The District lost almost 10 percent of its property value to the lingering recession during the past two years -- nearly $14 billion in assessed worth wiped out, according to a new report by D.C.'s top financial officer.
The plummeting value of city real estate cost the D.C. government more than $100 million in property taxes in fiscal 2011, the report found.
The revenue loss only hit the city in 2011, due to the two-year delay between when the city's properties are assessed and when District coffers actually get the tax payments based on those assessments. Residential and commercial properties were valued at about $140 billion, down from $154 billion two years earlier, according to the Office of the Chief Financial Officer's June 2012 revenue trends report. That cost city coffers a total of $106.4 million in property taxes, according to the report.
Source: D.C. Office of the Chief Financial Officer June 2012 revenue trends report
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"In the last two years when we struggled to balance the budget, some of that came from the drops in the real property tax assessment," said Fitzroy Lee, the office's chief economist.
However, the District's overall economy has improved in the past two years, and the base of taxable income has increased, the report said.
Last fall, the D.C. Council passed an income tax hike on the city's highest earners at the urging of the CFO as the 2011 fiscal year came to a close. According to the revenue report issued Tuesday, the growth in property values as a segment of the city's economy is slowing while personal income has grown steadily.
Income tax revenue from 2011 increased by more than $186 million and is expected to increase this year by nearly $150 million.
Still, the city posted a $240 million surplus in its 2011 fiscal year, even with the hit to its property tax revenue, which accounts for one-quarter of the city's annual intake. That's partly because the city's financial planner saw the drop coming and budgeted spending cuts, including furlough days for city employees and less funding for social programs and services. In addition, unexpectedly higher returns on investment capital gains taxes and the city's estate tax helped the surplus.
But even with a higher income tax in a city with rising incomes, the District's economists are still wringing their hands over next year's returns. By the CFO's estimate, the city's income tax returns will decrease by $40 million in 2013 over this year's expected returns if the federal government tightens its spending here and jobs are squeezed out.
That could also affect the real estate market -- again.
"[The federal government] is the biggest employer in the city, and it keeps those office buildings occupied for the most part," Lee said. "Any federal cutback in jobs will have a negative impact on the office market."