Though the covid pandemic has hammered the Washington region’s economy, the DC government finished its 2020 fiscal year with a surplus of more than half a billion dollars. How is that possible? What does it say about about the local economy? We put those questions to Yesim Taylor, the executive director of the DC Policy Center.
Taylor explains that, in the end, the city’s 2020 tax revenues didn’t fall as precipitously as its chief financial officer had feared, slipping by only $290 million, instead of the $722 million drop that had been expected, according to an analysis Taylor wrote for the Federal City Council.
The better-than-expected revenue picture was driven by a 5 percent increase in property tax receipts, a 13 percent jump in corporate franchise tax receipts, and a 3 percent increase in individual income tax receipts, according to Taylor’s analysis. The income tax growth was due to stock market gains, as well as the taxable benefits that were dispersed during the crisis, including stimulus payments and unemployment assistance.
At the same time, the DC government spent more than $200 million less in fiscal year 2020 than it had previously projected it would.
But there’s an important caveat to this $552 million surplus. The city still spent more money than it raised last year, according to Taylor’s analysis. It’s just that it used up less of its reserves than it had planned on.
“We thought we thought we were going to be 6 feet under,” Taylor says, “and [instead] we’re like one foot under.”
While Taylor believes the local economy still faces stiff headwinds as it works to emerge from the pandemic-sparked recession—fewer tourists coming to the city, for example—she believes the surplus will help ensure that the DC government will have the reserves it needs for at least another year.
“Basically it tells us that we have bought ourselves another year of stability,” she says.
DC isn’t the only local jurisdiction to be pleasantly surprised by its number crunchers. According to The Washington Post, political leaders in Virginia recently learned that the commonwealth emerged from 2020 with $730 million more in tax revenue than it had anticipated.