D.C. Projects Over $1B Loss In City Revenues Due To Federal Cuts

The Trump administration's sweeping cuts to the federal workforce are slated to damage the D.C.-area economy and dramatically lower the city's tax revenues, a new report projects. 

D.C.’s Office of the Chief Financial Officer, in its new revenue forecast released Friday, estimates the city will bring in $21.6M less this year and an average of $342.1M less over the following three years than its December forecast predicted. The total decline adds up to just over $1B in reduced revenue between now and the end of fiscal year 2028.

The report cites the Trump administration’s recent moves to slash the federal workforce as the primary reason for the declining projections, along with the domino effect that is expected to have on the local economy. 

“Due to ongoing and planned federal workforce reductions, the District's economic outlook has deteriorated significantly from the December forecast,” D.C. Chief Financial Officer Glen Lee said in the report.

A quarter of all civilian District jobs are government jobs, the report says, a factor that makes it uniquely vulnerable to federal workforce changes.

The CFO predicts the city will lose 40,000 federal jobs by 2029, a 21% reduction in that sector. 

Lee estimates that D.C. is expected to hit a “minor recession” in fiscal year 2026 and begin a gradual recovery in fiscal year 2027. He highlighted the domino effect the cuts are expected to have across the region, beyond just the federal workforce.  

“With fewer federal employees in the region, spending on restaurants, retail, transportation, and other taxable goods and services is expected to decline, particularly for businesses that rely on federal workers,” Lee said in the report. 

“Job losses are also anticipated for federal contracting, hospitality, and transportation sectors, as reduced federal employment leads to lower demand in these sectors,” he added.

Real property tax revenues are also expected to play into the declining projections, with the estimate for that segment reduced due to “lower assessed values across almost all classes of properties.”

Commercial property revenues are expected to decline by 7.1% this fiscal year and 7% in fiscal year 2026 before ticking up slightly through 2029.

Declining office property valuations were previously the primary cause of D.C.'s projected revenue shortfalls. Many buildings have traded for less than 40% of their prior prices, and the city's total assessed commercial property values fell by about $1.5B from 2022 to 2023. 

The CFO report points to three major risks that could shift revenues even lower than predicted. Those are the Trump administration’s budget and personnel cuts, the office market — where vacant space is a “major concern” — and potential Metro service reductions to address its budget shortfall. 

The report also highlights some recent positive trends in D.C.’s economy, including hospitality, population growth and employment growth. 

Lee said forecasting the District’s revenue presents a difficult task given the uncertainty of the federal government’s next moves and the impacts of those it has already made.

“There is a high degree of uncertainty around the forecast as some of the new administration's executive actions have or likely will be challenged in the courts, as new ones emerge, making meaningful economic impact analysis extremely difficult,” Lee said.

The reduced revenues will make it harder for Mayor Muriel Bowser's administration to fund its priorities, such as building new affordable housing and stabilizing struggling properties. The city has previously benefited from unexpected revenue boosts that can help bridge funding gaps, but those have “become more elusive,” according to D.C. Policy Center Executive Director Yesim Sayin. 

“This will make for an especially challenging budget season,” Sayin told Bisnow in an email Monday about the CFO forecast. “While revenue has been weak for some time, expenditures have continued to rise since 2020—first supported by federal pandemic aid, then by the city's reserves. This approach is unsustainable, and budget cuts will be unavoidable.”