The District of Columbia’s budget basics

According to the National Association of State Budget Officers (NASBO), the District of Columbia’s total expenditures in fiscal year (FY) 2020 were $13.7 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2020 were $2.3 trillion, ranging from $4.7 billion in Wyoming to $337.7 billion in California.

Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.

Per the US Census Bureau, the District of Columbia’s combined state and local direct general expenditures were $13.3 billion in FY 2017 (the most recent year census data were available), or $19,053 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $9,446. The District of Columbia functions as both a state and locality, but the Census Bureau classifies all its expenditures and revenues as local government.

The District of Columbia’s largest spending areas per capita were public welfare ($5,649) and elementary and secondary education ($3,999). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices. Further, although the District of Columbia functions as a state and locality, its population and economic activity (and thus per capita spending) resemble a major city more than a state.

The District of Columbia’s general revenues were $13.0 billion in FY 2017, or $18,720 per capita. National per capita general revenues were $9,592. The District uses all major state and local taxes. After federal transfers, The District’s largest sources of per capita revenue were property taxes ($3,496) and individual income taxes ($2,815). The District’s federal transfers are high partly because it is the nation’s capital and receives funds that support the federal workforce (who are not counted in the state’s population).

The District of Columbia’s politics

The District of Columbia’s government functions as both a state and locality. For example, it both funds Medicaid and administers school spending. However, its elected offices parallel a municipality, with a mayor and a 13-member council.

Mayor Muriel Bowser, a Democrat, was elected in 2018 with 76 percent of the vote. The next mayoral election is in 2022.

The DC Council is composed of eight members representing the city’s eight wards, four at-large members representing the entire city, and a council chair. All current councilmembers are Democrats except for two at-large members who are independents. The District requires that no more than two of the at-large members be nominated by the same political party.

The District of Columbia’s budget institutions, rules, and constraints

The District of Columbia uses an annual budget. The DC Council must pass a balanced budget and is prohibited from carrying a deficit over into the following year. The District has no tax or expenditure limits and no supermajority requirements for raising revenue or passing a budget. However, it limits its debt service , and its tax- and fee-supported debt is limited to 12 percent of general fund expenditures and transfers.

Further, although the DC Council and mayor prepare and approve the District’s budget, Congress has authority over the District of Columbia and must authorize its budget. As such, the District’s fiscal year begins on October 1 (the same as the federal government). Congress can also overturn legislation passed by the Council.

(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)

The District of Columbia’s recent fiscal debates

• In the middle of a fiscal crisis in the 1990s, Congress established the Control Board and gave it authority over much of the city’s finances. The board was suspended in 2001 after four consecutive balanced budgets, but many of its reforms endure, such as the creation of the Office of the Chief Financial Officer (CFO). Since then, the city has experienced prolonged economic and population growth and sound fiscal management.
  
• In 2014, the District passed major tax reform based on the recommendations of the DC Tax Revision Commission. The reforms included lowering individual and corporate income tax rates, broadening the general sales tax base, and expanding the District’s earned income tax credit for childless workers.
  
• The District established one of the most generous paid family leave plans for private workers in 2016. The bill provides paid benefits for up to 11 weeks of parental leave and 8 weeks of family care leave. The program is funded by a 0.62 percent payroll tax on covered employees. The District estimates the tax will generate $238 million a year.

The District of Columbia’s current budget

Mayor Muriel Bowser’s proposed FY 2020 budget included increasing the District’s Housing Production Trust Fund (HPTF), expanding a property tax credit available to both homeowners and renters, and increasing taxes on commercial property transactions.

Although the mayor’s budget is sent to the DC Council, the council adopts its own budget. The mayor can then sign or veto the council’s budget. The DC Council approved its budget on May 28, 2019, which invested in the HPTF, increased the property tax credit, and reduced tax incentives for high-tech companies (a local think tank, the DC Fiscal Policy Institute, offers a summary). The DC Council and CFO disagreed over transferring funds from the Washington Convention and Sports Authority to the HPTF, but the CFO eventually endorsed the council’s budget.

Mayor Bowser released her proposed FY 2021 budget in May 2020.

For more on the District of Columbia’s budget, see

• the Council of the District of Columbia,
  
• the DC Council Office of the Budget Director,
  
• the Office of Budget Director’s Budget Toolkit for Council Staff,
  
• the Office of the Chief Financial Officer,
  
• the Office of Revenue Analysis, and
  
• the D.C. Tax Revision Commission (2014).

The District of Columbia’s economic trends

The District of Columbia’s per capita income was $84,538 in 2019, higher than in any other state. It was above both the national average of $56,663 and the Mideast regional average of $67,172. The District’s median household income (five-year estimate) was $82,604 in 2018, higher than in any other state and above the national average of $60,293. However, the District’s poverty rate was 16.8 percent in 2018 (five-year average), above the national rate of 14.1 percent.

Although the District of Columbia’s average income and poverty rate are high, the city is composed of diverse localities (eight wards). For example, Ward 8’s median household income was $34,034, and its poverty rate was 34.2 percent; Ward 3’s median household income was $126,184, and its poverty rate was 8.1 percent.

The District of Columbia’s unemployment rate is typically higher than the national rate. However, it briefly fell below the national unemployment rate during the Great Recession, in part because a relatively large number of District residents are employed by the federal government. (See how COVID-19 is affecting state employment and earnings data.)