By Dave Oberting
Bill de Blasio, New York City’s mayor elect, just won an overwhelming victory by describing New York as a “Tale of Two Cities.” There certainly is an inequality problem in New York. With high-paying Wall Street in NYC, it would be impossible not to have inequality issues, but New York’s got nothing on DC. According to a Washington Post analysis, the Washington region is the nation’s wealthiest, with more than a third of its zip codes ranking in the top 5% in terms of income and education. According to the chart below from the Center on Budget and Policy Priorities, households in the top 5% of earners in the District itself have seen their incomes increase by 106% since the 1970’s. The average income among the top 5% of earners in DC is over $436,000 per year. It took an income of $387,000 nationally in 2010 to become part of the illustrious 1%. In the District, it took a remarkable $617,000, which is higher than the region as a whole. According to Kiplinger’s, there are almost 183,000 millionaires in the Washington region, the fourth highest concentration of millionaires in the country.
And yet, over 110,000 District residents live in poverty. According to the Census Bureau, in 2011, the District had the third highest rate of poverty in the country at 19.9%, behind only Mississippi and Louisiana. That year the District’s child poverty rate rose to an astounding 30.4%. Almost one third of the children in the District of Columbia lived in households that earned less than $19,090, the national poverty line for a family of three in 2012. The District is an extraordinarily expensive place to live. Kiplinger’s ranks it as the sixth most expensive city in the U.S. The cost of living in general, and the cost of housing in particular are shockingly high, with a median home sale price of $460,000. With an average fair market value rent for a two bedroom apartment of $1,506, a District resident would need an income of $60,240 to afford such a place without subsidies.
The first item on Economic Growth DC’s (EGDC) comprehensive anti-poverty, upward mobility agenda is establishing a consensus on the scope of the problem. It should be recognized that in the District of Columbia, the true poverty line is more like $40-45,000 per year for a family of three, and we should adjust our agenda to reflect this reality. A considerably higher number of DC residents fall into this more realistic definition of poverty in the District. The three elements of EGDC’s anti-poverty agenda are faster economic growth, a state of the art job training system, and more aggressive improvements to our education system. These concepts are not new. However, recognizing that faster economic growth is the number one mechanism available for alleviating poverty and addressing income inequality in the District would be something of a revelation for many District policymakers.
The District’s single biggest need is more jobs at all skill levels. The District’s economy has grown at an average rate of about 2.2% for the last decade. This has been fast enough to create some budget surpluses recently, but a) those surpluses are not permanent, and b) it hasn’t done enough to address the 18% unemployment rate east of the river or the poverty rate itself. Job creation is a function of economic growth. The faster the growth, the more jobs are created. To increase the pace of job creation at all skill levels, the District’s economy must grow faster. Faster economic growth needs to move to the top of the Council’s priority list. With a tax revision commission and a regulatory reform task force about to announce their recommendations, the Council has an opportunity to adopt a more pro-growth agenda.
In the medium term, the District’s greatest tool for reducing unemployment and inequality is its workforce development system. Many improvements have been made in this area under the Gray administration, but much remains to be done. The main problem with the District’s workforce is a yawning skills gap. Our job training system must become more employer-driven, more effective, and it must impart the skills that allow District residents to move from the low-skill to higher-skill work that commands a true living wage. According to the DC Fiscal Policy Institute, the District spent over $126 million on 31 separate job training programs in 2011. The District needs better mechanisms for measuring success among these programs, and the council should grant the administration more flexibility to move money and resources around to focus on what works and eliminate what doesn’t.
In the longer term, there is no better anti-poverty strategy than an effective K-12 education system. Say what you will about Michelle Rhee, she did bring a much-needed sense of urgency to improving District education. Kaya Henderson has continued most of those reforms and the District has been making steady progress. But, the truth of the matter is, improvement is happening too slowly. The District still only graduates 55% of its high school students. For every year that goes by without more substantial improvements, it becomes next to impossible for a new generation to escape poverty. Nothing less than a 100% graduation rate is acceptable. Furthermore, simply getting a diploma is not enough. Graduates must be ready for success at a four year institution, a community college or a technical training program, or a career in the military. The truth is that in the 21st century, a high school diploma is not a ticket to the middle-class like it was in 1950.
In fiscal year 2013, the District spent $1.6 billion on 45,577 students, a per student average of $35,105. This is approximately three times what the average school system spends per child. We should expect more improvement, faster, from that extraordinary investment.The District should take a harder look at what’s working and what’s not. As with the workforce development system, the Council should make it considerably easier for Chancellor Henderson to reprogram money towards what works and away from what doesn’t.
No element of this plan is revolutionary. Implementation does require faster rates of economic growth (in the 4% range) and the increased tax revenues that come with it, but none of these elements require higher tax rates. In fact, lower rates are conducive to faster growth. If we implemented a race to improve all three elements of this plan, it would be possible to cut the District’s poverty rate in half within ten years. These measures also happen to be the best tools available for reducing income inequality. Short of confiscatory tax rates, you cannot legislate inequality. However, the District government can provide the tools that forge a pathway to prosperity for District residents and the economy that will get them there.
Dave Oberting is the Executive Director of Economic Growth DC. Follow him on Twitter @GrowthDC and email him at firstname.lastname@example.org.