Wilson Building Bulletin: D.C.'s busted budget

What was already expected to be a challenging budget season in D.C. was further scrambled late last month with two simple words: mild recession.

In a quarterly revenue estimate released on February 28, that’s how the city’s independent chief financial officer, Glen Lee, described the likely outcome later this year of President Trump’s slash-and-burn approach to the federal workforce, with D.C. expected to suffer a disproportionate burden because of its high concentration of federal workers. 

According to Lee, federal employment in D.C. could decline by 40,000, or 21 percent, over the next four years. That means “spending on restaurants, retail, transportation, and other taxable goods and services is expected to decline,” he wrote. 

The financial hit is already evident. According to the revenue estimate – which tracks how much money the city is collecting relative to what it expected – D.C. is facing a $325 million hole in the budget for the upcoming fiscal year, which starts in October. (For context, the current year’s budget is $11.6 billion.) Similar shortfalls are expected for the two following years, amounting to a $1 billion deficit over the next four fiscal years. 

It’s not yet full-blown panic stations; for context, during the first few months of the COVID-19 pandemic, the city had to suddenly trim more than $700 million out of its budget. But when coupled with ongoing uncertainties around just how extensive federal layoffs will end up being, it’s clear that this year’s budget process – which runs from April through July – will test lawmakers and advocates alike.

And part of that is because living in a world of decreasing means isn’t something many elected officials are used to. In fact, other than a brief interruption during the pandemic, the city has for years been pulling in more revenue than expected — sometimes to the tune of hundreds of millions of extra dollars. That has benefited D.C. during more challenging times — like the ones on the horizon. The city’s credit rating (which determines how much it costs to borrow money) remains extremely strong, and the rainy day funds are healthy. 

Still, the various political players have already started staking out their respective sides in the budget battles to come. Mayor Bowser says her budget will focus on priorities like schools, public safety, and revitalizing downtown — and that investing in redeveloping the old RFK stadium site will help convert it into an “economic engine.” Council Chairman Phil Mendelson similarly warns that lawmakers will have to be conservative in what they fund, and that he’ll fight any proposed tax increases. 

Left-leaning advocacy groups say D.C. shouldn’t scale back on social services as things get more difficult; Ward 4 Councilmember Janeese Lewis George is similarly warning that “we cannot balance this budget on the backs of working families and our most vulnerable residents.”

All of this, though, may well pale in comparison to what many D.C. officials say could be a nightmare scenario: if Congress makes significant cuts to Medicaid. Roughly a quarter of D.C. residents rely on Medicaid and any changes to the federal reimbursement rates could blow a much bigger hole in the city’s budget than what the ongoing federal layoffs have. Should that come to pass, mild certainly wouldn’t be the word to describe the impacts on D.C.

Forbidding fungi

As we reported last month, D.C. regulators are coming after the city’s plentiful cannabis gifting shops. And soon they will have a new target: magic mushrooms.

At the council’s legislative session on March 4, lawmakers unanimously approved an emergency bill that will allow police and other enforcement bodies to shut down shops that sell or gift psilocybin, more commonly known as magic mushrooms. The bill closes an existing loophole that made it virtually impossible for regulators to shutter shops if all they were selling was mushrooms, despite them being illegal. 

The legislation comes as sales of magic mushrooms have ticked up across D.C., in large part because of confusion over their legality. Back in 2020, D.C. voters approved Initiative 81, which called on D.C. police to minimize their enforcement of laws against psychedelics. What the initiative did not do, though, is legalize magic mushrooms, no matter how many of the vendors selling them claimed they were “I-81 compliant.” (That’s not actually a thing.) The bill also applies to stores that sell DMT, another psychedelic drug that is illegal, locally and federally.