WASHINGTON — Halfway through an April markup on the Washington, D.C. Admission Act, Rep. Frederick Keller, R-Pa., appeared on the Zoom screen with a practical question: How would the District of Columbia pay for statehood?
“Democrats say the city is now financially self-sufficient. But the numbers do not add up,” Keller said, referring to the hundreds of millions of dollars the federal government spends each year on the city’s court system and education programs.
In congressional hearings, D.C. officials have provided scant detail on how they would absorb those costs, instead remaining more focused on the moral argument that 700,000 people should not be denied representation.
But privately, the city has come up with a price tag — and the beginnings of a plan.
With statehood legislation generating historic support among Democrats who hold the White House and narrowly control Congress, D.C. agencies have worked behind the scenes to compile cost estimates in recent months suggesting the city would need to spend from $755 million to $2 billion annually on state government functions, depending on a number of wild-card factors.
Costs include court, parole and prison functions now operated and paid for by the federal government, as well as potential changes to Medicaid reimbursement rates.
Beverly Perry, senior adviser to Mayor Muriel Bowser, a Democrat, said the District of Columbia is fully equipped to take on these costs, pointing to a booming tax base, Bowser’s $17.5 billion fiscal 2022 budget proposal and the city’s Triple-A credit rating. Rather than add new taxes for D.C. residents or commuters, she said, the city could shift spending priorities and delay some projects to cover the costs that statehood would entail.
“We say it all the time — we can afford it. It just doesn’t resonate with people,” Perry said. “D.C. has been painted with a brush that we are poor, we don’t have an independent economy and we feed off the federal government. When you’ve been painted with a brush, it’s hard to remove that paint.” The statehood bill, which passed in the House but faces long odds in the Senate, includes a transition period in which the federal government would continue assisting the new state for an as yet undetermined period of time. Other newly admitted states also had federal assistance.
That means the District does not yet need a specific spending plan, officials have said, especially without enough votes to pass statehood in the Senate. But some analysts say it’s not too early to begin planning what could be a drastic financial transition.
David Schleicher, a Yale Law School professor who has studied the fiscal and economic impact of statehood, said he views statehood as economically feasible. But he also cautioned there could be economic risk, given that D.C., unlike other states, would not include an array of localities from which revenue could be redistributed to address economic downturns or shortfalls.
“You introduce some new elements to D.C.’s fiscal picture, both positive and negative, and it would introduce risk,” he said. “My take on this is the proponents of D.C. statehood need to be planning for the day after more clearly than they are at the moment.” D.C.’s financial health has come a long way since the passage of the Revitalization Act in 1997, when the city was near bankruptcy and overseen by a federally appointed financial control board. The U.S. government took over the costs of the D.C. court system plus nearly $5 billion in unfunded pension liabilities for certain former federal employees, while separately increasing the District’s Medicaid reimbursement rate from 50% to 70%.
Today, D.C. leaders frequently emphasize that federal funding for housing, schools and other programs makes up just under one-quarter of D.C.’s budget, in line with the federal funds in states’ budgets, according to data from the Census Bureau. But that doesn’t include most of the approximately $730 million that Congress appropriates for D.C. each year, the vast majority of which goes toward funding the court system. D.C. also could lose more than $90 million in education funds appropriated by Congress if it becomes a state.
Democratic Delegate Eleanor Holmes Norton, the city’s nonvoting representative in Congress and sponsor of the statehood bill, said the District doesn’t want to keep any special treatment and is fully prepared to lose the money. “It has to pay for everything that a state pays for,” she said of her hometown.
According to Perry, Bowser’s staff put together a fiscal analysis in January, working with city agencies to arrive at an estimated yearly cost for statehood of about $755 million and contemplating different ways to pay for it. D.C. officials declined to provide the document, saying that it reflected internal deliberations, but the projections they described are comparable to figures The Washington Post compiled in its own analysis. The estimate Perry provided does not factor in Medicaid or pension-related costs, which the new state would not necessarily have to absorb.
In 2009, the last time D.C. delved publicly into the costs of becoming a state, officials said the city could raise the funds by taxing nonresident income, a politically toxic idea for Democratic leaders in Maryland and Virginia. But Democratic members of Congress from those states are now staunchly behind D.C. statehood legislation, perhaps in part because city officials seem less inclined to impose a commuter tax, even if they gained the power to do so.
Norton said the idea has been off the table in Congress. And while Perry called imposing a tax on nonresidents an “option,” she said the mayor is more inclined to reconfigure its spending plans to cover expenses associated with statehood, delaying projects and realigning priorities. The mayor’s latest spending proposals, for example, include $400 million for affordable housing initiatives, as well as $1.57 billion and $420 million over the next six years to modernize public schools and recreational facilities, respectively.
“Look at the scales that are in that budget. It does a lot of things to improve the city. It’s not things you have to do every year,” Perry said. “There are sacrifices we’re going to have to make to become a state.” Some analysts said statehood could offer other financial opportunities as well. If the District had voting representation in Congress, lawmakers could lobby more effectively for federal grant funding available to all states, said Yesim Sayin Taylor, executive director of the D.C. Policy Center.
Statehood also would allow D.C. to reimagine its prison system, which sends about 4,000 inmates to federal prisons throughout the country. Leaders of a new state would be able to make different choices about criminal justice, implementing changes that could cut costs.
“We think a lot of the things the Department of Justice does, and the costs associated with them, would be a lot less with the D.C. government doing them,” Perry said. “We think we can do them cheaper.” Experts say it’s not immediately clear how statehood could affect D.C.’s Medicaid and pension-related expenses, which could increase the total annual cost by an additional $1 billion.
The federal government raised D.C.’s Medicaid reimbursement rate to 70% nearly three decades ago because of its unique demographics compared to states, with a high median income but also a high concentration of Medicaid recipients, said Wayne Turnage, director of D.C.’s Health Care Finance Department. Republicans in Congress have tried in recent years to reduce the rate back to 50%, saying D.C. didn’t need the extra help anymore.
Turnage said changing the Medicaid reimbursement rate back to 50% would be a “significant hit” for the District, costing up to $669 million per year by fiscal 2030. But he also said he didn’t think that was likely to happen because the city’s demographics would not change with statehood.
As for the pensions, Sayin Taylor said she considers it unlikely that D.C. would have to assume the remaining unfunded pension liabilities the federal government took over in 1997 because the pension system was created by the federal government for District employees, and the U.S. government acknowledged the liabilities were not the city’s fault.
D.C. officials note that the city’s own pension system for firefighters, teachers and police officers is fully funded.
Without statehood, Washington has always had to adapt to restrictions imposed on it by the federal government, ranging from the prohibition on regulating the sale of recreational marijuana to the law restricting the height of buildings, Sayin Taylor said.
Adapting to statehood would just be the latest challenge, she said, emphasizing the argument by statehood advocates that the lack of full autonomy is a violation of civil rights.
“It should not be decided on the merits of finances but on the merits of voting rights and representation,” she said.