Half a billion in cuts, targeted tax hikes shape Bowser’s D.C. budget plan

With pandemic-era federal aid exhausted, commercial vacancies lashing city revenue and expenses growing at a far faster rate, Bowser administration officials said the city was staring down a $4 billion budget hole over the next four years, including a $700 million shortfall this year.

To close the gap, Bowser (D) is proposing about $500 million in cuts to city programs this year, including entirely eliminating the Circulator bus and the Early Childhood Educator Pay Equity Fund, which pays stipends to caregivers and day care teachers — an outcome education advocates had feared. Officials said that move was spurred by Chief Financial Officer Glen Lee’s request for the city to allocate funds to replenish its local reserves, costing an additional $215 million across the city’s financial plan.

Bowser pitched her budget as “Strategic Investments and Shared Sacrifice” — coupling the cuts with what she has for weeks described as targeted investments in downtown, education and public safety.

To try to raise revenue, Bowser will also ask consumers to pay a sales tax increase that will be phased in starting in October 2025 to help afford the anticipated growing cost burden for the region’s public transit system; this year alone, D.C. plans to invest $200 million as part of a regional plan to help Metro avoid extreme service cuts. Under Bowser’s tax proposal, the city would increase the sales tax from 6 percent to 6.5 percent starting in fiscal year 2026, then up to 7 percent in the following two years, netting an estimated $100 million per year.

Officials said the Circulator bus was not recovering the same pre-pandemic ridership as the broader Metro bus system, informing their decision to eliminate it. In last year’s budget proposal, Bowser proposed halving the Circulator’s service schedule to cut costs.

This year, Bowser is also proposing to increase the tax that businesses must pay toward the Paid Family Leave program, returning the tax to its 2021 level. Administration officials said that move could bring in $250 million annually for the city’s general fund to help deal with rising costs of social services programs.

As a third new revenue source, the city plans to impose a new fee on hotel bookings that would go toward expenses at the District’s widely scrutinized 911 call center, drawing about $7 million annually.

“I don’t take revenue increases lightly,” Bowser wrote in her letter to the council on Wednesday, referring to the tax and fee increases. “If we make the right investments and put the right interventions in place today, I am hopeful we can reverse these policies in the out years.”

Bowser had been preparing residents for the likelihood of significant cuts for months, especially after Lee released sobering revenue estimates last month projecting flat revenue growth over the next four years.

The gravity of the fiscal challenges is perhaps best illustrated in one notable choice: For the first time in her nine years as mayor, Bowser will not be devoting at least $100 million to the Housing Production Trust Fund, the city’s main engine for new affordable housing and one of her key initiatives. This year she budgeted $60 million — showing how even Bowser’s flagship programs were not insulated from the severe budget constraints.

Still, Bowser’s choice to make significant new investments in public education, public safety and downtown’s revival help to crystallize the mayor’s priorities for the remainder of her term.

In the public safety realm, after last year’s historic crime spike, Bowser is setting aside $8.7 million to add 40 new civilian “community safety officers” and other civilian positions to the D.C. police department, intended to free up more sworn officers for crime-fighting.

She proposes adding $3.1 million to beef up staff at the Department of Youth Rehabilitative Services facilities, which have struggled to adequately handle an uptick in detained youth. And her budget allocates $4.6 million to fund items in Secure D.C., the newly passed omnibus crime bill, including beefing up security in busy commercial corridors, creating a task force to explore more diversion programs and jailing more people charged with violent offenses while they await trial. The increase in the jail population has drawn concern from the chief financial officer, who said in a letter submitted with the budget that he will be watching closely to see if this becomes a trend that affects city finances.

In education, Bowser weeks ago rolled out a historic 12.4 percent boost in the per-pupil funding formula, coupled with what she has described as strategic investments in programs such as high-impact tutoring. Her budget also proposes expansions of the Advanced Technical Center in Ward 5, which provides career readiness internship programs and other training, and a similar effort at the Whitman-Walker Max Robinson Center in Ward 8.

The proposed workforce development expansion led officials to entirely cut a separate program, DC Career Connections, that they said lacked adequate infrastructure.

Investments in downtown carried the banner. Bowser unveiled the budget a day after the D.C. Council approved $515 million in public funds to go toward Wizards and Capitals owner Ted Leonsis’s major renovation project of Capital One Arena in the heart of downtown, a deal she struck after bringing Leonsis back to the negotiating table when his plans to move the teams to Virginia fell apart. In addition to that half-billion-dollar investment in Capital One — which is in the capital budget, versus the more strapped operating budget — Bowser is pitching an array of other proposals intended to aid downtown.

Those include $68 million for three major streetscape projects and $63 million for tax incentives to convert vacant or underused office spaces into residential or other uses. Additional efforts will focus on attracting businesses to downtown corridors that officials say have strong growth potential, and bringing life to lethargic public spaces with pop-up retail and festivals — combining ideas from the recently unveiled Downtown Action Plan and public realm plan.

Bowser’s proposal also includes $64 million to build a new annex to provide permanent supportive housing and other congregate dwelling units at the site of the Community for Creative Non-Violence shelter downtown.

“Investments in our Downtown are investments that directly benefit all eight wards,” Bowser wrote in her letter. “This is a critical time for our city’s economic future as we work to attract, retain, and grow our business community.”

After Bowser’s budget was posted by the CFO’s office late Tuesday, cuts immediately caught the eye of those who had been advocating against them for months.

Tazra Mitchell, chief policy and strategy officer at the left-leaning DC Fiscal Policy Institute, zeroed in on the cuts to child care, particularly the elimination of the Pay Equity Fund, which she said on X would hurt the “mostly Black and brown woman workforce caring for young children, burning it/the progress we’ve made to the ground.”

Bowser’s budget officials said eliminating the fund was not part of the original plan. They say they only made the decision after Lee insisted that the city fully replenish its fiscal reserves fund because he foresaw potential issues paying the city’s bills by 2028, due to the slowing growth revenue but accelerating growth in expenses.Officials in response cut the Pay Equity Fund, which costs about $70 million annually.

A spokeswoman for Lee did not immediately return a request for comment.

Council Chairman Phil Mendelson (D) protested the CFO’s requirement to replenish the reserves and previously said the Council will see what it can do to work out a different agreement with Lee that could soften cuts once its review begins.

The budget also proposes eliminating roughly 480 positions in District government, 69 of which are occupied and could cause those employees to be laid off if they can’t be reassigned.

The council plans to hold hearings in the coming weeks to understand the budgetary needs of city agencies before pitching their own changes to Bowser’s proposal; lawmakers are scheduled to take their first vote on a final fiscal 2025 budget package in late May.

This is a developing story and will be updated.