June 2009 Revenue Estimates

June 22, 2009

1350 Pennsylvania Avenue, NW

Suite 203
Washington, DC 20004
(202) 727-2476
www.cfo.dc.gov

Government of the District of Columbia

Office of the Chief Financial Officer 1
Natwar M. Gandhi, Chief Financial Officer
 June 2009 Revenue Estimate
Local Source, General Fund Revenue Estimate ($ millions)
FY2007 FY 2008 FY 2009 FY2010 FY 2011 FY 2012 FY2013

February 2009 5,169.4 5,029.5 5,132.0 5,298.8 5,540.0

Change (190.0) (150.2) (211.5) (223.2) (251.4)
June 2009 5,180.0 5,328.2 4,979.4 4,879.3 4,920.4 5,075.6 5,288.7
Percent growth over
previous year 2.9% -6.5% -2.0% 0.8% 3.2% 4.2%

2
 Changes Since June 2008
Changes Since June 2008, Local Source, General Fund Revenue Estimate ($ millions)
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013
June 2008 budget 5,562.9 5,831.7 6,099.2 6,402.5 -

Change September 2008 (130.7) (151.9) (148.5) (162.3)

Change December 2008 (127.1) (303.8) (330.4) (327.5)

Change February 2009 (135.7) (346.3) (488.3) (613.8) (676.9)

Change June 2009 (190.0) (150.2) (211.5) (223.2) (251.4)

June 2009 4,979.4 4,879.3 4,920.4 5,075.6 5,288.7
Change in the estimate
since June 2008 (583.5) (952.4) (1,178.8) (1,326.9) n/a
Loss sustained compared
to June 2008 10.5% 16.3% 19.3% 20.7% n/a

Dollar change year to year (100.1) 41.1 155.1 213.1

Percent change year to year -2.0% 0.8% 3.2% 4.2%
3
 DC Economy
• DC is not immune to US recessions -- resident employment has fallen sharply.
– DC resident unemployment rate rose from 5.8% in December 2007 to 10.7% in
May 2009, compared to 5% and 9.4% nationwide.
– Recovery will be slow. Projections indicate that resident employment may not
fully recover to pre-recession levels until 2012 at the earliest. It may be as late as
2015.

• Visitor Industry outlook has worsened since February 2009.

– Hotel revenues in Feb – Apr 2009 were down 7.1% from the same period in 2008
– Overall, tourism related sales tax revenues as measured by the convention center
transfer (a portion of hotel and restaurant sales) are flat.

• Housing and Commercial Office outlook relatively unchanged since February.

– Single Family Home sales increased 19.6% in Feb-Apr 2009, but average prices
were down 21.6%, compared with the same period of 2008.
– Condominium sales were down 4.6% for the same period while prices were up
17.8%.
– Commercial Office Space: As of March DC’s 8.3% vacancy rate still out paced
that of the suburban Maryland (12.8%) and Northern Virginia (12.9%).
4
 Changes in FY 2009
June 2009 revised estimate for FY 2009 compared to the February 2009 estimate ($ millions)
Estimate Variance
Revenue Source Feb-09 Jun-09 Amount Percent
Property (net of TIF/CBF) 1,943.2 1,820.6 (122.6) -6.3%
Sales (net of WCCA transfer, TIF/CBF, parking
tax transfer to DDOT, ballpark sales tax) 885.1 816.4 (68.6) -7.8%
Individual Income 1,141.8 1,112.4 (29.5) -2.6%

Business Income (corp. franchise and UB tax) 345.1 345.1 - 0.0%

Gross receipts (net of Ballpark Fund transfer) 252.6 260.1 7.5 3.0%
Deed and economic interest taxes (net of
transfers to HPTF and Comprehensive
Housing Strategy Funds) 144.7 144.7 - 0.0%
Estate 70.0 70.0 - 0.0%
Non-tax & lottery 386.9 410.1 23.2 6.0%
Total 5,169.4 4,979.4 (190.0) -3.7%
5
 Changes in FY 2009
• Property Tax: $122.6 million reduction
– Accounts for almost two-thirds of $190.0 million reduction.
– Class 3 properties have been reclassified.
• After first half billing, over 70% of Class 3 properties applied for
and were granted exceptions by DCRA, re-classifying these
properties to the lower Class 1 or Class 2 rates. ($37 million drop in
collections through May)
– More taxpayers are not paying taxes.
• Despite the fact that the 2009 first half real property tax billing was
17% higher than last year’s, payments are significantly lower.
• Collection rate for Class 1 properties is 82.5%, down from 87% last
year; collection rate for Class 3 properties is 16.5%, down from
24.6%. ($20 million drop in collections through May)
• This did not happen in the 2001 recession.

6
 Changes in FY 2009 (cont’d)
• Sales Tax: $68.6 million reduction
– Since February, the sales tax collections have dropped significantly.
• Annual growth rate through December was 4.2%; growth through
May is -2.7 percent, a swing of almost 7 percentage points.
• In particular, tourism-related sales tax revenues have fallen off
sharply with flat YTD growth in the convention center transfer (a
portion of the hotel and restaurant sales tax revenue) through May.
• Likewise, Virginia reported in February that sales taxes were
virtually aligned with the revenue estimate but they now report that
the collections are lagging significantly behind the estimate.

7
 Changes in FY 2009 (cont’d)
• Income Tax: $29.5 million reduction
– Non withholding income is lower than expected
• Estimated payments and final payments are significantly less than
originally forecast.
• Through May, estimated payments have dropped 30% and
payments are 44% less than the similar period in FY08.
– Both Maryland and Virginia report that non withholding
income tax is also significantly lower than last year.

8
 Use of Contingency Reserve Fund
in FY 2009
• The Contingency Reserve Fund may be used to cover revenue shortfalls
experienced by the District government for 3 consecutive months (based on
a 2 month rolling average) that are 5% or more below the budget forecast.

• The collections in January-March meet this three-consecutive-months test.

• The District may draw on the Contingency Reserve Fund to fund the
$190.0 million revenue decline in the June 2009 estimate, which can be
accommodated by the balance in the Fund.

• The District must replenish at least one-half of the $190 million drawn in
FY 2009 by the end of FY 2010, raising the maximum FY 2010 gap from
$150.2 million to $245.2 million.

9
 Changes in FY 2010
June 2009 revised estimate for FY 2010 compared to the February 2009 estimate ($ millions)
Estimate Variance
Revenue Source Feb-09 Jun-09 Amount Percent
Property (net of TIF/CBF) 1,853.6 1,784.7 (69.0) -3.7%
Sales (net of WCCA transfer, TIF, parking tax
transfer to DDOT, ballpark sales tax) 870.2 811.2 (59.0) -6.8%
Individual Income 1,109.5 1,069.4 (40.2) -3.6%
Business Income (corp. franchise and UB tax) 376.5 376.5 - 0.0%
Gross receipts (net of Ballpark Fund transfer) 253.5 261.1 7.6 3.0%
Deed and economic interest taxes (net of
transfers to HPTF and Comprehensive
Housing Strategy Funds) 115.5 115.5 - 0.0%
Estate 60.0 60.0 - 0.0%
Non-tax & lottery 390.6 401.0 10.4 2.7%
Total 5,029.5 4,879.3 (150.2) -3.0%

10
 Changes in FY 2010 (cont’d)
• FY 2010 estimate is lower for the same reasons as the FY
2009 reductions.

• The FY 2010 reduction for the real property tax is lower in FY

2010 because the estimate assumes that a portion of the unpaid
FY 2009 real property taxes will be paid in FY 2010 before tax
sale.

11
 Dedicated Taxes
Dedicated Taxes* ($ thousands) FY2009 FY2010 FY2011 FY2012 FY2013

Community Benefit Fund (Real property and

sales taxes) 13,971 13,271 12,883 13,001 14,095

Neighborhood Investment Fund (Personal

property tax) 10,000 10,000 10,000 10,000 10,000

DDOT capital (Parking sales tax) 26,112 27,389 30,378 31,393 32,433

School Modernization Fund (Sales tax)** 106,000 - - - -

Healthy DC Fund (Insurance premium tax) 7,593 17,486 17,486 17,486 17,486

Nursing Facility Quality of Care Fund

(Healthcare provider tax) 11,000 11,000 11,000 11,000 11,000

Housing Production Trust Fund (Deed taxes) 22,358 17,900 18,092 21,074 23,289

Total 197,034 97,046 99,839 103,954 108,302

*Not including taxes dedicated to paying debt service (TIFs and Ballpark) and to WCCA (see next page) and to Highway Trust Fund.
**In the proposed FY2010 budget and financial plan, starting in FY2010, sales and use taxes will no longer be dedicated to the School
Modernization Fund.
12
 Dedicated Taxes (cont’d)
Dedicated Taxes -- Bond Financing
and WCCA ($ thousands) FY2009 FY2010 FY2011 FY2012 FY2013

Ballpark Fund (Ballpark ticket sales

tax, ballpark fee, gross receipts
taxes) 42,906 43,081 43,867 44,895 45,696

Tax Increment Financing (Real

property and sales taxes) 43,432 55,792 77,261 71,499 76,336

Convention center (Hotel and

restaurant sales taxes) 91,950 93,054 97,055 101,229 105,581

Total 178,289 191,927 218,184 217,623 227,614

13
 Other States
• NCSL: With few exceptions, state revenues are performing below the current
estimate.

– Personal income taxes (reported by 31 states) and sales taxes (25 states) are
coming in below the current estimate.

• Rockefeller Institute: State revenues have declined significantly.

– In January–March 2009 state tax revenue declined by 12.6 percent, the largest
decline over the last decade.

• NASBO: State spending growth is slowing and ending balances are declining.

– State expenditures are expected to decline in both FY 2009 and FY 2010. This
is the first time that expenditures have declined in consecutive years in the 30
years that NASBO has been collecting this data.
– Ending balances have dropped from $62.3 billion or 9.1 percent of
expenditures for 2008 to an estimated FY 2009 level of $36.7 billion or 5.5
percent of expenditures.

14
 Other States (cont’d)
• CBPP: States are reporting current year deficits.

– 29 states having reported budget gaps during the FY 2009 budget development
process that totaled $48 billion.
– During the year, 43 states have reported budget gaps totaling $60 billion or 9.2
percent of the budget (including the District of Columbia).
– Thus, states have been faced with a total of $108 billion (16.1 percent of the
budget) in budget gaps in FY 2009.

• CBPP: States are reporting out-year deficits.

– 46 states are facing FY 2010 budget gaps that total $133 billion or 18.9 percent
of the budget for those states.
– In most cases some or all of these budget gaps have been closed through a
combination of spending reductions, revenue increases, or use of reserves.

15