The Week in Public Finance: Shutdown Cost the D.C. Region Nearly $200 Million in Tax Revenue

It's not the only place where government coffers might have taken a hit.
by | January 25, 2019 AT 4:00 AM
Man holding a sign and yelling outside the U.S. Capitol.
People protesting the government shutdown outside the U.S. Capitol. (AP/Andrew Harnik)

As more than 1 million federal and contract employees struggle to make ends meet after missing a month of pay, the longest government shutdown in U.S. history is also starting to take a bite out of states and cities' revenue.

The Washington, D.C., region is by far the most affected. Around 400,000 federal and contract workers there are impacted by the impasse, which has entered its fifth week. All told, the region has so far missed out on nearly $200 million in tax revenue.

This week, Washington, D.C.’s finance chief said the city has lost more than $47 million in income and sales tax revenue. That number could balloon to more than $142 million if the shutdown lasts eight weeks.

In a letter to Mayor Muriel Bowser, CFO Jeff DeWitt said the beginning of the shutdown saw “minimal” impact on the District because it was during the holiday season. “However," he wrote, "there is evidence that impacts are accelerating and will increase each week as federal employees further reduce spending and the tourism industry moves closer to the peak spring season."

According to DeWitt, roughly 40 percent of the missed revenue is expected to reach District coffers once some workers receive backpay. But that leaves the city with tens of millions of dollars that won’t be recouped.

D.C.'s analysis follows warnings last week from Maryland and Virginia officials that the shutdown was taking a financial toll. Maryland Comptroller Peter Franchot estimated that the shutdown has so far cost the state nearly $120 million in deferred wage taxes and lost sales taxes. Virginia’s finance secretary estimated that the Commonwealth has lost out on $21 million in wage taxes so far. The total impact is likely higher because Virginia's figure does not consider contract workers or lost sales tax revenue.

Elsewhere, the shutdown’s impact isn’t as obvious, but there are pockets across the country where concerns are growing. One of them is the Houston metro area, which is home to about 25,000 federal workers, according to City Controller Chris Brown.

Earlier this month, furloughed NASA workers protested in front of the Johnson Space Center, which employs about 3,000 people. The day before, a terminal in George Bush Intercontinental Airport, one of Houston's two major airports, was closed because there weren’t enough TSA workers able to come to work without pay.

Because of the timing of the city’s monthly revenue reports, Brown says he won’t have a sense of how the shutdown is affecting revenues until March. But he already suspects the sales taxes -- the city’s second-largest revenue source -- are taking a hit.

“This is coming at an inopportune time because we’re already seeing a slight downturn from oil prices coming off their recent high,” Brown says. “So to add a shutdown on top of it, that will continue to add to it.”

If the shutdown stretches through February, Brown says about $1 million in federal grant funding for the month of March is in jeopardy. Most of that is funding for food stamps and the Women, Infants and Children program. He’s also concerned about whether the shutdown will delay the expected $1.17 billion payment in federal disaster recovery money for Hurricane Harvey, which devastated the city in August 2017.

“We’ve been very patient -- it’s taken quite a while to get this money,” Brown says. “It would be a shame if this government shutdown were to delay that even further.”

Nationwide, S&P Global Ratings has estimated the average weekly direct and indirect economic costs of the partial shutdown currently add up to $1.2 billion.

 

In other public finance news this week:

 

Virginia Close to Giving Amazon Nearly $1 Billion

Amazon’s HQ2 in Northern Virginia passed a key hurdle this week. The state Senate easily approved up to $750 million in tax incentives for the company.

The 15-year package, which is expected to pass the House, includes grants of $22,000 for every full-time job that is created -- for the first 25,000 jobs. That offer maxes out at $550 million. Then, the state would give $15,564 per new job for a maximum payout of $200 million.

The legislation has some requirements, including that the internet retailer create tens of thousands of jobs with an average salary of at least $150,000.

Some say the multibillion-dollar company doesn’t need handouts. Sen. Richard H. Black called it “a gratuitous gift to the richest company on the planet,” reported The Washington Post.

The package is less than one-third of the size reportedly offered by New York City and state to win Amazon’s other headquarters location.

 

L.A. Teacher Strike Ends

The Los Angeles teacher strike ended this week after six school days with a deal that includes higher pay, smaller classroom sizes and more on-campus support staff in the nation’s second-largest school system.

Now, the question is how to pay for it.

The Los Angeles Unified School District (LAUSD) is projecting a half-billion-dollar deficit this budget year and has billions obligated for pension payments and retiree health coverage. According to a report last month, the district’s deficit problem is expected to continue through 2022.

The report urges the city to enact a new property tax or find some other means of raising revenue. California Gov. Gavin Newsom has included $140 million in new funding for LAUSD in his budget unveiled earlier this month, but that's not enough to cover the expected budget gap.

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