- The Washington Times - Wednesday, March 26, 2008

The District has bucked a nationwide trend of rapidly falling home prices — the latest evidence that the city is faring better than its suburban counterparts during a national economic downturn.

Home prices in the District rose by 6.4 percent in the past year, while prices in other major jurisdictions dropped dramatically, according to Metropolitan Regional Information Systems. The outer suburb of Prince William County saw the biggest price drop of 25.7 percent.

The successful housing market is one reason for the District’s relatively firm financial footing, which officials also attribute to fiscal discipline and a strong commercial tax base.

And while other jurisdictions increased taxes or raided state savings to close budget deficits in the midst of a struggling national economy, the District has emerged as among the more fiscally responsible local governments in the region.

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  • “That was something that would not have been looked at with [anything] other than laughter years ago,” said D.C. Council member Jack Evans, Ward 2 Democrat and chairman of the council’s Committee on Finance and Revenue.

    Development projects like the Verizon Center, the new baseball stadium and the Washington Convention Center have helped anchor a commercial property tax base that serves as a “huge element of stability” for the city, said Robert Ebel, the District’s deputy chief financial officer for revenue analysis.

    City Administrator Dan Tangherlini, who helmed the development of Mayor Adrian M. Fenty’s fiscal 2009 budget proposal, said it was such “targeted investments that have contributed to this being a vibrant city and an interesting city” that people want to come to and live in.

    “That’s probably why we’ll do well during the economic downturn,” he said. “But we can’t rest on that assumption.”

    Mr. Fenty’s $9.4 billion budget for fiscal 2009 contains $5.66 billion in local, nonfederal funding that is only a 1 percent increase from the amount he proposed in last year’s spending plan.

    Mr. Fenty, a Democrat, said the spending plan is “fiscally conservative” and the city’s financial state is a far cry from the 1990s, when the District teetered on the brink of insolvency and was placed under a financial control board by Congress.

    “Who would’ve thunk it 13 years ago when the city was $500 million or so in the red?” Mr. Fenty said when introducing the second spending plan of his mayoral term.

    In Maryland, Gov. Martin O’Malley, a Democrat, signed a $1.4 billion tax increase into law late last year to help close the state’s budget shortfall.

    Virginia Gov. Tim Kaine, a Democrat, proposed dipping into the state’s savings to help cover a $339 million shortfall in the budget that runs through June 30, as well as a $1 billion revenue adjustment in the $78 billion biennial budget he proposed in December.

    The effects of the slowing national economy and statewide budget cuts also have contributed to struggles by local jurisdictions to stay in the black: Montgomery County Executive Isiah Leggett, a Democrat, has proposed job cuts and an 8.3 percent property-tax increase to help close a budget gap that now sits at $297 million.

    Prince George’s County Executive Jack B. Johnson, a Democrat, aims to close a $121.6 million deficit through a hiring freeze on all non-public-safety positions and increases in the county’s recordation and income taxes.

    And Fairfax County, facing a $120 million deficit, plans to cut salaries in government agencies and increase fees imposed on residents to help trim its budget gap.

    Ed Lazere, director of the D.C. Fiscal Policy Institute, said the District deserves credit for making one-time expenditures with its budgetary surpluses, while Maryland has been victimized in part by having to make up for tax cuts implemented under Gov. Parris N. Glendening, a Democrat.

    Mr. Lazere also said tax revenues haven’t dropped as dramatically in the District as they have in Maryland and Virginia, and that the city is fortunate because it is not as reliant on the real estate market as the suburbs.

    “A big piece of it is that we’re just fortunate,” Mr. Lazere said. “I wouldn’t say that we’ve been fiscally irresponsible, but I wouldn’t say we’ve been particularly fiscally responsible either.”

    The city’s major tax revenues — made up of the real property tax, the general sales tax, the individual income tax, business income taxes and taxes on real estate transactions — grew by nearly 15 percent between fiscal 2006 and 2007, according to budget documents.

    The growth rates are projected to slow to only 3.3 percent and 6.2 percent in fiscal 2008 and 2009, respectively. But Mr. Tangherlini said the District still has benefited from its efforts to cap the tax rate on residential assessments, a strong economy in years past and a blunted impact from the national economic struggles.

    “If you look at the continued investment in the real estate market, where the cranes are still swinging, it’s pretty much in the District of Columbia,” Mr. Tangherlini said. “That’s going to cushion us from a tax standpoint.”

    The District’s position also is unique from states and other localities because of its relationship with Congress, which requires the city to prove that its budget is balanced four years into the future, and its function as both a state and local government.

    “Property tax[es] are a third of our revenues. States don’t have that. Income tax is a third of our revenues, and local governments don’t have that,” Mr. Ebel said.

    Kaine spokesman Gordon Hickey noted that Virginia is different than the District and said Mr. Kaine was fiscally responsible in making his budget cuts.

    “I am not an economist, but it strikes me as D.C. is a city and Virginia is state,” Mr. Hickey said. “[Virginia] has urban, suburban and large urban areas. … They are different kinds of things.”

    Mr. Ebel said the District’s tax revenues are potentially vulnerable if the national economy continues to slow and the stock market takes a hit. But he said the city is finally on equal financial footing with its suburban counterparts.

    “I don’t think we in D.C. want to be smug that somehow we’re better than our neighbors,” Mr. Ebel said. “But we’re just as good as our neighbors.”

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