D.C. Mayor to Divert Dedicated Funds from Stadium

July 28, 2009

D.C. Mayor Adrian Fenty plans to divert $50 million from a dedicated Ballpark Revenue Fund to the general fund. So instead of paying off Nationals Park stadium debt, the money would help D.C. maintain spending without new taxes.

Dedicated funds are not really dedicated, it seems, at least not in the short term. The Social Security Trust Fund serves as a typical example. Workers pay a tax over their lifetimes and receive an implicit entitlement. But the Social Security Administration makes clear: “Like all federal entitlement programs, Congress can change the rules regarding eligibility—and it has done so many times over the years.” This can happen because of Helvering v. Davis, which said Social Security “taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way.”

So should taxes be kept in dedicated funds? While protecting funds may help approximate a user fee, it could also lead to wasteful spending. For example, an appropriately set tax on cars could exactly pay for the road damage they cause. If the road tax is set too high then roads may be unnecessarily repaved just to spend down the dedicated fund.

Despite any theory of dedicated funds, the D.C. story shows the difficulty in making tax dollars less fungible. D.C. businesses that thought their annual gross receipts taxes would stay in the ballpark fund are finding this out the hard way.

Read more about a stadium tax increase, cost overruns, and some problems with stadium subsidies.

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