D.C. revenues could return to fiscal year 2019 levels by fiscal year 2022, as vaccines are deployed and the economy recovers.
That’s according to updated revenue estimates released Wednesday by the District’s Office of the Chief Financial Officer.
The new estimate is a revision to the September estimate for fiscal year 2021 to 2024. D.C.’s fiscal year begins in October and ends Sept. 30 the following year.
“Estimated revenue is $461.8 million below budgeted revenue for the FY 2021 — FY 2024 financial plan period despite upward revisions of $320.1 million when compared to the September 2020 estimate,” a memo from D.C. Chief Financial Officer Jeffrey S. DeWitt said.
But before things return to normal, the economic outlook for this winter has worsened due to the resurgence of the virus and new restrictions implemented to control the spread.
“As a result, the economic recovery will be slower in the last quarter of calendar 2020 and the first quarter of calendar 2021 than forecasted in September.,” the memo said.
The memo estimates Phase 2 restrictions to remain in place until the end of March; Phase 3 in spring and summer; and Phase 4 — when most restrictions are lifted — to start in fall 2021.
D.C. Council Chairman Phil Mendelson called the revised estimates a “relief.”
“While we know that a great many of our businesses — small businesses, restaurants, hotels and sports venues — are struggling to keep alive, the city’s economy is actually stronger than expected,” Mendelson said in a statement.
Mayor Muriel Bowser said that it is hard to celebrate that the District’s “fiscal loss is less bad that we had feared.”
“We still have health care workers exhausted from the burdens of the pandemic; families and individuals struggling to make rent and mortgage payments as well as paying for basic necessities; and small businesses contemplating how they will weather the winter months,” Bowser said in a statement. “However, this forecast shows that because of a strong fiscal foundation and steady stewardship throughout the response and recovery, we are resilient and we will get through this together to show that we are the District of Comebacks.”
DC revenue and jobs
District revenue sources tied to in-person customers, commuters or occupied offices — such as sales, deed taxes, licenses and fines — declined more than 20% in 2020, and they are expected to fall more in 2021. They are not likely to fully recover before 2024.
Meanwhile, District revenue that relied online or remotely — such as income, gross receipts and property taxes — grew 4% in 2020.
D.C. expects residential property assessment growth to remain strong in 2021, but large office buildings are expected to decline due to reduced leases and high-vacancy rates.
“Overall, the assessed value for commercial real property is expected to decline in FY 2021 and not recover fully to the FY 2020 level until FY 2025,” the memo from the Office of the Chief Financial Officer said.
The net job loss in D.C. from February to November was 53,700 or 6.7%.
But higher-wage government and professional service sectors gained 5,400 jobs or 1.5%, and two-thirds of all losses were in the lower-wage-hospitality and business services.
Hospitality tax revenue — hotels and restaurants — declined 46% in FY 2020.
Mendelson said this sector tends to employ the lowest-wage workers, “people least able to weather a financial recession.”
However, an earlier recovery than estimated is expected in the hospitality industry due to the vaccine progress.
Revenue from sales tax declined by 23.5% in 2020, down $30 million more than estimated in September. While retail spending, including online sales, grew only 2% in FY 2020 and was the only major sales tax category to grow.
What could happen after the pandemic
The Office of the Chief Financial Officer said that after the pandemic, workers could permanently decide to work from home, which means the need and demand for office space could decline.
When the public health emergency is lifted, there could be a surge in demand for entertainment, such as dining, performances and sports. However, there might be lingering discomfort about gathering together or less desire to travel for entertainment.
There is also concern that employers might decide to allow for greater remote working. While this might mean more people moving to the District, there is also the possibility of people moving out of D.C.
“If this becomes a reality, there is a risk to the outlook as population growth has been a major driver of District revenue growth over the last two decades,” the memo stated.
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