUCTIVITY OF DC'S COMMERCIAL AND RESIDENTIAL SECTORS

The most basic productivity comparison is whether businesses or residents contribute more to DC's fiscal solvency. One of the most popular myths in DC, repeated by the Control Board, the DC Council, the Mayor's office, and the Planning Office, is that DC needs more residents to produce net revenues for the city to use elsewhere. In grossest terms, this is simply not supported by the facts, even if ambiguous allocations are slanted towards the popular myth. Residents do produce about 66% of the revenues, but they consume roughly 92% of DC's Operating Budget (leaving aside the vast federal grants for human services). Moreover, small often unnoticed demographic changes can unpset the fiscal balance.

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page The most controversial issue in allocating revenues between commercial and residential sources is the very substantial revenue from sales taxes (20% of total revenues). Some analysts assign it all to the residents as the buyers. In fact, a relatively large share of sales taxes (42%) result from business purchases, as noted in the excellentDC budget books. The question remains, however, should the taxes on purchases by residents be allocated to the buyers (the residents) or to the sellers (the businesses)? NARPAC strongly favors the latter: it is the lack of some businesses in DC that currently limits sales tax revenues--home building supply stores and automobile salesrooms may be the most obvious examples that send DC shoppers to suburban malls. Nevertheless, to avoid the appearance of slanting the data, NARPAC allocates tax receipts from residents' purchases to the residential side of the ledger. However, if all sales taxes were attributed to the business side of the ledger, then it could be credited with providing 46% of the city's revenues.

Allocation of expenditures is less troublesome, and the approaches used by NARPAC and GWRP in the Rivlin Visionappear to be similar. Education and human services are all allocable to residents, while a portion of police, public works, and emergency services is allocable to businesses (and to governnment and non-profits as well). ("Overhead" items such as city administration, regulation, and financing are pro-rated to the direct operating agencies.) What many casual observers underestimate, is how little is spent on these three shared expenses. It is also possible to make educated estimates of the allocations of residential costs by household income category, since upper income brackets use few of the city's services such as the DCPS, or public health.

The simplest display of the balance is shown in the bar chart below combining actuals from FY2000 and projections to FY2005. Expenditures for residents (red bars) overwhelm the service costs allocable to the commercial sector (green bars). However, the revenues raised from residents (the blue line) do not cover residential costs: only the addition of commercial tax revenues (up to the black line), allows DC to operate in the black:

balrevex
The next chart pursues this point from a somewhat different aspect but reaches the same conclusion. If one simply divides the assessed value of all DC residential and commercial properties by the allocated annual budget costs to service each, the results may surprise many analysts. Residential properties taken altogether produce just about $100 in revenues per thousand in assessment each year, while commercial properties generate closer to $50. But the clincher is that residents consume over $125 in services, thus generating a net loss of $28 per $1000, whereas commerce uses few services and generates a gain of $44 dollars. This may be an oversimplification because of its highly aggregated approach, but DC can ill afford to assume that middle class residents present an easy, reliable solution to improving its "fragile" financial posture.

repropro
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page THE CHANGING CHARACTER OF DC'S RESIDENTS

Distribution of Households

"Households" are one normal census unit of measurement and represent those living in a single housing unit. The changing character of a city will be reflected in these statistics. There are roughly 250,000 households, one half living in about 100,000 single family dwellings and 25,000 condos. The other half (55%) live in multi-family units, ranging from very upscale apartments that line Connecticut Avenue in Northwest, to the various disgraceful public housing projects still scattered about the city, primarily in the low income sectors. Residential density is roughly equivalent to that of other cities of the same overall size, despite DC's rich endowment with public parks and spaces.

Households are not necessarily what they might seem. In fact, the 20-year trends from 1970 to 1990 could well portend the trends to come. In twenty years, the population-living-in-households dropped 21% from over 700,000 to 565,000 in 1990. The big change has been in the proportion of family and non-family households. 62% of all households were family-oriented in 1970, and three quarters of those were headed by married couples. But family households have dropped 25% in number. Now only 49% are family households, and married couples make up barely half of those. Hence, there are 45% less married couples, and 31% (75,000) fewer kids.

The other half of the family households are single parent families, of which just over 80% are female-led. The number of kids per family has dropped only slightly from 1.50 to 1.39. But there has been no drop in elderly residents: from 1980 to 1995, those aged 65 and over in DC have increased 4% from 74,300 to 77,200. Three quarters of these senior citizens live in family or non-family households (rather than "group quarters"). (More recent estimates indicate that the number of older residents may now be starting to decline--see NARPAC, Inc.'s recent update in population trends).

Non-family households have increased by 27% since 1970. These were over 70% one-person in 1970, and that has dropped slightly to 64%in 1990, as the number of non-related persons living together increased. Altogether, then, the average household size had dropped from 2.72 to 2.26 in 1990 and 2.16 in 1996, but without a commensurate drop in wage-earners, or for that matter, in empty housing units. DC residents are clearly having fewer children--and school enrollment confirms this. Household size also varies across the city, averaging 1.9 in Ward 3, 2.1 in the middle income wards, and 2.5 in the lower income wards.

Another 42,000 "residents" live in "group quarters"--such as hospitals (10,000), military barracks (2,000), college dormitories (16,000), jails (4,000), and boarding houses or shelters (10,000). This sector has stayed remarkably constant, despite the overall drop in DC population. In various ways, these groups of residents can skew demographic statistics. They tend to be low- or non-revenue producing, and in the case of DC, they tend to be more racially integrated. By lowering the average income in some census tracts (like Georgetown), they have erroneously made these areas eligible for subsidized economic development. They can also warp statistics on voter registration, etc.

Categories of Household Income

The District can be divided into three different regions based on household income, a spectrum including the "richest of the rich", and some of the "poorest of the poor". There is also a middle class, largely government workers (federal and district), most of whom remain politically invisible, while a few are activists for a broad variety of causes. The upper income families are in the north and west sectors, primarily in Ward 3, and parts of Ward 4. The lower income residents are primarily in south and east sectors, Wards 5, 6, 7, and 8. The middle income households are in the middle stretching down from the northern corner through the "downtown" and federal enclave to the Anacostia River--between two extensive sets of parks and non-profit areas.

Statistics on household income are gathered by income categories: $0-15K; $15- 25K; $25-50K; $50-100K, $100-150K, and "over $150K". For simplicity, these can be aggregated and labelled as lower income: $0-25K; Middle Income $25-100K; and Upper Income Over $100K, and communities can be identified by the share in each category. For instance, the US as a whole in 1990 could be characterized as 37/57/6--standing for 37% Lower Income; 57% Middle Income; and 6% Upper Income. By contrast, DC ranked 36/54/10-- seemingly not very different, but with 60% more upper income than the national average. The neighboring states also departed from the national norm: Virginia being 32/61/7, and Maryland with even larger middle and upper income fractions of 25/66/9.

These comparisons are shown on the table below:


PERCENT OF HOUSEHOLD INCOME IN EACH BRACKET

Category Lower Income 0 -$25,000Middle Income
$25,000-100,000
Upper Income Over $100,000
All United States37%57%6%
All Maryland25%66%9%
All Virginia32%61%7%
All District of Columbia36%54%10%
DC - Lower Income Area46%50%4%
DC - Middle Income Area32%58%10%
DC - Upper Income Area19%55%26%

Notice that the District of Columbia is a richer region than the average for the United States, or for the states of Maryland and Virginia. Note also that within the three different income areas within the District, the middle category is essentially the same: it is only the large differences in the upper and lower income areas that determine the wealth of the neighborhood.

Within the District, the lower income sector--with nominally 300,000 residents-- ranked 46/50/4, the middle income sector--with about 200,00--was 32/58/10, while the 100,000 upper income residents scored 19/55/26. In each case, roughly half the households are middle income, the big differences being at the two extremes of rich and poor. In terms of total DC income, 10% is generated by the lower income groups, 60% by the middle income families, and 30% from the richer households. More information on regional trends in revenues is available here.

return to the top of the pageDC HOUSING IS A MIXED BAG

Part of DC's problems in becoming an "ideal" modern American city is the condition of its housing stock. While real estate values have continued to improve throughout the second half of the '90s and into 2001, there remains a severe dichotomy between a limited supply f single family homes and many too many lower income apartments, almost entirely populated by renters.

Real Estate Values Continue to Improve

return to the top of the page Real estate agents abound, and real estate values halted their decline of the mid-'90s and are on the rise again. Home sales in Ward 3 dropped slightly in average sales price between the first half of 1996 and the first half of 1997 ($352K vs $340K). In Wards 4, 2, and 1, the average price rose slightly from $144K to $146K, and in the less affluent wards, the average price rose from $97K to $101K. There is a larger distinction between home values in the three parts of town than in household income. In all areas, there were more sales--and therefore more purchasers!-- in 1997 than the prior year. These trends have continued since then, with an exceptionally good year both for DC and its suburbs in 2000.

The distribution of assessed residential property values is indicative of the spread in wealth. As of July, 1993, the total assessed value was $2.1 billion in single-family houses and condominiums, with the houses accounting for more than 85% of the total. The average single family home was assessed at $188,400 while the median was only $119,400, indicating many lower cost homes, and a few very expensive ones. In fact, 30% of DC's homes are assessed at over $200K, while 35% are assessed under $100K. The pattern for condos is similar, though the average price is $109,200 and 60% of all condos are valued at less than $100K. As of 1993, DC carried 96,800 single family homes on its tax rolls, and 27,700 condos.

Nevertheless, property values are significantly higher immediately outside the District's borders on all sides except Ward 3, where Montgomery County, MD abuts DC. Housing prices are 25% higher in Prince George's County, MD just outside DC's middle and lower income areas, and well over twice as high across the Potomac in Alexandria, VA. Hence, the District's income from property taxes is, on a per capita basis, substantially lower than for the immediately adjacent counties.

Housing Stock by Ward

The total housing unit stock in 1970 was officially 278,404, and in 1990, 278,489. NARPAC concluded that much of the "mass exodus" over those 20 years was from overcrowded apartments. Of the housing/condo stock, some 9000 condos and 35,000 single family houses were assessed at between $100,000 and $200,000 in 1990, with two thirds of those below $150,000. The majority of the 30,000 homes above $200,000 are in the wealthy sections of Northwest, and now well out of reach of "middle income" families with kids. By far the majority of the total housing was built in a relatively short period in the 1930-40's when the population of the city first ballooned.

By 2000, there are now perhaps 10,000 "vacant" single-family houses, of which as many as 4000 may need to be razed, and their lots re-used, though most are in relatively blighted areas.. Among the rest, many are relatively small and poorly suited to renovation for contemporary households. Many of the multi-family units are now barely habitable, and certainly not appealing to mobile middle income families with the suburbs as a readily available alternative. It would not surprise NARPAC to learn that over 10% of DC's total housing (about 30,000 units) need to be razed. Less than 1000 new units are being completed per year. Though a tour of residential Washington does not lead to a conclusion that the city is overcrowded, there are only 9600 acres available in toto for residential use. If apartment houses stack their households 100 to the acre, then single family homes can average no less than 12 per acre, and would grow to over 20/acre with a major increase in family households, as proposed in the new Rivlin Vision of DC's future.

The two charts below show the number of single family units in each ward by their assessment category. The upper chart shows that there are well under 50,000 single family homes (the American family dream) in DC assessed between $100- and $200,000, and they are concentrated in a few wards. There are about 50,000 single family units assessed below $100,000. These homes are not attractive to aspiring 2-earner couples earning over $100,000, and upgrading them substantially will be considered "gentrification".(As a rule of thumb, the assessed value of residential housing tends to run to three to five times household taxable income).

On the other hand, the lower chart shows that the poorer wards are awash in over 100,000 "apartments" (of the 153,000 throughout the city) in varying stages of disrepair after years of neglect by absentee or disinterested land lords, making their living "on the backs of the poor". The majority of the city's public housing units are also located there. With no place else to go, their tenants are fearful of being displaced by "gentrification" and provide ample targets for racial demagoguery and unrest. It is a significant element in trying to get DC's impoverished regions "East of the Anacostia" to share in DC's economic revitalization. The availability and condition of DC's housing stock clearly contributes to political unrest, and provides an unnecessarily large "relative advantage" for the suburbs. (See regional real estate values

wardhous
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page CONTINUING RENT CONTROLS IN DC

There Are Unusually Few Owners and Too Many Renters

An abnormally low (compared to other cities) number of housing units are owner-occupied, rather than rented. In fact, the average for the entire city is only about 35%--half of what it is in other large metropolitan areas. The 35% figure closely matches that for the low income sections of other urban areas. A large portion of the city remains rent-controlled, with an onerous set of regulations covering all aspects of owner-tenant relations. To the extent that renters are less interested in improving their properties than owners, and perhaps less interested in civic affairs than owners, the District loses out yet again. On the other hand, DC laws were changed in the late 1980's to allow landlords making major improvements to their rental properties to get out from under rent controls. Many landlords in the lower income areas, however, appear to have found it more profitable to simply make no repairs or improvements to their properties, with disastrous results for their tenants. They may have concluded correctly that higher rents would not attract better tenants.

Cambridge, Mass. Benefits by Dropping Rent Control

In a stimulating article in mid-September, 1998, The Washington Post reports on the significant economic impact in Cambridge, Massachusetts as a result of a statewide vote to remove rent controls in 1995. Only four states in the US (plus DC) still have rent control laws on the books: New York, New Jersey, Maryland, and California. In fact, 31 states prohibit any of their local jurisdictions from instituting rent controls. And many large US cities--including Atlanta, Baltimore, Chicago, Cleveland, Detroit, Miami, and Philadelphia have no rent controls.

The net result for Cambridge has been a doubling in average rents, plus a 50% increase in building permits, generally for far more upscale apartments and condos. And it has significantly increased the caliber of the retail commerce in the area-- reflecting the higher incomes of the newer residents. Clearly this has an equivalent favorable impact on the city's income and real estate tax bases. On the negative side, of course, some lower income residents have been obliged to relocate to areas where rents are in line with their capacity to pay.

Unpleasant as it may seem, such "gentrification" is one of the economically-natural consequences of sound urban growth, and a major means to avoid inner city decrepitation. A very abnormal share of DC's population lives in rental housing (well over 60%), most of which is over 30 years old, and almost two-thirds of that is subject to rent controls. DC also has the lion's share of the metro area's low rental units (under $300 per month). An additional problem for DC has been its inability to properly administer its restrictive rent control laws, thereby making the impact of those controls more detrimental than perhaps intended.

The longer the artificial regulatory constraints persist in DC, the greater the dislocation when they are removed. NARPAC, Inc. believes that It behooves the DC Government to stop stone-walling the inevitable, and to start developing a compassionate plan for orderly de-control. Eliminating rent control was, in fact, one recommendation in the final report of the Business Regulatory Reform Commission but ignored in the Council's subsequent supporting legislation.

DC has tried to provide tax incentives for owner-occupied dwellings by offering a $30,000 exemption from the assessed valuation of single-family homes and condos. Some 88,800 owners benefited from this in 1990--down from 92,500 in 1990. This has cost the city $24 million in tax revenues, and clearly benefits most those with more modestly assessed homes. DC also tends to attract senior citizens by allowing homeowners over 65 whose income is more than half from pensions, annuities and social security, to reduce their property taxes by 50%. In 1994, some 23,800 seniors took advantage of this credit, at a cost of some $10.3 million to DC real estate tax revenues. Regardless of its considerable social merit, this program tends to perpetuate the existence of a rather large number of properties-- and individuals--generating little revenues for the city.

Another phenomenon influencing DC housing statistics somewhat may be the number of residential units considered by their owners to be "second homes". In the high-income areas, the second home label accounts for well over 20% of the total (over twice the national average). This further lowers both the revenue base and the registered voters, and in some cases, increases the number of renters. This category alone, however, cannot explain the abnormally low share of home owners in DC.

DC Likes Rent Controls

Despite the arguments of the prior several pages, DC decided in mid-2000 to extend its rent controls, albeit for a shorter period of time. This section presents NARPAC's summary of a recent Control Board instigated report--which it intends to ignore!

Background

DC's Rent Control Act, implemented in 1975 (because of a housing shortage!) and extended for 15 years in 1985, expires at the end of 2000 unless renewed by the DC Council. Most economists, many urban planners, and many analysts long ago concluded that artificialities introduced by rent controls may help poorer residents, but they certainly skew urban land uses towards lower returns on investment. They also tend to attract more renters--who are generally considered to have less of a stake in the city's future (and its economic growth) than home owners. NARPAC strongly shares these views.

It is disappointing, then, that the DC Council--on the eve of their elections--has decided to extend rent controls for another five years, despite the recent evidence of other cities such as Cambridge, Mass. (above) that such controls constrain scarce urban revenues-- particularly if housing demand is high. In fact, the DC Business and Regulatory Reform Commission had recommended repeal of rent controls as one means of improving DC's economic environment. It also suggested that more thorough study was needed first.

A prior Urban Institute study had found that long-term residents--largely comprised of lower income renters, elderly households, and families with children--benefitted the most from rent controls--as long as they didn't move (since rents are reset for new tenants). NARPAC sees this as yet another form of 'poverty trap' for the poor.

Findings of New Report

The Control Board commissioned a new study by Nathan Associates Inc. (NAI)-- from which NARPAC quotes extensively here. On the basis of its findings, the Board decided not to challenge the Council's 5-year extension decision. The Control Board's press release essentially says the report is available on their web site if anybody wants to read it (the analyst's worst disappointment!).

In fact, the report is well worth reading by those who wish to understand the taxonomy of property rental/ownership in DC, even though proponents of rent control repeal could claim NAI hid the light of its conclusions under a barrel. It should be noted that DC's rent control laws are in fact quite lenient, allowing substantial increases in rent (up to 10% per year) for various reasons, and re-sets as tenants move on or landlords make major renovations.

The study concludes that:

a: eliminating rent controls would have "nominally deleterious effects,if any", on DC residents that make up the demand for affordable housing due to the high vacancy rates (i.e. low demand). Average rents for units now below their allowable ceilings might increase by about $6 per month, and for units now at their ceilings--only 17.3% of all controlled units--by about $36 per month.

b: based on the above, eliminating rent controls would have "minor impact" on the current supply, or future investment in, affordable housing.

c: Most interesting to NARPAC however, is NAI's carefully tempered statement to the effect that this is therefore the best time to eliminate rent controls because the impact would be small, but would grow larger and far more contentious if demand for rental housing increases: i.e., fix the roof on the sunny day.

d: Also ignored in the findings is the conclusion from polls of landlords and tenants that both feel the largest (unfavorable) effect on the rental housing market is caused not by rent controls, but by other regulations concerning tenant protections and rights of petition against landlord actions (or non- actions).

e. if rent de-control is to be undertaken, there are many different ways to accomplish it: blanket-lifting could be immediate or with advanced notice; phase-out could be by vacancies, rent-level, contracting out, "floating up and out", and leave certain protected classes; and could include exemptions for vacancies, rent levels, building size or property holdings. NAI narrowed the field to blanket-lifting or "floating up and out", and settled on blanket-lifting with about 12-18 months advanced notice for a variety of reasons provided.

NARPAC Commentary

NARPAC has no reason to challenge these conclusions, but was a bit disappointed to find: a) no references to the possible impact of poor physical condition of some lower-end rental properties on the demand for them now or in the future; and b) no consideration of the possible role of rent control repeal on the seemingly desirable incentives for renters to become home owners.

Most depressing, of course, is not the report, but the failure of both the Council and the Control Board to make a politically tough decision for the long-term benefit of the nation's capital city. Instead, they have opted for the easy way out, and-- albeit indirectly--settled once more for mediocrity in DC's future.

On the positive side, the report provides some interesting and more detailed information on the taxonomy of DC's rental market than previously available (at least to NARPAC):

Who Rents in DC?

Some 61.5% of all DC households are in rented housing units in rental properties, down from 64.5% in 1980, indicating only a 3% shift towards home ownership in almost 20 years. There are a little over 138,000 households now renting. Another 20,000 rental units are unoccupied, an all-time high for DC. Given that the average renter has a lower income than the average home-owner, and that poorer households tend to include more kids, it would not surprise NARPAC if 70% of DC's population and 80% of DC's kids live under landlords and learn little sense of property ownership or capital investment.

32,000 rental units (24%) are single family dwellings (attach or detached);, 39,500 (30%) units are in properties with more than 50 units, and another 25,000 (19%) are in apartment houses with 10-19 units. 77,000 (58%) have no more than one bedroom, and only 16,000 (12%) have three or more. Only 13.5% have more than one bathroom. 92,800 (70%) of the units were built more than 40 years ago--29% are more than 60 years old. The median building age is 51 years old.

35,400 (27%) of the rental householders are white, non-Hispanic, and 98,500 (75%) include two adults or less, and no kids. The average householder age is 39, with 84,000 (63%) younger than 44. 69,000 (52.3%)went to college and two-thirds of those graduated. Only 27,000 have lived in one place for more than 10 years, and the median stay in a unit is less than four years.

70,000 (53%) households have an income below $25,000, but 30,000 (23%) are above $50,000--and could presumably afford to buy a home. The median income is $23,600. 98,100 (74%) of the units have no rental subsidies of any sort, and 47,400 (36%) rent for under $500 per month. 27% pay more than $800/month. The median is $564. The median monthly housing cost is 24% of current income.

How Many Rental Units and Properties are Rent-Controlled

Of the 138,000 rental housing units all over the District, some 101,500 (74%) are under rent control in some 13,700 rental properties. Because the larger properties are located primarily in NW, NW contains 43% of all rent-controlled properties (5,900) and 52% of the controlled units (53,100). NE has 30% of the properties and 18% of the units, and SE/SW has 26% of the properties (3600) and 29% of the units (29,600).

Of the 101,500 units and 13,700 properties under rent control, 91% are rented to households with income below $50,000, equating to 95% of the units. 50% of these lower income rental householders still live in NW.

How Many Rent-Controlled Properties Have Some Units at Rent Ceiling?

Almost exactly 50% of DC's rental units (50,900) are in properties that have some units at rent ceiling, and those properties account for about 41% of all properties. According to the NAI survey, however, only about one-third of the units in those properties (18,000) are actually at their ceiling rentals. Presumably, under conditions of higher rental demand, some 30,000 more units could reach their limits--and make repeal far for difficult.

NARPAC Conclusions

A very sizeable number of DC households are renters (100,000+) and about half are potentially susceptible to rent controls, though less than 20,000 are now at their ceilings. Many of these households have a very low income and do not appear to be readily convertible into home owners. They are surely a politically important segment of the population, albeit a major factor in the "fragility" of DC's economic posture, consuming far more in expenditures than they provide to the city in revenues.

NARPAC has no reason to doubt the NAI conclusion that rent control removal would have at best a small impact on renters at this juncture. We agree it would make sense to remove controls at this time--and generate a lot less political heat than if the low-end rental market were to pick up, no matter how unlikely. We also agree that rental regulations probably discourage modernization or enlargement of this rental market. As economic growth raises property values, developers seem far more likely to invest in housing units for sale rather than for rent.

Of considerable interest to NARPAC, but not the focus of this study, are the almost 40,000 relatively well-off renters who seem to have chosen not to become home owners. Subtracted from the 138,000 renters and added to the 85,000 homeowners, however, they would swing the balance from 62% renters to 56% homeowners. Unfortunately, it is likely that many of these relatively young, relatively single renters are transients--a segment of DC's population which is probably substantially larger than in other cities due to short-term jobs with Congress, the Federal Government, the military, and over 130 embassies.

Improving the city's economic posture with more homeowners and less long-term renters is still a worthwhile objective. However, it is not likely to be achieved by simple conversion of existing households. Eventually, a goodly number of perennial renters should move elsewhere, and a goodly number of customary home buyers should be attracted to live in DC--all over DC, for that matter.

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page THERE ARE STRONG RACIAL, POLITICAL, AND ECONOMIC DIVISIONS

The city is by no means racially integrated. The black share of the population is still dropping (now about 62%), and the number of "other minorities" (Hispanic and Asian) is just beginning to increase to a few percent (lagging well behind the suburbs). In the wealthiest part of the town (Ward 3), the racial mix is 16:1 white, and 14:1 black in the three lowest income Wards (5,7, and 8). However, the second wealthiest parts of town (Wards 4 and 6) are 4:1 black. The most urban Wards (1 and 2) are less well off, and roughly 3:2 white.

But most important, while some blacks may have a corner on the poverty end of the scale, whites clearly do not have a corner on the wealth, particularly in the middle income domain. This is even more true in the immediate suburbs. NARPAC has found no applicable statistics in this area, but the Washington metro area may well have the largest number of successful middle/upper income blacks in the US. The majority of them now live in the suburbs, primarily in Prince George's County, MD. How they relate socially, economically, and politically to those in dire need in the central city could be an important factor in the future of the national capital metro area.

The political landscape of the District is no less starkly drawn. It is clearly a Democrat's town--with over 78% of registered voters throughout this decade. The Republicans are also steady at about 7%, with the remaining 15% scattered among other groups--including the Statehood Party at around 1%. While it is true that the poorer sectors are more solidly Democratic, even Ward 3 counts only 18% registered as Republicans at best, while Wards 5-8 average 4%. Elections are generally decided by a plurality in the Democratic primary, making it possible for a well-organized minority group to hold the reins of power indefinitely. Nevertheless, in the 1994 mayorality election, the white, female, Republican candidate garnered 42% of the votes cast, while Mayor Barry got 56%. Only 51.5% of the registered voters turned out, however.

Within the ranks of registered voters, there are also noticeable differences between the sexes. Female voters outnumber males 56% to 44%, with the biggest female majority in Wards 7 and 8--where the most single parent households are. The elderly follow a somewhat different pattern, with roughly 20% of all registered voters in Wards 3, 4, and 5 being over 65. At the other extreme, only 9% of Ward 8 registered voters are over 65.

Public Housing and Welfare

The city gets its bad name from any number of statistics about high crime and child mortality rates, welfare recipients, unwed mothers and unschooled students. These numbers are collected by census tract, and it is quite clear--and regularly published--which tracts contain the bad actors. With little exception, all the bad numbers come from the same low income tracts, and a good percentage of those tracts, not surprisingly, contain public housing units. This is demonstrated on two call-up charts, each showing the distribution of bad news for four separate factors. The first chart shows those census tracts with higher numbers of welfare recipients and poverty rates, as well as lower levels of adult education and performance in school literacy. The second chart provides equivalent information for high crime rates, major public housing units, low household income, and few working parents.

The District's public housing mess has been a subject of scandal for years, and was placed in receivership in 1995. There are about 12,000 units, populated primarily by single unemployed women with several children, some of whom have children of their own. 45% of the 24,000 occupants are below 18 yrs old, and 15% are over 62. Hence only 40% are potential wage earners, and the average household income was $6,156 in September, 1995--almost exactly half the poverty threshold of $12,590 for a family of three.

Half of the units were built before 1960, and 92% of them are over 30 years old. Many suffer from serious lack of maintenance, and many stand idle, or have become havens for gangs and youth offenders. Nevertheless, the 1995 operating budget for the DC Housing Authority was $55.7 million, averaging nearly $5,000 per unit.

In addition to the 12,000 public housing units, there are another 31,000 subsidized rental units, many of which are also in very poor condition. Two thirds of the rental units, and three quarters of the public housing units are, not surprisingly, in the low income sectors of town. Less than 3% of either category is in Wards 3 and 4. Nearly 100,000 people live in public or subsidized housing, about 15% of the city's population. Many of the District's 25-30,000 unemployed live in these projects.

All the bad news tends to come together. For whatever original reasons, these projects are now the major source of most of the embarrassments accruing to the nation's capital. The low income sections have the most kids (58%) attending and dropping out of school; their schools have by far the lowest utilization rates (61%) (because of the drop in population--and kids), and their math test scores, literacy levels, and graduation rates are lower than DC's abysmal "norm". For instance, 90% or more of the students in 14 out of DC's 18 high schools perform "below basic proficiency levels" in math, meaning "little or no mastery of fundamental knowledge and skills" in the subject. Almost all schools in the high-poverty, high-crime rate census tracts have less than 20% of their students reading at a "proficient" level or higher. NARPAC, Inc. can demonstrate a clear correlation between increasing poverty levels and decreasing scores in math and reading. This is discussed--and graphed--in the section on DC school test scores.

These depressed parts of town also have the lowest per capita income ($10,500, compared to $14,400 in the middle income areas, and $25,600 in Ward 3). They have the highest percentage of poverty households (55%), lowest value homes, and so forth. They also suffer the highest crime rates. These circumstances inevitably contribute to greater drug use, vagrancy, ill health, etc. DC's ranks near the top among inner cities in deaths due both to HIV/AIDS (almost 8 times the national average), and to homicides and "legal interventions" (almost seven times the national average). Clearly, these areas meet the criteria set by the DC Council for eligibility for attention from the proposed National Capital Revitalization Corporation as "blighted areas"

Recent Testimony (2/98) from the Center of Labor Market Studies at Northeastern University before the Senate Committee on Labor and Human Resources confirms the accumlated problems of pockets of poverty. These seriously blighted areas appear to be getting worse: from 1989 to 1996, the poverty rate grew from 16.9% to 23.3%. One fifth of the city lives in areas with greater than 30% poverty rates, greater than 50% high school drop-outs, over 70% are single-parent families, and less than 50% of those adults work at all. These numbers are in stark contrast to those for the metro region as a whole, where only 7% are below the poverty level, only 15% are high school drop outs, less than 20% are single parent families, and 77% work. With only 16% of the metro area's population, DC has over 40% of its poverty-stricken. To make matters worse, the available jobs for unskilled workers is continuously declining. Experts see little choice for DC's low- skilled workers to find employment in the private sector inside the city. If their skill levels cannot be raised, then employment may only come from government-created (or subsidized) jobs. More likely, they will remain on the public dole.

The very high number of single moms contributes significantly to the city's high costs of poverty, both directly because of their relatively low family income, and indirectly because so many of their kids become wards of the city. Almost 3200 kids have been taken out of homes and placed in foster care because they have been neglected, abused, or both, and another 3000 are classified as "in-home cases" or in programs managed by non-profit organizations. According to a January OpEd piece in the Washington Post, "96% of the District's homeless families are headed by single mothers; 40% of those families are headed by single mothers between the ages of 18 and 21; 78% of the heads of families had their first child as a teenager and have no high school diplomas; and 93$ receive welfare as their main source of income". The societal impact of these incomplete families cannot be overestimated--nor their impact on the environment in the schools they attend.

Welfare Recipients

To the casual observer, the total number persons benefitting from the various DC human services programs is staggering. In 1994 a full 33% of DC's population (195,700) received services from one or more DHS programs. 150,300 received Medicaid; 140,100 got food stamps; and 94,900 received assistance for families with dependent children (AFDC). 83,400 DC residents benefited from all three programs. Whether due to changes in reporting systems, eligibility criteria, or circumstances, the number of recipients of Medicaid payments increased 33%, AFDC, 14%, and food stamps, 53% between 1987 and 1994--despite a significant reduction in population (at least 5%) during that time.

Transferring Wealth within DC

Knowing the major sources of revenues (real estate, sales, individual income and business income taxes) and who they come from, and the major categories of expenditures (government, schools, justice, and human services) and where it is spent, it is possible to make a reasonable first estimate of the transfer of funds within the three major sectors of the district. Ward 3 generates about 20% of all DC revenues, but consumes at best 9% of expenditures. Conversely, Wards 5 through 8 generate no more than 40% of DC's revenues, but consume about 56%. The middle income sector also generates about 6% more than it consumes, which is also transferred to the low income sector. It is clear that the economic health of the city can best be restored by reducing both the poverty of the city and its debilitating long-term consequences. (See following section.)

It will not be enough to alleviate the poverty in the future. It will be necessary to alleviate the consequences of past poverty: well over one hundred thousand people, and now their offspring, who are essentially unable to perform competitively in our national society. Right here in our nation's capital. See the Control Board's recent reports on poor educational test scores.

Civic Distractions

The presence of the huge federal government, legislative, executive, and judicial, topped by the leadership of the world's greatest power, and surrounded by the representatives of all the world's nations, and the lobbyists for most of the world's greatest businesses, places a mantel over the city. World and national events consume the attentions of the media, and of many of the middle and upper class residents who are part of those events--or wish they were. The net result has been a lot less attention to the growing municipal problems. In addition, Americans from across our country visit only the finest parts of our city: the parts that aren't really a part of our city. It is a shame. And it is a national embarrassment.

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page GROWING DISPARITY BETWEEN RICH AND POOR

According to a recent study (Jan, 2000) by the Center on Budget and Policy Priorities, the income gap between the richest and poorest households in our society has continued to grow more extreme. For instance, the ratio of total income between the richest one-fifth of American households and the poorest fifth is now 10.6:1, with Maryland at 9.2:1, Virginia at 10.7:1, and the District at a remarkable--and unique--27.1:1. Twenty years earlier, the national ratio was 7.4:1, with Maryland at 6.9:1, Virginia at 7.4:1, and the District at 10.6:1 -- still a substantial national high. The table below indicates the extent of these variations, aggregating the bottom 40%, middle 20% and top 40% (to reduce the extremes):

AVERAGE OF HOUSEHOLD INCOME IN EACH GROUP ('96- '98)

Jurisdiction Lower 40%
of Households
Middle 20%
of Households
Upper 40%
Of Households
All United States$22,00046,500$103,000
All Maryland$29,000$59,900$125,000
All Virginia$24,000$51,400$114,000
All District of Columbia$14,000$36,900$137,000

It should be noted that DC values are for a core city, where the income extremes tend to be higher, while the other numbers are for either whole states or the whole US. From these numbers, it is also possible to calculate how much of the total income is contributed by the various groups, again aggregated to avoid extremes:

PERCENT OF TOTAL DC HOUSEHOLD INCOME IN EACH GROUP ('96- '98)

Jurisdiction Lower 40%
of Households
Middle 20%
of Households
Upper 40%
of Households
All United States16%18%68
All Maryland16%18%66%
All Virginia16%18%66%
All District of Columbia8%11%81%

Since income taxes are progressive, it is also clear that well under half of the District households contribute as much as ninety percent of total income taxes collected. Most of these richer residents live in just two wards. Income from sales taxes is also likely to be proportional to gross household income. Recent information from the DC"s Office of Tax and Economic Policy also indicates that over seventy percent of all property taxes are collected from Wards 2 and 3 (see the next table). In short, as is discussed again further on under Transferring Wealth within DC, a relatively small fraction of DC residents are responsible for the preponderance of revenues raised, while the preponderance of expenditures goes to the poorest residents, primarily East of the Anacostia. Efforts and goals to increase the number of "middle class" (moderate income) taxpayers would be largely misplaced. If the city cannot significantly reduce the number of its very poor, then it better aim to increase significantly the number of very rich--households with little dependence on city services.

It should also be noted that there is a wide variation in the number of jobs available in the different wards. Ward 2 represents most of "downtown", and the remainder of the Wards are primarily residential. Well over half of the available 580,000 jobs inside DC are held by non-residents. Moreover, there are 650,000 more jobs in the inner suburbs, and another 1,260,000 'beyond the beltway'. There is an unexpected similarity between the distribution of jobs in DC between the wards and their shares of property taxes. These are shown on the table below:

DISTRIBUTION OF JOBS AND REAL PROPERTY VALUES INSIDE DC ('98)

Ward Jobs Available Pct of DC Jobs Pct of DC Prop Taxes
Ward 128,9005.0%6.2%
Ward 2388,00066.9%54.0%
Ward 357,6009.9%16.6%
Ward 413,8002.4%5.5%
Ward 522,0003.8%4.6%
Ward 652,7009.1%9.0%
Ward 74,3000.7%2.9%
Ward 812,7002.2%1.2%

It is of particular concern that only 2.9% of the jobs, and 4.1% of total real property value is in Wards 7 and 8, East of the Anacostia.

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page

DC: A HAVEN FOR THE HOMELESS

Not only is the District home to a disproportionately large share of the region's poor, according to a 2001 one-day survey, it also has far more than the region's average share of homeless. In fact DC has 7.3 times as many homeless per resident as the suburbs. The result is that DC must also devote a disproportionate share of its budget and charitable energies to caring for these destitute souls:

Furthermore, the city's burgeoning economic turnaround is leaving the homeless with even less promise of better public accommodations. An April '01 Washington Post story relates to the decision not to convert an old downtown firehouse (dating from 1862!) into a homeless shelter for 90 women who are now living in trailers a few blocks away. Reason: the properties on each side will soon become 765 luxury apartments, as part of the "NoMA" revitalization. A homeless shelter has thus become "inconsistent with the housing plans for the area".

This marvelous old firehouse has stood at this location at 438 Massachusetts Avenue since 1862, now with empty lots on each side, and overshadowed by the huge GSA building behind it. Plans to convert the firehouse into a homeless shelter have been scrapped.


Nearby, squeezed under the trees on a sliver of land between the north entrance to Rt 395, and 4th St NW, is a cluster of seven old 48-foot trailers housing some 90 homeless women. A new location other than the firehouse above is now being sought.

Few of DC's truly embarrassing problems in poverty-sharing are better suited to regional solutions than caring and rehabilitating the national capital metro area's almost 15,000 homeless.

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page

ESTIMATING THE "PRODUCTIVITY" OF DC'S PEOPLE AND LAND

Although some may find this approach antiseptic at best, it may be useful to make general estimates of how much each person or acre of land contributes to the city in the way of revenues, and how much each withdraws from city coffers in expenditures. While there is no intent to suggest that each person or acre of land should be equally productive, there is clearly substantial import to the balance between the "givers" and the "takers".

People Productivity

For simplicity, NARPAC has divided the city's resident population into three categories: about 50,000 "high income" residents with very much higher than average adjusted gross incomes (see prior sections); another 300,000 middle income people; and about 180,000 low income people, a large fraction of whom are below the poverty line--including the "non-household" individuals made up of students, hospital patients, jail inmates, etc. In addition, three non-resident categories of people are included who come to the city for business, pleasure, or their livelihood--and thereby consume some city services.

Estimates are made of income, sales, and property taxes paid by each category, and the current costs are allocated for providing city services to each of these categories. For example, some costs are shared evenly among the total population, resident and non-resident: NARPAC includes government oversight, economic development efforts, metro costs, road and bridge maintenance, and overall city financing in this category. Some costs are borne disproportionately by the less wealthy, including use of the city's educational facilities, police, emergency services, and corrections facilities. Other costs are directed almost exclusively at the poor in the form of welfare, housing subsidies, and public health.

people
productivity
Exact allocations are not required to see the trends:

o the "rich" each pay on the order of $18,000 annually in all kinds of taxes, but receive direct city services worth well under $2000--for a "net" productivity to the city of over $16,000;

o For the large middle income category, the per capita net is much smaller ($2200), but still positive: paying some $5600 in taxes, and receiving about $2400 in services;

o The poor, on the other hand, understandably pay little in taxes, perhaps $500 a year each on average, but receive services of over $12,000 each from DC revenues, and another $9,000 from the federal government;



Using the same general rules, NARPAC estimates that each commuter costs the city something over $800 per year, while a manyear of visiting businessmen costs DC about $400 per year. Tourists on the other hand, contribute perhaps $2000 on an annualized basis--in large measure because they spend more while on vacation, and more in the immediate area than do residents, thus appearing as very wealthy people.

It is of course the proportion of the population in each category that determines the overall tax levels for all. As is discussed elsewhere about the high cost of poverty in DC, if there are too many poor for the local taxpayer base, then taxes will necessarily be unusually high. This is the situation between DC and its neighboring jurisdictions. It also leads to the stark reality that DC must either get more taxpayers (or tax receipts) from elsewhere, or it must find ways to decrease the number of poor concentrated in the inner city.

Incentives for change

It seems to be fashionable to " Bribe" productive people to stay within a jurisdiction, as Montgomery County is now illustrating by offering tax breaks to keep the Marriott corporate headquarters from moving away. With Congressional approval, DC is now " Bribing" people to come into the city with various tax breaks and home buying subsidies. Prince George's County is raising the financial incentives for businesses to move to underdeveloped Capitol Heights. But it does not yet seem acceptable to provide inducements for people to relocate elsewhere.

As the most extreme case in point, DC's Housing Authority Receiver is in the process of spending over 130 million federal dollars to keep less than 10,000 low income families in DC public housing. Those 30,000 individuals, many of them small kids, will each continue to cost the city $12,000 annually, and the federal government another $9000 annually. There needs to be some practical and humanitarian way to explore what those same expenditures might do to encourage relocation to the richer, less burdened, and less segregated suburbs where the opportunities for self-fulfillment are almost certainly greater.

NARPAC therefore dares to raise the following question for consideration:

Offered a $25,000 cash payment, how many of DC's unfortunate households below the poverty line would opt to move to greener pastures elsewhere in the Washington metro area outside the DC limits?

Land Productivity

Another way to look at urban finances is to approach them as an exercise in constrained land utilization. In DC's case, there are only some 30,000 acres, each of which can either produce more revenues than it consume in services, or vice versa. NARPAC has simplified the issue by estimating the potential revenues produced per acre in various commercial and residential applications. On the residential side of the ledger, land productivity appears to vary from about $250,000 in the wealthy parts of town with about 10 homes per acre, to as much as minus$900,000 for low income areas with 30 housing units per acre. Worst of all would be a public housing development with perhaps 100 housing units per acre (apartments): these can consume as much as $3 million per acre per year.

At the other end, NARPAC has looked at three kinds of high-rise commercial activities: office buildings; hotels; and apartment (condo) houses. Each one includes two ground-level floors for shops, restaurants, or groceries stores, above which there are five, ten or fifteen floors devoted to the building's primary business. Sensitivity to input parameters is explored by using two different assumptions in each category. Hence:

Land productivity
o Office buildings are probably the most productive use of scarce urban land, returning anywhere from $2.7 million per acre for five floors of offices (over two floors of shops) occupied by personnel 30% of whom reside in DC and pay $2400 in DC income taxes, to $9.3 million per acre for 15 floors of offices occupied 50% by DC residents paying on average $3600 in income taxes.

o Hotel buildings are almost as productive, bringing in $3.4 million per acre annually for five floors of $130/day hotel rooms, with 70% occupancy rate, above one floor each of shops and restaurants, to $8.7 million per year for 15 floors of $160/day rooms, occupied 80% of the time.

o Apartment buildings are somewhat less productive (because of the larger area per occupant). Five floors of condos of which 40% are owner-occupied, and all of which have an average household income of $60K--over one floor of groceries and one of restaurants--yield $2.3 million per acre per year. Conversely, 15 floors of condos, 60% owner-occupied with $90K incomes, produce $5.3 million annually.

o The specialty uses on the ground floors are also productive--with good restaurants producing the most per acre ($900K), retail shops considerably less ($500K), and grocery stores even less ($300K)--though perhaps providing the most important service. This also suggests requiring that some non-profit organizations devote their lower floors to high-revenue businesses--for the city's benefit.

It is also clear that additional building height adds $200,000 to $300,000 per acre per floor. Hence it seems obvious that a "city without a skyline" (like DC) is probably having trouble paying its bills. Moreover, it takes three or four acres of good commercial usage to provide the revenues to cover the expenses of one acre of low income/poverty level homes. One cannot rationally encourage hospitality for the poor, press to maintain low-density residential areas, and reject commercial growth all at the same time. It also suggests that DC relax its heretofore sacrosanct building height limitation at decent distances from the capitol. NARPAC also proposes this for East of the Anacostia

Sharing Responsibility for Productivity

Clearly, individual neighborhoods should not fight too hard for the right to remain non-productive little enclaves, expecting all their needed services to be paid from some remote pot at the end of the rainbow. In fact, one eminently sensible way to develop responsible local development within the city would be to consolidate neighborhoods into clusters that aim to become at least neutrally productive.

Leaving out DC's high-density downtown area, there are perhaps 90 identifiable neighborhoods over some 25,000 mostly "residential" and "untaxable" acres. There are also about 20 metro stations outside the immediate "downtown" area which would be the natural focus for commercial developments. Better community planning--at least from a financial viewpoint--would doubtless result if neighborhoods would voluntarily group themselves into larger planning units around individual metro stations. Not just a NARPAC flight of fancy, this is what was done by Arlington County as they organized to take advantage of their new metro system some 20 years ago.

An acre of high-rise commercial activity can match the productivity of 30-40 acres of normal single family residences. It can also be used to provide substantial returns from otherwise untaxed properties. Hence, at the risk of alienating DC's avid environmentalists, a financial analyst could easily visualize carving a few acres off either Rock Creek Park or Ft. DuPont Park, adding upscale highrise apartments, and thereby "paying the way" for the rest of the park. The same approach might find application to other large tracts owned by non-profits.

It is of some interest to note that this 30,000 acre city will raise just over $3 billion in revenues in Y2000. That amounts to $100,000 per acre--the same figure as is generated by an average acre of middle class single family homes. Alternatively, one could readily raise that same $3 billion from 500 acres of uniformly high-rise (17-story) commercial buildings--with non-tax-exempt clients! This could produce $6 million per acre and thereby permit zero productivity from the rest of the city. In between these two limit cases, there would appear to be plenty of room for sound economic development.

return to the top of the pageRESIDENTIAL HOUSEHOLD PRODUCTIVITY

By combining various data sources, and making practical allocations of expenditures among the likely recipients, it is possible to compare those sectors of DC's economy that generate more or less revenues than they consume in city service costs. This has been demonstrated in prior NARPAC analyses such as "Land/People Productivity", and has been more recently adopted in a study by Rivlin and O'Cleireacain under a Brookings/Greater Washington Research Program (GWRP) attempting to stir debate on DC's future development.

NARPAC has now combined the results of its FY02 DC Budget Analysis with its latest update of IRS Statistics of Income to provide additional ways of looking at fiscal productivity in DC.

The chart below looks at this productivity issue from the standpoint of the individual tax returns. Here revenues and expenditures are allocated to the four household income categories and divided by the number of tax returns in each category. Clearly, "no income" and "low income" households consume more than they provide: $13,300 more for the truly poor, and $7700 for the marginally poor. Even the "middle class" (defined here as having household incomes between $50,000 and $100,000 only begin to provide more revenues ($3900) than costs. Only the wealthy with AGI's over $100,000 serve as the "revenue cows" for DC's struggling farm system. It takes two middle income households to offset one "low income" neighbor, and 3.5 to carry one welfare household. In a land-limited DC environment, the city would do well to attract the wealthiest, least service-demanding households they can--regardless of "diversity" and school age kids. The next best choice from a financial point of view is even more obvious: reduce the city's abnormally high population of very poor people. This is discussed in NARPAC's tutorial on the impact of income mix.

revexres
The next chart pair is more informative, and in NARPAC's view, displays the nub of the problem between the revenue providers and the revenue consumers. The bars on the two charts below are identical, showing revenues and expenditures for each household income category for DC. Expenditure distribution is as described above, and revenue distribution is taken from a separate analysis on Statistics of Income (using the same proportions as "taxable income"), while the content is taken from the FY02 DC budget books. The upper chart displays the "layers" of revenues from the different sources, leaving the expenditure bars undifferentiated, while the lower chart highlights only the allocation of major expenditure categories.

revexdet
The Stark Reality of Racial Economic Inequality

Finally, NARPAC displays the manner in which these allocations change depending on the overall economic status of its residents. The undeniable differences in personal wealth for American blacks and whites is explored in detail in a separate analysis of back and white earning power. From that it is possible to develop a hypothetical household income distribution for a city like Washington with a total population of 600,000. Taking published demographics into account, an all black city would have somewhat fewer households (since each household has somewhat more kids per adult), and the number of these households in each income categories is interpolated from the earning power analysis. The expenditures for each major function are assumed to be exactly the same as for today's Washington, and the variations are due entirely to the differing numbers of households in each income bracket. Yet the differences are stark. An all-black DC would incur expenditures substantially higher, and generate revenues very substantially less. An all-whIte DC has much greater ability to pay for public services, and much less need to provide them.

It is difficult to believe that an all-black Washington would be economically viable at all. Until the day comes that there is greater equity between black and white earning power, it is essential to maintain--if not expand--the white resident component. This comparison is also particularly applicable to the comparison between DC and its neighboring suburbs which in the aggregate have a very much lower share of black residents. This presents a powerful argument for either redistributing the region's (primarily black) poor, or redistributing the region's wealth to pay for them.

revexbw
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page THUMBNAIL STATISTICAL UPDATE:
(from DC Statistical Handbook, INDICES, 1997-1998)

DC's Office of Policy and Evaluation puts out every two years a useful handbook of DC statistics of every conceivable kind. While these numbers may not be perfect, they are quite consistent across the years, and much data is available annually since 1982 (by consulting prior issues). There have been--and continue to be--many myths about what has happened to DC over the past ten years, and many goals and projections for the future based on dubious extrapolations from the past. Here are some of the numbers NARPAC finds interesting:

Population/Demographics

: The population has continued to decline, although the 1990 census data of 606,900 apparently undercounted as many as 10,000 mostly immigrant, mostly poor, mostly young people. By 1998, the official number was down to 528,900, but probably from the wrong 1990 base. Compared to 1970's population of 756,500 the biggest loss has been through 135,000 kids (under 19). The elderly (over 65) has increased by 2500, and the "productive adult" (NARPAC's term) has dropped by about 94,000.

In the eighteen years from '80 through '97, while DC's population dropped by 109,000, the population of the metro area grew by 995,000 to 4,250,000. The "core city's" population thus dropped from 20% of the regional total to less than 13%.

In the city, the black population has, not surprisingly, dropped faster than the white population (with fewer kids), and only the non-black minorities have increased in numbers.

Economic Demography

Employment has dropped some 58,000 since its peak in the late '80s, driven primarily by a significant drop in government employment and non-service businesses (-88,000), only partially offset by a gain in service industries jobs of 30,000. Total tax returns dropped as bit less than 60,000 to 256,000--as did car registrations (to 243,000). On the other hand, total hospital beds rose 2% to 4905. (Live births, incidentally, dropped 25% to 7900 in '97, while deaths from all causes dropped 19% to 6100.

In the past five years, employment at DC's ten largest private businesses rose by about 1000 to 22,100, but the payroll at the ten largest non-profits increased by 9500 people to 43,800. The city is clearly attracting non-profits and service industries--both of which pay less taxes to the city. Nevertheless, over the past decade the number of private firms located in DC rose 14% to 23,700, their total employees rose 12% to 430,500 and their average wage rose 32% to $36,600. These are not the statistics of a dying city.

On the other hand, only 15 of the "top 100" private firms in the metro area are located in the District. Together these 15 firms had revenues of $16.5 billion in '99 and employed 76,600 people--but less than 15% of them worked in DC. In fact most of those firms have only a token presence in the city, presumably for prestige purposes. These are not the statistics of a thriving central city.

Per capita income in DC rose 63% in the decade from '88 thru '97--well ahead of the US as a whole (54%). Total personal income of all DC residents rose 40%, adjusted gross income (for tax purposes) rose 28%, and total income tax paid rose 52%. Sales tax receipts increased 38%, although real property tax collections rose only 5%. DC had significant growth during the past decade, but the US as a whole did even better--with total personal income rising almost 68%!

On the other hand, in 1998 there were 32,200 unemployed in DC, up 12% from a decade earlier. The number of unemployed over 40 yrs old climbed 600 to 6950, while the unemployed between 22 and 40 dropped by almost 8500 to 7100. Under 22, only 400 were recorded for '98. This does not seem consistent with the conventional wisdom of thousands of unemployed youth, and perhaps it has something to do with statistical categorizations.

High Government Costs--Due to High City Poverty?

Government is still responsible for some 40% of DC employment, and the average annual wage in the public sector rose 59% to $53,500, while the average annual wage in the private sector rose 54% to $42,700. These statistics are contrary to the all-US average, where public sector pay rose 31% to $30,100, and private sector annual wages rose 47% to $31,900. Average wages in DC ($46,800) are now 54% higher than the national average ($30,300), and the public sector makes 25% more than the private sector, rather than the national average of 5% less. DC remains strongly a government town.

Income tax returns tell a somewhat different story: in the five years between '91 and '96, the total number of tax returns dropped 18% from 313,000 to 256,000. The number of returns for people making less than $15,000 dropped by more than half to just under 80,000. At the other end of the scale, those reporting more than $50,000 rose by a factor of 2.2 to 53,400. Those in the bracket from $15-50,000 stayed virtually unchanged at 122,000. Clearly, DC's rich are getting richer, but its 'middle class' remains about the same.

Somewhat more puzzling, however, is that during the same five years ('91-'96) the total number of "unduplicated participants" in health services programs dropped by only 22,000 (to 161,200), with the number of food stamp recipients climbing from 105,000 to 129,000, and the number of Medicaid recipients rising a few percent from 123,700 to 126,100. One would have to conclude that the poor are getting poorer. 42% of DC's population is under 19, over 65, or unemployed. 30% is receiving some form(s) of health and welfare assistance. The gap between rich and poor is growing, not just between the core city and its suburbs, but within the core city.

NARPAC again concludes that DC's drop in population has produced a net increase in socioeconomic polarization, with the rich getting richer, the poor getting poorer, with a net increase in burden to the remaining taxpayers. Our analaysis of the impact of income mix on per capita government costs remains valid.

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page This page was updated on Oct 5, 2005

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