Since this chapter was written in 2002, another new report has been published trying to quantify the likely magnitude of DC's supposed "structural imbalance". Published by the GAO in May of 2003, this report makes some extraordinary estimates of potential billion-dollar deficits based on some very shaky analysis. NARPAC takes serious exception to much of the content of this report in a separate chapter entitled Proving DC's Structural Imbalance? Not with This Report!.
In addition, a new financial analysis of the costs and benefits of DC's supposedly free-riding commuters is added to the end of this chapter. It seems clear to NARPAC that the financial benefits are very large indeed compared to the added burdens placed on road repair, police and emergency services. It contradicts the specious notion that DC needs a federal subsidy because there is no commuter tax.
A separate analysis has also been made of vehicle traffic in and out of DC based on some rather dated stattistics. Nevertheless, it clearly indicates that there is a lot more to the road-wear issue than invading, tax-free, commuters.
A SOUND FOOTING FOR THE NATION'S CAPITAL:
IS IT A FEDERAL RESPONSIBILITY?
(From the Brookings Institution Greater Washington Research Program)
NARPAC has as its basic raison d'etre the development of an American capital city (and metro area) second to none in the world. It believes that this should and can be achieved the American way, as a vital and exemplary part of our democratic, free-market society. It believes that pressing for permanent hand-outs from the federal government is the certain path to perpetual dependency. And it believes that basing its pleas for subsidies on faulty analysis and incomplete presentation of practical options borders on the fraudulent. Having offered its contrary comments on these issues for the past two years to no avail, it now offers a no-holds barred summary of the many inaccuracies contained both in this self-serving study and the over- rated reference documents used to support it. We hope to present a true summary of the report, (in bold) but interject (in italics) our own commentary as each dubious assertion unfolds.
According to this study, "citizens and leaders are coming together to talk about their visions of a future Washington". It would have "safe, attractive neighborhoods; effective schools; decent affordable housing; accessible shopping; job opportunities with chances for training and promotion; high quality public services; well-maintained streets; and convenient public transportation."
o This is hardly the definition of a "world-class capital city" (see below) and totally ignores its inescapable role as part of an equally important metropolitan area. A more complete comparison between Dr. Rivlin's vision for DC and NARPAC's vision for DC is available on this site.
o References to schools, affordable housing, accessible shopping, and job training define a future with an economic/demographic base much like DC has today and which is solely responsible for its inability to reliably make ends meet. The economic/demographic base must be upgraded to better balance local revenues and expenditures.
Such a vision has progressed from "fanciful" to perhaps "attainable", but "the city's fiscal future remains precarious". Avoiding another fiscal crisis, then, requires "putting the city's finances on a stronger permanent basis." They have previously argued that the best economic development strategy would be focused on increasing the city's residential population, because it cannot tax the income of city workers who live in the suburbs. They suggest that substantial new revenues to pay for needed services and lower DC's tax rates could be achieved by revitalizing neighborhoods, building additional subsidized and market rate housing, and improving schools and other services.
o It is readily demonstrable that even at current tax rates, DC residents do not cover the costs of the below-average services they now get. Proportionately expanding this diverse residential base will drive the fiscal balance more unstable. DC covers its residential costs by revenues from businesses that require very few local government services. This is summarized on the graphic below:
THREE RATIONALES FOR FEDERAL ASSISTANCE TO DC
But the report concludes that "in the near term" the city cannot raise the needed revenues without additional help from the federal government as it continues its efforts to become a world- class capital city, noting that at the present time "there is no general-purpose subsidy to Washington". It builds up three separate arguments why DC should not have to go it alone.
o There are practical alternatives, neglected by this report, that would permit DC to become permanently self-sufficient as long as it remains the seat of the Federal Government (see below).
1. DC's Status as the Nation's Capital Costs It a Bundle:
The report acknowledges that "the federal government is a large stable employer with a relatively stable and well-paid workforce, drawing a host of embassies, international organizations, think tanks, non-profits, as well as profitable legal, accounting, and consulting services. And it provides parks, monuments, and capital security that add to DC's appeal to visitors and help sustain a substantial hospitality and entertainment industry.
o What a remarkable understatement! Were it not the seat of the American federal government, DC would be in worse shape than Camden, New Jersey!
DC's "hometown business" requires services such as police, fire and emergency services that they do not pay for in taxes. Such services to the federal government alone cost $240 million per year.
o This assertion, regardless of its source, is preposterous. Almost
all federal and related properties have their own federal police forces,
numbering far more than DC's oversized police force. In fact, these federal
forces are now authorized to help DC with their local policing functions.
NARPAC seriously doubts that more than 10% of DC's $300M local budget
for the MPD could be allocated to federally related matters: $30 million,
Workers who commute by vehicle to federal and other tax-exempt buildings cause traffic congestion and wear out the city's infrastructure. Some 70% of these vehicles bear out-of-state licenses during business hours.
o DC spends about $30M annually maintaining as much as 1500 miles of city streets and alleys, the vast majority of which are not "downtown". The Federal Government has taken over at least 80% of the maintenance costs (including snow removal!) of 75 miles of major radial routes which also handle much of the commuter traffic. DC collects 12% on all parking fees, which must average about $12 daily, or perhaps $300 per commuter per year. Only 100,000 daily commuters would pay for all of DC's road maintenance costs.
o Some 450,000 year-round commuters are estimated to generate $40 million annually from purchases and entertainment, which would equate to a reasonable $1000 per commuter.
o A goodly number of DC residents also commute to the suburbs to work, with no reimbursement to those jurisdictions other than parking fee taxes.
Tourists and visitors flock to the capital, sometimes imposing exceptional costs for policing, emergency services, crowd-control, clean-up, mass demonstrations, etc. These costs are sometimes not reimbursed.
o NARPAC doubts there are more than 4-5 such super-events per year, and doubts that the unreimbursed costs exceed more than $1 million per event on average. Furthermore, a good share of these costs are borne by the National Park Service Police and clean-up crews.
o High imposed costs by visitors to their nation's capital are the exception, high sales tax revenues are the rule, with rates varying from 8% to 14.5%. DC's 20-25 million visitors per year generate $300M in revenues if each spends $150 while within the city limits. (CFO estimates $289M).
DC is not allowed to tax federal properties, foreign embassies. international and non-profit organizations, or certain sales associated with them. DC estimates that the foregone property taxes reach $550 million per year, and sales/excise tax exemptions at about $70M. Apparently, the revenue losses due just to the "commercial" activity of the federal government alone (whatever that may be) accounts for losing $150M in property taxes and another $45M on business-type personal property taxes and sales to the public from non-taxed institutions.
o This is to NARPAC the most egregious misrepresentation of reality among these many spurious arguments. The city exists as other than a squalid backwater only because it hosts the seat of government of the world's greatest country. Without it, there is no viable city. The properties listed above are responsible for most of the revenues generated by the city's residents, businesses, and workers, while generating a trivial amount of the city's costs. The vast majority of DC's higher-than-average city costs derive from its way higher than average concentration of poor people.
o The largest single share of the total foregone property taxes (about $217M) comes from placing normal commercial real estate values on the White House, the Capitol, and the other major government buildings. The White House and its immediate surroundings are valued at $1.0B. The second largest chunk (about ($190M) comes from not taxing federally-owned, maintained, and -policed parklands, which are extensively used by DC residents. The National Mall is assessed at $5.2B. This is discussed further under DC Property Assessments and is summarized by the chart below:
o The third largest item (about $166M) is international and non-profit organizations, and foreign embassies--which enjoy reciprocal tax-exemptions with US embassies abroad. There are 613 separate embassy properties valued at $1.2B. The fourth largest loss (about $65M) results from DC not taxing its own government-related properties. All the foregoing provide jobs for DC residents directly or indirectly. Perhaps the only valid case for a subsidy would be the matter of the embassies, since DC per se does not benefit from reciprocal exemptions abroad!
o It should also be noted that DC chooses to grant "tax expenditures" in excess of $180M annually as political instruments to attract certain enterprises, or make it easier for the less fortunate to continue to live in DC. These may well be counterproductive incentives. It also fails to tax some of DC's most lucrative businesses which live off the direct and indirect federal presence.
It is claimed that the "most disabling restriction imposed by the federal government on DC" is its prohibition against DC taxing income earned by non-residents. Two-thirds of the income earned in DC goes to commuters from the suburban jurisdictions. DC estimates that if that income were taxed at DC rates it would bring in some $1.4 billion in additional income tax revenues. As it is, DC raises only about $1.2 billion in resident income taxes.
o Surely there is no suggestion that commuters should pay all their income taxes to DC. The only issue is whether they should enhance DC's tax base. A realistic minimum demand might be to at least cover the services and depreciation they cause while in DC. A realistic maximum demand might be that the costs of various social dependencies be equalized across the metro area. The best case at the present time involves the unwillingness of the surrounding counties to provide a proportionate share of affordable housing, thereby herding (or at least fencing) the poorest households into the jurisdiction least able to pay their costs.
o There are reasonable alternatives to taxing commuters that work in the city, although they may not seem as simple, direct, or effective. One is to raise parking fees for non-DC registered cars, and to raise fees for public transportation that crosses the District line. Another is to install a "value added" tax on businesses in DC that reflects (albeit indirectly) the salaries paid by DC businesses. And surely there is no practical rationale for providing tax exemptions to high- paying businesses that consider a Washington DC address vital to their success in influencing the federal (or DC) government.
2. DC's Stateless Status
Because no state supports or contains it, DC must provide public services normally provided by a state government as well as those provided by local government. It is argued that "state governments are able to collect revenue from diverse tax bases that include suburbs and industrial areas, and redistribute those resources to local jurisdictions to equalize public services among localities of differing income and wealth. Central cities, which carry a heavy burden of costs associated with concentrations of inner city poverty (see NARPAC's supportive comment above) normally benefit from this redistribution."
o True enough, but it is important to understand that DC is a relatively complex combination of concentrated inner city poverty as well as pockets of extraordinary wealth. It is a prime case where using city-wide statistics based on median household income seriously understates the mean (average) household income. For instance, the 16 richest neighborhoods in DC (out of 126) have an average median household income of $107,000, while the 16 poorest neighborhoods are a bit under $19,000.
o As will be discussed again subsequently, the jurisdiction's wealth must be compared to the demands on it. In the case of "wealth per school-aged kid", DC ranks the highest in the metro area, in large measure because it has relatively few kids. as a result of the migration to the suburbs. On the other hand, the "wealth per individual below the poverty line" is by far the lowest because some 29% of the metro area's poor live within DC, either out of choice or necessity, according to the 2000 Census. The report asserts that fraction is 44%, but does not give the source.
In 1997, Congress transferred part but by no means all of DC's state-like burden to the federal budget. Transferred were the custody of all convicted felons (a very large number, per capita), the local court system, increased the federal share of Medicaid from 50% to70%, and assumed DC's unfunded pension liability. Simultaneously, it ended the annual federal payment of some $600M.
o While the report does not claim in so many words that this was a bad swap, it was generally accepted at the time that the Feds had relieved the District of annual costs soon to exceed $1 billion. It was considered a good swap at the time, and NARPAC has no reason to question its validity today. Nevertheless, it might be worth noting that the increased federal share of the District's annual Medicaid tab saved DC $250 million by itself, while the total costs of DC's Department of Corrections was $247 million in 2002, of which local DC funds contributed almost $90 million. The unfunded pension liability was larger than either of these.
DC's CFO estimates that DC is still paying some $500 million for significant state-like functions to include mental health, child welfare, and "other services to low income people".
o This is a particularly amorphous area (at least to NARPAC) as to divisions of responsibility and funding. Suffice it to say, DC's total "Human Services" budget for 2002 is almost $2.2 billion (almost 35% of DC's total gross budget), and DC now pays $960 million (about 44%) of that total. For whatever it may be worth, Maryland's total Health and Human Resources expenditures consume 32% of their state budget, amounting to $1100 per state resident, with the federal government picking up 44% of the total. In DC the total came to more than $3900 per resident (3.5 times as much), and the Feds picked up 56% of it (25% more). The root problem remains DC's abnormal number of poor, including 130,000 residents receiving Medicaid!
o One of the major inconsistencies that this report fails to address is DC's not-so-secret desire to become a state in its own right while lacking the resources to pay for these so-called "state functions". Just think how much how much more federal help it would need if it was an autonomous state! If DC was a commercial entity determined to stay in business, it would recognize its failure to achieve normal economies of scale in its operations, and seek partners or contractors to achieve greater efficiencies. Unfortunately, these inefficiencies not only provide municipal jobs for DC residents, but perpetuate the false hope of eventual statehood.
o Though NARPAC lacks the resources to root out all these comparisons, it is beyond question that Maryland or Virginia could save DC a bundle by agreeing to provide many "state-level" services to DC at their own going rates plus a 10% fee. As a single major case in point, DC pays far more to educate one special-ed kid than either of its neighboring states. At the trivial end of the scale, DC requires $9.4 million and 103 people to regulate insurance for 570,000 residents. Maryland uses $14.3 million to regulate insurance for 5,170,000 residents. Why doesn't DC adopt Maryland rules & regs, and farm the job out, instead of asking for a federal handout? In a more bizarre instance, under what conceivable rationale does DC need its own air national guard squadron?
The report correctly notes that state revenues normally pay for higher education while DC residents must pay their own way. It does recognize however, that Congress now permits DC students to attend any public college or university in the US at in-state tuition rates. The report goes on to fret however, that this largess may reduce enrollment at UDC and cause its further decline.
o UDC has been notoriously inefficient for years in terms of costs per student, and with the federal government's acceptance of the burden indicated above, this struggling university should probably either be put out of its misery; converted to an inner city campus of a successful private university (of which DC has several outstanding ones); operated under contract by either U Md or UVa; or converted to what is needed most: a source of adult education for marketable skills in the work place.
The last claimed shortfall by not having state-level revenue transfers deals with the costs of primary and secondary public education. The report compares DC to Baltimore City, and notes that Baltimore City pays only 24% of its school costs from local revenues, while DC pays 75%. If DC could mimic Baltimore City (one of the poorest counties in Maryland), it would receive $340 million more annually from outside sources.
o Although the arithmetic is flawless, the insinuation that DC is comparable in economic status to Baltimore City (without a national capital), is deeply flawed. But the comparison is worth pursuing. The facts are as follows, from the Maryland State Board of Education. Maryland distributes 85% its state-raised education funds in inverse proportion to the imputed "wealth per kid" of each county. 'Kids' are the kids in school, and 'wealth' is defined as the sum of (state) taxable income and assessed property values, plus a smaller amount based on real property assessments.
o Maryland State raises 38% of all funds for public education, while 54% comes from local taxes, and 8% from federal and "non-revenue" sources. The state share comes to $1980 per kid. Because of its low wealth and large number of kids ($138.1K per kid), Baltimore City gets $2900 per kid, while Montgomery County (worth $406.1K per kid) gets only $840 and even richer Worcester County ($449.2K per kid) settles for $510. By comparison, DC's wealth per kid is an astounding $805.2K per kid (even without taxing federal properties!), making it eligible for only the 15% minimum: $297. So the fact of the matter is that DC would end up losing $1683 per kid, or $111M to poorer Maryland Counties, a far cry from winning $340 million.
o NARPAC has great difficulty believing that DC's 'precarious' financial situation is related to its unique "statelessness". If that were the case, a large number of other American inner cities would not also find themselves strapped for funding, despite the affluence of their encircling suburbs. The problems of inner cities are directly related to the lack of appropriate intervention at the federal policy level to reduce jurisdictional discrimination within metro areas.
3. Compensating for a Legacy of Neglect
The report goes on to present "a final argument for federal assistance to the District (which) relates to the neglected state of the District's infrastructure and the opportunity the federal government has to help the city become a showcase capital city in which the whole nation takes pride."It suggests that DC needs a federal payment in the near term to compensate for 30 years of neglect, and subsequently to maintain that infrastructure.
o Virtually every older city in the United States has the same problem of aging infrastructure.
According to the report, Washington, like many central cities "lost middle class population to the suburbs", an exodus that "eroded DC's tax base, and left the District with a concentration of lower-income families who have difficulty and costly problems.
o NARPAC believes this is one of the most persistent and misleading myths being used to justify federal subsidies. We have repeatedly pointed out that most of the population loss since the '70s was in black children, not black families. The loss in adults, households, and housing units was far less. And the "tax base" does not depend on any of the foregoing: it depends on the number of taxpayers, as reflected in tax returns. IRS Statistics of Income indicate that there was no loss in taxpayers. They also indicate a steady growth in Adjusted Gross Income. Some analysts have asserted that the most troublesome exodus of the middle-class occurred during the '90s. Again, IRS SOI reports indicate that the share of DC taxpayers with AGI's above $50K doubled from 12.5% to 25%, and the total AGI derived from this higher income set grew from 50% to 70% of the city's resident tax base. The facts do not support a dwindling middle class, but rather a growing upper class. The chart below tracks the number of federal tax returns submitted by DC since the '60s, and the rising number of AGI's above $50,000 over the past fifteen years:
The legacy of an aged and badly deteriorated infrastructure includes antiquated school buildings, health facilities, and police stations, inadequate computer systems, and an aging sewer system. About half of DC's school buildings are over 50 years old, and are expensive to maintain.
o DC's sewer system will indeed require a large bond issue. The computer systems are being replaced, and police stations updated. The most run-down health facility was surplus and has been closed. The major unresolved infrastructure issue is DC's public school facilities. But DC operates as many as 50 more schools than needed if sized to the average for the metro area (due in part to low utilization rates, in part to a declining school population). It also owns 25 vacant or abandoned school properties that have been surplus for years. DC's estimate that it needs $2.2 billion for its schools is way overstated, and neglects the possibility of selling as many as 75 school properties involving 3-5 urban acres each. Click here for a more compklete discussion of vacant school buildings.
The Washington Metro Area Transit Authority (WMATA) is struggling with major capital needs created by rapid increases in the number of riders and an aging system.
o True, but how much of the additional funding should be paid by DC is problematic.
The report then goes on to consider whether or not DC's recent "transformation from deficits to surpluses is sustainable" pointing out that a "strong national and regional economy, plus a downtown building boom" provided much of the impetus. The role of the Control Board and more conservative revenue forecasts are mentioned but not over-stressed. They conclude that "the probability of future crisis has declined and the bond markets look more favorably on DC's securities", but go to say that DC's "future remains uncertain" in the wake of 9/11 and the end of exceptionally good times. They note a looming deficit in FY2003, and suggest that FY21004 will most likely prove difficult as well.
o Most likely true, but DC will remain better off than cities without a huge federal presence!
Without additional federal assistance, the report reiterates, "DC's longer-term fiscal future is worrisome". DC's mandatory five-year financial plan, obliged by law to show a balance, is considered "less transparent than it should be". It is judged to be "in precarious balance", since baseline revenues "do not grow as quickly as spending", as repeatedly pointed out by DC's CFO. But the report acknowledges that the small difference between revenue and grow paths are at best inexact but nevertheless "illustrate the persistence of the problem". It further points out that DC has far more "rigorous and sophisticated methods for projecting baseline revenues than baseline expenditures". They further note that DC is projecting "no real growth" in spending even though such growth appears inevitable for any number of reasons, including debt service, unrecompensed welfare, and pay raises.
o Although all five-year projections are at best speculative, NARPAC has no basis for supporting DC's current projections. We seriously doubt that it was given serious high level attention, and the mandate that it show a balance is an invitation to dissemble. We still believe DC's revenue projections have been overly conservative based on its persistent real estate and business booms, even though the current shaky economy no longer justifies unlimited optimism (see 'Raising Revenues' below). On the expenditures side, NARPAC has seen virtually no attempts to increase the productivity of DC's bloated bureaucracy, nor to reduce its welfare load. DC's longer-term fiscal future is indeed "worrisome". Local vs national trends in the overall welfare load are shown below:
o The expenditure projections in DC's financial plan are indeed what is known as "current services" estimates (i.e., continuations of current programs at current levels). It projects public education costs, for instance, with a constant student enrollment, even though the single best indicator of future enrollment is DC live births five years prior, which are continuing to drop. It projects no improvement in DC's horrendous special-ed education costs, and it continues to grow welfare and Medicaid costs at substantial annual rates. Under such projections, the DC Council's income tax reductions are a travesty in poor judgment.
o No comparisons are provided with trends in expenditures by other (neighboring) jurisdictions, or nationally. Just why is it that DC is having so much less success with welfare reform than Maryland, Virginia, or the US as a whole? Why should DC's welfare costs for medical and income maintenance purposes be so high? (See chart below) Do the explanations justify permanent annual payments to DC from the federal government?
A recent McKinsey & Company report indicated that DC's deficit could reach $500M by FY2005, if slowing revenues and rising spending are simply extrapolated forward unchanged. This "discouraging outlook" leads the authors to raise three reasonable questions: can DC raise more revenues, control its spending, or improve its efficiency?
o These are certainly appropriate questions before turning to federal hand-outs, but there is at least one more: why not work towards leveling metro area spending obligations. We need to review each of these questions:
1. Raise Revenues?
The report starts right out with the assertion that it appears unlikely that DC can increase revenues by raising tax rates of any sort. It seems to confirm the opinion of local political leaders that taxes need to be lowered "because they discourage businesses and middle- to high-income individuals from moving into the District". The McKinsey study recommended dropping planned five-year reductions in income taxes, but continuing business tax cuts due to DC's "lack of competitiveness within the region".
o NARPAC finds these statement ludicrous: it doesn't correlate with a huge, continuing downtown building boom, DC's relatively low office vacancy rates, or with the recent real estate trends in any of the upscale sections of DC. For instance, in the "Greater Downtown Area" there was $4.4B in construction underway in March '02, beyond the $2.7B completed in the prior 15 months, plus $5.2B more in the planning stage. There are 2100 residential units under construction and another 2400 in planning. These do not reflect in budget outyear projections.
o DC's office vacancy rate is 6.7% compared to 13.9% in the neighboring Maryland and Virginia suburbs, where the asking rent is $26.66 compared to $38.84 in DC; and in DC's five wealthiest Zip Codes, house purchases (the positive side of sales) increased 2.6 fold between 1Q2001 to 1Q2002, while prices rose 7.5%. DC particularly needs businesses and residents who are not concerned with small differences in tax rates.
o Providing preferential tax relief to businesses over residents would appear to aggravate the imbalance caused by not taxing commuters who work here but don't live here.
The report notes that in 2000, DC had the 15th highest tax burden of 51 cities on families with annual incomes of $25,000 and 9th highest on those over $150,000. DC's CFO demonstrates that DC's overall tax burden on annual incomes of $75,000 is comparable or below that of the Maryland suburbs, but higher for those above $150,000. The McKinsey study found roughly competitive tax burdens between married couples earning $120,000 in DC or the suburbs, but that postponing income tax reductions would leave DC 10% higher than Maryland, 25% higher than Virginia.
o The notion that people decide where to live based solely on income tax levels (as opposed, say, to good schools, or good opera) is specious. The implication that living in the nation's capital cannot cost more than living elsewhere is like suggesting that orchestra seats won't sell if they cost more than second balcony tickets! DC can and should seek to attract both businesses and households willing to pay a premium for the world's best address: Washington, DC.
The report concludes that raising tax rates is "not a viable budget option".
o Raising rates is certainly not the only option to increasing tax revenues. The first alternative is to stop lowering taxes during times of reduced economic growth. The second is to increase the tax base, rather than the tax rate: this involves attracting more taxpayers who are anxious to pay for a Washington address. The third is to add taxes in several areas where DC businesses are relatively untaxed, as recommended in the DC Tax Revision Committee. One such category is DC's lucrative lobbying business: DC is one of the few big cities that does not tax its law firms!
o Another prime route to increasing revenues involves converting more of DC's scarce land to more tax-productive uses. The ideal way would be to continue to take title to more of un- or under-utilized federal lands. Three cases in point are now in work: "Reservation 13" was the land under the now-defunct DC General Hospital which will now be largely redeveloped for revenue-productive uses. The second is the 300-acre St. Elizabeth's Hospital site. Even though it is now encumbered with exaggerated historic preservation strictures, significant revenues should become available from new residential and commercial uses of parts of the property. Camp Simms has been a long-neglected military facility now being developed in a small shopping center. Many more such properties exist all over the city. Click here for further discussion of major new DC long-range projects.
o Another approach is to increase the revenue-producing capacity of existing sites available for "high density" development. The more straightforward of these is to press for development around currently under-developed DC Metrorail stops. 15 fully developed acres around each of ten metro stations could easily yield $200M annually. The less straightforward, but equally lucrative, alternative would be to relax building height restrictions adjacent to the two "edge cities" already growing at DC's borders; one at Friendship Heights/Bethesda in Northwest, the other at Silver Spring in Northeast. In this regard, commercial developments are likely to bring a higher "net return" than typical residential uses as shown below. For more detail, see residential/commercial revenues.
o Another would be to rein in the rampant practice of declaring buildings, streets, and 'vistas' as historic shrines: a favorite practice to avoid "re-gentrification of run-down neighborhoods" and the status-quo in neighborhoods who wish to avoid economic development in their own backyards. At last count, NARPAC believes there are now about 29,000 individual properties on the preservation list in a city of only 30,000 usable acres! It is universally acknowledged that the historic preservation designation will guarantee a less than "best use" economic return in perpetuity.
2. Control Spending?
The report provides a litany of areas of capital spending which have long been underfunded, to include schools, roads, the Anacostia River, public transit, and even UDC. It then raises the specter that DC cannot practically raise its capital debt burden, and therefore might need to finance its capital spending from its operating budget to the tune of $180M to $220M annually!
o NARPAC seriously doubts that DC would ever decide to satisfy its capital funding for infrastructure from its operating accounts: including this option strikes us as overreaching for dramatic effect.
o DC does have an unusually high debt burden of $4500+ per capita, but there is no concrete indication that the nation's capital city has reached its borrowing limits. Moreover, it is not clear to NARPAC (that is a form of hedging) that the capacity to sustain a debt burden is well measured on a per capita basis for two reasons: a) there are substantial variations in the sources of tax revenues between households and businesses in different jurisdictions (NARPAC suspects that DC has an abnormally high assessed value of commercial properties to share the tax burden); and b) it depends whether or not the "capitas" are taxpayers (or at least adults). One smart alec way to reduce DC's per capita debt would be to adopt enough kids into existing DC households to match the number of kids per household in, say, the State of Maryland (that would reduce DC's per capita debt burden from $4600 to $4200). Beware the unfit measuring stick!
3. Improve Efficiency?
Last but not least, the report turns to governmental efficiency, asking whether DC offers more truly "discretionary" services than it needs to, and/or whether it delivers it necessary state and local services at excessive costs. A 1997 study by the Greater Washington Research Center concluded that "expenditures for discretionary service probably total less than $100 million."
o Note that this use of the word "discretionary" bears no relation to the standard term in federal budgeting to define those annual appropriations not legally mandated by national entitlement programs. It is used here to essentially describe "unnecessary" or "optional"spending. Any implication that all but $100 million of DC's budget is "mandatory" would be starkly inappropriate. The current allocations of revenues and expenditures are shown here to the left. For more detail, see Economic Comparisons by Census Tract.
Finally the report turns to the matter of DC government efficiency. They note that the McKinsey study estimated that $110 to $160 million could be saved in DC's four largest agencies (ignoring the school system), by 2005. The report also acknowledges that those estimates heavily discounted the inefficiencies actually indicated, therefore reducing their confidence in them.
o For every dollar of imputed inefficiency, McKinsey assumed that only half would be recoverable (50%), and with only 80% effectiveness (40%), and that 20% of that would need to be reinvested (leaving 32% net). NARPAC is more sanguine that the base estimates are reasonable, and that a larger share should be recoverable.
Having accepted other analysts' guesses in other areas, the authors conclude here that there is some degree of cost inefficiency but "we don't know how large it is. Neither does anyone else." They then conclude that "accepting that efficiency can and should be improved does not eliminate the underlying fiscal crisis that threatens the health of the nation's capital". It is those pesky state functions and "decades of population loss" that are doing DC in. Having reached those "sobering realities", they turn to a range of options for federal bail-outs.
o NARPAC finds this summary dismissal of the gross inefficiencies
within the DC government, as well as the summary dismissal of the fact
that "nobody knows how big it is either", to be serious faults in this
report. The inference may be taken that the authors are in a rush to get
to their predetermined solutions at the federal trough. After all, if
government efficiency could be raised $50 million (less than 2%) in each
of the four years ahead, the four- year cumulative saving would be $500
million: not an insignificant sum.
4. Balancing Fiscal Obligations?
o This report essentially tries to make the case that DC, like other central cities in the US, cannot pay its way without external resources. The more these inner cities are allowed to collect the disadvantaged, and the more their richer suburbs are permitted to take a free ride, then the more the cities will become dependent on the "bank of last resort"; i.e., the federal till. NARPAC sees a rising and not-so-subtle form of jurisdictional discrimination in which the states and/or their suburban counties can, by their fiscal policies, amass the jobs, but avoid becoming home to the workers of limited skills, or those who for all practical purposes cannot work at all.
o The trappings of poverty are very extensive indeed, from higher health costs, more special ed and foster kids; to higher crime rates, greater learning disabilities and larger demands for food and housing subsidies. The real reason analysts can proclaim that inner city tax rates are not "competitive" is because suburban tax rates are too low: the fiscal playing field has been contoured to drain the needy into sumps in the core of the metro area. One major alternative to passing the fiscal buck back to the federal government is to reallocate it within the metro areas. Comparisons in required government personnel are shown on the chart to the left.
o NARPAC believes that the better long-range solution is to redistribute the poverty so that it cannot so easily feed upon itself, rather than redistributing the wealth as a means of perpetuating that poverty, and keeping it out of sight! The statistics are simple but compelling: DC is currently obliged to satisfy the needs of each resident below the poverty line by the labors of two and a half taxpayers. In DC's suburbs, there are twelve taxpayers for each person in need. All the rest of the fiscal machinations are secondary. The solutions probably need to be enforced by the federal government, but the resources are available at the state and county level.
o Virtually every federal grant for poverty-related social problems
could be regionally dispensed to "level the playing field". This could
include affordable housing subsidies, public health and mental health
funding; special education requirements, and so forth. These should not
The authors of this report "do not see additional room for federal takeover of DC's state-like functions", but believe that DC cannot generate sufficient revenues to pay its own bills "without its taxes getting too far out of line with competing jurisdictions." Not only that, they recommend the funds should be given without strings (in part to prevent Congressional tinkering); should not provide "perverse incentives"; and should not be linked to cyclical parameters that might at times fall short of DC's needs.
o It's one thing to propose that the feds cover DC's shortfalls, but it seems a little far- fetched to insist that federal payments should be less variable that state payments would be. It also seems unwise to omit the suggestion that the bail-out should include some sort of incentives for DC to increase their own government efficiencies, or that DC should provide any accounting for their use of the funds.
The report lists five alternative forms of general operating support for DC, based on the authors' conclusion that DC "needs $300 to $500 million a year in federal support. They claim that limiting assistance to this range "would still necessitate prudent budgeting, competitive tax policies, and serious management efficiency".
o NARPAC somehow doubts that a no-strings, no accountability, no end-date hand-out will be any more successful in accomplishing these objectives than the last open-ended annual federal payment did.
Five Serious Proposals:
A1: A $395M Federal Payment-In-Lieu-Of-Taxes (PILOT), on the basis that DC is not reimbursed for costs incurred in providing services to federal, foreign, non-profit, and international organization properties. It is noted that such federal PILOTs are used to compensate other jurisdictions for similar services (to what extent is not given in the report).
o The National Association of Counties (the report's reference source) provides information on the current "PILTs" given to each county in each state in 2001, and the Bureau of Labor Statistics provides the number of federal employees in each state. Across 75 counties, Virginia employment in 2001 included 148,000 federal jobs and received a grand total of $1.9 million in PILTs. Maryland's 17 counties received a total of $77,800 with 127,000 federal employees. DC itself, with 182,000 federal workers, received $9900. A jump from less than ten thousand to almost 400 million sounds preposterous.
A2: Redirect $400M of the federal income tax paid by DC non-residents back to DC. This approach would essentially spread the equivalent of the Congressionally-denied commuter tax across all American taxpayers.
o This strikes NARPAC as a "perverse incentive" for DC's neighboring jurisdictions to avoid their metro area responsibilities and let the rest of Americans pay their way.
o NARPAC has frequently proposed on this web site that American taxpayers might be offered the opportunity to contribute $5 on their federal income tax returns. If one-third of our 130 million taxpayers checked off the box, DC could receive over $200M annually.
A3: Pay DC $600M annually for the state-like services it cannot assume because there is no federal equivalent. Cited are mental health and child welfare services.
o This provides a perverse incentive to maintain current inefficiencies. At the very most, the feds should pay no more than is paid per recipient in Maryland or Virginia.
A4: Restore a yearly federal payment of $330-$660M as a per capita grant, changing directly with DC's population and adjusted for inflation.
o This provides a "perverse incentive" to attract "capitas" regardless of their ability to pay their way.
A5: Provide $200-$340M annually in state-type aid to education (K-12) for specific purposes like special ed, transportation, school construction, or the like. Similar federal "impact aid" is provided to other school districts "where the federal presence affects education budgets". The intent would be to reduce DC's share of total school spending to the national norm of 53% or the regional norm of 42%.
o These "impact aid" payments are generally restricted to areas where the "federal presence" involves significant numbers of federal employees near or at the poverty level such as military enlisted personnel. The average pay of DC's government workers is almost 15% higher than for the private sector.
o These "norms" are somewhat disingenuous, since they fail to reflect the relatively high wealth in DC. If DC was a county in Maryland, it would get only 15% (or 20% in Virginia) of the average state share. In fact, the National Association of Counties predicts that only three among Maryland's 24 counties, and eight of Virginia's 96 counties, will have higher average household income than DC by 2004.
The report then offers five bones that the federal government could throw to DC for special- purpose funding, primarily to show "that the problems of older cities can be solved". They point out that these options would not guarantee ongoing fiscal stability for DC even if all five were exercised, though they suggest that any one could make a "significant contribution" if combined with one of the five above.
B1: Shift $32-$107M of the regionally shared annual costs of operating the Washington Metro Area Transit Authority (WMATA) from DC to the federal government itself because so many federal employees use Metro rail and/or bus.
o NARPAC agrees that DC's share of WMATA's costs are too high and probably should have been adjusted years ago. Why the federal government should pick up the imbalance rather than Maryland and Virginia is a puzzle to us. Throughout this report, there is a tactic assumption that the metro area cannot solve its own financial problems, and that the federal government is unwilling or unable to redress the imbalances, at least in the short run. The report does acknowledge that "the federal government should help the region create a full- fledged, integrated regional transportation" with teeth in the longer-term.
B2: Reimburse DC-incurred costs or allow a special assessment, for specific national events, so that DC does not have to take it out of their hide.
o This is a sensible suggestion, but it amounts to a trivial amount of money (no more than $5M annually). Moreover, it applies equally to many other federal agencies, including the National Park Service, and at least six or eight other police forces involved in such national events.
B3: The report suggests the continued federal government support of various specific economic development projects within DC. For instance $25M in federal funding was recently provided to underwrite DC's National Capital Revitalization Corporation (NCRC). More recently, it anted up about the same amount to help build a new metro station on New York Avenue. These payments are essentially similar to useful pet projects that Congress funds for other constituencies, and perhaps unfairly branded as "pork". As one current opportunity, the report proposes the use of federal funds to clean up the St. Elizabeth's Hospital site now being turned over the DC for economic development. Amounts from $8.5M up to $128M have been mentioned as needed to remediate the site.
o NARPAC believes the transfer of this surplus 300-acre federal site to DC is the best possible way to help DC increase its productive tax base, and points to several other huge underutilized federal properties that could also be transferred. It should be recognized that all of DC's commercial revenues come from about 3000 acres of commercially-zoned land. On average, each acre generates $1.3M more in revenues than is consumed it city services. There are at least 1000 acres of relatively surplus government land, and even more whose uses could be moved elsewhere. It is the obvious long-range route to DC financial self-sufficiency.
o As part of this approach, we believe that the federal government should be obliged to turn over these properties devoid of liens from the last, environmental or otherwise.
B4: The report also suggests that it would be reasonable for the federal government to provide up to $400M to clean up and develop the Anacostia River Waterfront, one of the most ambitious plans ever instigated by DC's own local government.
o NARPAC fully supports this development which can have a major impact on the future of the city. This is not just a major "beautification" program, it is the door-opener to the economic development of the largely blighted third of the District East of the Anacostia that generates perhaps 60% of its demands for services for the needy.
o With respect to this specific proposal, NARPAC believes that most of the $400M would not in fact go to DC, but to other federal and regional agencies cooperating in this project (NPS, DoT, GSA, Corps of Engineers, WMATA, WASA, etc.).
. B5: Finally, since DC is essentially a "one-company town", the authors recommend that the federal government accept its position as a "good corporate citizen". This would involve "active involvement in economic development, technical assistance/loaned executives, beautification, cultural and philanthropic contributions and activities, educational programs, and help to schools". They assert that "the federal government has generally not thought of itself as a major employer with a stake in improving the work environment or living condition of its employees."
o NARPAC finds the analog to be appropriate, but the accusation of indifference to be unfair. The "town" exists only because if its one "company". DC does get a substantial amount of unpublicized assistance from various federal government agencies. During the Clinton years (and as a result of Author Dr. Rivlin's suggestions while at OMB) a Federal DC Task Force was activated with the intent of providing assistance in most of the areas mentioned above. This web site lists many of them. The Bush Administration is derelict for not continuing it.
o Furthermore, the National Capital Planning Commission is but one agency in which local and federal interests are coordinated. After all, who in fact benefits most from the Kennedy Center, the Smithsonian Museums, the National Zoo, thousands of acres of parkland throughout the city, the National Airport, etc., etc?
o It seems to be the ultimate irony that this report ignores all the facilities that the "company" provides its "town", including the high entertainment of the US Congress itself, while complaining that the city is at risk because it cannot tax any of those facilities!
The fifth and final section of this report arguing for regular federal payments to DC turns to the issue of how the DC government demonstrates its accountability and responsibility to spend additional federal funds without the Congress "attaching strict conditions and requirements". The report notes the current excessive reporting requirements already imposed by Congress's DC oversight committees and its negative impacts on city morale. It then suggests five areas in which the DC government should improve its performance if it wishes to avoid additional Congressional "strings" to assure "accountability to federal taxpayers for a federal contribution. These include:
o improving financial and management information: the report notes the substantial improvements made since the pre-Control Board days, particularly in the area of timely reporting of current cash position and indebtedness, but notes that "the tracking and control of expenditures are still weak: with Unexpected over-spending continuing to occur."
o measuring results and customer satisfaction: the report notes the mayor's "scorecard" system, and the reporting of various items of customer concern (such as waiting time for services). The report notes the difficulty of evolving purposeful measures, but urges continued effort to improve them.
o more effective and long-term budget planning, including contingency planning: the report notes the need to be able to anticipate economic and demographic trends, and to exercise "the discipline of producing, revising, and adhering to a multi-year plan". It notes that DC has been particularly weak in budget planning, and to look at the downstream implications of new program decisions. It notes the innovation of a "rainy day" fund.
o improving the budget decision process: the report notes that DC's budget process has been significantly improved in recent years, particularly in the new reliance on "experienced professional revenue estimators", but notes that information on the results and effectiveness of programs is still extremely sketchy. It also notes that capital budgeting remains particularly weak, making the startling suggestion (not mentioned elsewhere) that DC could turn for assistance to one or more neighboring states with much stronger systems.
o recruiting and retaining high-quality staff: the report notes the progress made in the new CFO's office, but that the DC government needs a major effort to recruit and hold higher quality staff. It also notes the fact that the Council operates with a "tiny staff" that should be expanded into a "mini-CBO" that plays a much stronger role in the budget process...
o NARPAC generally supports both the criticisms and the proposals for improvement in DC's governmental functions, but feels they actually understate the extent to which DC's current budget planning needs improvement. In particular, we would also recommend that:
o DC needs to strengthen its executive ability to analyze and challenge the budget and program proposals of its agencies. In the Defense Department, this is done by a highly autonomous Office of Program Analysis and Evaluation that is obliged to make separate assessments of both costs and benefits of each program. (a mini-PA&E to balance a mini-CBO).
o It is essential that the DC government compare its operational effectiveness with that of other cities, counties, or states that perform similar functions. An extensive effort in "benchmarking" was promised and undertaken at the beginning of this administration, but seems to have vanished almost completely. Again, finding the proper parameters for comparison is essential. But in many areas, the DC government seems to use more people "to change a lightbulb" than any other jurisdiction in this metro area. It could be an important function of a "mini-PA&E".
o NARPAC would like to point out that it is, in fact, impossible to make a good case for or against a permanent federal payment without such credible comparisons. "The "nobody knows" dismissal of DC's government level of inefficiency, as well as the inadequacy of its own projections of economic and demographic trends, serious diminish the credibility of this report.
The only honest justification for a federal payment to the city would be as annual penance for failing to carry out its oversight role fairly. Its evident conflicts of interest (by stacking its oversight committees with representatives from the suburbs), leaves the city trying to pay the costs for way more than a proportionate share of the metro region's poor, and way more than it's share for regional public transportation. These problems are not unique to DC. Other American central cities are plagued with identical problems. The history centers of culture, commerce, finance, and social justice where the American Dream was nurtured into reality have become dumping grounds for those who have not been able to keep up with the shifting socioeconomic tides. These cities cannot solve their own problems from the inside, out. They must be assisted by national policies for the national good.
It seems somewhat ludicrous that many failing American inner cities trace their demise to the loss of the industrial 'companies' that gave purpose and opportunity to their 'towns'. This Brookings report tries to make the case that DC's 'company' is denying its 'town' the right to financial survival. This may be a possibility, but there are probably better solutions than permanent subsidies.
There is no federal requirement for states to level the socioeconomic playing field within their self-contained or shared metro areas. And without such statutes on the federal books, many states do very little to eliminate inter-jurisdictional discrimination within their own metro areas. Solve the national problem of metro area financial inequities, and DC's financial problems will disappear as well. The whole dubious issue of 'structural imbalance' would not arise if the nation's capital was in Montgomery, or even Prince George's, County.
This preliminary analysis indicates that commuters bring far more revenues into the nation's capital city than they consume in municipal services. Revenues from parking fees alone almost certainly exceed the costs of road repairs and urban police/emergency services. If revenues are included from the businesses facilitated by those commuting workers, their contribution to city revenues is huge.
One of the arguments put forward by those who wish to convince the Congress that DC should be provided with a permanent federal subsidy is that non-resident commuters cost the city a bundle in unrecompensed services costs. Some, like DC's CFO, have estimated those costs to be as high as $400M per year, which conveniently equate to about 2% of the earnings of those suburbanites who pay no commuter tax to DC. On the other hand, the CFO has acknowledged that commuters on average may generate revenues for DC of about $250 each in taxes on purchases and entertainment.
To NARPAC's knowledge, however, there has been no serious analytical effort to determine either the tangible costs or the quantitative benefits to the city of the daily flow of commuters by public and private transportation. Nevertheless, virtually every study and sales pitch to alleviate DC's dire financial 'structural imbalance' provides disparaging qualitative comments about the deleterious impact of those who live in the suburbs and work in the city. It is true that as much as two-thirds of all wages earned in the city may be taxed only by other jurisdictions. But it is also true that commuters require extraordinarily little in the way of municipal services.
Hence NARPAC has assembled here a preliminary order of magnitude estimate of various elements on each side of the balance, in the wan hope that some organization with greater resources will pick up the cudgel to provide an honest judgment as to whether DC should shun or welcome commuters. We conclude that they are both a necessary and a valuable asset. Here are some of the considerations:
How many commuters to DC are there?
If one accepts the normal definition of commuters as those who live in one jurisdiction but work regularly in another, then there are about 440,000 suburbanites who travel into the city to work in the 660,000 or so regular jobs available here. But at the same time, some 70,000 of DC's 260,000 regular workers have jobs outside the city practicing what is known as reverse-commuting. These DC residents, incidentally, do not pay a commuter tax to the outlying jurisdictions either, despite the potholes they may make in Maryland or Virginia. NARPAC has prepared a separate short analysis of Metro Area Commuting Patterns.
Do commuters comprise the majority of those adding to DC's "daytime population"?
NARPAC believes that commuters are almost certainly less than half of the tide of people who wash in and out of the nation's capital every day. Our recent short study of tourists visiting Washington suggests that while commuters generate some 83 million "people-days" in DC during the course of a year, out-of- town tourists add another 72 million people days. There are 55 million passenger arrivals and departures annually from Reagan National, Dulles, and BWI airports, many of which are business travelers , primarily visiting various agencies of the federal government. Additionally, there is a large flow of delivery services and tradesmen of all sorts. One-third of all this metro area's vehicle registrations are for trucks, but only one-sixth within DC. In short, commuters cannot be singled out as the only, or even the primary, contributors to DC traffic congestion.
How do commuters travel?
According to NARPAC's earlier report on the statistics of metro useage, roughly 60% of all metro rail "boardings" (i.e., two per day per round-tripper) take place during the morning and afternoon rush hours, now each at least three hours long. Only about one-third of these originate outside DC, accounting for perhaps 60,000 commuters from Maryland, and 80,000 from Virginia. Metro Bus totals are somewhat lower, but together they account for about 140,000 in- and out-bound commuters. Suburban rail (VRE and MARC) carry another 40,000 or so riders which might equate to at most 15,000 commuters.
Hence the vast majority of commuters, nearly 300,000, still travel to work by private car, and well over 80% of them travel alone, requiring perhaps 275,000 vehicles. This significantly exceeds the total number of cars registered in DC of about 220,000, and is consistent with anecdotal reports that "up to 70% of cars seen in DC have out-of- state license plates during rush hour". Nevertheless, commuting is by no means the primary source of passenger car miles driven nor of the wear and tear on DC roads and highways.
DC DoT permanent traffic counters (now mainly defunct, and awaiting high-tech replacements) at some 25 major entry/exit points recorded over 1.3 million vehicle crossings per day some time ago, about 50% of which are believed to occur during the six rush hours. Commuters, then, account for perhaps one-third of city border crossings daily, and probably considerably less than one-fifth of the total car/truck miles racked up on city streets in a typical 24-hour day.
What routes do commuters use?
Drawing on the DC cross-border traffic counts provided on the DC DoT web site, the chart above shows the distribution of crossing flow among the 25 major ingress/egress routes. Over 75% of cross-border traffic arrives from the southern half of the city's perimeter, primarily across the seven major bridges pointed towards the downtown area in which the vast majority of DC's jobs are located (Ward 2 by political boundaries, Precinct 1 by police boundaries). What is perhaps of greatest importance to this discussion, almost all of those routes are eligible for Federal Highway Trust Fund dollars, and are maintained (even to snow removal) and rebuilt largely at federal, not local taxpayer, expense. NARPAC doubts that more than 25% of commuter-caused potholes and bridge cracks are fixed at local taxpayer expense.
How much does DC spend annually on road-related repairs?
In DC's FY02 budget, about $30M in local funds was allocated to all aspects of road repair, street signs, lights, and trees. In the FY04 budget, that number is supposed to fall to some $20M. If NARPAC ballpark estimates of the commuter contribution to city street damage and the federal contribution to fixing them are correct, commuters cost DC taxpayers far less than $5M per year in road wear.
How much does the daytime population increase impact on Emergency Services?
Dated data from DC's no-longer published INDICES "state statistical handbook" show the distribution of emergency services responses in each of the city's eight Wards. The '97-'98 (last) edition noted that Ward 2 responses were somewhat elevated by the large daytime population. NARPAC also notes that such daytime population is only in place about 20% of the total hours in a year. By calculating the average responses per person for the other seven wards, and applying that average to the resident population of Ward 2, one can determine a remainder which by inference is caused by added daytime population. This was first approximated by NARPAC in its rebuttal to GAO's alarmist report on DC's 'structural imbalance'. It appears that the healthy, employed, adult, downtown work force is only 6% as likely to need emergency services during working hours as the overall resident population (including many poor kids, single moms, and senior citizens) requires "24/7", and only two-thirds of those (4.2%) are commuters or other daytime visitors. This is demonstrated on the left-hand chart below:
How much does the daytime population increase impact on Metropolitan Police?
DC's MPD is far less forthcoming about how police manpower is deployed. When pressed informally, however, MPD suggests that, to a first approximation, police workload matches the crime levels of its seven precincts. There are of course, special units applied to other activities (police escorts, murder investigations, demonstrations, etc.). Nevertheless, in the absence of any better methodology, the guestimate used for Emergency Services above is applied again. This time it is based on the distribution of crimes reported by precinct (same INDICES report), weighted (by NARPAC) to make crimes against persons twice as important as crimes against property. In this case the level of crimes against the daytime, downtown, high-density commuting workforce appears to impose a trivial burden (2.3%) on MPD's overall workload. This is illustrated in the right-hand chart above.
How much does DC spend annually on Police and Emergency Services?
In FY02, the Police Department budget (not including the costs for justice and incarceration) came to about $310M, rising to some $350M proposed for FY04. The FEMS budget, by comparison, was about $120M in FY02, rising to $150M for FY04. While the above estimating techniques are far from precise, NARPAC finds it difficult to believe that commuters raise the cost of either function by more than $10M. Using the exact percentages against the FY02 budgets would yield a total cost of only $12.2M. Similar numbers were previously estimated in NARPAC's first analysis of DC's hypothetical structural imbalance due to the federal presence.
In summary, NARPAC very seriously doubts that the identifiable costs to DC of its large commuter influx are more than $25M annually. On the other side of the ledger.....
How do commuters add to DC's coffers?
A large percentage of DC's commuters work for the various branches of the Federal Government. As a rudimentary statement of fact, the Federal Government could not operate without a large number of commuters, and there is surely no place for them to live in DC. Even taking on 100,000 more residents in DC strikes NARPAC as sheer folly. But there are at least three areas in which DC generates revenues from commuters: odd spending for sundries, food, and entertainment while at work; the cost of parking their ubiquitous cars; and revenues of the businesses they energize.
How much from direct commuter spending?
to the recent GAO report re DC's structural
a 2002 study by Philip Dearborn suggested that an average commuter might
pay $250 per year in "sales and excise taxes, parking taxes, and purchases
of lottery tickets". This equates to some $110M in revenues from 440,000
commuters. NARPAC believes this may underestimate such revenues, particularly
on the side of parking fees. As shown on the table to the left, NARPAC
would raise this total to some $174M, based on $10 per day spent on lunch
and sundries for 440,000 commuters, and $13 for all-day parking of the
275,000 cars they bring into the city.
In addition, NARPAC believes that DC significantly underestimates its capacity to generate revenues from commuter parking fees. This is discussed in our separate study of the potential for automated parking garages. The chart at the right is based on NARPAC contact with the International Parking Institute. It indicates that DC all-day parking rates are substantially lower than those in other typical large US cities. If DC parking rates were raised to $20 per day, direct revenues from commuters would increase to $220M. Revenues from parking fee taxes alone can more than offset commuter- imposed city services costs.
How much from the businesses sustained by commuting workers?
The footnote in the GAO report referencing Dearborn's work indicates that "the study did not attempt to estimate the indirect fiscal contributions that commuters may have through taxes on their employers". NARPAC considers this to be a first order omission, and offers its own crude but startling estimate. If one attributes the success of commercial businesses to the efforts and "value added" by their employees, then all aspects of commercial taxes can be allocated to the workers, and an appropriate portion to those who commute.
As shown on the tabular chart on the left above, there are four readily identifiable components to revenues from business. The largest is some $511M in real property taxes (based on commercial property tax assessments and rates), and the smallest ($65M) is the personal property taxes levied against some businesses as identified in budget documents. Franchise taxes for corporate and unincorporated businesses are also delineated in budget documents and amount to some $210M in FY02. Finally, and somewhat more difficult to quantify, are the sales taxes derived from business purchases. Older budget documents set the commercial share at almost 50% of total sale tax revenues, but this has not been repeated in newer documents. NARPAC picked a round $300M out of the $668M expected in FY02. Total revenues from businesses in DC now exceed one billion dollars, and if two-thirds of all DC's jobs are filled by commuters, then one might elect to allocate as much as $724M to their share of the workforce. In any event, these revenues are so large relative to the estimated uncompensated costs to the city of commuters that a refined allocation is almost irrelevant.
It should be noted here that this estimate is relatively insensitive to the standard issues of how many government buildings (federal and local) are not taxed, and of how many of the commuters are federal or local employees. DC property assessments are discussed in a sepaerate NARPAC analysis. But this assessment only requires an estimate DC's commercial property taxes, and the judgment that about two thirds of all workers in either the public or private sector live outside DC and bear the cross of the "commuter" label.
This preliminary analysis indicates that commuters bring far more revenues into the nation's capital city than they consume in municipal services. Revenues from parking fees alone almost certainly exceed the costs of road repairs and urban police/emergency services. If revenues are included from the businesses facilitated by those commuting workers, their net contribution to city revenues is huge.
Although these numbers are several years out of date, DC once maintained traffic counters (in each direction) for all the major crossing points into the District. Tallies were kept for each 30- minute period over the 24-hour day and week day averages generated. Weekday holidays can also be extracted to show the change in patterns. Although the old counters have largely fallen into disrepair, new ones are on the way. DC will soon be able to get more up-to-date information on those ubiquitous cars and trucks that are so essential to modern living, even though they threaten to strangle our inner cities.
Three sets of click-up charts are presented below to demonstrate to the interested reader (should there be any!) how our major roads and bridges are used around the clock. Each one shows traffic per half-hour after midnight, incoming in red and outgoing in blue. Red commuters in the morning become blue commuters when they leave.
These three routes are responsible for over 15% of all DC's incoming and outgoing traffic, and each shows the two-hump pattern of the morning and afternoon rush hours. South Capitol Street Bridge alone carries almost 80,000 vehicles per 24-hour working day. The morning rush hour, as might be expected, is more tightly spaced in time than the afternoon surge. In each case, the inward morning flow significantly exceeds the outward flow, by from 2:1 to 3:1. There is also a substantial "saddle" of essentially equal in- and out-bound traffic during the rest of the day. If one ascribes the morning rush-hour from 6:00 to 9:30AM, and the afternoon peak from 4:00 to 7:30PM, then roughly 50% of all traffic flows during those seven hours. However, not all of that traffic is commuters. At best, commuters appear to cause about 30-35% of total road wear, and commuters from the suburbs about 20-25% of the total two-way flow.
Three charts of Chain Bridge traffic are shown here, because the 4th of July was included in the sample week provided by DCDDOT's Traffic Administration.. Assuming that holiday is typical of non-commuter traffic, then it can be subtracted from the normal work day load to show the commuter flow alone. The resulting flow is very nearly symmetrical, and the 3:1 emphasis on inbound vs outbound commuters is quite evident. It surely justifies changing the middle lane of the three to outbound in the morning, and inbound in the afternoon. But it is also of interest to note that this particular route appears to have no more than 50% of its total traffic attributable to commuters.
A similar demonstration is available for Massachusetts Avenue in a week including Columbus Day. The resulting break-out is not as text-book perfect as for Chain Bridge, and one suspects the holiday is less thoroughly observed. Nonetheless, the 42,000 trips spread across the day is a very substantial fraction of the 60,000 on a regular workday. It would appear that the vast majority of regular commuters are coming into the city from the south and west, and very many fewer from the northwest. And in fact, the wealthier Maryland and Virginia suburbs attract many shoppers and visitors from the abutting wealthier parts of Northwest DC, and vice versa. Clearly, there is much more to major road use than just invading tax-free 'out-of-state' commuters!
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This page was updated on Nov 5, 2003
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