Pandemic-era tax increases led to “significantly higher-than-expected revenue” for the District in the fiscal year that ended on Tuesday, D.C. Chief Financial Officer Glen Lee reported.
Fiscal 2025 revenue for the nation’s capital was $10.937 billion — $208.9 million more than Mr. Lee had predicted in June. The new figure was announced in a quarterly revenue forecast the CFO delivered to the mayor and the D.C. Council.
Mr. Lee’s report estimated that the District’s real gross domestic product grew by 0.6% in fiscal 2025, lagging behind the national growth rate of 2%.
“The increased revenue during the financial plan period mainly comes from higher corporate franchise and non-withholding income tax revenue,” he wrote in a letter to city leaders. “While strong corporate earnings and stock market growth have led to exceptional increases in revenue, these revenue sources are more volatile and far less connected to the local economy than sales, withholding, and property taxes.”
Mr. Lee said the expected increases “more than offset” $94.4 million in revenue losses from provisions in the so-called One Big Beautiful Bill Act that excused restaurant servers from paying taxes on tips and reduced the tax liability of local businesses and residents.
President Trump signed the omnibus spending bill into law on July 4, triggering a decline in city revenues.
“President Trump’s initiative to Make DC Safe and Beautiful Again continues to pay dividends for our nation’s capital,” White House spokesman Kush Desai said in an email, commenting on the CFO’s report.
Extended work-from-home policies during the pandemic prompted D.C. lawmakers to increase sales and income taxes as commercial real estate values plunged.
Lawmakers identified a need to address a budget crisis arising from hundreds of millions of dollars in revenue lost due to former daily commuters working remotely outside the District long after the pandemic ended.
Mr. Trump summoned federal workers back to the office after returning to the White House in January. But the Trump administration soon sent thousands of them home as part of a massive downsizing of agencies.
The District now has an 8.25% corporate income tax rate and a scaled individual rate of 4% to 10.75% for people earning more than $1 million a year. It also has a 6.5% sales tax.
The District’s personal income tax is among the highest in the nation, closely trailing California’s 13.3% rate for top earners.
The CFO’s forecast also increased projected revenues for fiscal years 2026 through 2029 by $180 million annually, citing an “improved economic outlook for corporate earnings and capital gains from financial markets.”
But it also noted that a prolonged government shutdown could disrupt the projected revenue growth, adding to the strains that recent federal workforce reductions have placed on the D.C. economy.
Mr. Lee, who has a mandate under federal law to oversee the District’s financial stability, predicted the District will enter a “moderate recession” in fiscal 2026, which started Wednesday, with a 3.5% drop in gross domestic product. That will be followed by a gradual recovery over the next two fiscal years.
He noted that jobs, tourist spending, air travel, hotel bookings and home sales have all declined in recent months. For example, the District recorded a net loss of 10,900 jobs between January and August, including 8,700 federal workers.
“The share of revenue from real property taxes, a traditionally stable source, has decreased due to lower commercial property values resulting from reduced federal and private sector demand for leased space as remote work has expanded,” Mr. Lee wrote. “Demand for leased space is expected to contract further as both private and federal employment decline over the next several years.”
Mayor Muriel Bowser, a Democrat, did not comment on the report.
In a news release Tuesday, her office touted pro-business legislation and $1.54 million in economic development grants to nine local businesses. She said the grants would create 250 jobs, occupy 56,000 square feet of office space and bring $4 million in capital improvement investments to the city.
“Our focus is on growing key sectors like technology, life sciences, and cybersecurity — industries that drive innovation and create high-quality jobs for DC residents,” Ms. Bowser said in a statement.
Not everyone shares the mayor’s optimism.
Yesim Sayin, executive director of the nonpartisan DC Policy Center, said the CFO’s revenue forecast shows only “strength on the surface” from corporate profits and financial markets replenishing the city’s coffers.
“Beneath it lie growing risks from federal downsizing, a weakening real estate market, and slowing consumer demand,” Ms. Sayin said in a text message. “This is further complicated by increased reliance on volatile revenue sources, which make long-term planning harder.”
• Sean Salai can be reached at ssalai@washingtontimes.com.