An Evaluation of the District’s Tax Increment Financing: Is it a net fiscal gain to the District?

Tax Increment Financing in the District

Tax Increment Financing (TIF) is an economic development policy tool used by state and local governments to stimulate economic development in a specific area. Its popularity stems from the notion that a TIF project is self-financing, that is, that the tax revenue generated by the project covers the bond payments for the publicly subsidized loan needed to implement the project. The District of Columbia implemented its first TIF project in 2002 and that was followed by seven additional large TIF projects. (There are some smaller TIF projects but these eight projects in our analysis are the largest, most important ones.) Our recent study (See here) is a retrospective evaluation of the economic and fiscal performance of these District TIF projects.  The study’s objective was to answer two questions: 1) does each project produce a positive net fiscal gain for the city; and 2) does the entire TIF program produce a positive net fiscal gain for the city?

The study of the eight projects finds that five were indeed self-financing, while three were not (see Table 1). We also found the net tax revenue from the five positive projects (property and sales taxes minus debt service) covers the shortfalls in the three lagging projects so that the District’s TIF program in the aggregate appears to be a net fiscal gain to the city.

A Review of the District’s TIF Projects

By and large, tax increment financing in the District of Columbia is generally used to help produce large but unconventional development projects in specific locations of the city that otherwise, arguably, would not happen. The actual amount of a project’s TIF subsidy is the principal amount plus interest of the TIF debt service. Typically, this subsidy directly finances all or a portion of the total development costs of the project. Theoretically, the TIF subsidy is justified as the amount needed to overcome some stated economic impediment for example, environmental damage, keeping a site location from achieving its highest and best use. But in the District of Columbia, it appears that TIFs are applied for a slightly different reason.

The District of Columbia is a relatively small city with over half of its land area prohibited from being developed by the private markets, largely because of the federal presence. The city also has a vibrant economy that generates steady growth in jobs and population. The result is that development of one sort or the other is happening in almost all areas of the city. As such, TIFs in the District are used to facilitate development projects in specific neighborhoods that, possibly, might not see that exact type of development, usually to achieve important socio-economic goals beyond just job and income growth. For example, the Gallery Place and Mandarin sites may have likely been developed as predominately Class A office space without TIF. But Gallery Place is now the entertainment and retail hub of the city’s central business district, and the Mandarin is a 4-star international hotel that was the first to bring upscale hotel and retail activity to the Southwest waterfront. DC USA may have likely been a predominately residential development without TIF.  But, it was the first new large-scale retail complex in a residential neighborhood anchored by one of the nation’s leading national retail chains. And the Convention Center Hotel site may have also likely been a predominately Class A office space or even a hotel development (with only a fraction of hotel rooms, thus precluding it from being classified and marketed as a convention center hotel). Instead, it is now the city’s largest hotel with 1,175 rooms and an underground concourse connecting it to the Convention Center (See here).  So, we can view TIF subsidies in the District of Columbia as the amount needed to overcome the additional project costs above and beyond the costs of a project that would be the highest and best use of land in that location. The subsidy is justified as a means of achieving important socio-economic goals for the city (e.g., grocery stores to eliminate food deserts in certain neighborhoods, broadening the market for business travel to the District, and increasing affordable housing).

The District of Columbia implemented its inaugural TIF project in 2002, and that was followed by seven additional large TIF projects up until 2010. District TIF projects have been used to facilitate retail, residential, hotel, and other mixed-use developments in the city (Table 1).

Measuring the benefits: TIF vs. A privately financed alternative project

One of the key assumptions in the analysis conducted by many state and local governments to decide whether to greenlight a potential TIF project is that the location site for the TIF project has prohibitively high economic costs that precludes a purely private sector financed development of the project (the so-called “but for” test).

The model used for this analysis does not make such an assumption. Our model assumes each actual TIF location would eventually be developed by the private sector absent a TIF but as a project much more in line with the conventional economic and social characteristics of the existing neighborhood (i.e., less investment risk).

We assume the privately financed alternative for each project starts sometime between the TIF start date and 2019 and that the 2019 real property value of the alternative project is 75 percent of the TIF project’s real property value in 2019.[1]

For example, the property value of the Gallery Place TIF project grew from $6.9 million in 2002 to $596.6 million in 2019.  We assume the property value of the counterfactual at the Gallery place location grows such that it reaches 75 percent of the Gallery Place project’s real property value (that is, $447.2 million) in 2019 but for the public financial support.

Earlier TIF projects were self-financing, but later ones were not

We use the model to evaluate each TIF project and present the results in Table 2. The table shows that the Gallery Place project achieved a positive cash flow in year 4 of the 25-year debt service schedule and reached its breakeven point in year 8. The table also shows that when we divide total cumulative net tax revenue for the 25 years period by the TIF bond amount (in 2019 dollars), the District is estimated to achieve a 67 percent return on investment (ROI) in year 25 of the debt payment schedule (adjusted for inflation). Also, five years after the project was delivered to the market, the TIF bond amount was 21 percent of the project site’s total property value.

When the estimated ROI in year 25 of each project’s debt service schedule is greater than zero for any project, we conclude the project will ultimately be a net positive fiscal gain for the city. Consequently, the District’s first five TIF projects produced a net positive cash flow, a financial breakeven point (all within eight years), and ultimately a positive fiscal gain (ROI) for the District. However, the Capper Carrollsburg, Convention Center Hotel and Rhode Island Row projects are not expected to produce a positive ROI over the life of the TIF loan as indicated by the negative ROI in column 5.

Based on a closer examination of the model results and the actual specifics of each project, it appears that the first five TIF projects achieved sound financial standing and an early breakeven point primarily because the total debt for each project was relatively low and the net tax revenue generated at each site was relatively high. In contrast, despite their important socio-economic roles, the last three projects (Capper Carrollsburg, which subsidizes senior housing; Rhode Island Row, which subsidizes affordable housing; and the Convention Center Hotel, which was developed to land more and larger annual conventions to fully utilize the Washington Convention Center), are not expected to generate enough net tax revenue over 25 years to service the TIF debt. (See study here)

What is the net fiscal impact of all the District’s TIF program so far?

When we aggregate all eight TIF projects between the date of the first TIF bond issuance (2002) and when the model estimates that the last debt service payment is due (2034), we can calculate the annual total debt service (including interest) and the total annual net tax generated at each TIF site. We find that the entire District’s TIF program achieves a positive cash flow starting in 2005. The model results indicate that the Gallery Place and Mandarin Hotel projects are the primary sources of excess net tax revenue for the program and, hence, are the source of cross subsidizing the seemingly uneconomic projects of Capper Carrollsburg, Convention Center Hotel, and Rhode Island Row.

The District’s TIF fiscal balancing act

According to the analysis, five TIF projects generated a net fiscal gain, and 3 did not. We conclude that while the financials of each new potential TIF in the future must continue to be highly scrutinized, policy makers should also remain cognizant of the financial health of the District’s entire TIF portfolio. The study finds that, to date, several large projects with high ROIs are cross subsidizing those seemingly uneconomic projects. The cross subsidy enables the “uneconomic” projects to achieve very important socio-economic goals for the District (e.g. affordable housing and broadening the market for business travel to the District) without jeopardizing the District’s overall fiscal health.

What is this data?

The model used in this study is designed to determine if each TIF project produced or is likely to produce enough incremental tax revenue to cover its debt service. We define incremental tax revenue as the tax revenue from the TIF project in excess of tax revenue from a comparable (a counterfactual) but totally privately financed project in that location. The model assumes a 25-year loan (i.e. TIF) at a 6 percent interest rate applied to each TIF project but for the actual TIF loan amount for each project. The interest rate for fixed rate debts range from 4 to 7.5 percent, and the actual median interest rate for the seven projects was 6.1 percent.

This analysis is based on annual real property assessment values and real property tax collections for years 2002 through 2019 for each TIF project. The analysis for three projects (Gallery Place, DC USA (Target) and Rhode Island Row) include retail sales activity (sales taxes), and four projects (the Mandarin, Capitol Hill Towers, Embassy Suites, and Convention Center Hotels) include hotel sales activity (hotel taxes). In the model, that actual property, retail and hotel taxes generated at each site is also used to finance each respective project’s TIF debt.

[1] 1 Given that most TIF projects are in prime locations and the city has experience significant property development in nearly all areas of the city, we assume the estimated 2019 real property valuation of each counterfactual would range between 50 and 100 percent of the actual 2019 TIF property valuation. Hence, we assume an average 75 percent 2019 real property valuation of each counterfactual in the model.

DC’s Property Sales Market: Trends and Fluctuations – 2000 to 2020

An Overview of the City’s Property Market

Between 2000 and 2019, the District of Columbia property market experienced remarkable growth. According to annual District property assessment data, the total value of all taxable property grew from $46.6 billion in 2000 to $224.4 billion (382.4 percent higher) in 2019 (Figure 1). The value of the residential sector grew at an annual average rate of 9.5 percent over the period, and the commercial sector grew at a slightly slower annual average rate of 8.7 percent. The higher growth rate for the residential sector caused the share of all residential value to increase to 56.5 percent in 2019 and the commercial sector share to decline to 43.5 percent (Figure 2).

Whereas most of the value of all taxable real property is attributed to the residential sector, most of the value of property sales subject to total deed taxation is commercial property. Based on annual deed tax data from the District Recorder of Deeds, we estimate that the total property value subject to total deed taxation grew from $4.1 billion in 2000 to $17.4 billion in 2019 (Figure 3). The value of the residential property sold grew at an annual average rate of 7.3 percent over the period, and the value of the commercial property grew at an annual average rate of 8.7 percent. And while there are many factors (nationally and locally) that contributed to the rapid appreciation of property prices and values, the 10-year treasury rate also fell from 6.05 percent in 2000 to 2.05 percent in 2019. And in contrast to the rapid growth in property values, the national consumer price index only grew at an annual average rate of 2.1 percent between 2000 and 2019.

Additionally, the faster growth of property sale values in the commercial sector caused the share of all commercial value to increase to 51.1 percent in 2019 and the residential sector share to decline to 48.9 percent (Figure 4).

Figure 5 shows that commercial property sold as a share of all commercial property in the city was 13.4 percent in 2001, and residential property sold as a share of all residential property in the city was 13.4 percent also in 2001. The slight but general downward trend in the ratios over the years in the figure reflect the robust annual growth on the total value of both sectors since 2000. In 2005, a record high of 23.2 percent of the total commercial property value in the city was sold. This reflects the brief period of very rapid expansion in commercial office space in the city prior the Great Recession. A record of 50 investment grade office buildings were sold in 2005 (Delta Associates). 

Annual Fluctuations in the Property Sales Market

The above figures may suggest that the property sales market has grown in a relatively smooth upward trending fashion, but that is not the case. Figure 6 shows that more recently the Great Recession caused deed recordation taxes to decline 35.4 percent in 2009. It appears that major broad-based cuts to federal spending (or threatened cuts) in 2012, 2013 and 2015 contributed to deed taxes declining significantly in those years.  The figure also shows that the current COVID-19 pandemic (and resultant national recession) also caused deed tax collections to decline 23.6 percent in 2020. (Coincidentally, the District increased its deed recordation and transfer tax rates from 1.45% to 2.50% for commercial properties valued at $2 million or higher in October 2019. We estimate absent that tax rate increase, deed tax collections would have declined approximately 38 percent in 2020 compared to 2019, making it the largest decline in deed tax collections in over 20 years.)

Figure 7 shows the annual percent change in deed tax collections by class.  In years of major decline, there tends to be a greater reduction in commercial sales activity than in residential sales activity. The greater contraction in commercial sales activity caused the value of all residential sales to account for 50 percent or more of all value sold in those same years (Figure 8). (Interestingly, the commercial office sales activity in the city began to decline in 2006, three years before the Great Recession of 2009. Hence, this sector may at times be a leading indicator of the broader economy and not just a lagging indicator.) But more generally, figures 7 and 8 suggest that annual residential property sales are the bedrock of annual deed tax collections, and the level of sales or notably lack of sales of commercial property causes the greatest declines/swings in annual deed tax collections activity.

Residential Property Sales in 2020

There were 9,270 residential homes sold in 2019 but only 8,469 (8.6 percent less) sold in 2020. The lower number of homes sold in 2020 is largely attributed to the 23.7 percent drop in single-family attached homes (Figure 9). Interestingly, neither of these three subsectors of the residential market experienced a decline in median sale prices in 2020 (Figure 10).

In addition to single family home sales, the residential property sales sector also includes the sale of multifamily (rental) properties. When we examined the sales of the largest multifamily properties in years 2014 to 2020, we find that there were fewer sales in 2020 than in 2018 and 2019. While this subsector tended to produce an average of $594 million in transaction volume in years 2014 to 2019, only 35 percent of that average was generated in 2020. This appears to be a major factor in the 27 percent decline in deed tax collections from the residential sector in 2020 as shown in Figure 7. Consequently, the total value of residential property sales as share of the total value of all residential property value in city dropped from 6.0 percent in 2019 to 4.3 percent in 2020. The properties shown in Figures 11 and 12 are large Class A & B multifamily residential properties with more than 100 rental units that were built or renovated after 2000. The average sale price for the over 2 million square feet of large multifamily building space sold in 2019 was $373 per square foot (CoStar).

Commercial Office Building Sales in 2020

The city’s commercial sector experienced a greater decline in deed tax activity than the residential sector in 2020. In the large commercial office building subsector, there were also fewer sales and lower transaction volume in 2020 (Figure 13). Although the average annual transaction volume in this subsector for years 2014 to 2019 was about $4 billion, 2020 saw only about 42 percent of that average amount (Figure 14). Assuming 2020 would have been relatively similar to the prior years, this suggests that approximately $2.3 billion in sales transactions did not occur in 2020, which is likely a major factor in the 42.7 percent decline in deed tax collections in the commercial sector in 2020 (Figure 7). Consequently, the total value of commercial property sales as share of the total value of all commercial property value in city dropped from 8.9 percent in 2019 to 5.0 percent in 2020. The average sale price for the over 7 million square feet of large commercial office space sold in 2019 was $516 per square foot (Delta Associates).

An Interpretation of Recent Trends and Fluctuations

Over the past 21 years, DC’s property market experienced not only remarkable growth but also major market fluctuations.  The greatest annual fluctuations appear to be correlated with national recessions, major broad-based cuts (or threatened cuts) to federal spending and the COVID-19 pandemic.  From the perspective of annual deed tax collections, it appears that these national economic shocks took a greater toll on the city’s large commercial office building sales sector than on the city’s residential sales sector. Also, the years in which such shocks occurred were promptly followed by strong rebounds in deed tax activity in both sectors. This suggest that these shocks caused a significant slowdown in sales activity (or even a postponement of a considerable number of sale transactions) for that year and maybe the following year with a relatively prompt return to more normal sales levels resuming shortly thereafter, particularly in the large office building subsector. 

The residential and commercial sectors of the city property sales market each account for about half of all taxable property value sold on an annual basis. The residential sector tends to grow healthily and is the relatively less volatile sector of the city’s property market. Hence, it can be considered the bedrock of annual deed tax collections. The commercial sector, on the other hand, has been growing faster on average and appears to be responsible for most of the volatility in annual deed tax collections activity.

LEED-certified buildings lower operating expenses, commands higher rents for residential units

Tackling climate change and advancing environmental sustainability is a challenge that is emerging as a key urban policy issue by an increasing number of U. S. cities, and the District of Columbia is a national leader on this front. The District of Columbia was the first city in the nation to pass major environmental sustainability legislation. In 2006, the city enacted the Green Building Act (GBA), which requires that nearly all new privately-owned commercial buildings meet the standards of the United States Green Building Council’s Leadership in Energy and Environmental Design (LEED) green building rating system. LEED is a leading design standard for green buildings across the country.

The city has consistently led the nation in the number of LEED-certifications and was designated the world’s first LEED Platinum city in 2017 (see here). In 2018, the District had 145 certified building projects with 37.1 million LEED-certified gross square feet (see here). Because of the legislative mandate, it is currently presumed that nearly all large commercial buildings built after 2009, when the law was fully enacted, are green in certain respects. Even though the legislation targeted commercial buildings, surprisingly, an increasing number of newly built large residential buildings have obtained LEED certification. In fact, 71 percent of all new apartment units in large multi-family residential buildings delivered in the city since 2014 are LEED-certified. This suggests that some residential developers have discovered considerable additional economic value in building LEED-certified buildings. To begin to understand this issue better, we conducted a study (see here) to assess the effects of LEED-certification on the operating expenses, particularly utility expenses, and rents of both large commercial office buildings and large multi-family residential buildings. 

Comparing LEED-certified to non-LEED buildings

The city’s GBA mandates all new private commercial development projects that are 50,000 square feet or larger meet, at minimum, the “Certified” level of LEED certification standards. Therefore, all commercial buildings built after 2009 presumably meet LEED-certified standards (per city building regulations). To discern between the office buildings that meet LEED-certified standards and those that do not, this study analyzed the 2018 rents, utility expenses and operating expenses for both older and newer buildings. A group of 35 large commercial office buildings built between 1990 and 1997 were considered “older” buildings and were presumed to not meet LEED-certified standards. These buildings were compared to 30 large commercial office buildings built between 2009 and 2018. These buildings were presumed to meet LEED-certified standards and are referred to as the “newer” buildings.

This study also compared the 2018 rents, utility expenses and operating expenses of 27 LEED-certified large multi-family residential buildings in the District to 26 non-LEED certified buildings of similar size, age and submarket locations. These 53 residential buildings comprised a total of 15,663 residential units in the District of which 7,299 were LEED units.

The impact of LEED certification on operating expenses and rents

The study found that operating expenses was on average $2.53 per square foot (7.43 percent) lower for the newer, LEED-certified commercial buildings and utility expenses were $0.80 per square foot (9.4 percent) lower than for older non-LEED-certified commercial buildings (see Figure 1). LEED certification was found not to have an appreciable effect on the average rent per square foot for newer buildings vis-à-vis older buildings.

For multi-family residential buildings, LEED certification lowered operating expenses by $1.39 per square foot (17.3 percent); utility expenses were $0.45 per square foot (7.8 percent) lower than for non-LEED buildings. LEED buildings were found to command rental rates $0.30 per square foot (10.2 percent) higher than comparable non-LEED buildings.

Figure 1

What does these findings mean for sustainability and housing affordability?

The study also found evidence that tenants in residential LEED-buildings have higher incomes than tenants in non-LEED, but otherwise comparable, buildings. This finding is related to the previously discussed finding that LEED buildings fetch about 10 percent higher rents (in an average of 27.2 square feet or 3.4 percent smaller space) and suggests that renters are willing to pay a premium for the sustainable living that LEED buildings provide. One might presume that this rent effect would generally preclude lower income households as tenants.

However, based on a closer review of the Office of Tax and Revenue’s 2018 building income and expense data (BI&E) for all income earning properties in the city, we found that at least 500 affordable housing units were Inclusionary Zoning (IZ) units in LEED-certified residential buildings. The city’s IZ program was enacted into law in 2006 and is one of many policy tools used by the city to provide more affordable housing units to low-income residents. The program requires a minimum of 8 –10 percent of the residential floor area of all new residential projects (including LEED projects) be set aside as units for low-income households.

This closer review of the data also revealed that at least 400 additional LEED units (exclusive of the 500 IZ units mentioned above) are in some type of affordable housing program (i.e. subsidized rent). Consequently, at least 900 low-income households in 2018 were afforded housing in some of the city’s newest, more expensive LEED residential developments, and thus participating in the District’s sustainable living movement.

A cross analysis between OTR’s individual income tax data and the real property tax BI&E data also revealed that 6 percent of tenants in LEED buildings filed income taxes as head of householders whereas there were only 2 percent of such tenants in non-LEED buildings. (Head of household tax filers are unmarried working adults with one or more dependents and tend to have lower annual income on average than single and married tax filers.) Furthermore, the study found that head of household tax filers in the more expensive LEED buildings earned on average $25,538 (39.1 percent) less than their counterparts in non-LEED buildings. This finding suggests that the District has found a way to achieve its twin, and what at first seem conflicting, policy goals of sustainable living and housing affordability.

The future of LEED in the District

The District of Columbia’s Green Building Act of 2006 required that only commercial buildings meet LEED standards. Yet a large and increasing number of residential buildings are LEED-certified (comprising 7,300 housing units in 2018), suggesting that there is a strong and vibrant market for LEED-certified buildings even in the absence of a legislative requirement.  This means that LEED buildings are not only environmentally sustainable but also make good economic and financial sense. The study also shows that LEED buildings do not necessarily compromise the District’s affordable housing goals; rather, the study shows that good affordable housing policy can be complementary to sustainable living. In any case, the growing number of both commercial and residential buildings in the city that meet LEED-certification standards will help the District of Columbia lower its overall carbon footprint more rapidly than anticipated at the enactment of the GBA in 2006.

What is this data?

The study used several types of microlevel administrative data from the District of Columbia Office of Tax and Revenue (OTR), including the 2018 Building Income and Expense data, 2018 Real Property Assessment data, and 2016 Individual Income Tax (IIT) data. The IIT data was used to analyze annual income for tenants of residential buildings.

The Mystery of the District’s Self-Employed

When you have eliminated the impossible, whatever remains, no matter how improbable, must be the truth.

-Sherlock Holmes

When the CARES Act passed in March, self-employed persons were granted eligibility to apply for and receive unemployment benefits for the first time in history through the Pandemic Unemployment Assistance (PUA) program.  The self-employed have always been a part of the economy, but the CARES Act marked a turning point for this business type with formal acknowledgement by legislators to the importance of supporting them. But who are the “self-employed”? The identity of the self-employed has long been a mystery. And like the solution to any mystery, one must ask the right questions, find the right clues, and piece together those clues to arrive at the truth.

With the self-employed people two narratives exist. In some cases, self-employed data is lumped in with businesses, and in others they are an employee for themselves. Even among policymakers, the overarching question of, “who and how many are self-employed?” is often debated. Are the self-employed only those people in the “gig economy” or are they established firms that we may frequent daily without knowing they are self-employed? To solve this mystery, we dug through publicly available federal data from the Census for the District of Columbia to gain a better perspective on this significant group. For the sake of simplicity, the self-employed referenced here are “single-person firms” where the owner is the only employee of the firm.

The Tale of the Self-Employed Establishment
From the business perspective, how many businesses within the District are considered one-person self-employed organizations? Using the Statistics on U.S. Businesses and Non-Employer Statistics Data from the Census for 2007 through 2017, Figure 1 reports that in the past ten years self-employed establishments have grown to account for 70 percent of all establishments in the District. Over this same period, the self-employed share of total establishments grew by 4.1 percentage points from 65.9 percent to 70 percent in 2007 and 2017, respectively.

Figure 1: Share of Establishments by Type, 2007 vs. 2017

Source: Census, Statistics of U.S. Businesses and Non-Employer Statistics


As of 2017, 54,965 establishments within the District were registered as self-employed. While these establishments make a significant impact in terms of the number of establishments, their contribution to District total wages and salaries is limited. Traditional businesses with an owner and employees will often budget anywhere from 15 to 30 percent of sales for payroll. Assuming an average of 22.5 percent for payroll as a share of revenues, ORA estimated from sales receipts data the payroll size of self-employed versus employer establishments and compared their contribution to total District payroll.

From the Employee Narrative
In the self-employed establishment, payroll expense varies depending on the share after expenses remaining. As noted in Figure 2, the self-employed account for approximately 1.0% of all payroll earned within the District between 2007 and 2017.

Figure 2: Share of Payroll by Establishment Type, 2007 vs. 2017 (in billions)

Source: Census, Statistics of U.S. Businesses and Non-Employer Statistics, ORA


The share of payroll accounting for those self-employed as employees modestly grew to 1.1% in 10 years, but overall remains marginal compared to the traditional employer establishments. Despite the total establishments that are self-employed, the core fact remains that they are still an employee and when thinking about payroll, this would only account for 60,000 potential employees within the District. Whereas employer establishments employed 527,004 employees according to the data in 2017. Thus, while the self-employed make a significant share of total establishments, as individual employees they are vastly outnumbered by those in traditional employment in the District.   

The Red Herring of the Self-employed and the App-service Employment
Contrary to popular belief, self-employed individuals are not relegated to only ridesharing or other app service employment. As Figure 3 shows, the majority of the self-employed are to be found in the Professional, scientific and technical services sector, one of the District’s largest employment sectors, and a major driver of District economic growth in recent years.

Figure 3: Top 10 Industries for Self-Employed (Total Establishments), 2017

Source: Census, Non-Employer Statistics


According to the Census data, in 2017 the total sales for self-employed establishments was $1.9 billion. In context, that was the going rate if you wanted to buy both the Tampa Bay Rays ($825 million) and Miami Marlins ($940 million) in 2017.. Looking back at Figure 3, Professional, scientific, and technical services accounted for 30 percent of the total self-employed establishments. Jobs within this sector include consultants, lawyers, and computer programmers. In terms of sales, the sector accounted for nearly 43 percent, or $821 million, of the total self-employed sales that same year. Real estate and rental and leasing sector, which includes real estate agents and property management companies, although a smaller share of total establishments accounted for an estimated 10 percent of the total sales in 2017. Combined with Professional, scientific, and technical services, the two sectors account for nearly 35 percent of the total establishments, and 53 percent of all self-employed establishment sales in 2017 or $1.0 billion. While many self-employed could be from ride-sharing, the data indicates a larger portion may be in more lucrative industries.

Concluding Remarks
The mystery of the self-employed has eluded policymakers for decades. Dueling narratives of self-employed as establishments or employees have complicated the issue even further. As establishments, the level of newly self-employed within the District has grown continuously since 2007 to become 70 percent of all establishments by 2017. Viewed as  employees alone underestimates the significance of self-employed as an important driver of District economic growth, given the share payroll in 2017 accounted for by self-employed was estimated to be 1%. Contrary to popular thought, the self-employed are not restricted to retail or transportation, but are prominent in well-established skill-based sectors of the District economy. Overall, their contributions are not limited to tip-based income but have amassed to $1.9 billion in sales annually. However, there is no easy solution to the mystery of the self-employed, only more questions. But, the Census data may be the cipher we need to begin unraveling this mystery and answering those questions in the future.

For an interactive experience, check out our blog dashboard companion piece in Tableau, “The Mystery of the District’s Self-Employed”

Using high-frequency data for real-time tracking of the economic impact of COVID-19 on the District of Columbia

The COVID-19 pandemic has wreaked havoc on US national, state, and local economies. One of the difficulties in assessing the extent of the economic impact is the lack of timely data. While measures to control the pandemic rapidly destroyed jobs in the retail and hospitality and leisure sectors, official US Bureau of Labor Statistics figures on jobs at the national level were not available until a week after the end of the month when the jobs were lost.  And at the state and local level, the jobs numbers are available two are more weeks after the end of the month.  Lag times for personal income and gross domestic product (GDP) measures are even longer. Initial estimates of national GDP are not available until a month after the end of a quarter, and it is even longer for state and local governments. For example, the US Bureau of Economic Analysis (BEA) published 1st quarter personal income figures for states and the District of Columbia on June 23, almost three months after the end of the quarter, and first quarter GDP figures for states and the District will not be available until July 30th.

To track the unfolding impact of the pandemic, we have used various high-frequency data, including daily and weekly unemployment claims, smartphone counts in the District of Columbia, and credit card data on expenditures. Below we described the trends for the smartphone counts and credit card spending before and after the start of the lockdown to control the pandemic.

Smartphone

Daytime District population, which includes commuters and tourists and almost doubles the resident population, drives the economic activity in the District. So, tracking the impact of the pandemic on daytime population is a key measure of the pandemic’s impact on DC’s economy. Figure 1 below shows the smartphone counts in the District from January 2017 through June 2020. With schools and businesses closed, DC saw its lowest daytime population numbers, by a wide margin, since the data was first collected in January 2017. The data, provided to the District by Thasos, shows a 69% drop in the number of people in DC compared to the same period the year prior (April 1-June 1). To put that in perspective, the drop from the historically highest average week for DC (first week in April AKA spring break), to the lowest average week (winter holidays/New Year’s Day), is 37%.

Figure 1: DC Average Daytime Population by Week

daytime pop

Tableau Link

When looking at specific days, blizzards and Christmas in DC have traditionally been the lowest days at 430k-450k daytime population, and the COVID-19 lockdowns have seen days in the 300k range.

Note: The data received by the District is one aggregate number per day and is therefore completely anonymized. The data pulls from a geofence that is aimed at capturing commuters and while it captures most of the city, it does not account for every person in DC every day.

Credit Card Data

Credit card spending data from Earnest Research, which is aggregated and stripped of any personal identification information, give a real-time view of how spending has declined during COVID-19. As Figure 2 shows, in DC total spending has fallen by about 30% since April 15, 2020 compared to the same period 1 year before.

Figure 2: DC Credit Card Spending, All Categories

DC All Spending

Tableau Link

As Figures 3-5 shows, some sectors had larger declines than others. Two of the hardest hit sectors are restaurants and hotels. Figure 3 shows that restaurant spending for the week of June 17 is 46% below the same period last year, while Figure 4 shows that hotel spending is almost 90% below the same period last year. On the other hand, Figure 5 shows that grocery spending soared at the beginning of the lockdown, rising as high as 45% in the first week of April compared to the same period previous year. Grocery spending has gradually fallen back to just above pre-pandemic lockdown levels.

Figure 3: DC Credit Card Spending, Restaurants

dc restaurant spending

Tableau Link

Figure 4: DC Credit Card Spending, Lodging

dc hotel spending

Tableau Link

Figure 5: DC Credit Card Spending, Grocery

dc grocery spending

Tableau Link

DC Spending Relative to US and other Jurisdictions

National credit card spending data has basically recovered to what it was in 2019. Cities are experiencing much larger declines due to loss of commuters and having a different mix of businesses compared to suburbs/rural areas. Figure 6 shows DC compared to a select group of cities. NYC has seen the largest total spending decline of any large city with a ~50% drop. DC has been down approximately 30% and Los Angeles down ~10% during this period.

Figure 6: DC Credit Card Spending Compared to Other Jurisdictions

dc compared

Tableau Link

$15 Minimum Wage and the Earned Income Tax Credit: Public Policy Interactions

On July 1, 2020, the minimum wage in the District of Columbia will be $15 per hour. Our  recently published study in the Economic Development Quarterly, finds that a $15 minimum wage will produce significant income gains for most of the District of Columbia’s 61,000 low-wage resident workers and only slightly impact the city’s level of relatively low-wage jobs (see here and here). The study also finds that in 2021 approximately 62 percent of the resident workers impacted by the city’s $15 minimum wage policy ($15 MWP) will consequently lose a sizable amount of their Earned Income Tax Credit (EITC). This policy-induced increase in wage income, however, is estimated to more than offset the amount lost in EITC for this subpopulation of resident workers.

Fig1

The Income Effects of the $15 MWP on the Workers that Claim the EITC

The federal EITC is based on a schedule where many EITC recipients earn a decreasing EITC amount as their annual income increases. The policy simulation models we used in this study indicate that most of the resident workers in this analysis are expected to lose some federal and DC EITC dollars as a direct result of the $15 MWP. Figure 2 shows that the average full-time worker in 2021 will gain $3,097 in higher annual wage income.  (Year 2021 is one year after the full implementation of the $15 MWP and when the national & local economies are estimated to be recovering from the current pandemic and recession.) However, the higher income from the $15 MWP will cause the worker to lose an average of $332 in combined federal and DC EITC, causing the average worker (with 1 EITC dependent) to be better off with a net increase in resources amounting to $2,765 or 11.3 percent (Figure 3). In contrast, full-time workers that do not have dependents and are not EITC recipients are likely to be only $2,587 or 10.5 percent better off (Figures 4 and 5). The interplay between the $15 MWP and the EITC is such that the consequent lower federal and DC EITC amounts for many under the $15 MWP are more than offset by the policy-induced wage rate increase.

Fig2_3

Fig4_5

Conclusion

On July 1, 2020, the minimum wage in the District of Columbia will increase to $15 per hour, and every year thereafter the wage will be increased in tandem with the area’s inflation rate. Via the policy interaction of the $15 MWP and the EITC, we find that there is a substantial overlap of subpopulations of DC resident workers from each policy. We estimate that of the 61,000 resident workers impacted by the $15 MWP, 38,000 of them will lose $16.4 million in federal and local EITC payments in 2021 in exchange for $54.6 million in higher wage income.

The economic burden of the pandemic is currently being borne mainly by low-wage workers in the hospitality and retail sectors. As the economy reopens and these workers are re-employed, the planned increase in the minimum wage will help in 2021 to reverse some of the economic setbacks to low-wage workers in the sectors most affected by the pandemic.

What are the sources of revenue for the District’s Government? DC Tax Facts, A Visual Guide, Part 1

This blog series is built on a report that analyzed annual tax revenues for the District’s Government.

In 1871, (before District residents had the right to self-government in the Home Rule Act of 1973) District legislators officially adopted taxes as the major engine to balance the District’s expanding annual budgets.[1] Questioning why they choose to tax real estate or why it is taxed the way it is (using the value of land and improvements or buildings, as compared to just the land value), and debating its fairness or economic efficiency is for policy makers to decide and not the intention of this discussion.[2] In this blog post and in later installments, we will study what are the sources of District Government revenues and how they are collected using visually aggregated statistics with our latest tax data.

To start, almost 65 percent of the District Government’s revenues came from its own taxes on various transactions, possessions, profits, goods, and services within its borders in Fiscal Year (FY) 2018. There are three other primary sources of revenue the District Government uses for its day-to-day operations and to pay for capital improvement projects. These other sources are the non-tax revenues generated by the District Government, Federal funding, and private grants or donations. Figure 1 represents all of the revenues in FY 2018 gathered by the District Government from the four sources of funding. The General Fund, which functions as a large pool of money, includes all the local revenues raised by the District Government and is comprised of taxes, fines, fees, charges, economic interests, and bond proceeds or bond administration fees. These local revenues are usually separated from Federal and private revenues in the city’s budget books. Later in this post, we describe the four main sources of revenues, where they come from, and how they are distributed among District programs and activities.

Figure 1: All the District Government’s Revenue in FY18 [3]



Local Revenue

The first and most important source of funding for the city’s balance sheet is the local revenue we generate for ourselves. These local revenues represent 74.3 percent of the total revenue collected in FY 2018. Figure 2 represents a snapshot of the different kinds of FY18 District local revenue.

Figure 2: Local Revenues Collected in FY18

Within the General Fund there are three appropriated or devoted funds: The Local fund, Dedicated Taxes fund, and Special Purpose (or O-Type or Other) Revenues fund. And there are two ways in which revenue raised from the District is distributed to agencies or governmental activities like education, health and social service, criminal justice, etc.:

  • Through the Local fund all the tax and non-tax revenues not legislatively restricted for a particular purpose are designated for each agency or activity through the city’s annual budget process. To access full reports on recent approved budgets please visit https://cfo.dc.gov/budget.
  • Or, through a legislatively required investment or reimbursement to an agency for a particular purpose, e.g. dedicated taxes and special purpose revenue. Dedicated tax revenue is transferred out of the Local fund and is not available for general budgeting. For example, a small percentage of the sales and use tax is dedicated to the Healthy Schools program every year. Special Purpose Revenue, i.e. O-Type or Other revenues, comes from non-tax revenues generated from fees, licenses, permits, etc. that are dedicated back to the specific agency performing the fee-based function.  For example, Capital Bikeshare’s usage fees go to the Department of Transportation’s Bicycle Sharing fund which covers the city’s share of the service’s maintenance and operation.

The District Government relies on three local taxes, income, property and sales and use, that flow into the General Fund, as shown in Figure 2. The individual income tax is the District’s main revenue source and it comprises 23.1 percent of all local revenues. The property tax is the second making up 18.7 percent of the Local fund. Taxes on commercial properties bring in most of the property tax revenue, partly because commercial property is taxed at a higher rate than residential property and the market values of commercially zoned buildings are much higher in comparison. And, the District’s sales and excise tax comprises about 17.9 percent, the third largest source, of the Local fund. In FY18, the District raised $8.9 billion in taxes — equal to over six percent of the District’s economy that produced $142.626 billion in gross domestic product in calendar year 2018.[4]

The inner pie chart of Figure 2 shows the major types of taxes/non-tax revenue as a percent of the total amount collected in the middle ring. The outer part of the pie chart breaks down each major tax and non-tax by source with the percentage that each source contributes to the total revenue collected on the outside.

Federal Revenue

Federal grants come directly from Federal agencies to District agencies to fund certain specified services or functions that the District as a state, county, city and school district manages, such as road repair, education, community development, among other activities. These grants come in various forms like block grants (funding for broad purpose programs like community development and provide more spending autonomy to District agencies); formula grants (formulas established by law that fund state-administered Federal programs such as Medicaid or TANF with most funding formulas determined by a state’s population, median income, poverty, etc.); certain entitlements (binding obligations by Congress  to pay for state-administered programs like Social Security); and competitive grants (grants that District agencies apply for and compete against other potential recipients who also meet a grant’s eligibility requirements). This means the amount of Federal funding from year-to-year does not stay the same.

Even though the Federal Government provides grants and payments to all 50 states plus their localities and U.S. territories, through the Federal Government’s own income tax revenue, the District has had a unique funding relationship with the national government. Due to structural budgetary issues like large amounts of tax-exempt properties, the costs of public events, such as Presidential inaugurations and national demonstrations, as well as financial mismanagement and other mitigating circumstances, the District’s Government came under the supervision of the Congress’ Financial Control Board in the mid-1990s. Through various agreements with Congress, the District relinquished financial responsibility over its public employee pension system before 1984, its prison and court systems, and received a higher share of Medicaid payments among others.

All the Federal money and private grants or donations go into the separate Federal and Private Resources Fund. Part of the reason for this is that when the District receives money from Federal sources it comes with conditions, guidelines or requirements, and cannot be indiscriminately spent on activities. There are, however, a few exceptions to fund placement, like Federal funding for capital projects going directly to the General Capital Improvements fund, or instances where a fraction of Federal funding is transferred to the General Fund to pay for the indirect costs an agency incurs while managing a Federal grant.

The Federal funds the District receives are grants or payments that vary in size, frequency, and intent. In FY18, Federal contributions or payments and operating grants, including private sources, accounted for roughly 26 percent of the District’s total annual budget.[5]

Federal payments are direct appropriations from Congress, usually to a District agency for a particular purpose like security or logistics for public events like state funerals, Presidential inaugurations and demonstrations; they are like formula grants but are not mandatory or based on certain indicators. Another example of a Federal payment would be for Medicaid and Medicare because they are Federal programs that District human support service agencies administer. Figure 3 represents all the Federal money spent in FY18 by agencies clustered by their similar functions. Because of differing fiscal years and funding lifecycles, the District’s governmental activities by agency cluster and source of funding is specified through money spent in its public financial reports. Funding from the Federal Government for human support services constituted over 55 percent of the total District budgetary expenses in this category.[6] Every other category received and used an insignificant amount of mandatory funding for Federally mandated programs in comparison, following a recent pattern of historically low levels of Federal funds received outside of major health programs.[7]


Figure 3: Federal Revenues Spent by Agency Cluster in FY18

Note: Because of differing fiscal years and funding lifecycles, the District’s governmental activities by agency cluster and source of funding is specified through money spent in its public financial reports.

Private or Non-Profit Sector Revenue

Finally, grants and donations from private individuals, foundations, or organizations to the District Government are used to supplement District funding for mutually accepted policy goals. Like Federal grants, private grants and donations usually come with stipulations that are narrow in scope and go directly to the implementing agency such as the Public Schools. Agencies in the education cluster collectively received almost 39 percent of the total amount of private funding in FY18.[8] Figure 4 shows a breakdown of how much each agency cluster spent from private sources in FY18. Again, because of differing fiscal years and funding lifecycles, the District’s governmental activities by agency cluster and source of funding is specified through money spent in its public financial reports. The total money received from private sources in FY18 represented only 0.1 percent of the District’s total revenue received in that fiscal year.

Figure 4: Private Grants and Donations Spent by Agency Cluster in FY18


Note: Because of differing fiscal years and funding lifecycles, the District’s governmental activities by agency cluster and source of funding is specified through money spent in its public financial reports.

In future posts related to this series, we will discuss income taxes, property taxes, sales and excise taxes, the gross receipts tax and other taxes. This series, and the report behind it, focus on taxes levied in the District so Federal, private, and non-tax sources of revenue will no longer be discussed after this post. If you would like to see more of this kind of tax analysis, please visit the OCFO’s website at https://cfo.dc.gov/node/230872 for the full Tax Facts Visual Guide report.


[1] D.C. Official Code § 47-401.

[2] Taylor, Yesim. “Land Value Tax: Can it Work in the District?” DC Policy Center, 21 Oct. 2019, https://www.dcpolicycenter.org/publications/land-value-tax/

[3] District of Columbia’s Government. (2019). FY 2020 Approved Budget and Financial Plan. Washington, DC: Office of the Chief Financial Officer.

[4] U.S. Bureau of Economic Analysis, Total Gross Domestic Product by Industry for District of Columbia, retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DCNQGSP, February 13, 2020.

[5] District of Columbia Comprehensive Annual Financial Report, Exhibit 2-d pg. 51, FY 2018

[6] DC CAFR, Exhibit D-2 Actuals, pg. 172-177, FY 2018

[7] The Center on Budget and Policy Priorities. “Federal Aid to State and Local Governments.” 19 April, 2018, https://www.cbpp.org/research/state-budget-and-tax/federal-aid-to-state-and-local-governments

[8] DC CAFR, Exhibit D-2 Actuals, pg. 172-177, FY 2018