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District Faces New $127 Million Budget Shortfall

D.C. officials will announce Friday they are facing a new budget shortfall of $127 million that could require another round of cuts to a budget that has already been trimmed in affordable housing, health care and transportation, city government sources said tonight

D.C. Chief Financial Officer Natwar M. Gandhi briefed Mayor Adrian M. Fenty (D) and D.C. Council Chairman Vincent C. Gray (D) tonight on the new revenue projections, a month after the city closed a $131 million budget gap.

The latest shortfall represents 2.5 percent of the city's $5 billion budget of local funds. Gandhi has said that such a gap is manageable.

Gandhi has scheduled a news conference for noon Friday at the John A. Wilson Building to announce the projections. He declined to comment tonight. According to government sources familiar with the briefing, Gandhi said the adjusted numbers take into account the brunt of the stock market crash on Wall Street.

Among the primary causes of the new shortfall is a falling off of capital gains taxes paid by residents whose investments in the stock market have plummeted. But the city also is experiencing a significant slowdown in the residential and commercial property markets after staving off the kinds of declines experienced in the suburbs, the sources said.

Fenty eliminated hundreds of unfilled jobs across nearly all government agencies, except public schools, to close the previous budget gap of $131 million announced in September. He also took money that had been banked by various agencies that earn revenue by selling products, such as business licenses.
The council, anticipating that the shortfall could grow, created a $40 million reserve by eliminating a plan that would have offered low-cost health insurance to the poor, and it froze new spending for creating permanent housing for the homeless. The city also delayed some road and bridge repairs.

That reserve could be eaten up by the latest shortfall, though Gandhi told Fenty and Gray that the city might have tens of millions of dollars left from the fiscal 2008 budget that could help close the gap, according to the sources. That will not be known for certain in the spring, after an annual financial review is completed by independent auditors.

Last week, the council doubled the rates on downtown parking meters from $1 to $2 per hour to raise more revenue.

"It looks like another situation where we'll have to close the gap, and there's already been pretty substantial cutbacks in a lot of program areas," said Ed Lazere, executive director of the D.C. Fiscal Policy Institute, which studies city budget issues and advocates for social programs. "We are looking forward to working with the mayor and council to minimize the impact on services as much as possible."

Sources familiar with Gandhi's briefing said unemployment in the city is projected to rise this year and next year. The District's unemployment rate is expected to jump from 6.2 percent to 8.5 percent by the end of this fiscal year, then to 9.8 percent by the end of next year, Gandhi told Fenty and Gray, the sources said.

The city's budget picture for next fiscal year also appears to have worsened, the sources said.

Some council members criticized Gandhi in September for not anticipating a larger shortfall.

David A. Catania (I-At Large), in particular, said Gandhi had failed to take into account the troubles on Wall Street; Catania then cut $20 million from the budgets of the city's health department, which he oversees as the chairman of the council's Committee on Health.

Catania put that money aside for reserve spending, but that could be already gone in light of the latest budget woes.

By David Nakamura and Nikita Stewart

By David A Nakamura  |  December 18, 2008; 11:06 PM ET
Categories:  City Finances  
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