The Washington Post
Remote work in District is ‘serious’ risk, CFO warns
A cursory look around D.C.’S downtown corridor illustrates just how hard it was battered by the pandemic: Its sidewalks are frequently barren, the high-rise office buildings lining the streets remain partly empty as many workers opt to stay home, and restaurants that survive on lunchtime and happy-hour traffic are struggling to stay afloat. And the city is about to feel the long-term financial ramifications of these changes, according to recent projections from its chief financial officer.
While sales tax revenue is increasing and the city’s tourism industry is recovering — two areas of growth for the District since its pandemic restrictions ended — the city is still reeling
from the impact of remote work, which CFO Glen Lee called “a serious long-term risk to the District’s economy and its tax base,” in a letter to top city leaders Tuesday. Tax revenue from large office buildings and commercial properties — a major contributor to the city’s coffers — declined significantly in the past fiscal year, Lee said.
Lee revised the city’s projected revenue, estimated to be just under $10 billion annually in the coming fiscal years, downward by a total of nearly $500 million between fiscal 2024 and 2026. It’s a sharp contrast from the CFO’S typical revenue projections, which often revise revenue upward by hundreds of millions of dollars.
The latest revenue projections have caused city lawmakers to brace for leaner spending in the years ahead. And that could mean cutting ambitious proposals — such as one that would make the District the most populous U.S. city to have a fare-free bus system, designed to be paid for with excess city revenue and set to begin in July. Now, that program is in jeopardy because there doesn’t appear to be sufficient excess revenue in the city’s future, according to Lee.
D.C. Mayor Muriel E. Bowser (D) called Lee’s projections “sobering” but emphasized that the city’s economy “remains strong.” Bowser, who is expected to deliver her 2024 budget proposal to the D.C. Council later this month, also warned the body against raising taxes — asserting that she and the council will probably need to make intentional choices about what to fund.
“Over the past three years, our city has faced and overcome unprecedented economic challenges. With the ongoing impacts of telework and national political uncertainties, we face another significant test to our local economy,” Bowser said in a statement about the city’s budget Tuesday night. “We must budget within our means and remain focused on the necessary investments to energize DC’S comeback.”
The Post reported in January that the assessed value of large office buildings downtown, after rising for several years, dropped by 13 percent — from $69 billion to $60 billion — in 2021, according to city data. That decline also fueled a reduction in property tax liability for those buildings, which fell by $150 million in 2022. In all, revenue from large downtown office properties made up nearly 9 percent of the District’s total revenue last year.
Bowser has made resolving the challenges facing downtown D.C. a priority for her third term, rolling out plans in recent months to draw 15,000 new residents to the area while imploring President Biden to push more workers back into federal buildings, or give the District permission to repurpose those buildings altogether, potentially to convert into new housing.
Before the pandemic, quarterly revenue estimates typically offered a rosier outlook for the city’s finances. They are always revised upward from more conservative estimates — such as a $128 million increase in local revenue, partly from sales taxes, that Lee is projecting for this fiscal year. Legislators like D.C. Council Chair Phil Mendelson (D) have criticized the CFO’S office, saying its estimates — which are used to make key decisions about spending — are too conservative.
In a statement Wednesday, Mendelson expressed frustration that the latest estimates may jeopardize the proposal he co-led to make Metro buses fare-free in the District, part of an effort to help lower-income District residents conserve money as housing and transportation costs rise throughout the region, while offering more transit options for people with cars to commute to and from work. “Once again, the CFO’S projections are so far off the mark,” he wrote.
David Umansky, a spokesman for the CFO’S office, said the conservative estimates are intentional — calling uncertainty around future revenue the city’s “number one concern.”
“If we underestimate, there’s more money,” Umansky said. “If we overestimate, then policymakers are forced to make cuts. While we have very good reserves, cutting is not anything anybody likes to do.”
Umansky said the latest revenue projections reflect a mix of forces affecting the local and global economies, including high inflation and the threat of a recession. Lee’s report noted that deed taxes the city collects from building sales, as well as commercial property loan refinancings — two other major drivers for D.C.’S excess revenue in fiscal 2022 — “have significantly declined, both in the number of sales and value so far this fiscal year,” a trend Lee said he expects to continue in the coming months.
“This is different in scope than any other revenue estimate — and I’ve been here a little over 10 years,” Umansky said.
Meanwhile, D.C. officials are banking on buoying at least one aspect of city revenue: tourists, and the hotel stays and restaurant outings that come with them. On Wednesday morning, as Bowser kicked off the start of the National Cherry Blossom Festival, she discussed the importance of the city’s tourism industry and driving residents and visitors back to the downtown corridor. Some city officials recently returned from a five-city bus tour to promote the festival, and perhaps more importantly, try to attract more people to visit the District.
“How do we respond to declining revenues that are pretty specifically related to the downtown? One way is to make sure we’re increasing the number of people who come to our downtown,” Bowser told reporters Wednesday morning. “Workers? Yes. So we continue to focus on that, but also festival goers and people who are coming to enjoy Washington, D.C.”