As the world enters the seventh month of closures and job losses due to COVID-19, the District of Columbia, like many other jurisdictions, has adopted emergency action to limit the transmission of the disease and contain its economic impacts. The city is now looking for policies that will lead its residents and businesses to economic recovery.

This publication examines responses to the pandemic by the District and by other cities around the world, including short- and long-term policies adopted to aid recovery, actions proposed to close budget gaps, the impact of the pandemic on the future of cities, and additional recommendations for D.C. based on what other jurisdictions are considering for recovery.


Introduction

October marks the seventh month of closures and job losses due to COVID-19. To combat the health and economic impacts of the pandemic, many jurisdictions, including the District of Columbia, have implemented emergency measures; adopted short-term policies to cushion the initial shocks, and are now looking for longer-term policies to aid residents and businesses through depressed economic activity, and pave the road to recovery.

The return to normal economic activity will depend on the availability of a cure or a vaccine. Until then, the District will be able to begin some form of recovery only if it can show that leaving home and coming to D.C. as a commuter or visitor is safe. Accordingly, there is great focus on designing short-term policies to help the District safely open schools and places of business. Policy implementation will require that the disease spread is sufficiently contained to move to the development and publication of Phase III guidelines, as well as the implementation of strong testing and contact tracing programs.

The District relies most heavily on income taxes for revenue, making job protection and creation essential to recovery. By the end of August, the pandemic-induced recession had reduced jobs in the District by 58,400 (and private sector jobs by 62,700),[1] undoing six years of private sector job growth. While half of the city’s workforce can telework, many have become unemployed and are facing intense financial strain. Unemployed residents of the District are disproportionately Hispanic, young, with minor children, and previously employed in the food and hospitality sectors.

Return to work remains a significant roadblock on the path to recovery. Many D.C. residents who are unemployed have dropped out of the labor force. Some have done so because they must take care of children or elderly at home, some because they are worried that they will get sick and make others sick, and some because they have lost hope that they will find a job. Further, many who have kept their jobs are primarily working from home. An estimated 5 percent of traditional office workers are going to work, compared to approximately 24 percent in the entire metro region. Lack of commuters and tourists are depressing street level activity.

Many jurisdictions, including the District, are also contemplating policies to create a recovery that is inclusive. That could require an intentional plan with multiple goals and metrics. For example, after the 1997 Revitalization Act, the District formed an economic recovery plan, The Economic Resurgence of Washington, DC: Citizens Plan for Prosperity in the 21st Century. This plan laid out 40 policies that would help the District energize its economy, focusing on growing private sector businesses and jobs; educating and training a quality local workforce; rebuilding and strengthening low income neighborhoods; increasing business downtown; attracting and retaining residents; and promoting equitable economic prosperity and smart growth (for example, connecting Washington D.C. residents to metropolitan jobs with transit linkages).

Today, with businesses and the commercial real estate sector signaling distress, the District faces many of the same challenges. For the District to be competitive both nationally and regionally, it will have to once again develop plans that make the city an attractive destination for raising families or starting businesses. While the timeline for a COVID-19 vaccine is unclear, it is never too early to formulate post-pandemic recovery policies that can help retain existing businesses, attract new ones, increase employment, and reduce poverty.

This document examines responses to the pandemic in the District and in other cities across the world. The first section looks at what short- and long-term policies the District and other localities have put in place to aid recovery including public health interventions, direct aid to residents, and aid to businesses. The second section lists revenue interventions states and localities have considered—and sometimes adopted—in response to the fiscal shocks from COVID-19.[2]

The third section outlines potential longer-term economic impacts of COVID-19 on cities and urban employment centers. The fourth and final section concludes with a set of recommendations based on our review of what other jurisdictions are contemplating as they develop their long-term recovery strategies.

Relief interventions

Many cities facing similar challenges have put together task forces and plans to aid recovery. For this report, we reviewed recovery plans from 13 cities in 9 US states, as well as 10 international cities.[3] These plans include both short-term actions that are designed to provide financial stability to households and small businesses; and longer-term policies to address the historic economic impact of systemic racism.

D.C. short-term relief initiatives

The District’s short-term relief initiatives seek to mitigate risk factors associated with the recent economic downturn. (see details in Appendix 1)

Public health interventions undertaken by the District:

Direct assistance to residents:

Fiscal support to business community:

Private sector deregulation:

Short-term relief initiatives in other jurisdictions

When considering additional economic interventions, the District could look to some of the following creative initiatives pursued in other US and international cities.[4] (see details in Appendix 2)

Public health interventions:

Direct assistance to residents:

Fiscal support to business community:

Alternative support to business community:

Private sector deregulation:

Preparing for long-term relief

In early months of the pandemic (beginning in April), the ReOpen DC Advisory Group, brought public and private stakeholders together, and defined sector-based logistical details of the District’s immediate reopening plan including defining stages 1-4 of recovery.

As municipalities grapple with the immediate implications of the pandemic, longer-term relief efforts are still taking shape. The District has created DERT (District Economic Recovery Team), to help design the city’s long-term strategy. DERT is a multi-agency team housed at the office of the Deputy Mayor for Planning and Economic Development. The team will work with non-government entities to plan long-term support to local business, labor, and resident constituencies rebuilding post-pandemic.

Similar task forces across the country unite public and private sector leaders in post-pandemic rebuilding. Public sector participants tend to come from citywide economic development agencies. Business voices often hail from development companies, chambers of commerce, and major local firms. Similar economic recovery teams have been organized in Baltimore (Business Recovery Advisory Council), Boise (Economic Recovery Task Force), Boston, Chicago (Recovery Task Force), Los Angeles (Economic Recovery Task Force), Newark (Reopening and Recovery Strikeforce), New York (Recovery Strategy Group), Oakland (Economic Recovery Advisory Council), Portland (Prosper Portland Economic Recovery Task Force), and San Francisco (Economic Recovery Task Force), among others.

Most cities have yet to precisely define long-term recovery strategies. That said, local guidance documents shared nationally and internationally reference several common themes, with certain policy initiatives worth highlighting:

 

Fiscal impacts and closing the budget gap

The District’s tax revenue has been significantly dampened by COVID-19. Initially, the city was able to fill the gap created by revenue losses by a mix of budget cuts (approximately $190M) and the use of its rainy-day funds (approximately $1.45B over fiscal years 2020 and 2021) buying itself two-years of stability. The latest revenue estimates from the Chief Financial Officer suggest that recovery would be slower than initially anticipated: the CFO now expects further reductions in tax collections of approximately $200M each year in the financial plan period, beginning fiscal year 2021.

Other cities and states had to turn to tax increases to make up for the large projected budget deficits that would be impossible to close by cutting spending alone without drastic reductions and furloughing of government workers . For example, California is projecting a 16 to 21 percent decline in revenues, New Jersey is projecting an 18 percent decline, and New York State, 13 percent (D.C. projected decline was about 4 percent of local revenue).

City budgets have been even more vulnerable, especially in cities that rely heavily on sales taxes. On average, cities project a 13 percent decline in revenues, while face increasing cost pressures from COVID-19 related needs such as economic relief efforts, and spending related to health emergency measures. Whether the loss in revenue is short-term or longer-term would determine how cities would restructure their budgets in the coming years. However, a stark example of the need to address longer-term deficits is the recent downgrade of New York City’s credit ratings, which the rating agency tied to the city’s delaying of solving the longer term budget gaps.

In this section we provide a list of tax proposals considered and in some cases, adopted by the District of Columbia. We also review tax proposals considered by other cities and states across the country we came across in our research. We do not recommend adaptation of these measures in D.C., given the risks associated with raising taxes when economic fundamentals remain weak, and the prospect of  longer term shifts away from urban employment centers (next section) threaten the District’s tax base.

Tax proposals considered in D.C.

The District adopted several revenue initiatives which collectively generated around $39 million in fiscal year 2021 and approximately $45 million in the outyears. Most of this additional revenue has been earmarked for COVID-related spending such as school-based mental health support, rent assistance, and homelessness programs.

These include:

The District recently considered but declined to raise taxes on wealthier residents earning over $250,000 in annual income. A proposal to tax sales of advertisements and personal information was similarly rejected. The city also changed the way it taxes motor fuel sales, but the tax revenue from the gas tax is dedicated to the Highway Trust Fund (with a newly added surcharge supporting the capital budget) and therefore does not impact the operating expenditures.

Tax proposals considered by other jurisdictions

Cities around the country have been confronting similar revenue challenges. This section includes listed policy proposals being considered and implemented in other jurisdictions, some of which resemble the District’s own initiatives. (for details, see Appendix 3)

Themes that emerge across the proposals listed below include:

Personal income taxes:

Corporate income or franchise taxes:

Sales taxes:

Property taxes:

Impact of the pandemic on cities

The rapid shift to working from home has greatly disrupted the commercial real estate sector and has led companies around the world to reevaluate their post-pandemic workplace requirements. There are not enough economic data to make definitive observations on how the pandemic is changing the attractiveness of cities. However, there is an increased expectation that the impacts of the pandemic on the workplace—including telecommuting becoming the norm—will linger over time. Below, we present some information on how COVID-19 is perceived to impact cities, and how landlords, tenants, and employers are responding to the changing workplace conditions, both in the D.C. region and nationwide.

Lease amendments and concessions

Effect on vacancy, availability, and demand

Return to the workplace

Rent shortfalls

Office flight and de-densification


Further recommendations for D.C. 

The District has already responded to COVID-19 and its impacts on the community with expanded testing freely available to residents, a thoughtful reopening plan and strong legislative action. Our research on other jurisdictions have identified the following items as potential next steps for the city:

Health:

Return to the workplace:

Support to the business community:

Resident assistance:

Transit:

Regional coordination:


Emilia Calma and Sunaina Kathpalia prepared this report with the assistance of Benjamin Topa, intern at the D.C. Policy Center.

Feature photo by Ted Eytan (Source)

 


Appendix

Local pandemic relief efforts

Type Policy Jurisdiction Details Deal reached?
Fiscal support to business community Tax relief D.C. • Interest and penalties eliminated (as of March 17) on sales and use taxes due in early 2020 Y
Grants D.C. • $25 million Small Business Recovery Microgrant Program (launched March 17) offered $1,000-$14,000 to self-employed and small businesses Y
D.C. • $4 million Streatery Winter-Ready Grant Program (launched September 21) offers $6,000 to District eateries purchasing equipment for winter-weather outdoor dining Y
D.C. • $5 million Childcare Provider Relief program offers $2,091-$17,889 grants to childcare facilities Y
Relief package D.C. • $5 million for hospitality and restaurant recovery
• $5 million for hotel recovery
• $5 million for undocumented workers
• $3 million for destination marketing, to attract visitors
Y
Utility relief D.C. • As of March 17, disconnections prohibited and late fees waived
Procurement agreements D.C. • Publication of vendor-purchasing plan aimed at supporting woman- and person-of-color-owned businesses Y
Private sector deregulation Use allowances D.C. • Expanded allowances for outdoor dining on curbs and in parking spaces (streateries and parklets) Y
Alcohol licensing D.C. • Permitted sale of to-go alcoholic beverages Y

Non-Local pandemic relief efforts

Type Policy Jurisdiction Details Deal reached?
Public health interventions Tracking Virginia (state) • Opt-in Covidwise tracing app alerts users who could have been exposed to COVID-19
• Based on Google/Apple technology
• Similar technology subsequently adopted in Nevada, California, Washington, Oregon, others
Y
Paris (France) • Adopted Covidom, an app to monitor self-quarantined patients Y
Testing New York City • Mandatory, randomized monthly testing for 10-20% of students attending public schools for in-person instructions Y
Telemedicine Amsterdam (Netherlands) • Adopted Corona, a telemedicine app
• Geographic range expanded via partnerships with hospitals and telehealth providers
Y
PPE distribution Denver • Distributing 4,000 free PPE to small businesses with >25 employees
• Public-private partnership worth $1.5 million in federal emergency funds
Y
Madrid (Spain) • Free PPE distributed at key public transit nodes Y
Paris (France) • Free PPE distributed at key public transit nodes Y
Transit/crowding San Francisco • Sanitizer available on public transit
• Public transit vehicles cleaned more regularly
Y
Rio de Janeiro (Brazil) • Mayor has suggested developing distinct working schedules and commuting times for each industry, to avoid transit overcrowding
Chicago • Temporary partnership with bikeshare provider, Divvy
• 50% discounts on bikeshare memberships; 66% on short-term rentals
• Free bikeshares for healthcare personnel
Y
Direct resident assistance Worker protection Chicago • Prohibited employer retaliation against workers complying with stay-at-home orders Y
Utility assistance Detroit • Restored water services for households subject to stoppages due to unpaid bills Y
Housing subsidy New Orleans • $10.4 million in state funds towards local rental and utility subsidies for financially strained tenants
• Included funding for shelter expansion and rehabilitation
Y
Unemployed assistance Fort Worth • Issued online guidance to workers navigating the unemployment claims process Y
Job-search assistance Los Angeles • Launched online portal to connect displaced workers to businesses with immediate hiring needs Y
Fiscal support to business Grants Boston • $500 grants to individual artists financially affected by COVID-19 Y
Seattle • $100,000 in direct relief for artists and creative workers, funded by partnerships with 2 private organizations
• $1 million Arts Stabilization Fund to invest in cultural organizations
Y
Tokyo (Japan) • Subsidies for small businesses adopting telework technologies Y
Rent/mortgage subsidy Utah (state) • $40 million COVID-19 Commercial Rental Assistance Program (created April 30) offers rent and mortgage relief to small businesses• Initially, grants up to $10,000 made available to 1,630 firms with <100 employees• Following early success, program expanded to businesses with <250 employees; grant ceiling raised to $30,000• Applications open until funding depleted. Y
Loans Milan (Italy) • Loans up to €15,000 for freelancers transitioning to telework Y
Tax break Lisbon (Portugal) • Under Renda Segura (Secure Income) Program, municipality offers €450-€1,000/month for 5-year rentals of homes currently on the short-term market
• Homes given to low-income families
• Revenue is property and capital gains tax-exempt for landlords
Y
Madrid (Spain) • 25% reduction in real estate, business activity taxes for commercial, leisure, and hospitality businesses that retain employees Y
Expedited payment Copenhagen (Denmark) • Accelerated DKK 600 million in invoice payments to 4,500 procurement partners
• Program aimed at preserving supplier liquidity
Y
Barcelona (Spain) • Mayoral decree guaranteed continuity of public contracts with procurement partners
• Public works contracts excluded, given public health constraints
Y
Alternative support to business community Consulting Seattle • Free consultations to answer commercial lease questions for small businesses and nonprofits with <50 employees Y
Bilbao (Spain) • Free consultations from Bilbao City Council for SMEs and self-employed people
• Received 510 inquiries in 10 days
Y
Lisbon (Portugal) • Specialists (banking, finance, consulting, communication, legal) available to advise small businesses Y
Private sector deregulation Santa Monica • Extended 1-year time limit for when legal, non-conforming use is considered “abandoned” for restaurants and retail.
• Increased parking allowance for change of use (intended to remove parking as a potential barrier in establishing a new business)
• Encouraged flexibility in change of use, the proposed amendments were adopted
Y

 

 

Revenue-raisers

Type Policy Jurisdiction Details Deal reached?
Personal taxation Millionaire income tax New Jersey (state) • Raised tax rate on income >$1 million from 8.97% to 10.75% (10.75% is current rate for income >$5 million)
• Expected to raise $390 million
Y
New York (state) • Raised tax rate for income >$5 million to 9.32%; >$10 million to 9.82%; >$100 million to 10.32%
• Highest state income tax bracket currently 8.82%
N
California (state) • Added 1% surcharge to gross income >$1 million; 3% on income >$2 million; 3.5% on income >$5 million
• Top marginal tax rate currently 13.3%
N
Income tax hike Massachusetts (state) • University of Massachusetts economists suggest raising personal and corporate income taxes by 1%• Together, hikes could raise $2.68 billion N
Increased progressivity of income tax Illinois (state) • State constitution currently calls for flat income tax• Constitutional amendment would create graduated income tax N
Corporate taxation Industry-specific taxation New York (state) • Possibility of taxing tech giants that have thrived throughout pandemic N
Payroll tax Seattle • Graduated payroll tax for business with payroll expenses >$7 million
• Exemptions for public entities, grocery, gas, liquor businesses
• 10-year sunset provision
Y
Tax break deferral California (state) • Delayed tax breaks for medium and large businesses
• Expected to yield $4.4 billion
Y
Income tax hike Massachusetts (state) • University of Massachusetts economists suggest raising corporate and personal income taxes by 1%• Together, hikes could $2.68 billion N
Increased progressivity of income tax Oakland • Graduated income tax: 0.06% on gross receipts <$1 million; maximum rate of 0.335%
• Current flat tax on income is 0.06%
N
San Francisco • Progressive gross receipts tax surcharge: 0.1% for firms with executive compensation ratios >100:1, up to 2% for executive compensation ratios >1,000:1 N
Sales taxation Sin tax Chicago • $53 million revenue from inaugural 6 months of marijuana tax Y
Georgia (state) • Raise cigarette tax from 37 cents/pack to $1.35 N
Colorado (state) • Raise cigarette tax gradually from 84 cents/pack to $19.94/pack by 2021 and 2.64/pack by 2027
• Start taxing nicotine and vaping products at 30% by 2021, and at 62% by 2027
Property taxation Property tax increase Nashville • Raise property taxes from 0.03155% of assessed value to 0.04221% of assessed value (34% increase) Y
Chicago • Mayor would not rule out property tax increase to cover budget shortfall N
California (state) • Proposition 15 would remove commercial property tax cap at 1% of assessed value with <2% annual increases
• Exemptions for <$3 million properties
N

 

Notes to the text

[1] Seasonally adjusted, based on the State and Area Employment, Hours, and Earnings data provided by the Bureau of Labor Statistics.

[2] Each jurisdiction had different goals and faced different constraints in considering tax hikes. Some—like California—are faced with close large budget gaps without having to worry too much about interjurisdictional competition for businesses.

[3] 9 US states: California, Colorado, Georgia, Illinois, Massachusetts, New Jersey, New York, Utah, Virginia

13 US cities: Boston, Chicago, Denver, Detroit, Fort Worth, Los Angeles, Nashville, New Orleans, New York City, Oakland, San Francisco, Santa Monica, Seattle

10 international cities: Amsterdam (Netherlands), Barcelona (Spain), Bilbao (Spain), Copenhagen (Denmark), Lisbon (Portugal), Madrid (Spain), Milan (Italy), Paris (France), Rio de Janeiro (Brazil), Tokyo (Japan)

[4] The following sites have collected information about exemplary COVID-19 economic recovery initiatives undertaken in cities and states around the world:

OECD, City Policy Responses: http://www.oecd.org/coronavirus/policy-responses/cities-policy-responses-fd1053ff/#annex-d1e8712

Institute for Local Self-Reliance: https://ilsr.org/information-on-covid-19-small-business-assistance-programs/

 

D.C. Policy Center Fellows are independent writers, and we gladly encourage the expression of a variety of perspectives. The views of our Fellows, published here or elsewhere, do not reflect the views of the D.C. Policy Center.

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