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Economic Woes: City Faces Another $500 Million Shortfall

The District government's revenue projections for the next two years have fallen by nearly $500 million during the past three months, which likely will force more cuts to services such as providing affordable housing and paving streets.

D.C. Chief Financial Officer Natwar M. Gandhi delivered the bad news this evening to Mayor Adrian M. Fenty (D) and some D.C. Council members, city officials said. Gandhi told them that falling incomes among city residents have led to lower tax revenues and slower home sales have cut into property tax revenue.

The result is that the city will take in $135 million less in fiscal 2009, which began last October, even though officials already have made deep budget cuts. For next year, the situations is even worse. Revised projections show a new $350 million shortfall on top of the $456 million announced in December, Gandhi said, according to city officials who were briefed.

Next year's budget shortfall represents 14.8 percent of the city's $5.4 billion budget in local funds.

Officials said anticipated revenues from the federal economic stimulus package could offset this year's shortfall. But the stimulus money will cover only half of the 2010 shortfall, meaning city leaders will be forced to slash next year's budget, which is being developed by Fenty's office.

Despite the grim outlook, some city officials said the District should be able to avoid major disruptions in services.

"The city is in good position to deal with the shortfall relative to other jurisdictions," said council member Jack Evans (D-Ward 2), chairman of the Committee on Finance and Revenue. "It is incumbent on the mayor and the council to put together a 2010 budget that tightens spending. We should be able to do so in a way that we don't curtail services."

Gandhi, who has scheduled a news conference for this morning to discuss details, declined to comment through a spokesman. Fenty aides declined to comment.

This marks the fourth consecutive quarter that Gandhi has announced lower revenue projections. Fenty and the council have patched the previous shortfalls by slashing spending in some areas, including affordable housing and paving streets, and taking money from other sources, such as agencies that raise additional revenue by selling services, such as regulatory licenses. The council also postponed a Healthy DC initiative aimed at providing mandatory health care to most city residents.

In developing the fiscal 2010 budget, Fenty's office has instructed its agencies to cut their budgets by 15 percent compared to last year, employees have said. However, Fenty aides said they will be flexible when reviewing special requests by critical agencies, such as the public schools and police.

Council member David A. Catania (I-At Large) said he predicted last fall that the budget shortfall would grow. "That doesn't do us any good to be right after the fact," he said. "It just means we have our work cut out for us."

The District's unemployment rate is projected to reach nearly 10 percent by 2010, the highest level in almost three decades, Gandhi has said.

By David Nakamura and Nikita Stewart

By David A Nakamura  |  February 24, 2009; 9:41 PM ET
Categories:  City Finances  
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