WASHINGTON -- The District of Columbia council voted yesterday to levy new taxes and increase other taxes to finance a sports arena and a new convention center.
But the council also raised the prospect that revenues from a new "public safety" fee on businesses will be much lower than projected -- a development that could complicate financing for the sports arena and make it harder to balance the fiscal 1994 budget.
The public safety fee was adopted this year on a one-time basis to raise $34 million from businesses, including nonprofit organizations, to balance the budget by Sept. 30, when the fiscal year ends.
The council voted yesterday to make the levy permanent and to dedicate the revenues to back $92 million of taxable revenue bonds that the district would issue to help finance the proposed $200 million sports arena.
The permanent tax, which would exclude nonprofits, would be used by the district to pay $18 million a year for 20 years of principal and interest on the bonds, the council said.
However, as of yesterday, only $6.7 million had been collected for fiscal 1994 from both nonprofit and for-profit concerns, even though the deadline for payments was July 15, said council chairman David Clarke. He said it may take some time to determine how much is actually collected.
But out of concern that the tax will not raise enough revenue to finance the arena bonds, Clarke unsuccessfully sought to apply the permanent tax to nonprofits, which would account for $2.5 million of projected revenue. The tax without the nonprofits would be projected to raise $31.5 million, he said.
A majority of council members strongly opposed applying the tax to nonprofits. Several members, including John Ray and Linda Cropp, said the tax would hurt or eliminate small nonprofit organizations that now help the district by providing such social services as soup kitchens.
Ray said it is too soon to tally up the fiscal 1994 collection because he said government works slowly. Council member Marion Barry said the council should wait until the summer is over, when it can better determine how much revenue the tax raises, before acting on the legislation to make the tax permanent.
But Barry predicted that no more than $12 million will be raised. Large concerns, using their accountants and lawyers, will find ways to avoid paying the tax, he said. Any revenue shortfall from the tax "raises a problem" for the fiscal 1994 budget, he said.
Clarke predicted that the council will have to raise additional tax revenue to back the arena bonds, which probably would be issued 14 months from now. If the district cannot raise enough tax revenue, it must consider paying for credit enhancement at an estimated cost of $800,000, he said.
The council easily approved the bill to make the public safety fee permanent, excluding nonprofits. It agreed, however, to apply the tax to unrelated business income of nonprofits, which is projected to raise $200,000 a year. The council also passed a resolution expressing its support of the arena, which would house the Washington Bullets basketball team and Washington Capitals hockey team.
The council also passed legislation to create a special authority to issue tax-exempt revenue bonds to finance an expanded convention center in two phases. The financing strategy calls for issuance of $364 million of bonds for phase one and $157 million of bonds for phase two. Some taxable bonds could be issued in the later phase.
The bonds would be backed by increased sales and use taxes on hotels and restaurants and an increase in the business franchise surtax.
