V. Intercity Revenue Comparisons

A 1916 Congressional report concluded that the citizens of the District should carry tax burdens comparable to those of other taxpayers in the country, and the Federal payment should simply provide whatever additional resources were necessary to finance an adequate level of services in the city. The proliferation of dometic assistance grants over the years has made it necessary to broaden this 1916 concept to take comparative grant-in-aid funds into account in establishing the Federal payment. These two interrelated components of a jurisdiction's revenue base-tax burdens and grant receipts-were incorporated into the Home Rule Act which calls for intercity revenue comparisons in justifying the Federal payment request.

Before comparing District tax and grant revenues with those of other jurisdictions, some basic facts about the District's revenue structure must first be understood. The District has a comprehensive revenue structure that is unique among public jurisdictions in the United States. For example, the District has most of the revenue sources typically found at the local level such as property taxes, water and sewer charges, traffic fines, and a variety of other taxes and user fees. In addition, this city has a tax structure comparable to that found at the state level including progressive income taxes, sales and excise taxes, motor vehicle registraton fees, and taxes on gas consumption. About two-thirds of the District's own-source revenues come from taxes and fees which are normally collected by states.

It is important to recognize that although the District has the features of a complete state-local revenue structure, it does not have the economic characteristics of a typical state or city revenue base. Business and industry, mainstays in the economies of most major cities and states, represent a comparatively small sector in the District's economic-and taxing-base, largely because of the significant governmental sector in the District. Only 5% of the jobs located in the District are classified as manufacturing, for example,

far below the 12-38% range found in other major cities normally used in comparisons with the District. The income distribution of District residents is skewed toward the lower income brackets, thereby further limiting potential revenue yields from District tax sources. Census Bureau estimates, for example, show the percentage of District families with incomes less than $6,000 was nearly a third higher than the national average and more than double the average for the outlying Washington metropolitan area.

As a result, the city's revenue-raising capacity is severely constrained in relation to that of many states, counties and cities which enjoy a broader geographic and economic base than is available to the District. Tax rates in the District must generally be set higher than those in other communities to make up for such tax base limitations. This disparity is compounded by Federal tax exemptions which affect significant portions of the District's property, sales, and income tax base. A full discussion of tax losses which stem from Federal exemptions can be found in the "Taxes Foregone" section of this report.

With this introduction to the District's economic base and revenue structure we can begin the comparison of District revenue sources and tax burdens with those in other jurisdictions. In comparing revenue sources of major cities, however, several important methodological issues must be kept in mind. First, in addition to local taxes and charges, cities generally receive funds from their respective state treasuries, direct Federal grants, as well as Federal grants that cannot be separately identified because they pass through the state government and become commingled with state aid. The District, of course, does not receive any state assistance. Therefore, it is important to make revenue comparisons on the basis of total intergovermental aid, not Federal grants alone.

Second, cities with commuter taxing authority could be expected to show a higher percentage of "own source" revenues because a substantial portion of the

suburban tax base is included in the city revenue total. The District does not have that authority.

Next, the District receives Federal grant programs that are provided exclusively or predominantly for state and county governments instead of central cities. That would tend to overstate the District's Federal

grant total in comparison with other cities, despite the fact that such grants are awarded as a result of state, county and special service district functions that other cities generally do not perform.

Finally, the Federal payment itself poses a problem in comparing District revenues with revenues in other cities. Since it is really a unique payment rather than a grant program, it is misleading to show Federal payment amounts as intergovernmental aid. Some studies include Federal payment receipts among' "own source" revenues because it is usually considered to be part user charge and part payment in lieu of taxes. To avoid biasing the results in either direction, Federal payment amounts are not included in the revenue data shown later in this section. Thus, valid comparisons can be made on a true basis of actual own source revenues and grant receipts.

Similarly, difficult technical issues are faced in comparing tax burdens across communities that have different taxation powers at each level of government, different tax rates, and different economic bases upon which taxes are levied. To overcome such methodological obstacles, tax burden studies performed by the District attempt to indicate the full state and local tax liability of identical families living in each jurisdiction being compared. Using a hypothetical profile of families in varying income brackets, it is possible to compare the taxes a family would pay in each community in the major tax categories (e.g., property, income, sales, etc.).

The following charts examine District revenues in relation to other jurisdictions. The first series of charts focus on city revenue sources, looking at the portion of revenues raised locally compared with intergovernmental grants. Tax burden comparisons for jurisdictions in the Washington metropolitan area conclude this section.

Intergovernmental Sources

Exhibit 20 shows that the Federal grant portion of total general revenues is more than double the percentage found in other U.S. cities. As indicated earlier, this uneven distribution can largely be explained in two ways: (1) The District receives Federal grants that go almost exclusively to state and county governments and thus do not normally appear in city revenue totals, and (2) cities indirectly receive Federal funds that are passed through from states and counties and thus are not reported as Federal grants.

With no higher level of government to turn to, the District does not receive revenue from state sources as do all other cities. On the average, one-fourth of the revenues available to cities in the District's population class come from the state treasury, a higher rate than the national city average of 20% from state sources. The portion of District revenues from other local governments is in line with comparable percentages in other cities across the country..

Own Sources

Exhibit 21 shows the distribution of own source revenues between taxes and non-tax collections. The District obtains a significantly higher percentage of general revenues from taxes than other cities collect from their tax sources. Taxes represent well over half of the District's general revenues compared with a national average of about 45%. Accordingly, charges and other non-tax sources constitute a relatively small fraction of total general revenues in the District. In percentage terms, the District's non-tax revenues make up about a third of the national average for this portion of the own source revenue base.

EXHIBIT 21

Tax Burdens

The series of charts in Exhibit 22 present comparative state-local tax burden information for representative families living in the Washington metropolitan area. The first chart summarizes total tax burdens for all major state and local taxes; it shows that in 1978 the District had greater tax liabilities in every income bracket except for the lowest level, $7,500. In addition, the disparity between District tax burdens and the suburban average became wider as family incomes rose, reflecting the highly progressive nature of the District's overall tax structure. In the District, families can expect to carry proportionately higher tax loads as incomes grow. In contrast, the tax bills of suburban families average a relatively constant fraction of income up to the $40,000 bracket, after which the total tax burden begins to fall in relation to family income.

The remaining charts give the breakdown of tax burdens for each major tax category. These figures indicate that the greatest difference between District and suburban tax burdens occurs with the income tax, which is a state levy in Virginia and Maryland. Wide variations are also present in real estate taxes despite the fact that the city's property tax rate falls in the low

range of the metropolitan area jurisdictions. Higher real estate tax burdens in the District are chiefly caused by higher property values in the central city where land is relatively scarce and commuting distances considerably shorter. District sales and use taxes are slightly above the suburban average, while automobile taxes (e.g., motor vehicle registration fees, personal property taxes, and gasoline taxes) fall below the average of other jurisdictions in the metropolitan area. The information presented here gives average tax burdens for all suburban jurisdictions and, therefore, does not indicate the relative ranking among the governments in the Washington region. To offer a more complete picture of tax burdens, the Appendix contains several tables that provide the detail for each jurisdiction from which these summary charts were developed. In general terms, the District has one of the lowest tax burdens for families at the $7,500 income level and ranks in the mid-range for the $15,000 income bracket. For incomes above $15,000, however, District tax burdens are the highest in the metropolitan area. The Appendix also shows tax rates for each major source by jurisdiction.