Government of the District of Columbia

Executive Office of the Mayor

Testimony of

Vincent C. Gray Mayor of the District of Columbia

Public Briefing on the Mayor’s Fiscal Year 2015 Budget

Council of the District of Columbia Committee of the Whole

The Honorable Phil Mendelson, Chairman

April 7, 2014

Council Chambers/Room 500 John A. Wilson Building

1350 Pennsylvania Avenue, NW Washington, DC20004

10:00 A.M.

2

I. Introduction

Good morning Chairman Mendelson, members of the Council, and members of the

public, I am Vincent C. Gray, Mayor of the District of Columbia. I am pleased to be

here today to present my proposed Fiscal Year 2015 budget.

I would like to start by thanking and congratulating my fellow panelist Jeff DeWitt

for the vital work that he and his staff have put in on the Fiscal Year 2015 budget.

This is no easy task and we couldn’t have put together a quality budget without the

cooperation and work of the OCFO. With the addition of a public education volume

as well as color photos and charts throughout the budget and capital plan, this may

be the best budget book we have ever produced.

I would also like to thank members of the Council for working with me and my

budget staff, and for helpful ideas in advance of the budget, not just this year, but

during each of the four years that I have been Mayor. I believe this collaborative

approach has served the city well and allowed us to budgetarily address the

priorities of District residents.

II. Brief Retrospective on District’s Fiscal Turnaround

My first priority when I became Mayor in January 2011 was to restore fiscal stability

to the District of Columbia’s budget and finances. The task I was confronted with

was both urgent and daunting.

3

The District of Columbia faced a $322.1 million gap between its baseline budget and

certified revenue. Our fund balance had plummeted from a level of $1.5 billion in

FY 2007 and was budgeted to fall to $705.1 million at the end of FY 2011. About

one-third of this decline was due to the recession, while the rest was caused by the

failure of the Executive branch to control spending within agencies, resulting in

spending pressures of over $200 million annually.

Councilmember Evans, like me, I’m sure you vividly recall our trip to Wall Street in

February 2011. After a difficult closeout of Fiscal Year 2010, we went to New York

and literally had to implore the three rating agencies not to downgrade the District’s

bond ratings. We promised that we would rightsize the District’s budget. We

committed to three principles, emanating from legislation I was pleased to sponsor

as Council Chairman:

(1) We would deposit any undesignated surpluses into two new locally mandated

reserve accounts, a Cash Flow Reserve and a Fiscal Stabilization Reserve.

When fully filled and added to Congressionally Mandated Rainy Day Funds

(the Emergency and Contingency Cash Reserves) the accounts would total two

months cash-on-hand, which is the Government Finance Officers Association’s

(GFOA) recommended best practice for state and local governments.

(2) The District of Columbia would pass structurally balanced budget and financial

plans that did not draw upon the locally mandated reserves and spent only

what was certified in revenue.

(3) We would abide by a 12% cap on all General Fund tax supported debt.

Based on these commitments we avoided a bond downgrade, and instead the

District of Columbia’s bond ratings were placed on a negative outlook.

4

The next step was equally challenging. I spent the first three months of my

administration combing through every line of the budget with a newly created

Mayor’s Office of Budget and Finance that reported directly to me. I knew we had

to close a $322.1 million gap and for Fiscal Year 2012 transmit the first structurally

balanced budget to the Council in the last three years. I used a balanced approach

of two-thirds expenditure reductions and one-third tax increases. Wherever

possible, I tried to avoid cuts to important programs and instead challenged my

agency directors with aggressive performance improvement savings targets. We

were met with skepticism from some on the Council that we could achieve such

savings and Dr. Gandhi flagged these reductions as “items to watch” in his budget

certification letter.

We got to work even before Fiscal Year 2012 began. I imposed a hiring and travel

freeze and an approval process for all non-personal services during the last half of

Fiscal Year 2011 through the Office of the City Administrator. I created a spending

pressure task force, chaired by my budget director, whose mission was to

ameliorate spending pressures in FY 2011 and work with agency directors to begin

to implement the reforms necessary to hit fiscal year 2012 performance

improvement savings marks. Through these efforts and an increase in revenue we

orchestrated a $399.8 million turnaround of the fund balance in FY 2011. Instead of

falling to $705.1 million, the fund balance instead rose to $1.1 billion. That spring

the District’s bond ratings were taken off negative outlook.

5

I emphasized the need to not grow complacent with our successes. Through sound

management of agency budgets we hit all of our projected performance

improvement savings in non-public tuition, special education transportation,

disability and unemployment compensation fraud prevention, D.C. Healthcare

Alliance residency verification, reductions to the number of children in foster care,

energy retrofits to District buildings, and increased Medicaid revenue collections.

We closed out FY 2012 with another budget surplus that increased the District’s

fund balance to $1.4 billion. These successes did not go unnoticed. In March of

2013, Standard and Poor’s upgraded the District’s general obligation bond ratings

from A+ to AA-. With this upgrade by S&P all three of our G.O. bond ratings had

moved out of A to the AA category.

Through prudent management by District agency directors and the efforts of my

Spending Pressure Task Force, we effectively eliminated all significant spending

pressures in Fiscal Year 2013 and closed out the Fiscal Year with a fund balance of

$1.75 billion, an all-time high in the District’s history. With the close of the FY 2013

CAFR we put an exclamation point on a remarkable three-year fiscal turnaround.

I wanted to take the time to go through this brief chronology of events not to spike

the football, to use a sports metaphor, but instead to make sure that revisionist

history doesn’t succeed in painting the District’s return to fiscal stability over these

last three years as some sort of happy accident.

6

In perhaps the most ill-informed op-ed published in the Washington Post in recent

memory, and that’s truly saying something folks, Mike Madden suggested that it

was a myth that my administration can take credit for rebuilding the District’s

economy and restoring its fiscal health. While anyone with a keyboard and a

newspaper column is entitled to their personal opinion, the facts of what occurred

during the last three years truly speak for themselves.

I have successfully implemented a deliberate strategy to bring the District of

Columbia’s finances back from the brink of a bond rating downgrade in 2011 to the

strongest they have been in the District’s history by 2014. In summary, we now

have the highest fund balance of $1.75 billion in the District’s history; we have the

most cash-on-hand in the District’s history; and we have the highest bond ratings in

District’s history.

I am proud to turn over a true “steaming engine” of an economy, a budget, and a

fund balance. My advice to the District’s further leadership is to stick to the three

principles that I passed into law as Council Chairman and that Jack Evans, Dr.

Gandhi, and I used on Wall Street to help begin this turnaround. To the residents of

the District of Columbia, it has been my honor and privilege to be the steward of

your hard-earned money over the last 3 ¼ years. The taxes you have paid have been

leveraged wisely to accomplish amazing things such as: bring pre-kindergarten to all

three and four year olds, improving test scores across the city, modernizing our

schools, building new affordable housing, making sure we now have over 4,000

sworn police officers keeping our city safe, and to continue to provide the most

generous social services to our residents in need that exist anywhere in the country.

7

III. Fiscal Year 2015

With that brief review of history, it is time to turn our attention to the subject of

today’s hearing, the Fiscal Year 2015 budget. The FY 2015 budget is $10.7 billion, of

which $6.8 billion is local funds. The FY 2015 budget and financial plan is structurally

sound and does not use locally mandated reserves. There are no tax or fee

increases to balance the budget. This budget preserves the District’s 12 percent

debt cap and continues to fund the legislatively mandated, dedicated Pay-As-You-Go

Capital fund, all the while still providing for $1.4 billion of capital investments in

Fiscal Year 2015 and $7.0 billion over the 6-year Capital Improvements Plan.

The theme of this year’s budget is “Keeping the Promises”. With the District

continuing on an upward trajectory, this budget makes numerous key investments

to ensure that we continue to keep our promises to all District residents to keep

moving this City forward. In order to take full advantage of these opportunities, I

invoked the following four overarching goals for Fiscal Year 2015:

(1) Continue improvements in public education;

(2) Make additional investments in affordable housing;

(3) Encourage economic and workforce development;

(4) Improve the quality of life for all District residents.

8

IV. Goal #1: Continue to invest in improvements in public education

The first and most important goal I emphasized when formulating this budget was to

continue the focus on making improvements in public education. Anyone who

knows me knows that I have always been a staunch advocate of public education. In

particular my focus has been to educate the youth of the District from birth to

adulthood in the most inclusive and beneficial environment possible. Every decision

I have made, from school facility improvements to increased emphasis on child

development programs, has been to advance the education achievement level of

the District’s students.

As part of the fiscal year 2015 budget, no decision I made was more important than

the one to invest $112 million directly into public education. This includes $57

million for D.C. Public Schools (DCPS) and $55 million for D.C. Public Charter Schools

(PCS). Part of these increases will go towards covering the cost of increased

enrollment in both sectors. Enrollment for DCPS rose from a projected amount of

46,060 in fiscal year 2014 to a projected total of 47,592 in fiscal year 2015.

Enrollment for PCS rose from a projected 37,410 in fiscal year 2014 to a projected

total of 39,076 in fiscal year 2015. These enrollments represent the highest student

enrollment in both sectors in 25 years, an achievement which I am extremely

excited about. The investments made as a result of these enrollment increases will

allow schools to place an increased focus on technology, algebra, foreign language,

art, gym, and music. In addition, I added an inflation adjustment to the facilities

allotment for charter schools, an issue which has been a persistent problem for

charter schools looking to make needed improvements to school facilities.

9

The other portion of the increases to public education relate to increased funding as

a result of the findings of the adequacy study commissioned by my administration

through the Deputy Mayor for Education. This study was comprehensive and the

results gave us several key areas on which to focus our efforts. As a result, DCPS is

receiving an additional investment of $44 million for related initiatives and PCS is

receiving an additional $19 million. The vast majority of these increases are as a

result of the addition of an at-risk weight. This new weight will allow our public

education system to place renewed focus on the students most in need. This

includes students in foster care, students who are homeless, students on TANF or

SNAP, and students who are behind grade level. Focusing on this critical population

will help ensure our students don’t fall behind and that they progress appropriately.

The growth in enrollment, advancements in education, and improving test scores

means we are on the right track with public education in this city and we need to

continue the current focus on our students to sustain the improvements and attract

even more students to our public education system. The increased funding noted is

one key way to do that, but this budget also contains several other key education

related initiatives such as:

• $4.2 million for infant and toddler programs;

• $5 million additional for school nurses;

• Nine Career and Technical Education Academies to serve 200-300 students

each, thus beginning to restore vocational education to our schools so that

more students will be prepared with a marketable skill when they graduate;

• $175,000 for Free SAT testing for all junior and senior students;

• Implementing a new DC Youth Reengagement center;

• $1.1 million for the My School DC Common Lottery system;

• $1 million to continued funding for truancy prevention;

10

• $400,000 to continue the Sing, Talk, and Read program at DC Public Libraries;

• $1.3 million increase for the University of the District of Columbia; and

• $2.5 million for workforce development programs at CCDC.

On the capital side, we are investing $1.6 billion in the Capital Improvements Plan

(CIP) for citywide school modernizations. We are investing $404 million in FY 2015

for citywide school modernizations including:

• $173.8 million for high schools;

• $20.4 million for middle schools;

• $115.7 million for elementary schools; and

• $94.4 million for general improvements.

We are also focusing on enhanced school modernizations at schools facing critical

needs. These include:

• $62 million for Spingarn Career &Technical Education;

• $39 million for Orr Elementary School;

• $32 million for Powell Elementary School;

• $38 million for Garrison Elementary School; and

• $28.6 million for Stanton Elementary School.

11

V. Goal #2: $100 Million Investment in Affordable Housing

My second key goal of this budget is continuing our commitment to preserving and

developing affordable housing in the District of Columbia. As I said in my State of

the District address recently, we must redouble our efforts to move families out of

shelters and into apartments faster and with the necessary supports to get them

standing on their own two feet. And we’re having success with the approach we are

using.

Through Rapid Re-Housing and other supports, over the last three years we have

helped transition more than 1,200 families from shelter or short-term housing to

permanent housing. At the same time, spending on homeless services has increased

by 41 percent and local funding for permanent supportive housing has increased by

127 percent.

Now, for the second fiscal year in a row, we are proposing the District allocate $100

million for affordable housing initiatives. These initiatives include:

• $78.5 million to the Housing Production Trust Fund, including $30.2 million in

fiscal year 2014 in additional one-time funding and $48.3 million through

recurring dedicated deed taxes;

• $8.5 million to fund B20-318 "Senior Citizen Real Property Tax Relief Act of

2013”, which I signed into law late last month, and which exempts low- and

middle-income seniors from real-property taxes if they are at least 70 years

old and have owned a residence in the District for 20 consecutive years or

longer;

12

• $4.7 million needed to end chronic Veteran homelessness by the end of 2015,

an effort on which the city is participating in cooperation with more than a

dozen local non-profits and faith-based communities;

• $4.0 million in additional funding for the Local Rent Supplement Program,

including $1 million for low-income seniors to move from nursing homes to

home settings;

• $2.0 million to assure the ongoing-success of the 500 Families in 100 Days

campaign. As the name suggests, between now and June we will identify and

lease at least 500 apartments for homeless families using either Rapid Re-

Housing or Permanent Supportive Housing vouchers; an additional and

recurring $1 million in ERAP funding and $1 million Rapid Rehousing money

will allow the program to operate beyond this fiscal year. This effort will be

supported by the “One Family One Congregation initiative through which

houses of worship, as part of their social justice mission, will connect with a

family and provide ongoing life skills support including financial management

until they are stable enough to go it alone.

• $1.3 million in additional funding for the LIHEAP “Heat and Eat” program,

which provides Food Stamp recipients who have not received a LIHEAP

payment a $1.00 utility payment that in turn qualifies them for the full

standard utility allowance for Food Stamps;

• $1.0 million increase for the Home Purchase Assistance Program;

• $300,000 to establish a new Homeownership Campaign in Wards 7 & 8; and

• $250,000 in additional funding for the Emergency Housing program at the

Office of the Tenant Advocate to help those displaced by fires and other

destructive events.

13

VI. Goal #3: Encourage economic and workforce development

An integral part of making the District more affordable not only includes ensuring

that we have more affordable housing but also that we have more good jobs. And

that our residents have the ability to compete for them. That starts with having a

solid workforce-development system – a first for our city. The third pillar of this

proposed budget is the continuing need to encourage economic and workforce

development.

First, we’ve included in this proposal an additional $4.2 million in recurring funds for

an adult job training increase for services for unemployed or underemployed

persons so that they can achieve economic security.

In addition to these adult training dollars and the Career and Technical initiatives we

are proposing in public education, the proposed fiscal year 2015 budget includes an

additional $2.5 million in funding for workforce development at the Community

College of the District of Columbia. With these funds, the Community College will

serve an additional 2,000 residents – on top of the nearly 3,000 a year it currently

serves – for jobs in one of its five high-growth career pathways: health care,

construction, hospitality, transportation, and IT/office administration.

I recently announced the development of the One City Business Portal, an on-line

resource for businesses that will unify in one website the licensing-and-permitting

functions of eight District government agencies, creating a user-friendly, one-stop-

shop experience for business owners. The costs of development will be covered in

the fiscal year 2014 and 2015 budgets.

14

As part of a beautification and streetscape improvement effort, I have identified

$3.3 million in Fiscal Years 2014 and 2015 for new amenities and infrastructure

enhancements to key commercial corridors in Ward 8 neighborhoods. This Ward 8

Business Development Initiative will also include $500,000 for business façade

improvements and an additional $50,000 funding for Clean Teams in the FY 2015

budget.

Finally, the proposed capital improvement plan provides continued funding for a

wide array of economic development projects that will provide jobs and economic

growth for District residents. Projects include:

• Walter Reed redevelopment;

• Shops at Dakota Crossing;

• Skyland Town Center;

• St. Elizabeths East Campus; and

• SW Waterfront.

VII. Goal #4: Improve the Quality of Life for All

The fourth and final pillar of my fiscal year 2015 budget, improving the quality of life

for all, acts as an umbrella category to allow me to discuss all of the other great

things that are included in this FY 2015 budget.

A. An Age-Friendly City

This budget contains additional funding to support my initiative to make the District

of Columbia an Age Friendly City. I have increased funding for our Senior Wellness

Centers by $2 million, which will provide for upgraded services offered at these

facilities.

15

I am requesting $54.4 million in the 6-year Capital Improvements Plan and budget

for upgrades to sidewalks and curbs, which if left broken and uneven present a

tripping and falling challenge for our seniors and for all pedestrians. We currently

have a backlog of $28 million in needed improvements so this budget will address

the backlog and more. Additionally, I ensured that the Commodity Supplemental

Food Program will continue to operate at existing service levels, with a $456

thousand commitment to the DC Office on Aging.

This budget also provides increased funding for transportation services for our

seniors. This $3 million investment provides new transportation services for our

city’s senior population, by expanding the DCOA’s transportation model to include

both medical and non-medical uses.

B. The East End Medical Center

The budget takes the bold step to solidify a viable health care system for District

residents on the East End of the city. I am committing $300 million of capital budget

to create the East End Medical Center on the East Campus of Saint Elizabeths. This

will be a state-of-the-art facility that will replace the antiquated United Medical

Center facility currently located in Ward 8. This funding will allow the District to

begin implementing its plans for long-term reform much more quickly than investing

in the current UMC campus, thus affording the District a major rebranding

opportunity and the potential for significantly increased market share that goes

along with it.

16

Soaring facility maintenance and improvement costs found at the existing UMC site

would be slashed in half by building the new East End Medical Center. The St.

Elizabeths location offers much better access to public transportation from across

Wards 7 and 8 as well as other parts of the area. All of these ideas greatly

strengthen the likelihood of attracting a high-quality operating partner for the

hospital and continue to catalyze economic development on the St. Elizabeths

campus and to the East End. Moreover, the site of the current UMC will then

become available for development, thus generating resources for the District in

general and to facilitate paying off construction costs of the new hospital.

C. Health Investments

Additionally, this budget continues to improve the health outcomes of the residents

of the District. Several exciting new initiatives are funded, such as:

$2.5 million enhancement for the Department of Health Care Finance to

broaden Medicaid health coverage to cover organ transplants;

$867,000 for Early Periodic Screening Diagnosis Treatment incentives for our

Managed Care Organizations funded through DHCF;

$596,000 at the Department of Health to continue programs targeted to

reduce the infant mortality rate within the District;

$2.5 million within DOH to backfill vanishing federal funds to ensure that

home visitation for new at-risk parents continues at the current service level;

$5.5 million to increase the provider rates at independent community

residential facilities that provide housing for individuals with mental health

issues; and

17

$250,000 at the Department of Behavioral Health to increase funding for

tobacco cessation programs.

Initiatives such as these help to provide systemic healthy outcomes for all District

residents, particularly those that are the most vulnerable.

D. TANF C.P.I. Adjustments

Working closely with Councilmember Barry, I have proposed a method to provide an

increase to the TANF benefit to those who are especially economically challenged.

This budget will increase the TANF benefit by the same percentage as the Consumer

Price Index in FY 2015 and again in FY 2016. This will be the first time since 1996

that this benefit has been raised. Based on the financial plan and Budget Support

Act I have submitted, beginning in FY 2017, the benefit will increase almost 46

percent to the approximate amount the TANF benefit should have been increased

annually for C.P.I. since 1996. This will give the District a TANF benefit that would be

comparable to that which Maryland gives its families. Additionally, the Budget

Support Act requires that the TANF benefit continue to be indexed to CPI in FY 2018

and beyond. The proposed increase to the TANF benefit will provide better

opportunities to families to move from dependency to self-sufficiency.

18

E. The City Fund

My budget will continue to invest in the non-profit community by the philanthropic

efforts available through the $15 million in City Fund. The City Fund will continue to

allow non-profits in education, job training, health, services for seniors, arts, public

safety, and the environment to compete openly and transparently for competitive

grants of up to $100,000 a year. This fund will still be managed by the Community

Foundation for the National Capital Region, a nationally renowned organization. All

grant decisions will be made by them and only on the merits of the proposal.

The Community Foundation will insulate this grant process from political pressure

and help guarantee we avoid the pitfalls associated with earmarking funds.

Moreover, this will continue to provide an avenue for funding innovative ideas

proffered by non-profits that advance the quality of life or support for projects

which do not readily fit existing public grant categories.

F. Investments in the District’s Workforce

My budget continues the investments this administration has made to the District

government workforce by fully funding all pending labor collective bargaining

agreements and compensation awards, and by expanding the parental leave policy

for District employees.

19

I am proposing a paid family leave program, entitled the Family Bonding Program,

which will provide District employees up to six weeks of paid parental leave for

primary caregivers and up to two weeks of paid parental leave for secondary

caregivers during a twenty-four month period. Under this program, an eligible

employee will receive up to 100% of his or her salary for qualifying events such as

birth and adoption.

G. Public Safety

In order to further enhance residents’ quality of life, it is critically important that

residents in all neighborhoods of the District of Columbia feel safe and secure, and I

have thus continued to focus resources on public safety. These investments include:

• A fully funded a police force of over 4,000 sworn officers;

• $91.3 million for Fire and EMS capital investment in facilities and fleet;

• $670,000 in FY 2014 for pumper and ladder repairs for FEMS

• $1.2 million for Department of Forensic Sciences to fully fund expanded

services at the new Consolidated Forensics Lab;

• $193,000 for mobile library services for incarcerated citizens;

• Increasing the Access to Justice legal assistance fund by $250,000 for a total of

$4 million; and

• $293,000 to achieve accreditation for Office of the Chief Medical Examiner.

20

H. Effective Government Operations

My budget makes a major investment of $6.9 million, that is comprised of 54 FTEs

allocated the Office of Contracting and Procurement (OCP) and Office of the

Attorney General (OAG), to transform the District’s procurement system. While OCP

procurement staff will be assigned to District agencies, receiving day-to-day

direction from agency Directors or their designees, the Chief Procurement Officer

retains responsibility for the quality of the procurements processed by assigned

personnel. In addition, OCP’s central operations will be strengthened by providing

additional resources for policy direction, regulatory oversight, quality assurance,

compliance monitoring, training and capacity-building. Moreover, the OAG budget

provides for additional procurement-skilled attorneys to ensure quality assurance

from the procurement planning stage to contract execution.

The underpinning of the reform strategy is to streamline processing operations by

authorizing agencies, through CPO delegation, to manage the procurement of the

goods and services that are needed to perform agency functions. This strategy

recognizes that many of the District’s purchasing needs are “business” specific –

tailored to agency functions.

I. Parks, Recreation, and the Arts

My budget provides increased funding, in the amount of $1.5 million, for summer

programs at the Department of Parks and Recreation. DPR is the primary source of

summer programming for District families serving well over 5,000 children, youth

and families with its programs, events and activities during the summer months.

21

The proposed increase in funding will allow additional seasonal hires to serve a

program support role, and to monitor and drive program quality by serving as front

line workers who will actually facilitate programs, events and activities. Additionally,

by placing more staff in our centers, we will be better able to ensure that we meet

adult-to-child ratios at all times.

The arts will receive $5 million of Local operating funds in FY 2015 for arts and

humanities grants and projects. By moving this money out of the capital budget, we

not only comply with new audit requirements, we also give the Commission on Arts

and Humanities greater flexibility in how the funds are disbursed.

J. Transportation

My Fiscal Year 2015 budget fully funds the District’s portion of the WMATA

operating subsidy at $292 million, including an increase of $2 million for the School

Transit Subsidy and $5.1 million for expanded Circulator Bus routes. I have also

funded the $25 million for the District’s portion of the region’s capital commitment

to WMATA Momentum program that I made with the governors of Maryland and

Virginia.

I have included pay-as-you-go capital funding dedicated for an Integrated Premium

Transit system, including the Streetcar build-out at $810 million, a Circulator bus

garage at $41 million, and new Circulator buses purchased at $49 million.

22

This dedicated funding will ensure that needed improvements to our public

transportation infrastructure are fully funded. It is also an economic development

tool, because we fully believe the streetcar system will more than pay for itself in

the long-term through the increased revenue it will generate for business expansion

along the streetcar network.

We also are piloting a program that redirects $1 million from Metro Access services

to the far less expensive option of D.C. taxicabs. The capital plan funds $114M for

sidewalks, bicycle and pedestrian improvements and an additional $10 million for

alley construction and rehabilitation.

K. Expanded Autonomy

My budget addresses the District’s continued fight for greater autonomy by

proposing Congressional enactment of the budget and legislative autonomy

provisions in the President’s FY 2015 budget. As you know, last year, for the first

time, the President’s budget included legislation to provide the District with budget

autonomy. This year, the President’s budget also included legislative autonomy for

the District in his budget submission. My budget also provides funding, $100,000 in

non-personnel services, to support the important activities of our elected D.C.

Statehood Delegation related to the achievement of statehood. Additionally, my

budget provides local funding for a Statehood Commission Director position to

support the activities of the 51st Statehood Commission to educate, advocate for,

promote, and advance the proposition of statehood for the District of Columbia.

23

VIII. Tax Policy Changes

During the Great Recession, the Hospital community was asked to help with a

growing budget deficit by implementing a local Hospital Bed tax to increase

revenues for the District, with a sunset provision for this tax in FY 2015.

Additionally, a provider tax was implemented to assist the Hospitals by raising the

Medicaid outpatient rate to the Medicare upper limit, thereby maximizing the

leveraging of federal funds to compensate for the loss of local revenues. My budget

keeps the District’s promise to the Hospital community by allowing the sunsets of

the bed tax and provider tax while raising the Outpatient rate from 47 percent to 77

percent, increasing reimbursement rates for hospitals to mitigate the loss of federal

funds.

I want to thank Mayor Anthony Williams and the members of the Tax Revision

Commission for their hard work and deliberations and for preparing a thoughtful

analysis of the District’s tax code as we move into the 21st century. Their

recommendations are a useful road-map of goals for reform moving forward, and I

am pleased that we could begin some of that reform in the proposed Fiscal Year

2015 Budget and Financial Plan. Although we did not have the revenue necessary to

implement all of the Commission’s recommendations, I share their goals of

mitigating the tax burden of middle-class residents and attracting business activity

to the District. That is why this budget proposal includes measures to implement

some of the recommendations included in the Commission’s report.

24

First, we propose a reduction in the marginal tax rate on individual income between

$40 and $60 thousand, from 8.5% to 7.5%. The measure increases the progressivity

of the tax system for working individuals and families, who currently are taxed at a

marginal rate equal to that of people making $350,000 annually.

Second, we unified the taxation of tobacco products so that other non-premium

products are taxed in the same manner as cigarettes. Not only is this good tax

policy, but it works as a disincentive to use tobacco products, and will help us fund

tax decreases as well as additional tobacco cessation programming.

Third, we propose the use of a single sales apportionment factor for multi-state

corporations. This measure will allow us to lower the business franchise tax rate

from 9.975% to 9.4% without lowering tax revenues – a win-win for existing and

prospective local businesses alike.

Finally, we include the Commission’s recommended “tax safe harbor” to attract

investment funds operating a stock “trading” business in the District of Columbia.

The proposal would generally exempt investment funds from the unincorporated

business franchise tax and could attract a vibrant new industry to the District’s

economy.

25

IX. Revised Revenue Priority List

In every budget cycle there are more needs than there are resources. Even in times

when revenue is increasing, there will be things we want to fund in the budget, but

cannot. Despite the District’s positive financial position, this budget cycle is no

different so I have included in the budget a Revised Revenue Priority List that

contains initiatives that were not included in the FY 2015 budget, but that I support.

If FY 2015 revenue projections increase as part of the June revenue estimate,

initiatives will be funded in the order in which they are listed. The initiatives include

an array of services including increased infant and toddler slots, funds for adult

literacy, youth summer programs, and tax relief.

X. Conclusion

I believe this budget will continue the amazing financial turnaround we have

collaboratively worked towards since January 2011. It does not raise taxes or fees to

balance the budget and funds critical priorities in education, health and human

services, and workforce development, while continuing to preserve the District’s

safety net for the most vulnerable of our residents.

This is an exciting time to live, work, and visit the District of Columbia. Given our

recent track record of financial management, economic expansion, population

growth, and service to protect those most vulnerable, I would proudly measure our

progress against that of any state, county, or city in the nation.

26

It is has been my honor and privilege to work with so many dedicated professionals

in the District of Columbia Government during my time as Ward 7 Councilmember,

Council Chairman, and Mayor. I have met so many amazing people across the City

during this time. I feel blessed to have been able to give back to the city I love…the

city I was born in, educated in, raised a family in. And with that, I open it up for

questions.