DC in the snow by Adam Fagen licensed under Creative Commons.

A version of this article was first published by the DC Fiscal Policy Institute.

Public transportation. Community centers. Drivers’ licenses. Cash assistance to help families make ends meet. Trash collection. Affordable housing. Teachers, police officers, and firefighters. Library books.

All are made possible in the District of Columbia through one thing: the city’s annual budget.

Whether you realize it or not, the DC budget impacts all of us every day. It’s our key tool for creating the building blocks of thriving communities. By getting involved in the budget process, you can help ensure that every neighborhood is strong and that every resident has the tools they need to succeed.

While understanding the DC budget may seem complicated, setting the city’s budget is a lot like setting your own. You determine your top priorities, like rent or mortgage. You look at your current income and expenses, and then make choices that reflect your needs and priorities.

You’ve probably had to make tough decisions about budgeting: How should you cut expenses to save money? How should you spend the money that’s left over after covering the basics? Do you need to move expenses around from year to year to meet changing needs?

If you’ve faced these kind of questions, then you already understand some of the basics of the DC budget and how it is developed. You certainly know enough to get involved! That said, there are ways the DC budget is different from your personal budget.

Calculator on a piece of paper stock photo from DENIS ESAULOV 1987/Shutterstock.

First, while the DC budget is there to meet the needs of all residents and businesses, it also is our key tool for addressing the racial, economic, and social inequities our city faces. In particular, DC residents of color face barriers to economic opportunity such as job discrimination, inadequate access to health care, and insufficient affordable housing—reflecting our history of racism and ongoing discrimination. Using the budget to invest in high-quality early education, support community-based mental health and addiction treatment services, and to improve housing options for returning citizens are just a few ways the DC budget can transform the District into a more equitable community where all residents share in our city’s prosperity.

Second, the DC budget differs from your personal budget because we can increase our resources by making our tax code fairer and better able to meet our needs. Eliminating ineffective tax subsidies that allow big corporations to avoid paying their fair share of taxes, for example, would give us more money for things that benefit DC residents, like affordable housing, better funded schools, and ending chronic homelessness.

Many people consider the budget intimidating. Don’t worry! This guide will give you all you need to understand DC’s budget and become a powerful advocate. We’ll explain where DC gets its money, and where it is spent. We’ll explain what happens when there’s no more money left or when there’s a surplus. We’ll outline the process for putting the budget together every year. And we’ll give you the tools you need to get involved in the process.

Together, we have the power to address the challenges our city faces and put our shared values into action. We hope you’ll use this guide to help shape this year’s DC budget.

How the budget works

The Mayor and DC Council decide how to allocate the city’s resources through the budget, with input from residents about what is important to them. Every service the city provides, such as trash collection, appears in the budget every year. New initiatives—such as new programs in public school classrooms, for example—need to be funded through the budget, too.

With so many competing priorities, tough decisions must be made every year. How much will we spend? What will we spend it on? How much will we save? Should we reduce taxes for residents who struggle to make ends meet? Should we raise taxes to meet urgent needs, like Metro? If so, how much should we raise and what’s the right way to make sure the increases affect residents and businesses most able to contribute?

All these questions get addressed in the Mayor’s budget proposal, which is presented to the DC Council each year for review and approval. The DC Council can vote to change the Mayor’s proposal, but it cannot spend more in any particular area than the Mayor proposes, unless it finds an equal amount of offsetting cuts or revenue increases. By law, the budget must be balanced, with revenue equaling expenditures (although the city can get some of those revenues by dipping into its savings).

DC’s budget is divided into two parts. The operating budget allocates resources to run the city government day-to-day, paying for things such as the salaries of police officers and librarians, electricity and phone bills for government agencies, and health expenses for residents in one of the District’s health programs. The capital budget supports the costs associated with building and maintaining infrastructure such as roads and schools. Most of the time, when officials speak about the budget, they are talking about the operating budget. This guide also focuses primarily on the operating budget.

The DC budget year is different from the calendar year. It operates in what’s known as the fiscal year (FY), which begins October 1 and ends September 30 for DC. The District follows this schedule because it must align its budgetary year with that of the federal government. Most states, including Maryland and Virginia, begin their fiscal year July 1.

The basic timeline each year for preparing the city’s budget is as follows: the Mayor’s office spends roughly six months, from September to February, developing a spending plan for the upcoming year. The proposed budget then gets sent in March or early April to the DC Council. The Council reviews the budget and holds public hearings to get input from the Mayor’s administration and the public on those plans. The DC Council usually approves the final budget in May. However, based on revenue projections from the city’s Chief Financial Officer, the budget may be adjusted during the year to stay in balance with the amount of money the city collects. We’ll get into more detail about this process a little later.

Where the District gets its money

The District collected $11.6 billion in revenue in FY 2017 (Figure 1 above). The money came from three general categories:

  • Local funds. This is mostly tax revenue generated from property, income, and sales taxes, as well as several other taxes and non-tax revenue. Local funds totaled $7.5 billion in FY 2017.[1]
  • Special purpose revenues and dedicated taxes. These are taxes and fees designated for a specific use. For example, the District has a nuisance abatement fund which collects fees and fines from property owners who violate building codes. In another example, 15 percent of the city’s deed recordation and transfer taxes are dedicated to a special fund to finance affordable housing called the Housing Production Trust Fund. The District collected $881 million in special purpose revenues and dedicated taxes in FY 2017.[2]
  • Federal funds. Like all other states and municipalities, the District receives federal funds to meet specific purposes, such as services for residents with HIV or grants for schools with significant low-income populations. These sometimes come in the form of matching funds, where the District and federal government share expenses for a particular program, or as grants fully funded by the federal government. In FY 2017, the District used $3.2 billion in federal funds.[3] The largest share goes to support our Medicaid program.

Unlike the federal government, which is allowed to carry a deficit, DC must balance its budget each year. DC is like similar to nearly all cities and states in this regard. In other words, the money the city brings in (revenue) must be equal or greater than the money the city spends (expenditures), although the city can use money in its savings account to help meet its revenue needs. A budget gap occurs when revenue is less than expenditures; a surplus occurs when revenue exceeds expenditures.

How does a gap happen? The budget adopted by the District each year must be balanced. But a budget shortfall can arise either because revenue collections turn out to be lower than initially expected or because expenditures are higher than expected, or both.

How the District spends its money

For FY 2017, the gross DC budget was about $12.8 billion. This includes money raised locally as well as federal dollars that DC receives.

The DC budget is divided into seven clusters, known as appropriation titles (Figure 2 above).

  • Human Support Services is the biggest chunk of the DC budget, as it is in many other states’ budgets. This sector of the government includes many programs that keep residents safe and healthy. The majority of these expenditures are for health care programs that serve more than one-third of DC residents. Other services target youth, veterans, and the elderly. This sector also includes the Department of Parks and Recreation. Human Support Services accounted for $4.7 billion of the city’s budget in FY 2017.
  • Public Education includes the city’s traditional public schools and its public charter schools, as well as private school tuition for students who have special education needs that the public schools are not able to meet. The DC Public Library system also is included in this category. The District spent $2.5 billion on Public Education in FY 2017.
  • Public Safety and Justice includes the Metropolitan Police Department and the Fire and Emergency Medical Services Department, among others. In FY 2017, the Public Safety sector had $1.4 billion in expenditures.
  • Financing includes debt service payments on major capital projects, such as school modernization, and other types of city borrowing. It also includes various other funds, including for DC government employee’s retirement. Financing took up $1.1 billion of the city’s budget in FY 2017.
  • Government Direction and Support includes many of the agencies that help manage, run and support the general operations of the government including the Office of the Mayor, the DC Council, the Chief Financial Officer, and the Office of the Chief Technology Officer. This sector had $1.1 billion in spending in FY 2017.
  • Public Works includes trash collection and transportation and motor vehicles. It includes agencies such as the Department of Public Works and Department of Transportation. Public Works accounted for $800 million of the District’s budget in FY 2017.
  • Economic Development includes funding for affordable housing, workforce development, and economic development and planning. It includes agencies such as the Department of Housing and Community Development, the Department of Employment Services, and the Office of Zoning and the Office of Planning. The District spent $642 million on the Economic Development sector in FY 2017.

Greater detail of each appropriation title is provided in the Appendix at the end of the document.

Stay tuned for the next installment of this piece: How do I read the budget?

Tagged: budget, dc, government

Ed Lazere is the Executive Director of the DC Fiscal Policy Institute, which conducts research and public education on budget and tax issues in the District of Columbia, with a particular emphasis on issues that affect low- and moderate-income residents.