Council member Mary M. Cheh was livid Wednesday about Mayor Vincent C. Gray’s use of a pocket veto to make a tax on out-of-state bonds retroactive, even though the D.C. Council voted to delay implementation of the tax until 2012.
Mr. Gray said his intention was to honor the District’s promises to bond raters on Wall Street by keeping $13.4 million in the city’s fund balance instead of delaying the tax, even though he recognizes the unfairness of a retroactive assessment on D.C. residents who earn interest income on the bonds.
“As soon as we put money in, are we going to take money out?” Mr. Gray said Wednesday. “It’s the underlying principle that’s involved.”
The bonds tax is the first of its kind on D.C. residents, who had enjoyed the exemption even though every other jurisdiction in the United States taxes out-of-state bonds. It was also a point of contention during budget talks earlier this year, specifically around questions of when it should be begin and how the revenue should be used.
For now, it is retroactive to Jan. 1 of this year.
Mrs. Cheh, Ward 3 Democrat, said she had not gotten notice Tuesday night of the mayor’s veto, which rolls back her extensive efforts to delay the tax. Constituents in her relatively affluent ward hold a large percentage of the out-of-state bonds.
Mrs. Cheh said the council — and not the mayor’s office — took strides to replenish the fund balance after years of slowly draining away the city’s savings.
“We’re putting money in,” she said. “We’re just not putting as much money in.”
Coincidentally, Mrs. Cheh and Mr. Gray pitched their divergent views at a ribbon-cutting event Wednesday morning at the Guy Mason Recreation Center in Mrs. Cheh’s ward. The pair exchanged private comments even as they attempted to smile for cameras with a large pair of scissors.
Mr. Gray also said he had two lengthy meetings with council Chairman Kwame R. Brown on Tuesday to discuss the pocket veto, specifically a decision not to sign a technical clarification bill tied to the fiscal 2012 budget.
“Needless to say, he’s at a different place than I am,” Mr. Gray said.
To amend the situation or reverse the mayor’s actions, the council will need to introduce emergency legislation and approve it with nine votes from the 13-member body in an impromptu session during recess or when they reconvene in mid-September, according to a Brown spokeswoman.
Mr. Brown released a statement to air his disapproval of the veto and reiterate that the council is being more proactive than the executive.
He said the council’s budget “will still deposit more money in the fund balance than the mayor’s proposed budget” and restore social services that were eliminated in Mr. Gray’s spending plan.
The situation could set up another tussle over the bonds tax when the council returns from its recess this fall.
Council member Tommy Wells, Ward 6 Democrat, spurred an effort to make the bonds tax permanent instead of “buying it back” through additional revenues. He succeeded in a contentious 7-6 vote.
Another 7-6 vote approved Mrs. Cheh’s effort to delay the tax until 2012.