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Financial implications will be weighed as the D.C. statehood debate rages on

January 21, 2021, 12:00 AM UTC

For residents of Washington, D.C., Wednesday’s sparsely-attended inauguration is not just a bittersweet reminder of the coronavirus challenge Joe Biden faces. It is also, for some, a direct shot to their wallets.

Inaugurations and other federal events in good times are a boon to the local economy—a key driver of tourism, hotel bookings, restaurant sales, and benefits to a variety of the city’s businesses. It reflects the unique, symbiotic-of-sorts relationship between the federal government and its municipal host. Yet, when Biden is sworn in as the 46th President, Washingtonians, perhaps more than any time in recent history, will continue clamoring to break away from this particular arrangement.

The Capitol riots and the federal government’s delayed response in deploying the National Guard intensified demands to grant statehood to D.C. Security issues were at the forefront, adding another layer to the decades-long complaint over the district’s lack of political representation in Congress. But money will certainly be taken into consideration, too. D.C., some feel, stands to gain a lot if the city was granted the full powers of statehood, a possibility not too absurd when considering its population of 710,000 surpasses that of Vermont and Wyoming.

“It will allow us to invest our resources where we see fit. For too long, members of Congress have used their ability to control budget to our detriment,” said Paul Strauss, one of D.C.’s two non-voting U.S. senators, in an interview with Fortune.

In addition to stripping the voting ability of D.C.’s representatives in Congress, the 1973 District of Columbia Home Rule Act requires Congress to retain authority over the District’s local budget. On several occasions, Congress has exercised this ability to the dismay of local residents—blocking D.C. from using its own money to fund HIV transmission-reducing needle exchange programs, abortions for Medicaid recipients, and a tax and regulation system for marijuana sales despite an overwhelming local 2014 vote legalizing the drug.

Despite this, D.C. residents pay the highest federal taxes per capita than anywhere else in the country. In total, its residents pay more in federal income tax than residents of 22 other states, yet they do not have a say over how those tax dollars are spent. The issue recently came to a head again in March when federal lawmakers passed the $2 trillion CARES Act to revitalize the economy as the pandemic took hold. Each state was guaranteed a minimum of $1.25 billion; D.C. only received $500 million.

Adding D.C. to the union would be advantageous to the country as a whole, Strauss argued, citing D.C.’s emergence as a technology hub in the 21st century. Amazon in 2018 selected Arlington, Virginia, a suburb of the district, as the location of its second headquarters. “There’s a reason why the market has picked the region, and there’s probably a reason they picked as close as possible to D.C., but not in D.C. itself,” he said, alluding to the complicated politics of the city-proper.

Yet D.C.’s status as a relatively small, entirely-urban area, has left some scholars torn on whether the economic benefits outweigh the costs. In a 2014 paper in the William & Mary Bill of Rights Journal, law professor David Schleicher examined the potential scenario of a D.C. state named New Columbia. Such a state, Schleicher conceded, would grant the district more taxing power and likely be free from the confines of the 1910 Height of Buildings Act, which limits the height of structures in the city—allowing in turn for more growth and economic success.

But, Schleicher warned, “…such benefits come at a price: as a single-city state, New Columbia would face drastic risks in times of downturn. The fact that New Columbia would be entirely in one economic region, and the fact that it would exclusively be the center city of that region, would mean almost necessarily that the state would face substantial financial risks in the case of regional and urban-form related shocks.”

“Moreover,” Schleicher added, “states frequently redistribute money from successful parts of the state to the unsuccessful to mitigate regional downturns: New Columbia would not have this ability. Whats more, in the event of financial catastrophe, New Columbia would also be ineligible for Chapter 9 bankruptcy, in so far as it would be a state and not a municipality.”

In a 2009 Brookings Institution testimony for the Council of the District of Columbia, Alice Rivlin, a former director of the White House Office of Management and Budget and founding Director of the Congressional Budget Office, concluded that “the net effect of all these fiscal positives and negatives associated with statehood is extremely uncertain.”

“My guess is that statehood would bring positive net fiscal benefits to the District, provided it included the power to tax non-resident income (except for a federal enclave),” Rivlin added, “although losing the savings from the Revitalization Act of 1997″—which provides federal funding to D.C.’s court system—”would offset a large fraction of the gain.”

Nevertheless, the movement for D.C. statehood continues to gain steam, with President Biden recently tweeting out his support for the district to become the 51st state. The movement enjoys support from most Democrats, who now hold the presidency, Senate, and the House of Representatives. And despite counterarguments that Republicans will simply filibuster any such legislation, some argue statehood would be able to legally bypass that measure. It sets up an intriguing showdown of political maneuvering as Democrats take power and look to shape the country in their favor.