- The Washington Times - Thursday, August 4, 2011

Three D.C. business groups are “shocked and dismayed” by Mayor Vincent C. Gray’s decision to pocket-veto a measure that would have delayed collection of a tax on out-of-state bonds.

The D.C. Chamber of Commerce, Federal City Council and Greater Washington Board of Trade said in a statement issued Thursday they had no advance notice of the Tuesday night veto, which they also dubbed “misguided.”

Mr. Gray declined to sign a measure approved by the council that would have postponed the newly approved tax on interest collected from out-of-state bonds until 2012 instead of letting it take effect retroactively to Jan. 1 of this year.

The mayor said he took the step, commonly referred to as a pocket veto, because it would cost $13.4 million from the city’s fund balance to offset the lost tax revenue. Failure to sign a bill while the council is out of session effectively kills it.

Putting money in the fund balance, only to take it back out, sends the wrong message to bond raters on Wall Street, he said.

Yet the trio of business groups aligned themselves with council members such as Mary M. Cheh, Ward 3 Democrat, who say it is patently unfair to tax income on the interest earned so far, because residents “purchased those bonds thinking they would be tax-free.”

“This veto by the mayor came as a shock to the business community. We did not see this coming, and it is a move we disagree with 100 percent,” chamber president Barbara B. Lang said.

The issue marks a fracture point between the chamber and the mayor, despite a cordial past that includes the chamber’s endorsement of Mr. Gray during last year’s mayoral campaign. Ms. Lang also served on Mr. Gray’s transition team.

Ms. Lang said there appears to be “little recourse” for the council, because it is on recess until mid-September.

Mr. Gray has said he does not like the retroactive tax either and would work with the council to find a new solution. He had proposed an income tax on wealthier residents before council Chairman Kwame R. Brown put forth the bonds tax in its place.

Mr. Brown has expressed his reluctance to impose any kind of income-tax hike on city residents.

A contentious vote during fiscal year 2012 budget talks made the bonds tax permanent, yet a second vote had delayed its implementation.

Mr. Gray’s office on Wednesday circulated a July 12 letter that made it clear he opposed the amendment to delay the bonds tax, before the council voted on it.

His staff used the letter to refute claims the council had been “ambushed” by the pocket veto, noting Mr. Gray also had lengthy discussions with Mr. Brown in the hours before it occurred.

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