During the latest round of performance oversight hearings, some DC Council members have asked advocates and public witnesses to indicate the amount of extra spending they envision for existing programs. Most have responded with requests for millions of dollars above the current fiscal year 2025 budget.
They should forget about it.
The February revenue estimates released by Chief Financial Officer Glen Lee has made it clear that there isn’t a pot of gold at the end of the rainbow. Truth be told, there won’t be any rainbow. Expect inescapable financial storms or wholesale catastrophe if President Donald Trump and his chainsaw-wielding co-president, Elon Musk, continue their assault on the federal government through the entirety of Trump’s four-year term.
While federal jobs make up just 1.4% of the U.S. civilian workforce, they “account for close to 25 percent of civilian employment in DC,” according to Lee’s analysis. He projects as many as 40,000 jobs in DC could be cut at the federal level under Trump.
That encompasses a whole lot of money that could be lost to the city in the form of sales tax proceeds from discretionary spending at restaurants, retail shops and other businesses. If the past is prologue, and it usually is, people generally stop spending when their wallets take a hit.
“The FY 2025 local source revenue forecast has been revised downward by $21.6 million as year-to-date collections show lower-than-expected receipts for the sales and non-tax revenue sources,” Lee indicated in his report, released Feb. 28.
“The revenue forecast for the rest of the financial plan has also been revised downward by an average of $342.1 million annually, largely due to forecasted sharp declines in employment levels as the Federal government proceeds with reducing its workforce significantly,” Lee wrote.
That annual loss translates to about $1.3 billion over the four-year financial plan.
No one should doubt or minimize the radical shifting of government Trump is pursuing — these moves were previewed in the Heritage Foundation-produced Project 2025 report, portending changes in major programs and services, including Medicaid and public education, as I wrote last year in The DC Line.
District elected officials could use this moment to advance a proactive and dynamic reimagining of the local government that harkens back to the kind of change former Mayor Anthony Williams effected in the late 1990s and early aughts. They could also recruit key fired federal workers with the skills and ability to help design that new DC, including how to repurpose office buildings beyond affordable housing.
Time to dream — and to dream big.
Unfortunately, elected officials seem unsure about whether they should panic, wring their hands or pretend the revenue declines are merely a pimple on the city’s economy.
Over the past week, Council Chair Phil Mendelson seemed to vacillate between all three.
“One could say that, on the local level, it is recession-like for the District government. When the revenue decline is combined with rising costs, the amount will be substantial that the Mayor and Council will have to cut to balance next year’s budget,” he said in a prepared statement issued last week shortly after the CFO’s report was published.
“This upcoming budget season is going to be especially difficult, and there is no way around it: the District government will need to cut programs and services in order to achieve a balanced budget. The consequences of the federal government’s decisions, unfortunately, will force the District to make some very tough choices in this budget,” Mendelson said.
A few days later, speaking at his monthly legislative press briefing, he offered at one point that the shortage this year is about “$50 million less off [the] $10.68 billion local budget.“
Undoubtedly, Mendelson has underestimated — or at least downplayed — the pressure the city can expect to feel from any drop in federal spending coming to several crucial DC agencies. Trump and his Republican drive-by knifing crew have announced they intend to slash federal spending in health care, education and housing, among others.
What could that mean for DC?
Consider that the city relies heavily on federal funds in each of these areas, especially health care. For decades it has provided health insurance for many of DC’s poor, children and seniors using federal Medicaid reimbursements. That is about to either end or change drastically for tens of thousands of people — unless federal officials change course, or local leaders can reenvision the program to rely principally on the District’s own tax revenues.
Except, the declines projected by Lee will stretch across multiple categories, including income tax and real property tax as well as sales tax.
In the latter category, the CFO noted this: Projections would be even worse had the council not increased the sales tax rate from 6% in FY 2025 to 6.5% in FY 2026 and 7% in 2027.
Individual income receipts this year “have grown 6.9 percent, driven entirely by an 8.2 percent increase in withholding tax collections compared to last year,” wrote CFO Lee.
“However, withholding tax revenue growth is expected to slow as the federal workforce reductions decrease the wages and salaries of District residents.”
Lee wasn’t the only official to lay out the array of risks ahead for the city. DC Auditor Kathy Patterson discussed the challenges in “The Certification Forecast,” a legally mandated report intended to certify that total annual debt service on all bonds will not exceed 17% of the District’s revenue prior to the issuance of new general obligation bonds. The analysis conducted by Patterson’s office determined that the city’s ratio of debt service to revenues is well below that mark.
However, acknowledging the Trump administration’s interest in “significant restructuring of government agencies and reducing or eliminating many programs,“ Patterson recalled that DC went through a similar period in the mid-1990s, when federal cutbacks triggered “a District-specific recession as work undertaken by government agencies was transferred to contractors more likely to be outside the District (though still in the metro area).”
She also offered that “inflationary policies like broad tariffs could raise interest rates as the Federal Reserve Federal Open Market Committee reconsiders further cuts to the federal funds rate, the anchor for other rates used for capital borrowing.”
“Finally, Congressional riders on appropriation bills that target the District could have a material impact on [DC] finances,” continued Patterson, citing the House of Representatives’ proposed rider on last year’s draft appropriation bill “that would have prohibited the District from carrying out its program of automated traffic enforcement.”
“This program accounted for $180 million in FY 2024 and is expected to grow to $333 million in FY 2025,” she added in her report.
Patterson’s report makes my point that other variables are not being addressed by Mendelson and others, who seem to diminish the impact of current and future revenue declines.
Small change can often lead to big money.
The CFO’s February revenue forecast is used by the mayor to finalize her budget proposal, which is expected to be submitted to the council on April 2. Mendelson declined earlier this week to offer ideas about what Bowser should consider in that document.
He asserted that the city will “not solve this problem by raising taxes.” Trying to do so, he argued, would put DC in a “noncompetitive position in the region” because of tax increases passed in recent years.
“We can either kick the can down the road or make some reductions in programs,” Mendelson added.
A vocal group of spendthrift advocates appear to be coalescing around a plan that would include tapping the city’s reserve accounts that are supposed to ensure the District doesn’t completely sink to the bottom. These same folks apparently have also called, once again, for taxing the rich.
That call might play well in some parts of the city, especially since Republicans and their leader have engendered a healthy dose of animosity and downright hatred in the region for their inhumane treatment of federal workers while promising tax cuts that will benefit the wealthy. But there are few billionaires who actually call DC home.
There are better ways to address the challenge.
Last year, at-large Councilmember Robert White spent hours discussing a plan with Mendelson to require a systematic review of government spending while considering cost-saving actions, including merging some agencies while eliminating others that have outlived their usefulness or their mission.
Instead, when the final FY 2025 budget was passed, it provided funding for two additional staffers in the council’s budget office who would be specifically responsible for program evaluation. “They start in the next couple weeks,” the council’s budget director, Jennifer Budoff, told me in an email. So they clearly won’t have much impact on the 2026 budget — if we’re lucky, maybe we’ll see results from their work come 2027.
Before the mayor submits her proposed financial plan, she and council should hold a budget summit or retreat that could be aided by the involvement of past elected officials, including Williams, Patterson — a former Ward 3 councilmember — and former DC Council Chair Linda Cropp. The two branches could also invite former city administrator Robert Bobb, who has worked with countless local governments helping them to successfully meet management and financial challenges, and John Hill, a one-time senior executive in the General Services Administration and director of the now-dissolved financial control board.
That same group could start the review suggested by White with an implementation schedule beginning in FY 2026. They could also chart a course that would result in a redesign of the government and the city, particularly its commercial corridors, over the next three years.
Equally important, District officials could pledge to conduct smart, aggressive reconnaissance, in hopes of getting ahead of the Trump administration’s restructuring of the federal government and Trump’s assault on arts and cultural institutions like the John F. Kennedy Center for the Performing Arts, which are critical to DC’s prosperity.
Is there anything to stop elected officials from recruiting former Kennedy Center chair David Rubenstein or a comparable leader to help advise the city about how to transform available vacant offices to create a major, permanent, Trump-proof facility? The Peggy Cooper Cafritz Cultural Center seems like a good name for a venue that could serve as an alternative space, attracting quality performers and artists while serving as a magnet for residents and tourists.
To be clear, this is no time for panic or hand-wringing. It is also no time for timid tweaking.
Back in 2020, when elected officials faced the unprecedented COVID-19 pandemic, they may have been unable to fully grasp the possible longevity of the challenges to the city’s economy.
This time, however, no one should doubt the long-term effects. Trump’s maneuvers will reshape not just the federal government, but also the way business will be done in the National Capital Region. Consequently, this third-wave financial crisis for DC demands innovative thinking coupled with bold actions.
Can District leaders rise to the occasion? That is the quintessential question.
This article first appeared on TheDCLine.org
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