Starting October 1, Washington, D.C. will become the first jurisdiction in the United States to slash benefits in its paid family and medical leave program, according to a report published by the Niskanen Center. The city's FY2027 budget lowers the maximum weekly benefit from $1,190 to $1,100, reduces leave duration for medical issues from 12 weeks to 10 weeks, and cuts family caregiving leave from 12 weeks to six weeks. At the same time, D.C. continues collecting the program's dedicated payroll tax at 0.75 percent—three times the rate the city's chief financial officer certified as necessary to keep the program solvent.
The mismatch between tax collection and benefit spending has created a massive diversion of funds. D.C. has redirected more than $300 million annually from the paid leave fund to unrelated general spending in recent years, the report states. Analysis by the D.C. Fiscal Policy Institute indicated that under prior law, about $345 million—67 percent of the payroll tax revenue—would have transferred from the Paid Leave Fund to the General Fund in FY2027. The CFO certified earlier this year that benefits could be sustained at current levels with a payroll tax rate of just 0.25 percent, yet employers pay 0.75 percent. This means roughly twice as much payroll tax revenue gets diverted to the General Fund as actually goes to paid leave recipients. The budget's additional benefit cuts will divert an estimated $41 million more in tax revenue to the General Fund next year, according to the CFO's fiscal impact statement.
The report finds that D.C. stands alone among the 15 jurisdictions with contributory paid family and medical leave programs in cutting existing benefits. The city also has the most employer-unfriendly payroll tax structure: D.C. is the only one that assigns the entire payroll tax burden to employers rather than splitting it with employees, and it's one of only two jurisdictions (alongside California) that doesn't cap the taxable wage base. The report notes that policymakers haven't provided much reasoning for their choice to cut a solvent program, and explanations that the cuts are needed to "rightsize" the program contradict materials published by the D.C. government showing the program is currently solvent.
The report explains that the city's approach breaks the implicit agreement underlying social insurance programs, which pool dedicated revenue streams to pay benefits when workers need them. A 2024 emergency budget act nearly tripled the payroll tax rate to 0.75 percent and mandated that any revenue exceeding what's needed for solvency must flow into the General Fund. The CFO initially projected this would divert $322 million in FY2025, climbing to $355 million by FY2028, totaling $1.36 billion over four years. When D.C. established its program in 2017—among the first six jurisdictions in the country to do so—surplus funds triggered either a lower payroll tax rate or benefit expansions, ensuring the money collected for paid leave actually funded paid leave. The 2024 legislation reversed that mechanism, allowing the city to fill budget gaps at the expense of workers and families who pay into the system.
The incoming mayor and Council should restore benefits to current levels and eliminate the requirement that surplus paid leave funds transfer to the General Fund, the report recommends. If tax increases are needed for other essential services, lawmakers should tap different revenue streams rather than raiding a dedicated funding source. The budget legislation recently went to Congress, which has 30 legislative days from its August 20 receipt to amend or veto it. D.C. could return to its original policy: when the chief financial officer identifies a surplus, lower the payroll tax rate or expand benefits—ensuring the funds collected for the program serve their intended purpose.