Bowser Cuts Funding For Affordable Housing But Keeps Major Projects In Proposed Budget

The District is facing major revenue shortfalls as the coronavirus continues to halt economic activity, and Mayor Muriel Bowser Monday released her proposal for cutting the city's spending.

Bowser's proposed Fiscal Year 2021 budget would reduce funding for the city's main affordable housing fund, and it would cut the budget for the Office of Planning, two areas that will impact the commercial real estate industry if the cuts are approved.

While it cut funding to some agencies, the budget avoided major layoffs and tax increases, and the budget retains funding for some of the District's largest developments, transportation projects and new hospitals.

The District is projecting revenue losses of $722M for FY2020, which ends Sept. 30, and $744M for FY2021. The largest causes for the revenue shortfall are the decreased sales tax from hotels, restaurants and retailers, the economic sectors hit hardest by the pandemic.

D.C.'s main affordable housing vehicle, the Housing Production Trust Fund, would see its funding reduced from $116M to $100M under the proposed budget. The fund previously received $100M annually before the mayor increased it last year. She said she had hoped to grow the fund again this year before the pandemic began, but she said she is not backing away from her goal of adding 36,000 housing units by 2025. 

"I am confident our development community, especially our affordable housing development community, is very creative, they have looked at every tool in the toolbox to get things done," Bowser said during a press conference Monday. "Our committment to getting to our units remains, and we will continue to look as the economy improves on how we can amp up this investment."

Additionally, the mayor proposed cutting the Office of Planning's budget from $14.4M to $11M. The Office of Planning has managed the ongoing rewrite of the Comprehensive Plan, the document that guides the city's long-term development. A Deputy Mayor for Planning and Economic Development spokesperson said the cut would not require layoffs but would reduce the agency's spending on outside contractors. 

"The Mayor’s FY21 proposed budget preserves all of OP's staffing but reduced local funding for contracting, which we have typically used to provide specialized support around areas like market analysis, community engagement, and design," the spokesperson wrote in an email. "OP will fully leverage our staff, who are experts in a variety of planning disciplines, to continue to manage and produce our new generation of plans and studies and to continue to engage with the community in a meaningful way."

Dantes Partners Managing Principal Buwa Binitie, a top affordable housing developer and chair of the D.C. Housing Finance Agency, said the HPTF cut will likely lower the number of new affordable housing projects that move forward, but he said he sees this as a necessary sacrifice.

"We all wish this did not happen, but the District is making sacrifices and the people who are keeping the District moving are working harder than before," Binitie said. "A minor cut in the Housing Production Trust Fund should be understandable, as far as I'm concerned."

DCHFA, an independent entity, has yet to release its proposed budget, but Binitie said he expects similar cuts will need to be made. He noted that the mayor's budget proposal would support affordable housing through several other mechanisms. It includes $76M for the D.C. Housing Authority to repair the city's public housing stock, $35M to expand permanent and temporary supportive housing and $1M for an affordable housing preservation fund. 

The budget would also continue to fund developments that would create new housing through public private partnerships, including $75.5M for the McMillan Reservoir development, $122.6M for the St. Elizabeths East development and $14.5M for development in Hill East.

Additionally, the mayor proposed funding to support the construction of the two new hospitals she announced last month: $365M for a new hospital on the St. Elizabeths East campus and $250M, including future tax abatements, for a new Howard University Hospital. 

The proposal would also continue to fund transportation projects, including $113M to extend the D.C. Streetcar to the Benning Road Metro station, $117M for the K Street Transitway, $146M for streetscape improvements and $56M in road and intersection safety improvements.

Binitie said he was glad to see funding set aside for these development, healthcare and transportation projects because they will help stimulate the District's economy as it looks to recover from the economic crisis. 

"Any and all economic development activity is going to rejuvenate the District's economy," Binitie said. "Investing in capital projects is going to be the No. 1 generator of tax revenue to the District, it's going to be the No. 1 job creator, and it's going to be the way by which local retailers can reopen, because those construction workers are going to patronize those businesses."

A group of business owners and developers led by Hoffman & Associates Chairman Monty Hoffman, DC 2021, has pushed the District to cut taxes for restaurants and retailers that are struggling through the crisis. The mayor's budget proposal does not include tax cuts, but some industry leaders are glad to see Bowser is not proposing any tax hikes. Hoffman declined to comment. 

"We're happy there were no tax increases, that's pretty much the big one for us," D.C. Building Industry Association CEO Lisa Maria Mallory said. "This is a very tough time with this pandemic, it's totally unanticipated, and I know this was very difficult for the city administrator, the mayor and the chief financial officer to make these cuts."

Marcus Goodwin, an at-large candidate for the D.C. Council and a real estate professional who works for Neighborhood Development Co., said he would like to see a one-year tax abatement for restaurants and retailers, given that the city mandated many of them to close. He also said he thinks the HPTF cut was necessary. 

"I don't think it's anything that's going to drastically hurt the city," Goodwin said of the HPTF cut. "There won't be as many units built, but certainly the economic recovery will continue because affordable units and construction jobs are important as economic drivers."

The mayor is testifying Tuesday to the D.C. Council, which can make changes to the proposal and plans to pass a final budget this summer. 

The budget proposal canceled pay raises for city workers and reduced plans for new hiring, but it calls for just 14 layoffs from the District's 35,000-employee workforce, which officials said were planned before the pandemic, the Washington Post reports. 

One of the tools the proposed budget used for balancing the revenue shortfall was delaying payments of interest on the bonds the city issued to build Nationals Park. It had planned to pay back its debts on the ballpark more than a decade ahead of schedule, but the mayor proposed returning to the original schedule, saving $105M, the Washington Business Journal reports. 

Bowser also filled the budget gaps using $213M from emergency reserves and $322M in revenue surplus from FY2019. D.C. also hopes to receive more aid from the federal government, which gave it $750M less in funding than each of the 50 states in the CARES Act. 

"The big takeaway for me is really the creativity utilized to balance the budget and make up the gap," Binitie said. "They could have easily cut money from human services or housing or capital budgets, but the way they went about doing it was pretty ingenious, if you ask me."