Menu
Tax Notes logo

D.C. CFO: Paid Leave Fund Begins July 1 Despite COVID-19

Dated June 30, 2020

SUMMARY BY TAX ANALYSTS

The District of Columbia Office of the Chief Financial Officer certified in a letter to the mayor that the Universal Paid Leave Fund has sufficient funds to start payments on July 1 and is expected to remain solvent despite COVID-19 disruptions; the fund collected $303 million and estimates having $234 million at the end of June 2021.

June 26, 2020

The Honorable Muriel Bowser
Mayor of the District of Columbia
John A. Wilson Building
1350 Pennsylvania Avenue, NW, Room 306
Washington, DC 20004

The Honorable Phil Mendelson
Chairman
Council of the District of Columbia
1350 Pennsylvania Avenue, NW, Suite 504
Washington, DC 20004

Dear Mayor Bowser and Chairman Mendelson:

Pursuant to the Universal Paid Leave Implementation Fund Act of 2016, effective (D. C Law 21-160; D.C. Official Code § 32-551.01) (“Act”), I am pleased to certify that the Universal Paid Leave Fund (“Fund”) balance is sufficient to proceed with the commencement of benefit payments as provided under the Act. The Office of the Chief Financial Officer (OCFO) comes to this conclusion after careful analysis and collaborative discussions with the Department of Employment Services. The estimated Fund balance is sufficient to maintain a reserve balance equal to 75 percent or more of annual benefits projected over each of the next two years. However, given the uncertainties arising from the current pandemic and the related impacts on the economy, we will continue to monitor Fund reserve levels. If these reserves fall below 75 percent of expected benefits, I will notify you for immediate action to ensure that the Fund remains solvent.

The enclosed report updates the revenue and benefits projections of the original Fiscal Impact Statement to reflect final program rules, the current economic downturn, and the potential impact of a range of COVID-19 infections on benefits. This letter summarizes some of the key points in the enclosed analysis.

FUND REVENUE

The Fund has collected $303 million of revenue since July 2019, when collections began. The forecasted revenue for the coming year is impacted by a severe economic downturn that began last March, with a steep rise in District unemployment and a decline in District real gross domestic product which is not expected to regain its prior peak until the end of 2021. While Fund revenues will be reduced, the impact is less than the unemployment statistics may imply because the employment reduction is mainly in the hotel, restaurant, and other retail sectors with a high concentration of low-wage workers. We estimate the Fund will collect $286.7 million in revenues during July 2020 through June 2021.

FUND BENEFITS

Our original estimate of benefits in 2016 was based on a variety of assumptions regarding who may or may not take leave under the program.1 We do not have any information that would cause us to revisit the take-up rates utilized in the underlying estimate. However, we have updated the estimate based on more recent demographics, as well as a policy change allowing parental leave to be taken for births that occurred up to a year prior to the start of the program. Incorporating an estimate for COVID-19 related claims brings the total estimated fund benefits to $319.5 million in year one of the program. As seen in the enclosed report, we applied a range of potential additional claims arising from COVID-19 illnesses and determined that the Fund remains solvent even under extremely costly scenarios that we consider unlikely to occur.

FUND BALANCE SUMMARY

Assuming benefits commence July 1, 2020, under what we consider the most likely scenario, the fund balance reserves will total an estimated $296 million. We estimate we will collect $286.7 million in revenues from July 2020 to June 2021 and expend $348.3 million in benefits and administrative costs during the same period. This would leave $234.4 million in the fund reserves at the start of year two (July 2021 to June 2022) of the program, approximately 92 percent of the estimated $255.1 million in year two benefits. Based on this, we deem the Fund to be solvent in the first year of the program.

As stated previously, there are still many uncertainties and risks in the economic environment which we will continue to closely monitor. As the Act requires, I will notify you and the Council should our forecasts indicate the reserves will dip below the threshold of 75 percent of expected annual benefits.

If you have any questions or would like to discuss this matter further, I am available at your convenience.

Sincerely,

Jeffrey S. DeWitt
Chief Financial Officer

Enclosure:
Universal Paid Leave Certification Analysis

cc:
The Honorable Councilmember Anita Bonds (At-Large)
The Honorable Councilmember David Grosso (At-Large)
The Honorable Councilmember Elissa Silverman (At-Large)
The Honorable Councilmember Robert White, Jr. (At-Large)
The Honorable Councilmember Brianne Nadeau (Ward 1)
The Honorable Councilmember Mary Cheh (Ward 3)
The Honorable Councilmember Brandon Todd (Ward 4)
The Honorable Councilmember Kenyan McDuffie (Ward 5)
The Honorable Councilmember Charles Allen (Ward 6)
The Honorable Councilmember Vincent Gray (Ward 7)
The Honorable Councilmember Trayon White, Sr. (Ward 8)
Rashad Young, City Administrator
Dr. Unique N. Morris-Hughes, Director, DC Department of Employment Services

FOOTNOTES

1 Please see the fiscal impact statement on the Universal Paid Leave Act of 2015, dated December 2, 2016, for much more detail on how we arrived at the original estimate.

END FOOTNOTES

Copy RID