Washington, D.C.'s financial challenges received a bit of good news from the city's Office of the Chief Financial Officer.
"Fiscal year 2026 local source revenue forecast has been revised upward by $75.1 million, reflecting higher-than-anticipated individual income tax collections," said CFO Glen Lee.
Lee's office is attributing the bump to "stronger forecasted resident wage growth — a key driver of withholding tax revenue within individual income taxes."
The news comes in the form of a letter and data released last Friday, addressed to the mayor and the city council chairman.
The good news comes with a dose of bad news as overall local fund revenues for 2026 are lower than in the previous fiscal year, which is being blamed on "declines in federal and private-sector employment and the federal One Big Beautiful Bill Act," the report said.
The city's resident unemployment rate has been steadily climbing and hit 6.7% in December 2025. Moody's Ratings hit Washington with a credit downgrade to Aa1 from Aaa last
Revenue projections will likely be affected by the city's ongoing attempt to decouple its tax code from the effects of OBBBA as several states have done. It announced the separation in November of last year but both Houses of Congress stepped in and swatted the effort down.
States typically decouple to protect their own revenue streams. The no tax on overtime provision is proving to be especially problematic.
The city fired back last week as D.C. Attorney General Brian Schwalb rolled out a legal opinion asserting that Congress missed a 30-day deadline to amend Washington D.C.'s tax policy.
Schwalb used the 1973 Home Rule Act as precedent and also maintains that Congress did not make the thwarted decouple retroactive.
Since the 2025 tax season was already underway when Congress finalized its bill, the city is lobbying for the decouple to remain in place.
Congress retains congressional oversight of the District of Columbia's finances and the OCFO works independently from the city's mayor and city council.
According to Lee's numbers, "the revenue estimate does not include the impact of the District's tax decoupling legislation."
Disputes between the city and the federal government over the timing of Congressional changes to the city's laws and the legal power level of the Home Rule Act have risen in the past.
In 2023 disagreements over a police reform package was ultimately decided by a President Biden veto.
As Congress and the D.C. District Attorney press their cases, Mayor Muriel Bowser is trying to find an answer about what happens to income tax returns that have already been filed and the approaching end to the filing season.
She sent a response to Lee last Friday saying, "Your office has not changed the April 15 tax filing deadline, which strongly implies you agree with the Attorney General's legal opinion (on the DC Law 26-89 decouple)."
"If your position is that DC Law 26-89 is not in effect, then you have an obligation to District taxpayers to revise their tax liabilities and adjust the tax filing deadline to accommodate updated tax forms and guidance."
The mayor gave the OCFO a deadline of Tuesday March 3 to clarify his position.
